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WGL Holdings, Inc. Reports Third Quarter Fiscal Year 2016 Financial Results; Affirms Fiscal Year 2016 Guidance

WASHINGTON--(BUSINESS WIRE)-- WGL Holdings, Inc. (NYSE: WGL):

Consolidated Results

WGL Holdings, Inc. (NYSE: WGL), the parent company of Washington Gas Light Company (Washington Gas) and other energy-related subsidiaries, today reported net income applicable to common stock determined in accordance with generally accepted accounting principles in the United States of America (GAAP) for the quarter ended June 30, 2016, of $2.0 million, or $0.04 per share, an improvement of $17.7 million, or $0.36 per share, over a net loss applicable to common stock of $(15.7) million, or $(0.32) per share, reported for the quarter ended June 30, 2015.

For the nine months ended June 30, 2016, net income applicable to common stock was $176.5 million, or $3.50 per share, an improvement of $46.8 million, or $0.91 per share, over net income applicable to common stock of $129.7 million, or $2.59 per share, for the same period of the prior fiscal year. Our operations are seasonable and accordingly, our operating results for the three and nine months ended June 30, 2016, may not be indicative of the results expected for the 12 months ending September 30, 2016.

On a consolidated basis, WGL also uses non-GAAP operating earnings (loss) to evaluate overall financial performance, and evaluates segment financial performance based on earnings before interest and taxes (EBIT) and adjusted EBIT. Operating earnings (loss) and adjusted EBIT are non-GAAP financial measures, which are not recognized in accordance with GAAP and should not be viewed as alternatives to GAAP measures of performance. Both non-GAAP operating earnings (loss) and adjusted EBIT adjust for the accounting recognition of certain transactions that are not representative of the ongoing earnings of the company. Additionally, we believe that adjusted EBIT enhances the ability to evaluate segment performance because it excludes interest and income tax expense, which are affected by corporate-wide strategies such as capital financing and tax sharing allocations. Refer to "Reconciliation of Non-GAAP Financial Measures," attached to this news release, for a more detailed discussion of management's use of these measures and for reconciliations to GAAP financial measures.

For the quarter ended June 30, 2016, operating earnings were $17.0 million, or $0.33 per share, compared to operating earnings of $10.7 million, or $0.22 per share, for the same quarter of the prior fiscal year. For the nine months ended June 30, 2016, operating earnings were $165.7 million, or $3.29 per share, compared to operating earnings of $169.8 million, or $3.39 per share, for the same period of the prior fiscal year.

Results by Business Segment

       

Regulated Utility

               
Three Months Ended June 30, Increase/ Nine Months Ended June 30, Increase/
(In millions)   2016   2015   (Decrease)   2016   2015   (Decrease)
EBIT $ (20.5 )   $ (6.3 ) $ (14.2 ) $ 243.1   $ 238.6 $ 4.5
Adjusted EBIT   $ 4.9     $ 6.5     $ (1.6 )   $ 245.5     $ 255.5     $ (10.0 )
 

For the three months ended June 30, 2016, EBIT reflects lower unrealized mark-to-market valuations on energy-related derivatives, partially offset by the effects of colder than normal weather patterns. For the nine months ended June 30, 2016, EBIT reflects higher unrealized mark-to-market valuations on energy-related derivatives, partially offset by the effects of warmer than normal weather patterns.

For both the three and nine months ended June 30, 2016, the comparisons in EBIT and adjusted EBIT reflect: (i) lower realized margins associated with our asset optimization program; (ii) negative effects of certain natural gas consumption patterns in the District of Columbia; (iii) higher depreciation expense related to the growth in our utility plant; (iv) increases in general taxes and (v) a decrease in the recovery of carrying costs due to lower average storage gas inventory balances. These unfavorable variances were partially offset by: (i) customer growth and (ii) higher rate recovery related to our accelerated pipe replacement programs.

