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SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrantþ
Filed by a Party other than the Registranto
Check the appropriate box:
o | Preliminary Information Statement | o Confidential, for Use of | ||
þ | Definitive Information Statement | the Commission Only (as permitted by Rule 14c-5(d)(2)) |
Washington Gas Light Company
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Washington Gas Light Company
101 Constitution Ave., N.W.
Washington, D.C. 20080
101 Constitution Ave., N.W.
Washington, D.C. 20080
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
The annual meeting of shareholders of Washington Gas Light Company will be held at the National Press Club, 529 14th St., N.W.; Washington, D.C. 20045 on Thursday, March 6, 2008, at 11:45 a.m. for the following purposes, as more fully set forth in the annexed information statement:
(1) To elect eight directors for the ensuing year;
(2) To ratify the appointment of Deloitte & Touche LLP as independent public accountants for fiscal year 2008; and
(3) To transact any other business properly brought before the meeting and any adjournment thereof.
Each holder of common stock and preferred stock is entitled to one vote for each share of that stock standing in the name of the holder on the records of Washington Gas Light Company at the close of business on January 16, 2008.
THERE WILL BE NO SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS OF THE COMPANY.
By order of the board of directors,
Douglas V. Pope
Secretary
Secretary
January 25, 2008
ADMISSION PROCEDURES
Admission to the annual meeting will be limited to persons who: (a) are listed on Washington Gas Light Company’s records as shareholders as of January 16, 2008 (the “record date”), or (b) bring documentation to the meeting that demonstrates their beneficial ownership of Washington Gas Light Company stock through a broker, bank or other institution as of the record date.
Information Statement
January 25, 2008
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INFORMATION STATEMENT
WASHINGTON GAS LIGHT COMPANY
101 Constitution Ave., N.W.
Washington, D.C. 20080
January 25, 2008
Important Notice Regarding the Availability of 2007 Annual Report and
Information Statement for Shareholder Meeting to Be Held on March 6, 2008.
Information Statement for Shareholder Meeting to Be Held on March 6, 2008.
This information statement and the 2007 annual report to shareholders of WGL
Holdings, Inc. and its subsidiaries, including Washington Gas Light Company, are
available on the Internet at http://ww3.ics.adp.com/streetlink/WGLC.
Holdings, Inc. and its subsidiaries, including Washington Gas Light Company, are
available on the Internet at http://ww3.ics.adp.com/streetlink/WGLC.
This information statement is furnished in connection with the annual meeting of shareholders of Washington Gas Light Company to be held on Thursday, March 6, 2008 and at any adjournment thereof. The annual meeting of shareholders will be held at the National Press Club, 529 14th St., N.W.; Washington, D.C. 20045 at 11:45 a.m.
At the annual meeting, shareholders will consider:
(1) | the election of directors for the ensuing year; | |
(2) | the ratification of the appointment of Deloitte & Touche LLP as independent public accountants for fiscal year 2008; and | |
(3) | the transaction of any other business properly brought before the meeting and any adjournment thereof. |
All shareholders of record as of January 16, 2008, are invited to attend the annual meeting of shareholders. Shares held directly may be voted in person at the annual meeting. Beneficial owners must obtain a valid voting form from the record owner in order to vote in person at the annual meeting.
Throughout this information statement, “Washington Gas,” “the Company,” “we,” “our” or “us” are intended to refer to Washington Gas Light Company, unless specifically indicated otherwise.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
Each holder of our common stock and preferred stock is entitled to one vote for each share of the stock standing in the name of the holder on the records of the Company at the close of business on January 16, 2008. Outstanding voting securities as of January 16, 2008, consisted of 46,479,536 shares of common stock; 150,000 shares of Serial Preferred Stock, $4.80 Series; 70,600 shares of Serial Preferred Stock, $4.25 Series, and 60,000 shares of Serial Preferred Stock, $5.00 Series. The matters to be voted upon at the annual meeting are described in this information statement.
As provided in the Company’s bylaws, a majority of the shares entitled to vote at the annual meeting, present in person or represented by proxy, will constitute a quorum for the meeting.
• | The eight director nominees receiving the greatest number of votes will be elected; | |
• | The proposal to ratify the appointment of independent accountants must receive more votes cast in favor than the number of votes cast against by holders of shares of the Company’s common stock and preferred stock present and entitled to vote at the meeting. |
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As of January 16, 2008, WGL Holdings, Inc. (“WGL Holdings”) owned 46,479,536 shares of the Company’s outstanding common stock. The Company has been informed that WGL Holdings intends to vote all of its shares of the Company’s common stock for the election of the nominees named in Proposal 1 and for the ratification of appointment of independent public accountants named in Proposal 2. Accordingly, these matters are expected to be approved.
ELECTION OF DIRECTORS
At the annual meeting, eight directors are to be elected to hold office for the ensuing year.
The Company has been informed that WGL Holdings intends to cast the votes of all of the outstanding shares of common stock of the Company for the election of the nominees named below, all of whom are now serving as directors. The Company does not contemplate that any of the nominees will become unavailable for any reason, but if that should occur before the meeting, WGL Holdings has informed the Company that it intends to cast its votes for another nominee, or other nominees, to be selected by the board of directors.
The board of directors recommends a vote “FOR” the election of each of the following nominees:
Michael D. Barnes,age 64, is Senior Of Counsel to the law firm of Covington & Burling LLP. He was President of The Brady Campaign and Brady Center to Prevent Gun Violence from 2000 through June 2006. He was previously a partner in the law firm of Hogan & Hartson LLP. Mr. Barnes was United States Representative from Maryland’s 8th Congressional District from 1979 to 1987. Mr. Barnes has been a director of Washington Gas Light Company since 1991, a director of WGL Holdings since November 2000 and serves as Chairman of the Governance Committee. As Chairman of the Governance Committee, Mr. Barnes also serves as Lead Director for the Board of Directors. | ||
George P. Clancy, Jr.,age 64, is Executive Vice President and Chief Lending Officer of Chevy Chase Bank, FSB, a position he has held since 1995. Mr. Clancy has an extensive career in banking which includes serving as President and Chief Operating Officer of The Riggs National Corporation (1985-1986) and President and Chief Executive Officer — Signet Bank, N.A. (1988-1995). Mr. Clancy is active in several community and civic organizations, including serving as the Founding and immediate past Chairman and currently as a Member of the Board of Directors of the Catholic Charities Foundation, Member of the Board of Trustees of the University System of Maryland Foundation, Inc. and on the Executive Committee of the Washington D.C. Police Foundation. Mr. Clancy has been a director of Washington Gas Light Company and a director of WGL Holdings since December 2000. |
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James H. DeGraffenreidt, Jr.,age 54, is Chairman and Chief Executive Officer of the Company and of Washington Gas Light Company. Mr. DeGraffenreidt previously served as President and Chief Operating Officer of Washington Gas Light Company (1994-1998); President and Chief Executive Officer (1998); Chairman and Chief Executive Officer (1998-2000); Chairman, President and Chief Executive Officer of the Company and of Washington Gas Light Company (2000-2001), and was elected to his present position effective October 1, 2001. Mr. DeGraffenreidt serves on the boards of Harbor Bankshares Corporation, Mass Mutual Financial Group, the American Gas Association (Chairman from January 1, 2007 to December 31, 2007) and the Alliance to Save Energy. He has been a member of the Board of Directors of Washington Gas Light Company since 1994 and a director of WGL Holdings since January 2000. | ||
James W. Dyke, Jr., age 61, is a partner in the Virginia law firm of McGuire Woods LLP, where he specializes in corporate, education, voting rights, government relations and municipal law. He has been a partner with the firm since 1993. In addition to his legal career, Mr. Dyke has extensive professional experience in government and public relations. Among other appointments, he served as Secretary of Education for the Commonwealth of Virginia from 1990 to 1993 and as Domestic Policy Advisor to former Vice President Walter Mondale. Mr. Dyke has assumed leadership positions in several business and community organizations, including serving as former Chairman of the Fairfax County, Virginia, Chamber of Commerce, the Northern Virginia Business Roundtable and the Emerging Business Forum. Mr. Dyke has been a director of Washington Gas Light Company and of WGL Holdings since September 2003. | ||
Melvyn J. Estrin,age 65, is Chairman of the Board and Chief Executive Officer of Human Service Group, Inc. trading as Estrin International (1983-present) and is Chief Executive Officer of University Research Co., LLC. Mr. Estrin is a Director of ChemLink, LLC; Eagle Hospitality LLC; Armed Forces Lodging LLC and HHB Inc. Mr. Estrin has served as Chairman and Chief Executive Officer of two Fortune 500 companies and has been a principal in numerous business enterprises. Mr. Estrin has been appointed by the President as a Trustee of the John F. Kennedy Center for the Performing Arts. Mr. Estrin was a Commissioner of the National Capital Planning Commission (Jan. 1997-Dec. 2000). He also served as a Trustee of the University of Pennsylvania (Oct. 1986-1991), has been a director of Washington Gas Light Company since 1991, a director of WGL Holdings since November 2000 and serves as Chairman of the Human Resources Committee. |
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James F. Lafond, age 65, is the retired Area Managing partner for the greater Washington, D.C. area for PricewaterhouseCoopers LLP. He is a Certified Public Accountant with extensive experience serving in leadership positions with PricewaterhouseCoopers and with its predecessor, Coopers & Lybrand LLP. He has been active in several civic and non-profit organizations. Among other recognitions, he has received the Lifetime Achievement Award from the Leukemia and Lymphoma Society. He is currently a director of VSE Corporation as well as several not-for-profit entities. Mr. Lafond has been a director of Washington Gas Light Company and of WGL Holdings since September 2003. | ||
Debra L. Lee,age 53, is Chairman and Chief Executive Officer of BET Holdings, Inc., a global multi-media company that owns and operates Black Entertainment Television and several other ventures. Ms. Lee previously was Executive Vice President and General Counsel of BET Holdings (1992-1995), President and Chief Operating Officer (1995-May 2005), President and Chief Executive Officer (June 2005-January 2006), and was elected to her present position in January 2006. Ms. Lee serves on the boards of Girls, Inc., Alvin Ailey American Dance Theater and the National Cable Television Association. Ms. Lee is also on the Boards of Directors of Eastman Kodak Company, Marriott International, Inc. and Revlon, Inc. Ms. Lee has been a director of Washington Gas Light Company since July 2000 and a director of WGL Holdings since November 2000. | ||
Karen Hastie Williams,age 63, retired in 2004 as a Partner with the Washington, D.C. law firm of Crowell & Moring, where she specialized in public contract law. Prior to joining Crowell & Moring, Ms. Williams served as Administrator for the Office of Federal Procurement Policy at the Office of Management and Budget (1980-1981) and Chief Counsel of the Senate Committee on the Budget (1977-1980). Ms. Williams is a director of SunTrust Banks, Inc., Continental Airlines Company, Gannett Co. and The Chubb Corporation. Ms. Williams has been a director of Washington Gas Light Company since 1992, a director of WGL Holdings since November 2000 and serves as Chair of the Audit Committee. |
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The following information relates to board and board committee meetings during the fiscal year ended September 30, 2007. The board of directors of Washington Gas held nine meetings during fiscal year 2007. Each current board member attended 75% or more of the meetings of the board, and the committees on which he or she served, that were held during the period for which he or she was a director or committee member.
The board of directors has established four standing committees: 1) the Executive Committee; 2) the Audit Committee; 3) the Governance Committee, and 4) the Human Resources Committee. Each of these committees is described in more detail below.
The Executive Committee members are: James H. DeGraffenreidt, Jr. (Chairman), Michael D. Barnes, Melvyn J. Estrin, and Karen Hastie Williams. There are four alternate members: George P. Clancy, Jr., James W. Dyke, Jr., James F. Lafond and Debra L. Lee. This committee may exercise all of the authority of the board of directors when the board is not in session. This committee did not meet during fiscal year 2007.
The Audit Committee members are: Karen Hastie Williams (Chair), Melvyn J. Estrin, George P. Clancy, Jr. and James F. Lafond. Members of the Audit Committee are independent under the rules of the Securities and Exchange Commission (SEC) and the New York Stock Exchange (NYSE). The board of directors has determined that Messrs. Clancy, Estrin and Lafond meet the qualifications of an “audit committee financial expert,” as that term is defined by rules of the SEC.* As provided in its charter, functions of the Audit Committee include the appointment, compensation and oversight of independent public accountants, reviewing with management and the independent public accountants the financial statements, the accompanying report of the independent accountants and reviewing the system of internal controls and the adequacy of the internal audit program. The Audit Committee Report, which appears later in this information statement, provides a further description of the responsibilities of this committee. The Audit Committee held six meetings during fiscal year 2007.
Mrs. Williams, the Chair of the Audit Committee, simultaneously serves on the audit committees of more than three public companies. Neither our bylaws nor the audit committee charter limit the number of audit committees that our directors may join. The Board has evaluated and reviewed the existing workload demands of her committee memberships in light of the time commitment necessary for her to effectively perform her obligations as an audit committee member. Based on that evaluation and review, the Board determined that her simultaneous service would not impair the ability of Mrs. Williams to effectively serve on the audit committee of Washington Gas.
The Governance Committee members are: Michael D. Barnes (Chairman), James W. Dyke, Jr., and Karen Hastie Williams. Members of the Governance Committee are independent under the rules of the NYSE. As provided in its charter, functions of the Governance Committee include consideration of criteria for selection of candidates for election to the board of directors and committees of the board and adoption of policies and principles concerning board service and corporate governance. This committee also considers criteria for oversight and evaluation of the board and management and the adoption of a code of conduct. The Governance Committee will consider nominees recommended by shareholders. Those recommendations should be sent to the Chair of the Governance Committee,
* In accordance with rules of the SEC, persons determined to be audit committee financial experts will not be deemed an expert for any purpose, including, without limitation for purposes of Section 11 of the Securities Act of 1933, as a result of being so designated. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations or liabilities that are greater than those imposed on such person as a member of the audit committee and the board of directors in the absence of such designation or identification.
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care of the Corporate Secretary of Washington Gas Light Company; 101 Constitution Ave., N.W.; Washington, D.C. 20080. This committee held two meetings during fiscal year 2007.
The Governance Committee will consider board nominees recommended by shareholders. Those recommendations should be sent to the Chair of the Governance Committee, care of the Corporate Secretary of Washington Gas Light Company.; 101 Constitution Ave., N.W.; Washington D.C. 20080. As provided in its charter, the Governance Committee will follow procedures which it deems reasonable and appropriate in the identification of candidates for election to the Board and evaluating the background and qualifications of those candidates. Those processes include consideration of nominees suggested by an outside search firm, by incumbent board members and by shareholders. The Governance Committee will seek candidates having experience and abilities relevant to serving as a director of the Company and who represent the best interests of shareholders as a whole and not any specific interest group or constituency. The Governance Committee will evaluate the qualifications of candidates recommended by shareholders using the same criteria as used for other board candidates. The Governance Committee from time to time engages the service of a professional search firm to identify and to evaluate potential nominees.
