Financial Highlights

The following table represents an unaudited reconciliation of non-GAAP operating earnings to GAAP net income applicable to common stock:

Fiscal Year Ended September 30,

(In thousands, except per share data) 2017 2016
Operating earnings 160,244 155,600
Non-GAAP adjustments(1) 55,368 14,477
De-designated interest rate swaps(2) (5,570)
Income tax expense on non-GAAP adjustments(3) (17,422) (2,483)
Net income applicable to common stock 192,620 167,594
Diluted average common shares outstanding 51,475 50,564
Operating earnings per share 3.11 3.08
Per share effect of non-GAAP adjustments 0.63 0.23
Diluted earnings per average common share 3.74 3.31
  1. Fiscal year 2017 includes adjustments related to: unrealized mark-to-market valuations on energy-related derivatives of $79.4 million (of which $49.3 million related to Washington Gas) and $(11.8) million for estimated weather effects in the District of Columbia; a $(6.8) million reclassification of distributed generation asset-related investment tax credits related to WGL Energy Systems; storage inventory valuation changes of $8.0 million related to WGL Midstream; merger related costs of $(12.9) million; and other adjustments of $(0.5) million. Fiscal year 2016 primarily includes adjustments related to: unrealized mark-to-market valuations on energy-related derivatives of $43.4 million (of which $20.1 million related to WGL Midstream); $(9.3) million for estimated weather effects in the District of Columbia; a $(5.3) million reclassification of distributed generation asset-related investment tax credits related to WGL Energy Systems; storage inventory valuation changes of $(15.5) million related to WGL Midstream; and other adjustments of $1.2 million.
  2. Non-GAAP adjustment related to mark-to-market valuations on forward starting interest rate swaps associated with anticipated future financing. Due to certain covenants in the merger agreement with AltaGas, it is no longer probable that the 30-year debt issuance that the swaps were originally intended to hedge will occur. However, we believe that some form of financing will continue to be required. The hedges were de-designated in January 2017.
  3. Non-GAAP adjustments are presented on a gross basis and the income tax effects of those adjustments are presented separately. The income tax effects of non-GAAP adjustments, both current and deferred, are calculated at the individual company level based on the applicable composite tax rate for each period presented, with the exception of transactions not subject to income taxes. Additionally, the income tax effect of non-GAAP adjustments includes investment tax credits related to distributed generation assets.