       

Retail Energy-Marketing

               
Three Months Ended June 30, Increase/ Nine Months Ended June 30, Increase/
(In millions)   2016   2015   (Decrease)   2016   2015   (Decrease)
EBIT $ 49.5   $ 16.7 $ 32.8 $ 52.1   $ 39.2 $ 12.9
Adjusted EBIT   $ 16.3     $ 18.7     $ (2.4 )   $ 29.9     $ 54.6     $ (24.7 )
 

For the three and nine months ended June 30. 2016, the EBIT comparisons reflect higher unrealized mark-to-market valuations on energy-related derivatives.

Additionally, for both the three and nine months ended June 30, 2016, the comparisons in EBIT and adjusted EBIT reflect lower realized natural gas margins due to a decrease in portfolio optimization activity and lower realized electric margins due to higher capacity charges from the regional power grid operator (PJM) when compared to the same periods in the prior fiscal year. Further contributing to these unfavorable variances were higher operating expenses primarily due to commercial broker fees. Partially offsetting these variances were higher wholesale and large commercial and government volumes due to increased growth.

       

Commercial Energy Systems

               
Three Months Ended June 30, Increase/ Nine Months Ended June 30, Increase/
(In millions)   2016   2015   (Decrease)   2016   2015   (Decrease)
EBIT $ 8.3   $ 3.8 $ 4.5 $ 10.3   $ 4.7 $ 5.6
Adjusted EBIT   $ 9.7     $ 7.8     $ 1.9     $ 14.2     $ 10.7     $ 3.5
 

For both the three and nine months ended June 30, 2016, the improvements in EBIT and adjusted EBIT reflect: (i) higher margins from the energy-efficiency contracting business; (ii) the growth in distributed generation assets in service, including increased solar renewable energy credit sales and (iii) improved results from our investment solar businesses. During the nine month period only, these improvements were partially offset by an impairment related to our investment in thermal solar projects and higher operating and depreciation expenses.

Additionally, the improvements in EBIT for both the three and nine months ended June 30, 2016, reflect prior period losses associated with unrecovered government contracting costs. The period-to-period comparisons of adjusted EBIT, for both the three and nine month periods, reflect an increase in investment tax credits related to our distributed generation assets.

       

Midstream Energy Services

               
Three Months Ended June 30, Increase/ Nine Months Ended June 30, Increase/
(In millions)   2016   2015   (Decrease)   2016   2015   (Decrease)
EBIT $ (16.9 )   $ (26.6 ) $ 9.7 $ 17.6   $ (23.3 ) $ 40.9
Adjusted EBIT   $ 14.4     $ (1.4 )   $ 15.8     $ 19.2     $ (1.9 )   $ 21.1
 

For the three and nine months ended June 30, 2016, the improvements in EBIT primarily reflect: (i) higher valuations on our derivative contracts associated with our long-term transportation strategies; (ii) lower pipeline project development expenses and (iii) higher income related to our pipeline investments. Partially offsetting these improvements are lower valuations and realized margins related to storage inventory and the associated economic hedging transactions and lower realized margins on our transportation strategies, primarily as a result of losses associated with the index price used in certain gas purchases from Antero Resources Corporation, which is the subject of an arbitration proceeding. Losses realized during the current period were $5.0 million and $8.8 million for the three and nine months ended June 30, 2016, respectively. While these losses may continue in the near term, and are estimated to be approximately $13.5 million for the full fiscal year, we do anticipate that they will reverse in future periods upon completion of the arbitration proceeding.

The improvements in adjusted EBIT for the three and nine months ended June 30, 2016, primarily reflect favorable storage spreads when compared to the same periods in the prior fiscal year.