The Human Resources Committee of the Board of Directors (the “HR Committee”) is currently composed of Melvyn J. Estrin (Chairman), George P. Clancy, Jr. and Debra L. Lee, each of whom is independent as defined by NYSE listing standards. The HR Committee met four times in fiscal year 2007. The HR Committee discharges the Board’s responsibilities relating to compensation of the executive officers of Washington Gas. As provided in its charter, primary functions of the HR Committee include setting corporate goals and objectives relevant to compensation of the Chief Executive Officer (CEO), evaluating the CEO’s performance and setting the CEO’s compensation based on this evaluation. The HR Committee also recommends compensation levels, sets performance targets and evaluates the performance of Washington Gas’ other executive officers and determines any incentive and equity-based compensation to be awarded to those officers. The HR Committee also considers succession planning for Washington Gas’ leadership positions.
The HR Committee in accordance with its charter may, “delegate authority to act upon specific matters within specified parameters to a subcommittee consisting of one or more members, or to management.” Any such delegates are required to report any action to the full HR Committee at its next meeting. Please see the discussion under the Compensation Discussion & Analysis section below for information relating to processes and procedures for the consideration and determination of executive compensation.
Governance. The HR Committee focuses on good governance practices in its operation. In fiscal year 2007 this included, among other matters:
• | Reviewing tally sheets prepared by its independent consultant regarding the Chief Executive Officer, Chief Financial Officer, and the next three most highly compensated officers (the “Named Executive Officers”). Tally sheets identify the material elements of such executive’s compensation, show the cumulative impact of prior grants of long-term incentive awards, and quantify severance and other payouts to which the executive would be entitled under various employment termination scenarios. The tally sheets reviewed by the HR Committee indicated that cumulative pay was reasonable, and that no changes needed to be made to the Company’s pay philosophy. | |
• | Considering compensation for the Named Executive Officers in the context of all of the components of total compensation, and not allowing the sum of the components to exceed market levels of total compensation opportunity. |
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• | Receiving meeting materials several days in advance of meetings. | |
• | Having regular executive sessions of HR Committee members. | |
• | Having direct access to an outside executive compensation consultant. |
Compensation Consultant. The HR Committee has the sole authority to retain and terminate any compensation consultant engaged to assist in the evaluation of the compensation of our senior executive officers, including all of the Named Executive Officers. During fiscal year 2007, the HR Committee retained Hewitt Associates (Hewitt) as its independent consulting firm. A principal of Hewitt attended three of the four HR Committee meetings held during fiscal year 2007.
Hewitt provided data and information to the HR Committee, but did not make recommendations with respect to specific levels of compensation. Hewitt’s services to the HR Committee during fiscal year 2007 included the following:
• | Development of market data in line with the Company’s compensation philosophy. Please review the discussion under the Compensation Discussion & Analysis (CD&A) section of this information statement for further information regarding the market data developed with Hewitt’s assistance in connection with the compensation of our executive officers; | |
• | A dilution study; | |
• | A pay and performance comparison; | |
• | Tally sheet development; | |
• | Change-in-control design review; | |
• | Long-term incentive design review; | |
• | Analysis of the impact of mergers and acquisitions on results under the performance share plan; | |
• | Assistance with the design of the Omnibus Incentive Compensation Plan and new share pool; | |
• | Internal Revenue Code Section 409A review (in consultation with other advisors); | |
• | Assistance with FAS 123R expense calculations; | |
• | Review of the CD&A; | |
• | Preparation of total compensation statements; and | |
• | Director pay review (conducted in fiscal year 2006 for fiscal year 2007 implementation). |
Consultant Independence. It is important for the HR Committee to receive advice from an independent source. The following information describes the independence of Hewitt and the individual Hewitt consultant that provides advice to the HR Committee.
• | The HR Committee retains the individual consultant and consulting firm, and the consultant reports directly to the HR Committee. | |
• | The individual consultant (a principal of Hewitt) was retained initially in 1998. The selection of the individual consultant was a combined decision of the CEO at the time (now retired) and the HR Committee at the time (the HR Committee is now composed of entirely different directors). | |
• | The consultant’s firm (Hewitt) provides actuarial and investment advisor services regarding retirement arrangements for WGL Holdings and Washington Gas. The provision of investment advisor and actuarial services by Hewitt does not compromise the independence of the consultant because: |
• | The HR Committee has evidence that the consultant is providing and has provided the HR Committee with independent advice; |
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• | The consultant, by being affiliated with a large firm, provides resources, data and perspectives that help Washington Gas and the HR Committee make informed business judgments with respect to executive pay; | |
• | In order to promote independence, the consultant’s firm compensates its executive compensation consultants solely for executive compensation consulting services, with no aspect of pay being dependent on whether or to what extent WGL Holdings or Washington Gas uses other services of that firm; | |
• | Fees paid by Washington Gas to Hewitt represent less than 1% of Hewitt’s aggregate revenues billed for actuarial, investment advisor and executive compensation services during Hewitt’s 2007 fiscal year; | |
• | Hewitt has no service contracts with senior management of Washington Gas; | |
• | The individual consultant has no other public company clients at which an executive officer of WGL Holdings or Washington Gas serves as a director; and | |
• | Hewitt has no employees that are executive officers or family members of any executive officer of Washington Gas. |
Given the above factors, the HR Committee has concluded that the individual consultant and consulting firm are independent and that the HR Committee can rely on the consultant’s advice.
As previously described, the Human Resources Committee currently is composed of three independent, non-employee directors. Each such director served as a member of the HR Committee during the entire 2007 fiscal year. No member of the HR Committee has ever been an officer or employee of Washington Gas. No member of the board or HR Committee has served, at any time since October 1, 2006, as an executive officer of any entity that at such time had one or more of Washington Gas’ executive officers serving as a member of that entity’s board or compensation committee. Please see “Related Person Transactions During Fiscal Year 2007” below for related person transaction information regarding a member of the HR Committee.
The board of directors has determined that all of the directors, except the Chairman and Chief Executive Officer, are independent within the meaning of NYSE rules. In determining independence, the board of directors considered the specific criteria for independence under the NYSE rules and also the facts and circumstances of any other relationships of individual directors with the Company.
The Audit, Governance and Human Resources Committees have each adopted a charter for their respective committees. These charters may be viewed on our web site, www.washgas.com, and copies may be obtained by request to the Secretary of the Company. Those requests should be sent to: Corporate Secretary; Washington Gas Light Company; 101 Constitution Ave., N.W.; Washington, D.C. 20080.
Our corporate governance guidelines and bylaws establish a Lead Director of the Board and designate the Chair of the Governance Committee to serve in that position. Among other powers and responsibilities, the Lead Director will:
• | preside at all meetings of the Board at which the Chairman is not present, including independent executive sessions of the independent directors; | |
• | approve information sent to the board; | |
• | approve meeting agendas for the board; |
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• | approve meeting schedules to assure that there is sufficient time for discussion of all agenda items; | |
• | have the authority to convene meetings of the independent directors; | |
• | be available to communicate or meet with any shareholder controlling at least five percent of the outstanding voting stock of the Company; and | |
• | function as a liaison between the Chairman of the Board and independent directors, as necessary. |
The board and board committees regularly meet in executive sessions without the presence of any management representatives. The Lead Director presides in those executive sessions. If the executive session includes or is devoted to a report of a board committee, the chair of that committee presides in that portion of the executive session.
The board has also adopted a Code of Conduct. The corporate governance guidelines, bylaws and the Code of Conduct may be viewed on our web site, www.washgas.com, and copies may be obtained by request to the Secretary of the Company. Those requests should be sent to: Corporate Secretary; Washington Gas Light Company; 101 Constitution Ave., N.W.; Washington, D.C. 20080.
The board of directors has a policy under which directors who are not employees of the Company may not stand for re-election after reaching the age of 72. Also, under this policy, directors who are employees of the Company must retire from the board upon their retirement from the Company. This policy can be changed at any time by action of the board of directors.
All board members are invited to attend our annual meeting of shareholders. WGL Holdings owns over 99% of the voting shares of Washington Gas, and few or no preferred shareholders have historically attended the Washington Gas annual meeting. Accordingly, the Company does not expect the board members to attend its annual meeting of shareholders. At the annual meeting of shareholders held on March 1, 2007, there were no preferred shareholders in attendance, and the Chairman and Chief Executive Officer was the only director who attended the meeting.
Compensation for directors during fiscal year 2007 consisted of an annual retainer, fees for attending meetings, and an annual equity award. Directors were offered the opportunity to receive all of their cash compensation on a deferred basis under the WGL Holdings and Washington Gas Light Company’s Deferred Compensation Plan for Outside Directors described later in this information statement. Mr. DeGraffenreidt, our Chairman and Chief Executive Officer, does not receive compensation for his service as a director.
The non-employee directors currently receive 1,800 shares of WGL Holdings common stock annually in accordance with the Directors’ Stock Compensation Plan in addition to a retainer paid in cash. Non-employee directors of Washington Gas also serve as directors of its parent, WGL Holdings. The directors serve on the same committees of each Board. Non-employee directors receive only one cash retainer which is payable by Washington Gas. Usually, the board meetings of WGL Holdings and
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Washington Gas are held consecutively. The compensation arrangements of non-employee directors are coordinated as described below:
Washington Gas | ||||||||
Light Company | WGL Holdings, Inc. | |||||||
Description of fees paid to non-employee Directors* | Dollar Amount | Dollar Amount | ||||||
On days when both boards meet | $ | 1,000 | $ | 500 | ||||
On days when both committees meet | $ | 1,000 | $ | 500 | ||||
On days when only one board meets | $ | 1,200 | $ | 1,200 | ||||
On days when only one committee meets | $ | 1,200 | $ | 1,200 | ||||
Each day a Director attends a Director Education Program | $ | 1,000 | $ | 500 | ||||
Annual Meeting attendance fee | $ | 1,000 | $ | 500 | ||||
Annual cash retainer (paid on quarterly basis) | $ | 35,000 | 0 | |||||
Annual retainer to chair of Governance Committee | $ | 5,000 | 0 | |||||
Annual retainer to chair of Human Resources Committee | $ | 5,000 | 0 | |||||
Annual retainer to chair of Audit Committee | $ | 10,000 | 0 | |||||
Lead Director annual retainer | $ | 5,000 | 0 |
* | Allocation based on approximate time required for board responsibilities for each company(1/3 WGL Holdings; 2/3 Washington Gas). |
The following table presents information regarding the compensation paid during fiscal year 2007 to the non-employee directors of Washington Gas.
Change in | ||||||||||||||||||||||||||||
Pension | ||||||||||||||||||||||||||||
Value and | ||||||||||||||||||||||||||||
Non- | ||||||||||||||||||||||||||||
Non- | qualified | |||||||||||||||||||||||||||
Equity | Deferred | |||||||||||||||||||||||||||
Incentive | Compen- | |||||||||||||||||||||||||||
Fees Earned | Plan | sation | All Other | |||||||||||||||||||||||||
or Paid in | Stock Awards (1) | Option | Compen- | Earnings(2) | Compen- | Total | ||||||||||||||||||||||
Name | Cash ($) | ($) | Awards($) | sation ($) | ($) | sation ($) | ($) | |||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | |||||||||||||||||||||
Michael D. Barnes | $ | 67,500 | $ | 58,896 | 0 | 0 | 0 | 0 | $ | 126,396 | ||||||||||||||||||
George P. Clancy | $ | 62,500 | $ | 58,896 | 0 | 0 | $ | 20,433 | 0 | $ | 141,829 | |||||||||||||||||
James W. Dyke, Jr.(3) | $ | 25,000 | $ | 58,896 | 0 | 0 | 0 | 0 | $ | 83,896 | ||||||||||||||||||
Melvyn J. Estrin | $ | 66,000 | $ | 58,896 | 0 | 0 | $ | 44,048 | 0 | $ | 168,944 | |||||||||||||||||
James F. Lafond | $ | 56,500 | $ | 58,896 | 0 | 0 | $ | 15,833 | 0 | $ | 131,299 | |||||||||||||||||
Debra L. Lee | $ | 52,000 | $ | 58,896 | 0 | 0 | 0 | 0 | $ | 110,896 | ||||||||||||||||||
Karen Hastie Williams | $ | 68,000 | $ | 58,896 | 0 | 0 | 0 | 0 | $ | 126,896 |
(1) | On January 3, 2007, each of the non-employee directors received an award of 1,800 shares of WGL Holdings common stock in accordance with the terms of the WGL Holdings, Inc, Directors’ Stock Compensation Plan. The amounts reported for stock awards reflect the aggregate dollar amounts recognized in accordance with Statement of Financial Accounting Standards No. 123R for financial statement reporting purposes for fiscal year 2007. The grant date fair value of each equity award computed in accordance with FAS 123R was $32.72 per share. | |
(2) | Amounts in this column only reflect earnings on non-qualified deferred compensation. None of the directors have any retirement benefits except for Mr. Barnes, Mr. Estrin and Mrs. Williams. As described below under, “DIRECTOR COMPENSATION — Director Retirement Plan,” the retirement benefits for these three directors are frozen and, therefore, there is no change in pension value. | |
(3) | Mr. Dyke is a partner of the law firm, McGuire Woods LLP. Under the arrangement Mr. Dyke has with his law firm, McGuire Woods is entitled to receive: 1) all of the compensation Mr. Dyke is paid for board meeting fees; 2) a portion of his annual cash retainer; and 3) half of the fees paid to Mr. Dyke for any director education seminar he attends. Accordingly, during fiscal year 2007, we paid McGuire Woods $34,500 in board meeting, retainer and seminar fees in connection with Mr. Dyke’s service on our board of directors. |
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All directors are compensated similarly in accordance with the terms of our director compensation program. Usually, the board reviews the level of compensation it receives for its service every two years. In connection with this review, Hewitt Associates, the board’s executive compensation consulting firm conducts a director pay review survey every two years to identify board compensation practices of a peer group of companies. The most recent study was conducted during fiscal 2006. The board takes this survey information into consideration when determining the meeting fees, retainers and other forms of compensation it will be paid. The board may take action at any time to amend the amount or type of compensation it receives. Directors employed by the Company do not receive compensation for their role as a director. The executive officers of the Company do not have a role in determining or recommending the amount or form of director compensation. Other than conducting the director pay review previously mentioned, Hewitt Associates has no role in determining the compensation of the board of directors.
Washington Gas has a long-standing tradition of supporting charitable and civic organizations within the Washington, DC metropolitan area by contributing financial donations and employee volunteer resources. None of the donations made by Washington Gas during fiscal year 2007 was made in the name of a director of Washington Gas.
Non-employee directors of Washington Gas are eligible to defer up to 100% of their cash board compensation under the WGL Holdings and Washington Gas Light Company Deferred Compensation Plan for Outside Directors, as amended and restated (the “Director Deferred Compensation Plan”). This includes the deferral of the payment of a non-employee director’s annual board and committee cash retainer, board meeting fees, committee meeting fees, fees for attendance at annual and special shareholder meetings and fees paid by the Company for attending director education programs. Deferrals are set at percentage increments of 10%. Interest is earned on deferred amounts, compounded quarterly, at a rate equal to the weekly average yield to maturity for10-year U.S. Government fixed interest rate securities issued at the time of the deferral, with a minimum rate of 8% per year. Non-employee directors may elect to defer distribution of their compensation for a minimum period of one year following the end of the year in which compensation is deferred or until the director’s retirement from the board. Compensation deferred under the Director Deferred Compensation Plan may be distributed earlier than the time period specified by a director in the event of the director’s retirement, disability, death or upon the occurrence of a severe financial hardship. Non-employee directors may elect to receive payment of deferred amounts in a lump sum or in up to ten annual installments. Non-employee directors must elect the time and method of distribution at the same time they submit a deferral application. Payments commence within 30 days of the event which triggers payout.
The amount of early withdrawals or accelerated payments made in connection with a severe financial hardship are limited in accordance with applicable tax laws. The Administrator of the Director Deferred Compensation Plan has the sole discretion to determine whether such an early withdrawal or accelerated payment in the event of a severe financial hardship will be permitted.
Pursuant to the terms of the WGL Holdings, Inc. Directors’ Stock Compensation Plan, as amended and restated (“Directors’ Stock Plan”), 1,800 shares of WGL Holdings common stock are currently awarded to each non-employee director annually. During fiscal year 2007, the award was made on January 3, 2007. The Directors’ Stock Plan is administered by the Human Resources Committee of the Board. Employee directors are not eligible to participate in this plan. The shares of
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common stock awarded under the plan are immediately vested and non-forfeitable. The Directors’ Stock Plan is unfunded and will expire on March 5, 2013, if not previously terminated by the board or by the shareholders.
A retirement plan for non-employee directors of Washington Gas adopted in 1995 was terminated by the Board of Washington Gas effective January 1, 1998, subject to vesting of benefits earned by the directors as of that date. Of the current directors, only Messrs. Barnes and Estrin and Mrs. Williams have vested benefits under this plan. The benefits are frozen and will be paid out in a fixed amount per year to each of them for a ten-year period commencing after their retirement from the board. Under the plan, Messrs. Barnes and Estrin will receive $10,200 per year and Mrs. Williams will receive $8,500 per year during the ten-year payout period.
Shareholders and all other interested parties may send communications to board members by either sending a communication to the boardand/or a particular board member care of the Corporate Secretary of Washington Gas Light Company at 101 Constitution Ave., N.W.; Washington, D.C. 20080, or by using the toll-free number established for that purpose, which is1-800-249-5360.
The board of directors has stock ownership guidelines pursuant to which each board member should own shares of WGL Holdings having a value of at least five times the amount of his or her annual cash retainer. Current directors have until September 2011 (five years from the adoption of the guidelines in September 2006) to acquire this level of ownership. New directors will have five years from the date of their election to the board of directors to acquire this level of ownership. Based on the closing price of the common stock of WGL Holdings on January 4, 2008, each of the directors owned shares in excess of the minimum value set forth in the stock ownership guidelines.
The following table sets forth the information as of January 4, 2008, regarding outstanding common stock of WGL Holdings beneficially owned by each director, each nominee for election as a director, the executive officers named in the Summary Compensation Table in this information statement, and all directors, nominees and executive officers as a group. Each of the individuals listed,
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as well as all directors and executive officers as a group, beneficially owned less than 1% of the outstanding common stock of WGL Holdings.
Shares Which | ||||||||
May Be Acquired | ||||||||
Amount and Nature | Within 60 Days | |||||||
of Beneficial | By Exercise of | |||||||
Name of Beneficial Owner | Ownership(1) | Stock Options | ||||||
Vincent L. Ammann, Jr. | 3,070 | 11,121 | ||||||
Michael D. Barnes | 13,506 | 0 | ||||||
Beverly J. Burke | 14,245 | 23,860 | ||||||
Adrian P. Chapman | 11,830 | 51,576 | ||||||
George P. Clancy, Jr. | 10,300 | 0 | ||||||
James H. DeGraffenreidt, Jr. | 96,532 | 316,387 | ||||||
James W. Dyke, Jr. | 7,671 | 0 | ||||||
Melvyn J. Estrin | 17,986 | 0 | ||||||
James F. Lafond | 8,914 | 0 | ||||||
Debra L. Lee | 11,960 | 0 | ||||||
Terry D. McCallister | 22,255 | 87,591 | ||||||
Karen Hastie Williams | 14,337 | 0 | ||||||
All directors, nominees and executive officers as a group: | 296,367 | 700,793 |
(1) | All shares are directly owned by persons shown in this table except 14,096 shares are held indirectly by executive officers in the Washington Gas Light Company Savings Plan for Management Employees. |
Section 16(a) of the Securities Exchange Act of 1934 as amended, requires our executive officers and directors to file reports of securities ownership and changes in such ownership with the SEC. Based on our records and information, in fiscal year 2007, our directors and executive officers met all applicable reporting requirements under Section 16(a).
Our policies and procedures for the review, approval or ratification of related person transactions are set forth in our Related Person Transactions Policy. The board adopted this policy on September 26, 2007. As more fully explained therein, a related person transaction is a consummated or currently proposed transaction in which we were or are to be a participant and the amount involved exceeds $120,000, and in which a related person (i.e., any director or executive officer or nominee for director, or any member of the immediate family of such person) has or will have a direct or indirect material interest.
The Governance Committee of the Board of Directors is responsible for reviewing and approving all material transactions with any related person. This obligation is set forth in writing in the Governance Committee Charter. A copy of the Governance Committee charter is available at www.washgas.com.
To identify related party transactions, each year we submit and require our directors and officers to complete Director and Officer Questionnaires identifying any transactions with us in which the officer or director or their family members have an interest. We also distribute questionnaires to directors, executive officers and others within the Company to identify related party transactions for purposes of meeting accounting and disclosure requirements under the Statement of Financial Accounting Standard No. 57 (SFAS 57). We review related party transactions due to the potential for a conflict of interest. A conflict of interest occurs when an individual’s private interest interferes, or appears to interfere, in any way with the Company’s interests. Our Code of Conduct requires all directors, officers and employees who may have a potential or apparent conflict of interest to notify their supervisor or the Chief Compliance Officer.
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We expect our directors, officers and employees to act and make decisions that are in the Company’s best interests and encourage them to avoid situations which present a conflict between our interests and their own personal interests. Our directors, officers and employees are prohibited from taking any action that may make it difficult for them to perform their duties, responsibilities and services to Washington Gas in an objective and fair manner. In addition, we are prohibited from extending personal loans to, or guaranteeing the personal obligations of, any director or officer.
We did not have any material related person transactions during fiscal year 2007. However, the rules of the Securities and Exchange Commission require disclosure of transactions that we considered in connection with our related person transaction policy. ASB Capital Management, Inc. is an investment advisor to the Washington Gas Employees’ Pension Plan. ASB Capital Management, Inc. is a wholly-owned subsidiary of Chevy Chase Asset Management Co., which in turn is a wholly-owned subsidiary of Chevy Chase Bank, FSB. Mr. Clancy is an Executive Vice President of Chevy Chase Bank, FSB. He is neither an officer nor director of ASB Capital Management, Inc. or Chevy Chase Asset Management Co. The board has reviewed the facts and circumstances of this relationship and determined that Mr. Clancy does not have either a direct or indirect material interest in this relationship. Accordingly, the transaction did not require review or approval under the related person transaction policy in fiscal year 2007.
The following Compensation Discussion and Analysis section has been prepared by the management of Washington Gas. Washington Gas is responsible for the Compensation Discussion and Analysis and for the disclosure controls relating to executive compensation. The Compensation Discussion and Analysis is not a report or disclosure of the Human Resources Committee.
The Human Resources Committee has reviewed and discussed with management the Compensation Discussion and Analysis section of this information statement. Based upon this review and its discussions, the Human Resources Committee recommended to the Board of Directors that the following Compensation Discussion and Analysis section be included in this information statement.
HUMAN RESOURCES COMMITTEE:
Melvyn J. Estrin (Chairman)
George P. Clancy, Jr.
Debra L. Lee
This Compensation Discussion and Analysis (“CD&A”) contains a discussion of the material elements of compensation awarded to, earned by, or paid to the principal executive officer, the principal financial officer, and the other three most highly compensated executive officers of WGL Holdings and Washington Gas. These individuals are listed in the “Summary Compensation Table — Fiscal Year 2007” table and are referred to in this CD&A as the “Named Executive Officers.” References to the “HR Committee” are to the Human Resources Committee of the Board of Directors. None of the Named Executive Officers are members of the HR Committee.
* Notwithstanding anything to the contrary set forth in any of the Company’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate other filings with the SEC, including this information statement, in whole or in part, the following Human Resources Committee Report shall not be deemed to be incorporated by reference into any such filings.
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Objectives of Executive Compensation Program
The HR Committee’s philosophy is that total compensation for each of our executive officers should be competitive with executives with similar experience and responsibility. This compensation also should reflect the individual performance of each officer as well as corporate performance.
The executive compensation program of WGL Holdings and Washington Gas is intended to achieve three fundamental objectives:
• | attract and retain qualified executives; | |
• | focus executives’ attention on specific strategic and operating objectives of WGL Holdings; and | |
• | align executives’ interests with the long-term interests of the shareholders of our parent, WGL Holdings and the customers of Washington Gas. |
We intend to provide the Named Executive Officers a competitive total compensation program that is based on the size-adjusted 50th percentile of the range of compensation paid by similar utility industry companies for similar positions, with actual pay that reflects the short and long-term performance of WGL Holdings and Washington Gas and the individual’s performance. The program aligns the short-term and long-term interests of management with that of our shareholders to maximize shareholder value. The program’s performance goals and factors also align management’s interests with utility company customers by rewarding the provision of a safe and reliable gas supply to customers at a reasonable cost. Several of these performance goals and factors are discussed below. The programs in place for fiscal year 2007 support our pay-for-performance philosophy.
Elements of Executive Compensation Program
In 20071, our compensation program for our executive officers, including the Named Executive Officers, consisted of several compensation elements, each of which is discussed in more detail below. Each element of the executive compensation program is appropriately structured to help achieve one or more of the compensation objectives described above. Decisions with respect to one element of pay tend not to impact other elements of pay, but are made in the context of total compensation. The following are the material elements of our executive compensation program:
• | base salary; | |
• | short-term incentives; | |
• | long-term incentives; | |
• | retirement benefits; | |
• | change in control protection, and | |
• | perquisites. |
Mix of Pay
Cash compensation and non-cash compensation are appropriate elements of a total rewards program. Cash compensation is current compensation (i.e.,base salary and annual bonuses) while non-cash compensation is generally long-term compensation (i.e., equity based incentive compensation). A significant percentage of total compensation is allocated to short-term and long-term incentives as a result of the philosophy mentioned above. There is no pre-established policy or target for the allocation between either cash and non-cash or short-term and long-term compensation. Rather, the HR Committee uses market data to determine the appropriate level and mix of incentive compensation. The allocation between current and long-term compensation is based primarily on
1 Unless stated otherwise, references to the year “2007” in this CD&A mean our fiscal year 2007 which began on October 1, 2006 and ended on September 30, 2007.
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competitive market practices relative to base salaries, annual incentive awards and long-term incentive award values.
Market Data and Peer Groups
During 2006, as background to compensation decisions for 2007, Hewitt Associates (“Hewitt”), the HR Committee’s independent executive compensation consultant, collected and analyzed comprehensive market data on base salary, short and long-term incentives, benefits, perquisites and the sum of all of those components. To develop market pay figures for our executive officers, including the Named Executive Officers, Hewitt compared compensation opportunities for comparable positions at comparable companies of comparable revenue size, using various statistical techniques to adjust the market data to be appropriate for our particular revenue size. The elements of pay were benchmarked both individually and in total to the same peer companies.
The total compensation peer group of companies used as background to 2007 pay decisions is shown below. The list is subject to change each year depending on the availability of the companies’ data through Hewitt’s database, and the continued appropriateness of the companies. All companies included are utility companies, consistent with our philosophy of paying at the size-adjusted 50th percentile of the utilities market. While we periodically review market data of general industry companies, to date it has not impacted our actual pay levels or practices.
Total Compensation Peer Group
AGL Resources | Duquesne Light Holdings | Pepco Holdings, Inc. | ||
Allegheny Energy | El Paso Electric Company | Piedmont Natural Gas | ||
Ameren Corporation | Energy East | Pioneer Natural Resources Co. | ||
Aquila, Inc. | Great Plains Energy | PNM Resources | ||
Atmos Energy | Laclede Group | Portland General Electric Co. | ||
Black Hills Corporation | New Jersey Resources | PPL Corporation | ||
Cleco Corporation | Nicor Inc. | SCANA Corporation | ||
CMS Energy Corporation | NiSource Inc. | South Jersey Industries | ||
Consolidated Edison | Northwest Natural Gas | Southwest Gas | ||
DTE Energy Company | Peoples Energy | WPS Resources Corporation |
Base Salary
Base salary levels of officers, in 2007 and for the last several years, were set at a level approximately equal to the size-adjusted 50th percentile of the utility market for officers of similar experience and responsibility. This approach was taken to place base salaries at overall market rates, and to leave the opportunity for each officer to achieve or exceed total target compensation through incentive pay. This continuing practice is designed to encourage higher levels of performance by the officers. It also is seen as a way to align the interests of the officers of WGL Holdings, Inc. and Washington Gas Light Company more closely with the interests of the shareholders.
Our Chairman and Chief Executive Officer made specific recommendations for 2007 salary adjustments for all officers except himself, considering the data provided by the HR Committee’s consultant on industry compensation levels, the scope of each Named Executive Officer’s role, and the Named Executive Officer’s sustained individual performance, results, and time in position.
These recommendations were presented to the HR Committee for discussion and recommendation to the Board at the September 20, 2006 HR Committee meeting. The HR Committee consulted with Hewitt in executive session at that meeting to determine Mr. DeGraffenreidt’s base salary increase, which it has sole authority to approve. Base salary increases were effective October 1, 2006.
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The base salary that was paid to each Named Executive Officer in 2007 is the amount reported for such officer in column (c) of the “Summary Compensation Table — Fiscal Year 2007” table that appears later in this information statement.
Omnibus Incentive Compensation Plan
The WGL Holdings, Inc. Omnibus Incentive Compensation Plan (“Omnibus Plan”) provides the opportunity for short-term and long-term incentive compensation of our executive officers, including the Named Executive Officers. Short-term incentive compensation is “at risk,” in that payment of any of this compensation depends upon performance of the individual officer and our company performance. Long-term incentive compensation is also “at risk” in that it relates directly to the performance of the common stock of WGL Holdings.
The Omnibus Plan was approved by the shareholders of WGL Holdings at the March 1, 2007 Annual Meeting of Shareholders and replaced the 1999 Incentive Compensation Plan (the “1999 Plan”). The Omnibus Plan provides similar benefits as provided under the 1999 Plan. As of March 1, 2007, no further awards will be granted under the 1999 Plan.