       

Other Activities

               
Three Months Ended June 30, Increase/ Nine Months Ended June 30, Increase/
(In millions)   2016   2015   (Decrease)   2016   2015   (Decrease)
EBIT $ (0.5 )   $ (1.0 ) $ 0.5 $ (2.8 )   $ (8.9 ) $ 6.1
Adjusted EBIT   $ (0.5 )   $ (1.0 )   $ 0.5     $ (2.8 )   $ (3.3 )   $ 0.5
 

Administrative and business development activity costs associated with WGL and Washington Gas Resources and activities and transactions that are not significant enough on a stand-alone basis to warrant treatment as an operating segment, and that do not fit into one of our four operating segments, are aggregated as "Other Activities" and included as part of non-utility operations. For both the three and nine months ended June 30, 2016, the comparisons in EBIT and adjusted EBIT reflect lower operating expenses in the current period. Additionally, for the nine months ended June 30, 2016, the comparisons in EBIT and adjusted EBIT reflect an impairment related to American Solar Direct Holdings Inc. (ASDHI) recorded in the prior period.

Earnings Outlook

We provide earnings guidance for consolidated non-GAAP operating earnings. In providing fiscal year 2016 guidance, we note that there will likely be differences between our reported GAAP earnings and our non-GAAP operating earnings due to matters such as, but not limited to, unrealized mark-to-market positions for our energy-related derivatives and changes in the measured value of our trading inventory for WGL Midstream. On a year-to-date basis, non-GAAP operating earnings are lower than GAAP earnings due to $10.8 million of after-tax non-GAAP adjustments. Non-GAAP adjustments could change significantly and are subject to swings from period to period. As a result, WGL management is not able to reasonably estimate the aggregate impact of these items to derive GAAP earnings guidance and therefore is not able to provide a corresponding GAAP equivalent for its non-GAAP operating earnings guidance.

We are affirming our consolidated non-GAAP operating earnings estimate for fiscal year 2016 in a range of $3.00 per share to $3.20 per share and guiding to the high end of the range, after adjusting for losses relating to the Antero contract.

We assume no obligation to update this guidance. The absence of any statement by us in the future should not be presumed to represent an affirmation of this earnings guidance. For the assumptions underlying this guidance, please refer to the slides accompanying our webcast that will be posted to WGL's website, www.wglholdings.com.

Other Information

We will hold a conference call at 10:30 a.m., Eastern Time on August 4, 2016, to discuss our third quarter fiscal year 2016 financial results. The live conference call will be available to the public via a link located on WGL's website, www.wglholdings.com. To hear the live webcast, click on "Investor Relations" then "Events & Webcasts." The webcast and related slides will be archived on WGL's website through at least September 4, 2016.

WGL, headquartered in Washington, D.C., is a leading source for clean, efficient and diverse energy solutions. With activities and assets across the U.S., WGL consists of Washington Gas, WGL Energy, WGL Midstream and Hampshire Gas. WGL provides natural gas, electricity, green power and energy services, including generation, storage, transportation, distribution, supply and efficiency. Our calling as a company is to make energy surprisingly easy for our employees, our community and all our customers. Whether you are a homeowner or renter, small business or multinational corporation, state and local or federal agency, WGL is here to provide Energy Answers. Ask Us. For more information, visit us at www.wglholdings.com.

Unless otherwise noted, earnings per share amounts are presented on a diluted basis, and are based on weighted average common and common equivalent shares outstanding.

Please see the attached comparative statements for additional information on our operating results. Also attached to this news release are reconciliations of non-GAAP financial measures.

Forward-Looking Statements

This news release and other statements by us include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the outlook for earnings, revenues, dividends and other future financial business performance, strategies, the outcome of the arbitration proceeding affecting our midstream energy services segment, legal developments relating to the Constitution Pipeline and other expectations. Forward-looking statements are typically identified by words such as, but not limited to, "estimates," "expects," "anticipates," "intends," "believes," "plans," and similar expressions, or future or conditional verbs such as "will," "should," "would," and "could." Although we believe such forward-looking statements are based on reasonable assumptions, we cannot give assurance that every objective will be achieved. Forward-looking statements speak only as of today, and we assume no duty to update them. Factors that could cause actual results to differ materially from those expressed or implied include, but are not limited to, general economic conditions and the factors discussed under the "Risk Factors" heading in our most recent annual report on Form 10-K and other documents that we have filed with, or furnished to, the U.S. Securities and Exchange Commission.