Short-Term Incentive Compensation
Purpose of Short-Term Incentives
The short-term incentive program is designed to encourage and to recognize high levels of performance by officers of WGL Holdings and its subsidiaries.
Short-Term Incentive Awards
The 2007 short-term incentive program set target percentages of base salary that may be earned for the achievement of corporate and individual performance goals. Payouts may be higher or lower than target depending on 2007 corporate and individual performance. Payouts may range from 0% to 172.5% of target per the scale below.
Item | Corporate | Individual | Total | |||
Weighting | 75% | 25% | 100% | |||
Corporate or Individual Factor, as applicable | maximum 1.5 | maximum 1.5 | ||||
Individual Factor applied again to the Corporate Portion | maximum 1.2 | |||||
Maximum payout as % of target | 135% | 37.5% | 172.5% | |||
The amounts listed in columns (c), (d) and (e) of the “Grants of Plan-Based Awards” table in this information statement show the potential range of short-term cash awards for 2007 for each Named Executive Officer.
At its September 20, 2006 meeting, the HR Committee set 2007 target short-term incentive award opportunities for each Named Executive Officer at or near the size-adjusted 50th percentile of the market data provided by its consultant. It also approved 2007 performance factors and goals that governed payout under the plan.
The performance factors recognize that shareholders in a regulated utility achieve their investing goals when customers are well served through efficient operations. The 2007 performance goals, targets and results were as follows:
For the Company:
• | A return on equity threshold of 9%, which, if not met, would lead to a zero payout of the Corporate Portion of the plan. |
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• | Corporate performance measures in four categories as shown below (these measures comprise what is referred to as our “corporate scorecard”). Performance against these goals resulted in a Corporate Factor determined by the HR Committee. The determination of the Corporate Factor is discretionary, not formulaic, and the measures below are not weighted in any particular manner. |
Corporate Goals | Fiscal Year 2007 Target | Fiscal Year 2007 Results | ||
1. Foster High Performance | ||||
• Employee Work Safety | Less than or equal to 4.57 incidents per 100 employees | 4.52 incidents per 100 employees | ||
• Employee Engagement | Greater than or equal to the national norm (the national norm was 78%) | 68% | ||
2. Improve Processes | ||||
• Project Benefit Capture | Greater than or equal to 85% benefit capture | 86% | ||
• Construction Unit Cost | Less than or equal to 104% of planned budget | 117% | ||
• O & M Per Customer | Less than or equal to $250 | $233 | ||
3. Win Customers | ||||
• New Therm Growth | Greater than or equal to 25.2 million therms | 23.3 million therms | ||
• Damage Prevention Success | Less than or equal to 2.5 damages per 1,000 locate requests | 2.03 damages per 1000 | ||
• Customer Satisfaction | Greater than or equal to 82% satisfied customers | 80.7% | ||
• System Reliability | Less than or equal to 140 outages per 100,000 meters | 95.5 outages per 100,000 meters | ||
4. Reward Investors | ||||
• Utility Return on Equity | Greater than or equal to 10.6% | 10.2% | ||
• Non-Utility Earnings (this is a WGL Holdings measure) | 100% of targeted earnings levels | 111.6% |
For 2007, the return on common equity threshold and other performance criteria were met and as a result the Chairman and Chief Executive Officer (CEO) made recommendations to the HR Committee of payouts based on the corporate goals achievements noted above. Based on his evaluation of 2007 results, some of which were above target and some of which were below target, the CEO recommended, and the HR Committee approved, a Corporate Factor of 100% for 2007. The HR Committee considered the amount and basis for this recommendation in consultation with Hewitt.
Individual goals for the Named Executive Officers encompassed:
• | success in meeting established corporate and departmental goals; | |
• | managing resources within established departmental budgets; | |
• | effectiveness in areas of leadership, planning and teamwork; and | |
• | evaluations by peers and others. |
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The CEO, after an in-depth performance appraisal of each executive officer and a review of their achievement of the personal goals which had been set for them, recommended to the HR Committee an Individual Factor specific to each Named Executive Officer other than himself. The Individual Factor for each of the Named Executive Officers was 140% of target, reflecting excellent leadership in the face of specific challenges during the year, including business process outsourcing, rate cases, labor issues, safety and reliability objectives and culture transformation. Individual Factors in prior years for the Named Executive Officers have generally been lower than the 2007 factors. The HR Committee discussed and approved the Individual Factors recommended by the CEO for the Named Executive Officers other than himself and, in executive session, developed an Individual Factor for the CEO of 140%.
The 2007 Individual Factor for Mr. DeGraffenreidt recognized several of our significant achievements during the year under Mr. DeGraffenreidt’s executive leadership. These achievements include, among others, the following:
• | Safety and system reliability goals were achieved. We exceeded our targets for prevention of third party damages. | |
• | Rate cases were filed in each jurisdiction, including innovative rate mechanisms. Good results were realized in a rate settlement in Virginia and in a rate proceeding in Maryland. | |
• | Operation and maintenance expenses improved by 6.4% compared to the target for the year, due to lower labor costs, among other factors. | |
• | We initiated a major business process outsourcing program which is designed to enhance service, improve performance and reduce operating costs substantially over the next ten years. |
The Company’s progress in the abovementioned areas continue to strengthen our ability to grow and to provide a competitive return for investors while maintaining a safe, reliable natural gas distribution system that provides sustainable value for our customers.
For tax purposes, the HR Committee set a limitation on 2007 short-term incentive payouts for Messrs. DeGraffenreidt and McCallister of 1.11% and .59% of 2007 net income of WGL Holdings, respectively. The HR Committee then used negative discretion as provided under Section 162(m) of the Internal Revenue Code to arrive at actual, lower 2007 payouts based on our performance for the year.
The amounts of short-term incentive awards relating to the 2007 fiscal year were paid in December 2007 and are set forth under column (g) entitled Non-Equity Incentive Plan Compensation in the “Summary Compensation Table — Fiscal Year 2007” table.
Long-Term Incentive Compensation
Purpose of Long-Term Incentive Awards
The 2007 long-term incentive program was designed to achieve the following goals:
• | Align executives’ interests with shareholder interests.For example, the ultimate value of stock options depends on stock price increases, and performance share payouts are dependent on the performance of WGL Holdings’ common stock compared to peer group companies. | |
• | Match market practice: the majority of regulated utility companies use plans similar to our performance share program and use similar performance measures. | |
• | Promote common stock ownership: payout of earned awards is made 100% in common stock. | |
• | Encourage retention: vesting provisions in both the stock option and performance share program provide incentive for executives to stay with us and manage the company in the long-term interests of the Company, its shareholders and customers. |
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For 2007, we provided long-term incentive compensation in the form of performance share and stock option awards in a 60%-40% ratio. For fiscal year 2008, we changed the program to eliminate stock options and to grant performance shares and performance units in a 50%-50% ratio. In both cases, the combinations were chosen to best motivate executive officers to generate, and reward them for, shareholder value creation. The performance units are earned on the same basis as the performance shares are earned. The program change was done in order to achieve the same goals listed above, while lowering the dilutive effect of the program and bringing it more in line with competitive practice.
How 2007 Award Sizes Were Determined
The target values of the long-term incentive awards for Named Executive Officers are determined by the HR Committee based on the size-adjusted 50th percentile of the market data provided by the HR Committee’s consultant and on internal pay equity. To arrive at the actual award sizes for stock options and performance shares, WGL Holdings divides the executive officer’s target value applicable to stock options (40% of the total) by the value of one WGL Holdings stock option on the date of grant, and the target value applicable to performance shares (60% of the total) by the value of one performance share on the date of grant, both as calculated by the HR Committee’s consultant.
Performance Share Awards
Design
The performance share awards are denominated in shares of WGL Holdings common stock. Awards will be paid out in fully vested shares of WGL Holdings common stock at the end of the performance period, if certain long-term performance criteria are achieved and the Named Executive Officer remains an employee. If the Named Executive Officer leaves the Company before the performance period has ended, he or she will forfeit any payouts for all open performance periods. Upon retirement, death or disability, however, the HR Committee has discretion to prorate awards based on the number of months worked in the performance period.
The measure of performance for the performance share program is Total Shareholder Return relative to the performance share peer group. Total Shareholder Return is calculated as follows:
Total Shareholder Return | = | Change in stock price + dividends paid Beginning stock price |
Performance/Payout Relationship
The table below shows the performance and payout scale of our performance share program.
Payout (% of | ||
Performance in Total Shareholder | Performance Share | |
Return vs. Peers | Target Awarded) | |
90th percentile+ | 200% | |
70th percentile | 150% | |
50th percentile | 100% | |
30th percentile | 50% | |
Less than 30th percentile | 0% (No payout) |
Generally, the percentile rank will not fall directly on one of the ranks listed in the left column. When this occurs, performance must be interpolated between the percentiles listed in the columns.
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Peer Group Selection
As noted in the performance/payout relationship table above, grants made in 2007 (i.e., October 1, 2006) measure the2007-2009 Total Shareholder Return of our parent, WGL Holdings, against its peer companies. The2007-2009 performance share period runs from October 1, 2006 through September 30, 2009. Those companies were approved at the HR Committee’s November 17, 2006 meeting based on the following criteria:
• | classification as an energy related company under the Standard Industrialization Classification codes; | |
• | public equity ownership and headquarters in the United States; | |
• | no announced merger plans; | |
• | annual net revenues greater than $175 million; | |
• | at least 75% of assets related to U.S. natural gas distribution; | |
• | no significant exploration and production or unregulated generation issues; | |
• | no significant energy trading operations; and | |
• | an investment grade credit rating by Standard & Poor’s and Moody’s. |
The companies chosen using that criteria were as follows:
2007 — 2009 Performance Share Peer Group
AGL Resources | Laclede Group Inc. | Pinnacle West Capital Corporation | ||
Alliant Energy Corp. | MGE Energy Inc. | Puget Energy | ||
Atmos Energy | New Jersey Resources | SCANA Corporation | ||
CH Energy Group | Nicor Inc. | South Jersey Industries | ||
Consolidated Edison, Inc. | Northwest Natural Gas | Southwest Gas | ||
DTE Energy Company | NSTAR | UIL Holdings Corp. | ||
El Paso Electric | Pepco Holdings, Inc. | Vectren Corporation | ||
Energy East | Piedmont Natural Gas |
Payout of2005-2007 Performance Share Awards
In September 2004, the HR Committee awarded performance shares for the2005-2007 performance period (the“2005-2007 performance period”). The2005-2007 performance period runs from October 1, 2004 through September 30, 2007. The awards for the2005-2007 performance period were made on the same terms as described above.
On September 21, 2007, the HR Committee adopted a revised procedure with respect to treatment of companies involved in mergerand/or acquisition activities during a performance period. Under this revised treatment, companies that are acquired during a performance period remain in their relative position just prior to the announcement of the merger or acquisition transaction (i.e., above or below WGL Holdings ) for the remainder of the performance period.
Prior to this change in procedure, companies that were acquired during a performance period were deleted from the peer group for the entire performance period. The purpose of the change in treatment was to eliminate the survivor bias that can result from deleting acquired companies completely from the peer group. The change in procedure can result in payouts either higher or lower than under the prior procedure.
In view of the timing of this change in procedure, the HR Committee decided on September 21, 2007, to provide that the revised treatment for companies involved in mergerand/or acquisition activity
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could not bring what otherwise would have been a below-target 2007 payout to any higher than target. This provision did, in fact, limit the long-term incentive payout on October 1, 2007.
The peer group used for the2005-2007 period is shown below. The2005-2007 peer group was developed using the same criteria listed above under “Peer Group Selection,” except for the credit rating criterion, was as shown below.
2005 — 2007 Performance Share Peer Group
AGL Resources | Laclede Group Inc. | Pinnacle West Capital Corporation | ||
Ameren | MGE Energy Inc. | Puget Energy | ||
Atmos Energy | New Jersey Resources | SCANA Corporation | ||
Centerpoint Energy, Inc. | Nicor Inc. | Sierra Pacific Resources | ||
CH Energy Group | Northwest Natural Gas | Semco | ||
Consolidated Edison, Inc. | NSTAR | South Jersey Industries | ||
DTE Energy Company | Peoples Energy Corp. | Southwest Gas Corp. | ||
DQE Inc. | Pepco Holdings, Inc. | UIL Holdings Corp. | ||
El Paso Electric | Piedmont Natural Gas | Vectren Corporation | ||
Energy East |
Other Prior Year Awards
Performance share awards also were made for the2006-2008 performance period (the“2006-2008 performance period”). The2006-2008 performance period runs from October 1, 2005 through September 30, 2008. The terms of those awards are the same as described above, including the new procedure adopted in September 2007 for treatment of companies involved in mergerand/or acquisition activity. However, the provision that the revised treatment for companies involved in merger and acquisition activity could not bring what otherwise would have been a below-target payout to any higher than target does not apply to the2006-2008 performance period or to later periods.
Stock Option Awards Design
Stock options for fiscal year 2007 were issued at 100% of the fair market value on the grant date. They havethree-year cliff vesting and aten-year term.
Analysis
Key Analytic Tools
The HR Committee uses specific analytic tools as well as its seasoned business judgment in forming recommendations and decisions on executive compensation matters. For fiscal year 2007, key tools used by the HR Committee included studies prepared for the HR Committee by Hewitt. These tools included an executive compensation market study, compensation tally sheets prepared for each executive, data on executive compensation trends and information on peer group practices. These materials were all delivered to the HR Committee members in advance of HR Committee meetings and were the subject of in-depth discussion between HR Committee members and the independent executive compensation consultant.
In addition to these materials prepared by the independent executive compensation consultant, the HR Committee received and considered extensive reports from management on corporate and individual executive performance. Corporate performance was specifically discussed with the HR Committee at the time our financial results for fiscal year 2007 were being released to the public. The HR Committee considered our corporate performance as measured by our reported financial results for fiscal year 2007, the corporate scorecard for fiscal year 2007 and in comparison to our five-year
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financial goals. Details regarding the targets and results for our corporate scorecard are reported elsewhere in this CD&A.
Individual performance is measured each year by the HR Committee and our management in part by the use of a multi-rater survey of our executives. This multi-rater survey is prepared and administered by a separate consultant to the Company and the HR Committee. The HR Committee members also have direct knowledge of the performance of several of the executives through regular and special reports by these executives to the board of directors and board committees. In addition, our Chairman and Chief Executive Officer discusses the performance of our other executives in detail with the HR Committee.
Several specific corporate performance factors and leadership performance factors were considered by the HR Committee in establishing the compensation of our Named Executive Officers for fiscal year 2007. Those corporate and leadership performance factors are specifically described elsewhere in this information statement.
Resulting Actions
As reported elsewhere in this information statement, as a result of the analysis and using the various analytical tools described above, the HR Committee exercised its business judgment in taking certain actions relating to executive pay for fiscal year 2007. The base salaries of certain executives were adjusted by the board of directors in accordance with HR Committee recommendations to bring them within the range of the size-adjusted 50th percentile for all components compared to the peer group. The CEO’s base salary was not changed by the HR Committee for fiscal year 2007 from the level in fiscal year 2006 because the market data did not indicate that such a change was necessary. Target long-term and short-term incentives were adjusted for some, but not all, executive officers based primarily on market data. The HR Committee approved payment of a short-term incentive to the CEO for 2007 and recommended payout of 2007 short-term incentives for other executive officers, including the Named Executive Officers.
Retirement Benefits
Washington Gas provides retirement benefits to the Named Executive Officers under the terms of qualified and non-qualified defined-benefit and defined-contribution retirement plans. Retirement benefits provide post-employment security to our employees. They are an essential part of a total compensation package that is competitive with those offered by other companies, particularly other gas and electric utilities.
There are two primary retirement benefit programs applicable to the Named Executive Officers:
• | employee benefits that are available to all of our employees, including the Washington Gas Light Company Savings Plan for Management Employees, and the tax-qualified Washington Gas Light Company Employees’ Pension Plan; and | |
• | the Supplemental Executive Retirement Plan (“SERP”). |
The Washington Gas Light Company Employees’ Pension Plan (“Pension Plan”) is a qualified, trusteed, non-contributory pension plan covering all active employees (including executive officers) and vested former employees of Washington Gas. The Washington Gas Light Company Savings Plan for Management Employees (“401(k) Plan”) is also a tax-qualified retirement plan in which the Named Executive Officers participate on the same terms as our other participating employees.
The SERP allows accrual of a higher benefit than the qualified plan, but vests it more slowly. This allows us to: i) attract mid-career executive hires by replacing foregone pension benefits at former employers, and ii) be competitive with pensions provided to executives at peer companies which aids in the retention of our executive officers.
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Severance/Change in Control Protections
Washington Gas’ policy regarding severance protection for Named Executive Officers stems from its importance in recruiting and retaining executives in a competitive environment where executives are commonly being recruited from well-compensated positions in other companies or considering attractive opportunities with other companies.
We offer certain benefits to executive officers in the event of a change in control of WGL Holdings or Washington Gas. The occurrence, or potential occurrence, of a change in control transaction would create uncertainty regarding the continued employment of each Named Executive Officer. This uncertainty would result from the fact that many change in control transactions result in significant organizational changes, particularly at the senior executive level. Providing limited protections to the Named Executive Officers upon a change in control is in our shareholders’ best interests because doing so serves to promote a stable executive team during the transition process and is helpful in hiring executives into the company.
To encourage the Named Executive Officers to remain employed with us during a time when their prospects for continued employment following the transaction would be uncertain, and to permit them to remain focused on shareholders’ and customers’ interests during the change in control, the Named Executive Officers would be provided with severance benefits equivalent in value to two or three years’ worth of target-level compensation if their employment were actually or constructively terminated without cause in connection with a change in control.
Named Executive Officers should not be entitled to receive cash severance benefits merely because a change in control transaction occurs. Therefore, the WGL Holdings, Inc. and Washington Gas Light Company Change in Control Severance Plan for Certain Executives (the “CIC Plan”) provides for the payment of severance benefits upon a “dual trigger” event. A “dual trigger” event used in this context means that cash payments and vesting/payouts of equity compensation happen only upon the occurrence of both a change in control and either: (i) an involuntary termination of employment or (ii) a good reason resignation of the Named Executive Officer’s position.
Given that none of the Named Executive Officers has an employment agreement that provides for fixed positions or duties, or for a fixed base salary or actual or target annual bonus, we have concluded that a constructive termination severance trigger is appropriate to prevent potential acquirers from having an incentive to cause constructive termination of a Named Executive Officer’s employment to avoid paying any severance benefits at all. Without a constructive termination severance trigger, following a change in control, an acquirer could materially demote a Named Executive Officer, materially reduce his or her salary and reduce or eliminate his or her annual bonus opportunity in order to force the Named Executive Officer to terminate his or her own employment and thereby avoid paying severance. Thus, the CIC Plan provides certain benefits for Named Executive Officers in the event of a “good reason resignation.”
Levels ofchange-in-control payments were developed in prior years and were either reaffirmed or adjusted after a thorough reevaluation of such protection by the HR Committee in 2006. That re-evaluation included input from Hewitt and considered both market practice and best practice.
See“Potential Payments Upon Termination or Change In Control —Change in Control Severance Plan for Certain Executives”elsewhere in this information statement for a discussion of the other aspects of the CIC Plan.
Perquisites
We provide limited perquisites to the Named Executive Officers. In general, we will provide Named Executive Officers with a specific perquisite only when the perquisite provides competitive value and promotes retention of executives, or when the perquisite provides shareholder value.
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We have a program of income tax, estate and financial planning services for our executive officers. We pay the actual cost of these services provided to the executive officer up to a pre-determined ceiling depending on the level of the executive officer. We also pay the cost of certain other perquisites for executive officers, including parking at our headquarters building, a gasoline allowance and an annual physical examination. We have memberships at three clubs held in the names of the Chairman and Chief Executive Officer and the President and Chief Operating Officer that are for use in business purposes. We also have rights to the use of a suite at a facility that is available for use for business purposes by employees and directors. Other benefits available to the Named Executive Officers are noted in footnotes to the “Summary Compensation — Fiscal Year 2007” table in this information statement.
The value of perquisites provided to each Named Executive Officer in 2007 are reported in Column (i) of the “Summary Compensation Table — Fiscal Year 2007” table in this information statement.
Timing of Compensation
Under our current policy, long-term incentive awards are granted effective each October 1, the first day of the fiscal year. Short-term awards are generally made in November. The HR Committee has the discretion to make awards at any time. Equity incentive compensation awards are made at regularly scheduled meetings.
Following is a discussion of the timing of compensation decisions for fiscal year 2007:
• | Base salary changes for 2007 were determined at the September 20, 2006 HR Committee and September 27, 2006 board meetings; | |
• | Short and long-term incentive goals for 2007 were set at the September 20, 2006 HR Committee meeting; | |
• | Performance share grants to the Named Executive Officers were made at the September 20, 2006 HR Committee meeting; and | |
• | Short-term incentive payments for 2007 were approved at the HR Committee and Board meetings held on November 7, 2007. |
Impact of Prior Compensation
Amounts realizable from prior compensation did not serve to increase or decrease 2007 compensation amounts. The HR Committee’s primary focus was on achieving market-level compensation opportunities.
Factors Considered in Decisions to Increase or Decrease Compensation Materially
As described above in this CD&A, market data, retention needs, performance and internal pay equity have been the primary factors considered in decisions to increase or decrease compensation opportunities materially. Corporate and individual performances are the primary factors in determining the ultimate value of those compensation opportunities.
Role of Executive Officers
The Chairman and Chief Executive Officer (Mr. DeGraffenreidt) recommended to the HR Committee compensation for the other Named Executive Officers. Mr. DeGraffenreidt was not involved in determining his own compensation. None of the other Named Executive Officers have any role in determining their executive compensation.
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Company Policy Regarding the Economic Risk of Common Stock Ownership
Our Section 16 Trading Reporting Program generally prohibits executive officers and directors from engaging in purchase, sale or derivative transactions with respect to the common stock of WGL Holdings outside of certain window periods, except in accordance with established SECRule 10b5-1 plans.
Stock Ownership Guidelines
The Board has a policy of encouraging our executive officers to accumulate an amount of shares equal in value to at least one times such executive officer’s base salary.
Other Compensation Matters
We do not have any written or unwritten employment agreements with any of the Named Executive Officers. Each Named Executive Officer is an employee at will.
All elements of executive compensation are regularly benchmarked against executive compensation in peer companies. Base salary, annual bonus, and long-term incentive compensation are benchmarked annually while other employee benefits and perquisites are benchmarked every two years.
The following tables and related footnotes and discussion present information about compensation for the Chief Executive Officer, the Chief Financial Officer and the three other most highly compensated executive officers of the Company (the “Named Executive Officers”). The “Summary Compensation Table — Fiscal Year 2007” table below quantifies the value of the different forms of compensation earned by or paid to Named Executive Officers in fiscal year 2007. The primary elements of each Named Executive Officer’s total compensation reported in the table are base salary, a bonus contingent on performance, a long-term equity incentive opportunity consisting of non-qualified stock options, performance shares, and accumulated retirement pension benefits. Named Executive Officers also earned the other compensation listed in Column (i) of the “Summary Compensation Table — Fiscal Year 2007” table.
The Summary Compensation Table should be read in connection with the tables and narrative descriptions that follow. The “Grants of Plan-Based Awards in Fiscal 2007” table, and the description of the material terms of the non-qualified options and performance shares granted in 2007 that follows it, provide information regarding the long-term equity incentives awarded to Named Executive Officers that are reported in the “Summary Compensation Table — Fiscal Year 2007” table. The “Outstanding Equity Awards at Fiscal 2007 Year End” and “Option Exercises and Stock Vested in Fiscal 2007” tables provide further information on the Named Executive Officers’ potential realizable value and actual value realized with respect to their equity awards.
The “Pension Benefits” table and related description of the material terms of the retirement plans describe each Named Executive Officer’s retirement benefits to provide context to the amounts listed in the “Summary Compensation Table — Fiscal Year 2007” table. The discussion in the section “Potential Payments Upon Termination or Change in Control” explains the potential future payments that may become payable to the Named Executive Officers under certain circumstances.
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The following table presents information about compensation for the Named Executive Officers. It includes all compensation awarded to, earned by or paid to the Named Executive Officers during fiscal year 2007. The compensation shown in the following table was paid to the individual by Washington Gas.
Change in | ||||||||||||||||||||||||||||||||||||
Pension | ||||||||||||||||||||||||||||||||||||
Non-Equity | Value and | |||||||||||||||||||||||||||||||||||
Incentive | Non-qualified | |||||||||||||||||||||||||||||||||||
Plan | Deferred | All Other | ||||||||||||||||||||||||||||||||||
Name and | Stock | Option | Compensation | Compensation | Compensation | |||||||||||||||||||||||||||||||
Principal Position (1) | Year | Salary | Bonus | Awards (2) | Awards (2) | ($) (3) | Earnings($) (4) | ($) (5) | Total($) | |||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||||||
James H. DeGraffenreidt, Jr., | 2007 | $ | 730,000 | 0 | $ | 852,615 | $ | 614,075 | $ | 638,750 | $ | 311,595 | $ | 37,723 | $ | 3,184,758 | ||||||||||||||||||||
Chairman of the Board and Chief Executive Officer | ||||||||||||||||||||||||||||||||||||
Vincent L. Ammann, Jr., | 2007 | $ | 270,000 | 0 | $ | 128,728 | $ | 71,767 | $ | 168,750 | $ | 64,925 | $ | 26,506 | $ | 730,676 | ||||||||||||||||||||
Vice President and Chief Financial Officer | ||||||||||||||||||||||||||||||||||||
Terry D. McCallister, | 2007 | $ | 455,000 | 0 | $ | 404,056 | $ | 211,423 | $ | 341,250 | $ | 176,471 | $ | 46,591 | $ | 1,634,791 | ||||||||||||||||||||
President and Chief Operating Officer | ||||||||||||||||||||||||||||||||||||
Beverly J. Burke, | 2007 | $ | 305,000 | 0 | $ | 210,043 | $ | 162,142 | $ | 171,550 | $ | 174,841 | $ | 24,609 | $ | 1,048,185 | ||||||||||||||||||||
Vice President and General Counsel | ||||||||||||||||||||||||||||||||||||
Adrian P. Chapman, | 2007 | $ | 275,000 | 0 | $ | 172,088 | $ | 91,578 | $ | 154,650 | $ | 80,884 | $ | 31,294 | $ | 805,494 | ||||||||||||||||||||
Vice President of Washington Gas |
(1) | The principal positions shown are as of September 30, 2007. | |
(2) | Stock awards consist of performance shares. Option and stock awards are discussed in the CD&A. The performance share and option amounts shown in the above table reflect the aggregate dollar amounts expensed during fiscal year 2007 as determined under FAS 123R for financial statement reporting purposes for all outstanding grants disregarding any estimate of forfeitures related to service-based vesting conditions. For a discussion of the assumptions and methodologies used to calculate these amounts, see the discussion of performance shares and options contained in Note 13 (Stock Based Compensation) to the WGL Holdings Consolidated Financial Statements, included as part of the Company’s 2007 Annual Report to Shareholders filed onForm 10-K and incorporated herein by reference. No performance share nor option awards were forfeited by any Named Executive Officer in 2007. We caution that the actual amount ultimately realized by a Named Executive Officer from the disclosed equity awards listed under columns (e) and (f) will likely vary based on a number of factors, including our actual operating performance, stock price fluctuations, differences from the valuation assumptions used and the timing of exercise or applicable vesting. | |
(3) | The amounts shown in this column constitute the short-term incentive payouts made to the Named Executive Officers as described in the CD&A. These amounts were paid on December 7, 2007. | |
(4) | None of the Named Executive Officers, except Ms. Burke, have any non-qualified deferred compensation, therefore, this column only reflects pension accruals for all the officers, except Ms. Burke. There are no above market or preferential earnings on compensation deferred on a basis that are not tax-qualified, including such earnings on non-qualified contribution plans. The pension accrual amounts represent the difference between the September 30, 2006 and September 30, 2007 present value of the age 65 accrued pension (or the current benefit if older) under the Pension Plan and Supplemental Executive Retirement Plan, based on the pension plan assumptions for each year as shown in the text following the “Pension Benefits” table set forth later in this information statement. | |
(5) | These amounts represent the value of perquisites and matching contributions under the Washington Gas Light Company’s Savings Plan for Management Employees (the “401(k) Savings Plan”). The following Named Executive Officers received the corresponding amounts as matching contributions under the 401(k) Savings Plan: Mr. DeGraffenreidt — $8,985; Mr. Ammann — $10,338; Mr. McCallister — $9,000; Ms. Burke — $8,915; and Mr. Chapman — $9,652. |
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Perquisites
The Company has a program of income tax, estate and financial planning services for executive officers of the Company. The Company pays the actual cost of these services provided to the executive up to a pre-determined ceiling depending on the level of the executive officer. The highest amount provided to any executive under the income tax, estate and financial planning program is $10,000 per year. The Company also pays the cost of certain other perquisites for executive officers, including: parking at the Company’s headquarters building, a gasoline allowance and an annual physical examination. The Company has memberships at three clubs held in the names of the Chairman and Chief Executive Officerand/or the Presidentand/or Chief Operating Officer that are for use in business purposes. The Company also has rights to the use of a suite at a sports and entertainment facility that is available for use in business purposes by employees and directors. These suites generally are maintained for business entertainment, but may be used for personal use. The entire amount has been included in the table below, although we believe that only a portion of this cost represents a perquisite.
The following table sets forth the incremental value of perquisites for the Named Executive Officers in 2007 included in the “All Other Compensation” column (i) of the Summary Compensation Table above.