 

WGL Holdings, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

         
(In thousands)   June 30, 2016   September 30, 2015
ASSETS    
Property, Plant and Equipment
At original cost $ 5,335,684 $ 5,003,910
Accumulated depreciation and amortization   (1,385,486 )   (1,331,182 )
Net property, plant and equipment   3,950,198     3,672,728  
Current Assets
Cash and cash equivalents 16,534 6,733
Accounts receivable, net 457,388 358,491
Storage gas 172,718 211,443
Derivatives and other   173,914     171,874  
Total current assets   820,554     748,541  
Deferred Charges and Other Assets   972,061     840,090  
Total Assets   $ 5,742,813     $ 5,261,359  
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $ 1,411,081 $ 1,243,247
Washington Gas Light Company preferred stock 28,173 28,173
Long-term debt   1,194,275     944,201  
Total capitalization   2,633,529     2,215,621  
Current Liabilities
Notes payable and current maturities of long-term debt 358,342 357,000
Accounts payable and other accrued liabilities 333,160 325,146
Derivatives and other   303,421     300,768  
Total current liabilities   994,923     982,914  
Deferred Credits   2,114,361     2,062,824  
Total Capitalization and Liabilities   $ 5,742,813     $ 5,261,359  
 
 

WGL Holdings, Inc.

Condensed Consolidated Statements of Income

(Unaudited)

         
   

Three Months Ended

June 30,

 

Nine Months Ended

June 30,

(In thousands, except per share data)   2016   2015   2016   2015
OPERATING REVENUES        
Utility $ 181,622 $ 185,179 $ 912,612 $ 1,173,396
Non-utility   258,965     255,994     977,048     1,018,747  
Total Operating Revenues   440,587     441,173     1,889,660     2,192,143  
OPERATING EXPENSES
Utility cost of gas 65,739 59,286 236,819 499,128
Non-utility cost of energy-related sales 197,880 240,808 832,087 933,911
Operation and maintenance 97,461 98,642 296,813 295,309
Depreciation and amortization 33,786 30,696 98,368 90,159
General taxes and other assessments   32,038     29,308     119,970     126,475  
Total Operating Expenses   426,904     458,740     1,584,057     1,944,982  
OPERATING INCOME (LOSS) 13,683 (17,567 ) 305,603 247,161
Equity in earnings of unconsolidated affiliates 4,527 1,262 10,558 4,238
Other income (expenses) — net 1,915 2,329 3,689 (1,688 )
Interest expense   12,998     13,140     38,757     38,704  
INCOME (LOSS) BEFORE TAXES 7,127 (27,116 ) 281,093 211,007
INCOME TAX EXPENSE (BENEFIT)   4,772     (11,756 )   103,619     80,364  
NET INCOME (LOSS) $ 2,355 $ (15,360 ) $ 177,474 $ 130,643
Dividends on Washington Gas Light Company preferred stock   330     330     990     990  
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK   $ 2,025     $ (15,690 )   $ 176,484     $ 129,653  
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 50,622 49,729 50,158 49,814
Diluted   50,905     49,729     50,418     50,056  
EARNINGS (LOSS) PER AVERAGE COMMON SHARE
Basic $ 0.04 $ (0.32 ) $ 3.52 $ 2.60
Diluted   $ 0.04     $ (0.32 )   $ 3.50     $ 2.59  
 
The following table reconciles EBIT by operating segment to net income (loss) applicable to common stock.
         