2007 Incremental Cost of Perquisites Provided to Named Executive Officers
Tax and | ||||||||||||||||||||||||||||||||
Financial | Vehicle | Tax | Club | |||||||||||||||||||||||||||||
Counseling | Allowance | Parking | Physical | Insurance | Gross-up | Dues | Total | |||||||||||||||||||||||||
Name and Principal Position | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||||
James H. DeGraffenreidt, Jr., | $ | 0 | $ | 8,400 | $ | 6,000 | $ | 0 | $ | 4,920 | $ | 991 | $ | 8,427 | $ | 28,738 | ||||||||||||||||
Chairman of the Board and Chief Executive Officer | ||||||||||||||||||||||||||||||||
Vincent L. Ammann, Jr., | $ | 0 | $ | 8,400 | $ | 3,000 | $ | 1,714 | $ | 2,903 | $ | 151 | $ | 0 | $ | 16,168 | ||||||||||||||||
Vice President and Chief Financial Officer | ||||||||||||||||||||||||||||||||
Terry D. McCallister, | $ | 1,473 | $ | 8,400 | $ | 6,000 | $ | 2,642 | $ | 3,730 | $ | 579 | $ | 14,767 | $ | 37,591 | ||||||||||||||||
President and Chief Operating Officer | ||||||||||||||||||||||||||||||||
Beverly J. Burke, | $ | 0 | $ | 8,400 | $ | 3,000 | $ | 0 | $ | 3,683 | $ | 611 | $ | 0 | $ | 15,694 | ||||||||||||||||
Vice President and General Counsel | ||||||||||||||||||||||||||||||||
Adrian P. Chapman, | $ | 5,300 | $ | 8,400 | $ | 3,000 | $ | 1,656 | $ | 3,064 | $ | 222 | $ | 0 | $ | 21,642 | ||||||||||||||||
Vice President |
The amounts set forth in the “taxgross-up” column in the above table represent the amount of taxes paid by the Company on behalf of officers relating to life insurance coverage with benefits in excess of $50,000. The Company provides the executive officers (and all employees) life insurance equal to one times the employees’ salary. Under the Internal Revenue Code, the cost of the first $50,000 of life insurance paid by the Company is not taxable income to the employee. However, the premiums paid by the Company for insurance in excess of $50,000 is taxable income (imputed income) to the employee. The Company “grosses up” the income of the Named Executive Officers for the taxes on this imputed income (i.e., the Company pays the taxes for the Named Executive Officers on this imputed income). The imputed income amount and the amount of the tax gross up are both taxable income to the Named Executive Officer.
The amounts under the column entitled, “insurance” in the above table represent the premiums paid by the Company for the respective Named Executive Officer’s long term care and life insurance.
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The following Grants of Plan-Based Awards table sets forth information concerning short-term incentive payments and grants of options and performance shares to our Named Executive Officers during the fiscal year ended September 30, 2007. The grants in the following table were made under the 1999 Incentive Compensation Plan.
Estimated Future Payouts | All Other | Grant | ||||||||||||||||||||||||||||||||||||||
Under Equity | Option | Date | ||||||||||||||||||||||||||||||||||||||
Incentive Plan Awards(1) | Awards | Fair | ||||||||||||||||||||||||||||||||||||||
Estimated Future | Threshold | Target | Maximum | Number of | Exercise | Value of | ||||||||||||||||||||||||||||||||||
Payouts Under Non-Equity | Number | Number | Number | Securities | Price of | Stock and | ||||||||||||||||||||||||||||||||||
Incentive Plan Awards | of Shares | of Shares | of Shares | Underlying | Option | Option | ||||||||||||||||||||||||||||||||||
Grant | Threshold | Maximum | of Stock | of Stock | of Stock | Options | Awards | Awards(4) | ||||||||||||||||||||||||||||||||
Name | Date | ($) | Target ($) | ($) | (#) | (#) | (#) | (2) (#) | ($/Sh)(3) | ($) | ||||||||||||||||||||||||||||||
(a) | (b) | (c) | (d) | (e) | (f) | (g) | (h) | (j) | (k) | (i) | ||||||||||||||||||||||||||||||
James H. DeGraffenreidt, Jr. | ||||||||||||||||||||||||||||||||||||||||
Short-term Incentive | N/A | $ | 159,688 | $ | 511,000 | $ | 881,475 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Performance Share Program | 10/1/2006 | — | — | — | 13,712 | 27,423 | 54,846 | — | — | $ | 29.68 | |||||||||||||||||||||||||||||
Stock Option Program | 10/1/2006 | — | — | — | — | — | — | 116,465 | $ | 31.34 | $ | 4.78 | ||||||||||||||||||||||||||||
Vincent L. Ammann, Jr. | ||||||||||||||||||||||||||||||||||||||||
Short-term Incentive | N/A | $ | 42,188 | $ | 135,000 | $ | 232,875 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Performance Share Program | 10/1/2006 | — | — | — | 3,006 | 6,011 | 12,022 | — | — | $ | 29.68 | |||||||||||||||||||||||||||||
Stock Option Program | 10/1/2006 | — | — | — | — | — | — | 25,526 | $ | 31.34 | $ | 4.78 | ||||||||||||||||||||||||||||
Terry D. McCallister | ||||||||||||||||||||||||||||||||||||||||
Short-term Incentive | N/A | $ | 85,313 | $ | 273,000 | $ | 470,925 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Performance Share Program | 10/1/2006 | — | — | — | 6,647 | 13,294 | 26,588 | — | — | $ | 29.68 | |||||||||||||||||||||||||||||
Stock Option Program | 10/1/2006 | — | — | — | — | — | — | 56,460 | $ | 31.34 | $ | 4.78 | ||||||||||||||||||||||||||||
Beverly J. Burke | ||||||||||||||||||||||||||||||||||||||||
Short-term Incentive | N/A | $ | 42,891 | $ | 137,250 | $ | 236,756 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Performance Share Program | 10/1/2006 | — | — | — | 3,395 | 6,790 | 13,580 | — | — | $ | 29.68 | |||||||||||||||||||||||||||||
Stock Option Program | 10/1/2006 | — | — | — | — | — | — | 28,835 | $ | 31.34 | $ | 4.78 | ||||||||||||||||||||||||||||
Adrian P. Chapman | ||||||||||||||||||||||||||||||||||||||||
Short-term Incentive | N/A | $ | 38,672 | $ | 123,750 | $ | 213,469 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Performance Share Program | 10/1/2006 | — | — | — | 3,061 | 6,122 | 12,244 | — | — | $ | 29.68 | |||||||||||||||||||||||||||||
Stock Option Program | 10/1/2006 | — | — | — | — | — | — | 25,999 | $ | 31.34 | $ | 4.78 |
Note that column (i) “All Other Stock Awards” has been omitted in accordance with SEC rules because no such compensation was awarded to, earned by, or paid to the Named Executive Officers during fiscal year 2007.
No consideration was paid by any of the Named Executive Officers for the awards listed in the “Grants of Plan-Based Awards” table.
(1) | Amounts in these columns represent the threshold, target and maximum payouts under our Performance Share Program for the36-month performance period from October 1, 2006 through September 30, 2009. | |
(2) | Amounts in this column represent the number of non-qualified stock options granted during fiscal year 2007. | |
(3) | The exercise price for all non-qualified stock option grants was equal to the fair market value for a share of WGL Holdings common stock on the date of grant. | |
(4) | Represents the grant date fair value, as determined in accordance with Financial Accounting Standard 123R, of stock options and performance share awards granted during fiscal year 2007. For a discussion of the assumptions and methodologies used to calculate the amounts reported, see the discussion of stock options and performance shares contained in Note 13 (Stock Based Compensation) to the Company’s Consolidated Financial Statements, included as part of WGL Holdings’ 2007 Annual Report onForm 10-K filed with the SEC and incorporated herein by reference. |
No Employment Agreements with Named Executive Officers
None of the Named Executive Officers have employment agreements with the Company.
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Options
Each option award is a non-qualified option that may be exercised to purchase one share of WGL Holdings common stock at an exercise price equal to the fair market value of the underlying common stock on the grant date. The fair market value is the closing price of one share of WGL Holdings common stock, as reported on the New York Stock Exchange composite tape on the grant date, or if the common stock was not traded on such day, then on the next preceding day that the common stock was traded. The exercise price of options may be paid in cash, by delivery of already-owned shares of common stock of WGL Holdings or by any other method approved by the HR Committee, which administers the 1999 Plan. Awards will be converted to cash to the extent necessary to satisfy minimum tax withholding or any governmental levies. Holders of option awards do not have the rights of shareholders until the option is exercised. Therefore, option holders do not receive dividends or other earnings on the underlying stock until the option is exercised.
Each Named Executive Officer’s stock option award has a three-year vesting period. Subject to each Named Executive Officer’s continued employment, 100% of his or her stock option award will vest and become exercisable on the third anniversary of the grant date. Options expire on the tenth anniversary of the date of grant. Each Named Executive Officer’s stock option award may also become vested depending on the circumstances of his or her termination of employment, if such termination occurs prior to the vesting of options. If a Named Executive Officer terminates employment because of death, permanent and total disability, or retirement, his or her stock option award will immediately vest and become exercisable. If a Named Executive Officer’s employment terminates for any other reason, the unvested portion of his or her stock option award will immediately terminate. All options immediately become exercisable upon a change in control. If a Named Executive Officer is terminated for cause, then all unexercised options, whether or not vested, will expire as of the employment termination date. Stock option awards are generally only transferable to a beneficiary of a Named Executive Officer upon his or her death.
Performance Shares
Shares of WGL Holdings common stock are awarded to Named Executive Officers as performance shares. The vesting of these shares is conditioned upon the performance of WGL Holdings and the officer’s continued employment. As long as each Named Executive Officer continues to remain an employee, performance shares become earned and vested based on WGL Holdings’ comparative total shareholder return over a designated three-year performance period. Performance share award grantees do not have the rights of shareholders until the performance shares fully vest. Therefore, performance share grantees do not receive dividends or other earnings on the performance share until it fully vests.
For further information regarding the performance share payout peer group and the total shareholder return necessary for the vesting of performance shares, please see the discussion under the heading, “Long-Term Incentive Compensation — Performance Share Awards” in the Compensation Discussion & Analysis section of this information statement.
Awards will be converted to cash for shares to the extent necessary to satisfy minimum tax withholding or any governmental levies. Performance shares are generally forfeited for no value if a Named Executive Officer’s employment terminates prior to the end of the performance period. However, a Named Executive Officer, subject to the sole discretion of the HR Committee of the WGL Holdings Board of Directors, may vest in all or a portion of his or her outstanding performance shares if his or her employment terminates as a result of retirement, death, or disability. In the event of a change of control, the target number of performance shares granted prior to December 15, 2006 will automatically vest as of the effective date of the change in control,and will be settled in stock as soon as practicable following the effective date of the change in control. Under certain circumstances, following a change in control, between 50% to 100% of an officer’s outstanding performance share awards that was granted on or after December 15, 2006 would become fully vested at target levels.
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The following table summarizes the equity awards we have made to our Named Executive Officers which were outstanding as of September 30, 2007. Outstanding equity awards at fiscal year-end consist of non-qualified stock options and performance shares.
Option Awards | Stock Awards | ||||||||||||||||||||||||
Number of | Number of | Equity Incentive | |||||||||||||||||||||||
Securities | Securities | Equity Incentive | Plan Awards: | ||||||||||||||||||||||
Underlying | Underlying | Plan Awards: | Market or Payout | ||||||||||||||||||||||
Unexercised | Unexercised | Option | Option | Number of Unearned | Value of Unearned | ||||||||||||||||||||
Options | Options | Exercise | Expiration | Shares That Have | Shares That Have | ||||||||||||||||||||
Name | Exercisable(1)(#) | Unexercisable(2)(#) | Price($) | Date(1)(2) | Not Vested(3)(#) | Not Vested(3)($) | |||||||||||||||||||
(a) | (b) | (c) | (e) | (f) | (i) | (j) | |||||||||||||||||||
James H. DeGraffenreidt, Jr. | |||||||||||||||||||||||||
Awarded10-1-01 | 52,501 | — | $ | 26.89 | 9/30/2011 | — | — | ||||||||||||||||||
Awarded10-1-02 | 71,863 | — | $ | 23.91 | 10/1/2012 | — | — | ||||||||||||||||||
Awarded10-1-03 | 95,799 | — | $ | 27.58 | 10/1/2013 | — | — | ||||||||||||||||||
Awarded10-1-04 | — | 96,224 | $ | 28.26 | 10/1/2014 | 14,836 | $ | 502,792 | |||||||||||||||||
Awarded10-1-05 | — | 87,635 | $ | 32.13 | 10/1/2015 | 13,259 | $ | 449,348 | |||||||||||||||||
Awarded10-1-06 | — | 116,465 | $ | 31.34 | 10/1/2016 | 13,712 | $ | 464,699 | |||||||||||||||||
Vincent L. Ammann, Jr. | |||||||||||||||||||||||||
Awarded10-1-04 | — | 11,121 | $ | 28.26 | 10/1/2014 | 1,715 | $ | 58,121 | |||||||||||||||||
Awarded10-1-05 | — | 10,760 | $ | 32.13 | 10/1/2015 | 1,628 | $ | 55,173 | |||||||||||||||||
Awarded10-1-06 | — | 25,526 | $ | 31.34 | 10/1/2016 | 3,006 | $ | 101,873 | |||||||||||||||||
Terry D. McCallister | |||||||||||||||||||||||||
Awarded10-1-02 | 29,129 | — | $ | 23.91 | 10/1/2012 | — | — | ||||||||||||||||||
Awarded10-1-03 | 42,474 | — | $ | 27.58 | 10/1/2013 | — | — | ||||||||||||||||||
Awarded10-1-04 | — | 45,117 | $ | 28.26 | 10/1/2014 | 6,956 | $ | 235,739 | |||||||||||||||||
Awarded10-1-05 | — | 41,083 | $ | 32.13 | 10/1/2015 | 6,215 | $ | 210,626 | |||||||||||||||||
Awarded10-1-06 | — | 56,460 | $ | 31.34 | 10/1/2016 | 6,647 | $ | 225,267 | |||||||||||||||||
Beverly J. Burke | |||||||||||||||||||||||||
Awarded10-1-03 | 22,143 | — | $ | 27.58 | 10/1/2013 | ||||||||||||||||||||
Awarded10-1-04 | — | 23,860 | $ | 28.26 | 10/1/2014 | 3,679 | $ | 124,681 | |||||||||||||||||
Awarded10-1-05 | — | 21,342 | $ | 32.13 | 10/1/2015 | 3,229 | $ | 109,431 | |||||||||||||||||
Awarded10-1-06 | — | 28,835 | $ | 31.34 | 10/1/2016 | 3,395 | $ | 115,057 | |||||||||||||||||
Adrian P. Chapman | |||||||||||||||||||||||||
Awarded10-1-99 | 2,689 | — | $ | 27.12 | 9/30/2009 | — | — | ||||||||||||||||||
Awarded10-1-00 | 2,933 | — | $ | 26.88 | 9/30/2010 | — | — | ||||||||||||||||||
Awarded10-1-01 | 7,941 | — | $ | 26.89 | 9/30/2011 | — | — | ||||||||||||||||||
Awarded10-1-02 | 3,514 | — | $ | 23.91 | 10/1/2012 | — | — | ||||||||||||||||||
Awarded10-1-03 | 16,705 | — | $ | 27.58 | 10/1/2013 | — | — | ||||||||||||||||||
Awarded10-1-04 | — | 17,794 | $ | 28.26 | 10/1/2014 | 2,744 | $ | 92,994 | |||||||||||||||||
Awarded10-1-05 | — | 17,429 | $ | 32.13 | 10/1/2015 | 2,637 | $ | 89,368 | |||||||||||||||||
Awarded10-1-06 | — | 25,999 | $ | 31.34 | 10/1/2016 | 3,061 | $ | 103,737 | |||||||||||||||||
(1) | Subject to each Named Executive Officer’s continued employment, each stock option grant becomes vested on the third anniversary of the date of grant. All exercisable options are currently vested. Exercisable options, and any unexercisable options that subsequently become exercisable, will generally expire earlier than the normal expiration date shown in the table if the Named Executive Officer’s employment terminates. Please see the text under the heading “Options” following the “Grant of Plan-Based Awards in Fiscal Year 2007” table for a description of the vesting conditions of stock options granted. | |
(2) | The unexercisable options are unvested. Subject to each Named Executive Officer’s continued employment, each unvested stock option grant becomes vested on the third anniversary of the date of grant. The unexercisable options will expire earlier than the normal expiration date shown in the table if the Named Executive Officer’s employment is terminated prior to the normal expiration date. Please see the text under the heading “Options” following the “Grant of Plan-Based Awards in Fiscal Year 2007” table for a description of the vesting conditions of stock options granted. | |
(3) | Performance shares become earned and vested at the end of a three-year performance period, subject to: i) such officer’s continued employment and ii) the comparative total shareholder return of WGL Holdings as compared to the total shareholder return of a peer group of companies during the three year performance period. The number of performance shares shown for each Named Executive Officer in column (i) of the “Outstanding Equity Awards at Fiscal 2007 Year-End” table is the threshold number of shares that may become |
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earned if WGL Holdings total shareholder return is at the 30th percentile of its peer group of companies. The value shown in column (j) of the table is the number of shares shown in column (i) times the closing price of WGL Holdings common stock on September 28, 2007 ($33.89), the last trading day of fiscal year 2007. |
The following Option Exercises and Stock Vested table provides additional information about the value realized by the Named Executive Officers on option award exercises and stock award vesting during the year ended September 30, 2007.
Option Awards | Stock Awards | |||||||||||||||
Number of Shares | Number of Shares | |||||||||||||||
Acquired on | Value Realized on | Acquired on | Value Realized on | |||||||||||||
Exercise | Exercise(1) | Vesting | Vesting | |||||||||||||
Name | (#) | ($) | (#) | ($) | ||||||||||||
(a) | (b) | (c) | (d) | (e) | ||||||||||||
James H. DeGraffenreidt, Jr. | 75,795 | $ | 554,491 | 0 | 0 | |||||||||||
Vincent L. Ammann, Jr. | 0 | 0 | 0 | 0 | ||||||||||||
Terry D. McCallister | 30,461 | 206,778 | 0 | 0 | ||||||||||||
Beverly J. Burke | 16,338 | 107,314 | 0 | 0 | ||||||||||||
Adrian P. Chapman | 0 | 0 | 0 | 0 |
(1) | The amounts shown for value realized on exercise equal the differences between (i) the market price of WGL Holdings common stock on the exercise date and (ii) the exercise price of those options, multiplied by the corresponding amount set forth in column (b). |
The following table and related discussion describes the present value of accumulated benefits payable to each of our Named Executive Officers under our Washington Gas Light Company Employees’ Pension Plan (a qualified plan) and the Washington Gas Light Company Supplemental Executive Retirement Plan (a non-qualified plan).
Number of | Present Value | |||||||||
Years | of | |||||||||
Credited | Accumulated | |||||||||
Service | Benefit | |||||||||
Name | Plan Name | (#) | ($) | |||||||
(a) | (b) | (c) | (d) | |||||||
James H. DeGraffenreidt, Jr. | Washington Gas Light Company Pension Plan | 21.5 | $ | 388,393 | ||||||
Washington Gas Light Company Supplemental Executive Retirement Plan | 30.0 | $ | 3,976,884 | |||||||
Vincent L. Ammann, Jr. | Washington Gas Light Company Pension Plan | 4.0 | $ | 56,875 | ||||||
Washington Gas Light Company Supplemental Executive Retirement Plan | 6.0 | $ | 90,443 | |||||||
Terry D. McCallister | Washington Gas Light Company Pension Plan | 7.5 | $ | 116,613 | ||||||
Washington Gas Light Company Supplemental Executive Retirement Plan | 14.5 | $ | 911,905 | |||||||
Beverly J. Burke | Washington Gas Light Company Pension Plan | 15.0 | $ | 309,734 | ||||||
Washington Gas Light Company Supplemental Executive Retirement Plan | 24.0 | $ | 1,009,199 | |||||||
Adrian P. Chapman | Washington Gas Light Company Pension Plan | 26.0 | $ | 353,576 | ||||||
Washington Gas Light Company Supplemental Executive Retirement Plan | 30.0 | $ | 599,861 |
Note that column (e) “Payments During Last Fiscal Year” has been omitted in accordance with SEC rules because no such payments were made during fiscal year 2007.
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The following actuarial assumptions were used in determining the amounts set forth in the “Pension Benefits” table:
September 30, | September 30, | |||
Measurement Date | 2007 | 2006 | ||
Discount Rate | 6.00% | 5.75% | ||
Pre-retirement Mortality | None | None | ||
Post-retirement Mortality | RP 2000 | RP 2000 | ||
Combined Healthy | Combined Healthy | |||
Retirement Age | 65 | 65 |
For a discussion of the assumptions and methodologies used to calculate the amounts reported in the “Pension Benefits” table above, see the discussion of stock options and performance shares contained in Note 12 (Pension and other Post-Retirement Benefits Plans) to the Company’s Consolidated Financial Statements, and Management’s Discussion and Analysis of Financial Condition and Results of Operations included as part of WGL Holdings’ 2007 Annual Report onForm 10-K filed with the SEC and incorporated herein by reference.
Pension and other Retirement Benefits
Washington Gas provides retirement benefits to the Named Executive Officers under the terms of qualified and non-qualified defined-benefit and defined-contribution retirement plans. Retirement benefits provide post-employment security to our employees. There are three primary retirement benefit programs applicable to the Named Executive Officers:
• | the Washington Gas Light Company Savings Plan for Management Employees (“401(k) Plan”), a tax-qualified defined contribution plan in which the Named Executive Officers participate on the same terms as our other participating employees; | |
• | the Washington Gas Light Company Employees’ Pension Plan (“Pension Plan”), a qualified, trusteed, non-contributory pension plan covering all active employees (including executive officers) and vested former employees of Washington Gas; and | |
• | the Washington Gas Light Company Supplemental Executive Retirement Plan (“SERP”), a non-qualified defined-benefit retirement plan which provides the Named Executive Officers a benefit up to 60% of the individual’s final average compensation, as determined under that plan. |
Pension Plan
The Named Executive Officers participate in the Pension Plan. All employees of Washington Gas, including part-time employees, automatically become participants in the Pension Plan on the first day of the month immediately following their employment commencement date. However, no employee hired on or after January 1, 2009 and covered by the collective bargaining agreement between Washington Gas and the International Brotherhood of Teamsters, Local 96, will be eligible to participate in the Pension Plan.
The Pension Plan is a tax-qualified defined benefit retirement plan. The Pension Plan provides an unreduced retirement benefit at termination of employment at the normal retirement age of 65. A participant must have five years of accredited service under the Pension Plan to vest in a pension benefit.
The Pension Plan accrued benefit is calculated using a formula based on accredited service and final average compensation. Final average compensation is the average of the employee’s rate of annual basic compensation on December 31 of each of the three calendar years of accredited service preceding the employee’s normal retirement date, early or disability retirement date, actual date of retirement or date of termination of employment, whichever is applicable. Annual basic compensation consists of the regular annual salary or wages of an employee, excluding bonuses, compensation for
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overtime or other extra or special compensation, but including commissions, bonuses and other forms of incentive compensation paid to salesmen. The rate of final average compensation is multiplied by the percentage rate that applies to the participant’s years of accredited service. Bargaining units representing certain Washington Gas employees have negotiated different percentages for their members.
An early retirement benefit, discounted for age, is available to employees at age 55 with 5 years of accredited service. Employees having any combination of age and accredited service that equals 90 or more and employees with 30 years of accredited service may retire early without discounting their pension for age. As of the date of this information statement, one Named Executive Officer, Beverly J. Burke, our Vice President and General Counsel is currently eligible to receive an early retirement benefit.
The normal form of pension benefit is a joint and survivor annuity for a married employee and a single-life annuity for an unmarried employee. Participants may elect among various payment options that will be the actuarial equivalent of the normal form of retirement benefit. There is no lump sum optional form of payment under the current Pension Plan.
Supplemental Executive Retirement Plan
The Named Executive Officers participate in the SERP which is a non-qualified, unfunded defined benefit retirement plan. The purpose of the SERP is to provide an additional incentive to attract and retain key employees designated by the Board of Directors. The Board of Directors of Washington Gas designates participants in the SERP.
The SERP provides a retirement benefit that supplements the benefit payable under the Pension Plan. The benefit amount is based on years of benefit service and the average of the participant’s highest rates of annual basic compensation, including any short-term incentive awards, on December 31 of the three years out of the final five years of the participant’s service as a participant. Benefit service under the SERP consists of years of accredited service under the Pension Plan plus the number of years of plan service under SERP, to a maximum of 30 years. There is a vesting schedule for the benefit that varies depending upon the point in time the individual became a participant in the SERP.
At normal retirement, the SERP participant is entitled to an annual benefit equal to the participant’s vested percentage of an amount equal to 2% of final average compensation multiplied by the number of years of benefit service, reduced by the amount of the normal retirement benefit paid under the Pension Plan and the amount of any other supplemental pension benefit provided by Washington Gas. Participants in the WGL Holdings, Inc. and Washington Gas Light Company Change in Control Severance Plan for Certain Executives, described elsewhere in this information statement, may earn extra years of benefit service under the SERP in certain events of termination following a change in control, up to the maximum of 30 years of benefit service.
The SERP provides an unreduced retirement benefit at termination of employment at the normal retirement age of 65. An early retirement benefit, discounted for age, is available to participants at age 55 with 10 years of benefit service. Only one Named Executive Officer, Beverly J. Burke, our Vice President and General Counsel, is currently eligible to receive an early retirement benefit under SERP.
A participant in the SERP can elect the same forms of benefit available under the Pension Plan, and in addition can elect a lump sum payment form. For SERP benefits earned through December 31, 2004, the lump sum amount is limited to the amount of the benefit attributable to short-term incentive compensation. For benefits earned on and after January 1, 2005, participants may elect a lump sum benefit in any percentage. The lump sum amount is an actuarial determination based on the participant’s life expectancy discounted using the yield on the zero-coupon U.S. Treasury security with maturity equal to the maturity of each year’s payment. The lump sum shall equal the sum of the discounted payments.
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The following table presents information regarding the contributions to and earnings on the Named Executive Officers’ deferred compensation balances during fiscal year 2007, and also shows the total deferred amounts for the Named Executive Officers at the end of fiscal year 2007.
Registrant | Aggregate | Aggregate | Aggregate | |||||||||||||||||||
Executive | Contributions | Earnings in | Withdrawals / | Balance at | ||||||||||||||||||
Contributions | in Last FY | Last FY | Distributions | Last FYE | ||||||||||||||||||
Name | in Last FY | ($) | ($)(1) | ($) | ($) | |||||||||||||||||
(a) | Plan | (b) | (c) | (d) | (e) | (f) | ||||||||||||||||
James H. DeGraffenreidt, Jr. | — | — | — | — | — | — | ||||||||||||||||
Vincent L. Ammann, Jr. | — | — | — | — | — | — | ||||||||||||||||
Terry D. McCallister | — | — | — | — | — | — | ||||||||||||||||
Beverly J. Burke | Executive Incentive Compensation Plan | 0 | 0 | $ | 1,661 | 0 | $ | 37,387 | ||||||||||||||
Adrian P. Chapman | — | — | — | — | — | — |
(1) | No deferrals of compensation were made during the 2007 fiscal year. The amount set forth in the above table for Ms. Burke reflects a deferral made on a bonus in the amount of $28,500 during fiscal year 2001. The quarterly interest rate is equal to weekly average yield to maturity for five-year U.S. Treasury fixed interest rate securities (adjusted to a constant maturity of five years). This deferral was made under the Washington Gas Light Company Executive Incentive Compensation Plan which is currently inactive. The amount reported in column (d) in the above table is also included in the amount shown for Ms. Burke in column (h) of the “Summary Compensation Table — Fiscal Year 2007” table in this information statement. The amounts in columns (d) and (f) were not reported as compensation in our Summary Compensation Table in previous years. |
Each of the Named Executive Officers listed in the “Summary Compensation Table — Fiscal Year 2007” table in this information statement participates in the WGL Holdings, Inc. and Washington Gas Light Company Change in Control Severance Plan for Certain Executives (the “CIC Plan”). “Change in control” protections provide severance pay and, in some situations, vesting or payment of long-term incentive awards, upon a change in control. The change in control provisions under the CIC Plan are effective during the period of one year prior to, and two years following, a change in control of WGL Holdings or Washington Gas Light Company. The CIC Plan incorporates the definition of a change in control as defined in the WGL Holdings, Inc. and Washington Gas Light Company Change in Control Policy (“CIC Policy”). A change in control generally will occur under the CIC Policy in the event of:
• | an acquisition of 30% or more of the voting stock of WGL Holdings or Washington Gas; | |
• | a change in the majority of the board of directors of WGL Holdings; or | |
• | a merger, reorganization, consolidation or sale of all or substantially all of the assets of WGL Holdings or Washington Gas. |
Generally, during the one year prior and two years following a change in control the executive is entitled to base salary, annual incentives, savings and retirement plans, welfare benefit plans, expenses, fringe benefits, office and vacation, consistent with those in place prior to the change in control or available after the change in control if more beneficial.
Annual base salary is defined as the amount equal to the highest base salary rate in effect during the period beginning twelve months immediately preceding a change in control and ending on the date of the Named Executive Officer’s termination. The annual incentive bonus is equal to each executive’s
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target annual bonus for the fiscal year in which the Named Executive Officer’s employment is terminated.
With respect to all the Named Executive Officers, if the Named Executive Officer is terminated during the effective period for reasons other than cause, or if the Named Executive Officer resigns for good reason, the Named Executive Officer is entitled to certain severance benefits. These benefits include:
• | salary replacement benefits equal to the sum of the executive’s annual base salary plus annual incentive bonus multiplied by three for Messrs. DeGraffenreidt, McCallister and Ammann, and Ms. Burke and by two for Mr. Chapman; | |
• | the sum of any unpaid base salary and vacation pay through the termination date and the product of the executive’s annual bonus and a fraction, the numerator of which is the number of days in the current fiscal year through the termination date, and the denominator of which is 365; | |
• | medical and dental replacement benefits for three years for Messrs. DeGraffenreidt, McCallister and Ammann, and Ms. Burke, and for two years for Mr. Chapman; | |
• | an additional three years of benefit service under the SERP for Messrs. DeGraffenreidt, McCallister and Ammann, and Ms. Burke and two years for Mr. Chapman, provided, in no event shall such additional service when added to the executive’s SERP benefit service credit exceed the maximum of 30 years; and | |
• | outplacement services of up to $25,000; provided such services must be incurred by the executive within 12 months of his or her termination. |
If a change in control payment exceeds the limit for deductible payments under Section 280G of the Internal Revenue Code by 10% or more, reimbursement will be made for the full amount of any excise taxes imposed on severance payments and any other payments under Section 4999 of the Internal Revenue Code and for all taxes due on the amount of that reimbursement. This excise taxgross-up provision is intended to preserve the level ofchange-in-control severance protections that we have determined to be appropriate.
Following a change in control: (i) 50% of a Named Executive Officer’s outstanding options would become immediately vested and exercisable, and the remaining 50% would become immediately vested and exercisable upon certain qualified terminations of employment, and (ii) 50% of such officer’s outstanding awards that had performance based vesting conditions would become immediately fully vested at target levels, with the other 50% becoming vested at target levels upon certain qualified terminations of employment.
The CIC Plan provides that a “good reason resignation” triggers the receipt of severance benefits. Generally, under the CIC Plan, a “good reason resignation” means any termination of employment by a participant in the CIC Plan that is not initiated by the Company and that is caused by any one or more of the following events, if such event occurs during the change in control effective period:
• | assignment to the participant, without his or her consent, of duties inconsistent in any material respect with the executive’s then current position or duties (including, for Messrs. DeGraffenreidt, McCallister, Ammann and Ms. Burke, not having their position at the most senior resulting entity following the change in control), or any other action by the company which would cause him or her to violate ethical or professional obligations, or which results in a significant diminution in such position or duties; | |
• | the participant, without his or her consent, being required to relocate to a principal place of employment that is both more than 35 miles from his or her existing principal place of employment, and farther from the participant’s current residence than his or her existing principal place of employment; |
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• | the Company materially reduces, without his or her consent, the participant’s base salary rate or target bonus opportunity, or materially reduces the aggregate value of other incentives and retirement opportunity, or fails to allow the participant to participate in all welfare benefit plans, incentive, savings and retirement plan, fringe benefit plans and vacation benefits applicable to other senior executives; or | |
• | the Company fails to obtain a satisfactory agreement from any successor entity to assume and agree to perform the Company’s obligations to the Named Executive Officer under the CIC Plan. |
A Named Executive Officer will not be able to receive severance benefits for a good reason resignation if the executive continues in employment with the Company for more than 90 days following the later of the occurrence or knowledge of an event or events that would permit a good reason resignation. Also, the Named Executive Officer will not be entitled to receive severance benefits under the CIC Plan if the Named Executive Officer’s employment with the Company terminates because of a change in control and the Named Executive Officer accepts employment, or has the opportunity to continue employment, with a successor entity (other than under terms and conditions which would permit a good reason resignation).
The severance benefits available under the CIC Plan are not additive or cumulative to severance or termination benefits that a Named Executive Officer might also be entitled to receive under the terms of any other arrangement or agreement with the Company. As a condition of participating in the CIC Plan, the Named Executive Officer must expressly agree that the CIC Plan supersedes all prior plans or agreements providing for severance benefits.
The following table lists the amounts the Named Executive Officers were eligible to receive from the Company under the CIC Plan if a change in control had occurred and the Named Executive Officer’s employment was terminated either involuntarily without cause or as a result of a good reason termination effective as of September 30, 2007, the end of our 2007 fiscal year. The amounts would be payable in a single lump sum and, to the extent required to comply with Section 409A of the Internal Revenue Code, would not be paid to the Named Executive Officer prior to the date that is six months from the date of termination. The calculations in the table below are based on a price equal to $33.89 per share which was the closing price of WGL Holdings common stock on September 28, 2007, which was the last trading day of fiscal 2007.
Incremental Payments Due toChange-In-Control*
(assuming termination of employment on September 30, 2007)
(assuming termination of employment on September 30, 2007)
DeGraffenreidt | Ammann | McCallister | Burke | Chapman | ||||||||||||||||
Cash severance | $ | 3,723,000 | $ | 1,215,000 | $ | 2,184,000 | $ | 1,326,750 | $ | 797,500 | ||||||||||
Additional value due to vesting of unvested options | $ | 451,223 | $ | 84,029 | $ | 216,279 | $ | 111,091 | $ | 96,972 | ||||||||||
Additional value due to vesting of unvested perf. shares | $ | 1,828,060 | $ | 314,059 | $ | 871,820 | $ | 448,975 | $ | 386,210 | ||||||||||
Additional SERP amount due to vesting | $ | 678,995 | $ | 229,144 | $ | 719,911 | $ | 0 | $ | 370,755 | ||||||||||
Additional SERP amount due to service credit | $ | 0 | $ | 114,572 | $ | 330,996 | $ | 245,118 | $ | 0 | ||||||||||
Medical and dental continuation | $ | 73,306 | $ | 73,306 | $ | 50,533 | $ | 73,306 | $ | 33,522 | ||||||||||
Outplacement (maximum) | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | $ | 25,000 | ||||||||||
Sec 280(G) excise tax and relatedgross-up** | $ | 2,541,139 | $ | 879,868 | $ | 1,814,392 | $ | 872,240 | $ | 665,603 | ||||||||||
Total | $ | 9,320,723 | $ | 2,934,978 | $ | 6,212,932 | $ | 3,102,480 | $ | 2,375,562 | ||||||||||
* | SERP calculations were made using a 6% discount rate. Medical and dental continuation amounts are estimates. As a result, the Section 280G excise tax and relatedgross-up amounts have been rounded. | |
** | This amount represents a reimbursement to the executive to cover the excise tax paid to the Internal Revenue Service on thechange-in-control benefits. |
All severance benefits payable under the CIC Plan are subject to each participant’s compliance with the Company’s Post-Employment Restrictions Policy. The policy defines the scope of restrictions
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that will apply to post-employment actions undertaken by executives who receive severance benefits following a termination of employment. The policy is intended to protect (i) confidential information belonging to the Company that the executive had access to and possesses due to the nature of his or her position and ii) the competitive business operations of the Company. The restrictions under the policy last for one year following the executive’s date of termination. The policy prohibits any terminated Named Executive Officer that receives the severance benefits described above from soliciting employees or customers of the Company and disclosing the Company’s “confidential information.” For the purposes of the policy, “confidential Information” includes, but is not be limited to non-public information regarding computer programs, discoveries or improvements, marketing, manufacturing, or organizational research and development, or business plans; sales forecasts; personnel information, including the identity of employees, their responsibilities, competence, abilities, and compensation; pricing and financial information; current and prospective customer lists and information on customers or their employees; information concerning planned or pending acquisitions or divestitures; and information concerning purchases of major equipment or property.
DeGraffenreidt | Ammann | McCallister | Burke | Chapman | ||||||||||||||||
Bonus in year of termination | $ | 0 | $ | 0 | $ | 0 | $ | 137,250 | $ | 0 | ||||||||||
Additional value due to vesting of unvested options | $ | 0 | $ | 0 | $ | 0 | $ | 111,091 | $ | 0 | ||||||||||
Total | $ | 0 | $ | 0 | $ | 0 | $ | 248,341 | $ | 0 | ||||||||||
Only Ms. Burke was retirement eligible on September 30, 2007. Thus, she is the only one with amounts in the retirement table.
Number of securities | ||||||||||||
remaining available | ||||||||||||
Number of securities | for future issuance | |||||||||||
to be issued upon | Weighted-average | under equity | ||||||||||
exercise of | exercise price of | compensation plans | ||||||||||
outstanding options, | outstanding options, | (excluding securities | ||||||||||
warrants and rights | warrants and rights | reflected in column | ||||||||||
Plan Category | (a) | (b) | (a))(c)* | |||||||||
Equity compensation plans approved by security holders | 1,542,140 | $ | 29.28 | 1,430,777 | ||||||||
Equity compensation plans not approved by security holders | 0 | 0 | 0 | |||||||||
Total | 1,542,140 | $ | 29.28 | 1,430,777 |
* | The number of securities remaining available for future issuance under the 1999 Incentive Compensation Plan is reduced upon the issuance of securities, not at the time of grant. |
The above table presents information regarding compensation plans under which common stock may be issued to employees and non-employees as compensation. The Company currently has three such plans: the Directors’ Stock Compensation Plan, the 1999 Incentive Compensation Plan and the WGL Holdings Omnibus Incentive Compensation Plan. Effective March 1, 2007, no further awards will be made under the 1999 Incentive Compensation Plan. Total shares shown in the above table include 44,783 shares available for future issuance under the Directors’ Stock Compensation Plan, 1,228,134 shares available upon the vesting of performance shares and exercise of stock options shares under the 1999 Plan and 1,700,000 shares available for future issuance under the Omnibus Incentive Compensation. Performance shares that may be issued under the Omnibus Incentive Compensation Plan are calculated under a formula that enables a determination of the minimum and maximum number of performance shares that may be issued. This formula is further described above in this information statement in the Compensation Discussion and Analysis section under the caption “Long-Term Incentive Compensation.”
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The Audit Committee of the Board of Directors of the Company is composed of four directors who are not employees of the Company. Members of the committee are independent under rules of the Securities and Exchange Commission and the New York Stock Exchange. The names of the members of this committee as of the date of this information statement appear at the end of this report.
The Audit Committee oversees the Company’s financial reporting process on behalf of the Company’s Board of Directors and is directly responsible for the appointment, compensation and oversight of the Company’s independent public accountants. The committee maintains a charter that outlines its responsibilities. The committee met six times during fiscal year 2007.
The Audit Committee has implemented the requirements of the Sarbanes-Oxley Act of 2002 and rules of the New York Stock Exchange with respect to the responsibilities of audit committees of public companies. Among other matters, the Audit Committee reviews procedures on internal control over financial reporting with management and with the Company’s independent public accountants. The Audit Committee and the Company’s full board of directors are committed to compliance with all provisions of that statute and related regulations. Further actions have been taken by the Audit Committee and the board of directors as statutory and regulatory provisions became effective for audit committees and independent auditors.
The Audit Committee reviewed and discussed the Company’s audited financial statements with management of the Company and the independent public accountants. The Audit Committee discussed with the Company’s internal auditor and the independent public accountants the overall scope and specific plans for their respective audits and the adequacy of the Company’s internal controls.
The Audit Committee discussed with the independent public accountants those matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T). The committee received the written disclosures and the letter from the independent public accountants required by Independence Standards Board Standard No. 1,Independence Discussions with Audit Committees ,as adopted by the Public Company Accounting Oversight Board in Rule 3600T. The committee discussed with the independent accountants the issue of their independence from the Company.
Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report onForm 10-K for the year ended September 30, 2007, for filing with the Securities and Exchange Commission.
AUDIT COMMITTEE
Karen Hastie Williams (Chair)
George P. Clancy, Jr.
Melvyn J. Estrin
James F. Lafond
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During fiscal years 2007 and 2006, the Company’s independent registered public accounting firm for each of those years, Deloitte & Touche LLP (“Deloitte”), billed WGL Holdings the following fees:
2007 | 2006 | |||||||
Audit Fees | $ | 1,946,189 | $ | 1,897,880 | ||||
Audit Related Fees | 0 | 0 | ||||||
Tax Fees | 22,000 | 20,000 | ||||||
All Other Fees | 0 | 0 | ||||||
Total Fees | $ | 1,968,189 | $ | 1,917,880 | ||||
All services rendered by Deloitte are permissible under applicable laws and regulations and were pre-approved by the Audit Committee, or by the Chair of the Audit Committee by delegated authority as required by law. The fees paid to Deloitte for services are described in the above table under the categories listed below.
1) | Audit Fees — These are fees for professional services performed by Deloitte for the audit of the annual financial statements of WGL Holdings and its consolidated subsidiaries, including the Company, and review of financial statements included in the quarterly filings of WGL Holdings and the Company onForm 10-Q, and services that are normally provided in connection with statutory and regulatory filings or engagements. For fiscal years 2007, and 2006 the total audit fees include $771,625 and $783,293 respectively, to perform an assessment of WGL Holdings’ internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002. | |
2) | Audit-Related Fees — These are fees for services performed by Deloitte related to the audit. This included advisory services rendered with respect to internal controls over financial reporting requirements. | |
3) | Tax Fees — These are fees for professional services performed by Deloitte with respect to tax compliance, tax advice and tax planning. This includes review of tax returns for WGL Holdings and its consolidated subsidiaries, including the Company. | |
4) | All Other Fees — These are fees for other permissible work performed by Deloitte that does not meet the above category descriptions. |
These services are actively monitored (as to both spending level and work content) by the Audit Committee to maintain the appropriate objectivity and independence in Deloitte’s core work, which is the audit of the Company’s financial statements and the assessment of internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002.
In accordance with provisions of the Sarbanes-Oxley Act of 2002, all audit and non-audit services provided to the Company by its independent auditors must be pre-approved by the Audit Committee. As authorized by that statute, the Audit Committee has delegated authority to the Chair of the Audit Committee to pre-approve up to $100,000 in audit and non-audit services. This authority may be exercised when the Audit Committee is not in session. Any decisions by the Chair of the Audit Committee under this delegated authority are reported at the next meeting of the Audit Committee. All services reported in the schedule shown above for fiscal years 2007 and 2006 were pre-approved by the full Audit Committee or by the Chair of the Audit Committee, by delegated authority.
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RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
At a meeting held on December 18, 2007, the audit committee of the board of directors appointed the firm of Deloitte & Touche LLP, independent public accountants, to audit the books, records and accounts of the Company for fiscal year 2008. The board of directors recommends that the shareholders ratify this appointment.
Representatives of Deloitte & Touche LLP will not be present at the annual meeting unless by 10 a.m. on February 28, 2008, the Secretary of the Company receives written notice from a shareholder addressed to the Secretary at 101 Constitution Ave., N.W., Washington, DC 20080, that the shareholder will attend the meeting and wishes to ask questions of a representative of the firm.
The board of directors recommends a vote “FOR” this proposal.
The board of directors knows of no other matters to be brought before the annual meeting. The annual report of WGL Holdings and its subsidiaries for fiscal year 2007, including financial statements, was first made available to shareholders on or about January 22, 2008.
Upon written request, Washington Gas Light Company will furnish without charge a copy of its most recent annual report onForm 10-K.Please direct these requests to: Shelley Jennings, Treasurer, Washington Gas Light Company, 101 Constitution Ave., N.W., Washington, D.C. 20080.
By order of the board of directors,
Douglas V. Pope
Secretary
January 25, 2008
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