   

Three Months Ended

June 30,

 

Nine Months Ended

June 30,

(In thousands)   2016   2015   2016   2015
EBIT:
Regulated utility $ (20,458 ) $ (6,262 ) $ 243,102 $ 238,645
Retail energy-marketing 49,544 16,654 52,055 39,185
Commercial energy systems 8,286 3,750 10,251 4,731
Midstream energy services (16,908 ) (26,607 ) 17,631 (23,343 )
Other activities (517 ) (970 ) (2,773 ) (8,915 )
Intersegment eliminations   178     (541 )   (416 )   (592 )
Total $ 20,125 $ (13,976 ) $ 319,850 $ 249,711
Interest expense   12,998     13,140     38,757     38,704  
Income (loss) before income taxes   $ 7,127     $ (27,116 )   $ 281,093     $ 211,007  
Income tax expense (benefit) 4,772 (11,756 ) 103,619 80,364
Dividends on Washington Gas preferred stock   330     330     990     990  
Net income (loss) applicable to common stock   $ 2,025     $ (15,690 )   $ 176,484     $ 129,653  
 
 

WGL Holdings, Inc.

Consolidated Financial and Operating Statistics

(Unaudited)

 
FINANCIAL STATISTICS
   

Twelve Months Ended

June 30,

    2016   2015
Closing Market Price — end of period   $70.79   $54.29
52-Week Market Price Range $74.10 - $51.86 $59.08 - $37.77
Price Earnings Ratio 19.9 16.3
Annualized Dividends Per Share $1.95 $1.85
Dividend Yield 2.8% 3.4%
Return on Average Common Equity 13.3% 13.1%
Total Interest Coverage (times) 6.4 6.4
Book Value Per Share — end of period $27.64 $25.47
Common Shares Outstanding — end of period (thousands)   51,058   49,729
 
 

UTILITY GAS STATISTICS

             
   

Three Months Ended
June 30,

 

Nine Months Ended

June 30,

 

Twelve Months Ended
June 30,

(In thousands)   2016       2015   2016       2015   2016       2015
Operating Revenues            
Gas Sold and Delivered
Residential — Firm $ 102,179 $ 99,905 $ 549,840 $ 755,025 $ 611,481 $ 821,925
Commercial and Industrial — Firm 24,065 23,723 120,353 172,177 136,114 189,440
Commercial and Industrial — Interruptible 257 387 1,864 2,361 2,080 2,558
Electric Generation   275         275     825         825     1,100         1,100    
    126,776         124,290     672,882         930,388     750,775         1,015,023    
Gas Delivered for Others
Firm 35,416 42,562 177,811 176,502 206,513 202,924
Interruptible 9,783 9,616 38,118 44,209 46,386 52,401
Electric Generation   205         125     586         364     775         515    
    45,404         52,303     216,515         221,075     253,674         255,840    
172,180 176,593 889,397 1,151,463 1,004,449 1,270,863
Other   9,442         8,586     23,215         21,933     37,811         35,787    
Total   $ 181,622         $ 185,179     $ 912,612         $ 1,173,396     $ 1,042,260         $ 1,306,650    
                                       
   

Three Months Ended
June 30,

 

Nine Months Ended

June 30,

 

Twelve Months Ended
June 30,

(In thousands of therms)   2016       2015   2016       2015   2016       2015
Gas Sales and Deliveries
Gas Sold and Delivered
Residential — Firm 82,186 74,454 556,876 702,214 589,536 738,620
Commercial and Industrial — Firm 28,392 23,710 153,101 181,617 169,027 198,852
Commercial and Industrial — Interruptible   295         341     2,346         1,786     2,632         2,214    
    110,873         98,505     712,323         885,617     761,195         939,686    
Gas Delivered for Others
Firm 89,059 67,054 441,029 506,193 492,961 556,371
Interruptible 49,396 46,665 194,930 217,812 237,382 263,043
Electric Generation   65,905         57,862     168,284         113,072     234,273         164,440    
    204,360         171,581     804,243         837,077     964,616         983,854    
Total   315,233         270,086     1,516,566         1,722,694     1,725,811         1,923,540    
Utility Gas Purchase Expense (excluding asset optimization)   38.21   ¢   52.84 ¢ 35.35   ¢   56.21 ¢ 35.92   ¢   55.96 ¢
HEATING DEGREE DAYS
Actual 388 203 3,340 3,929 3,340 3,929
Normal 290 296 3,719 3,746 3,731 3,759
Percent Colder (Warmer) than Normal   33.8 %       (31.4 )%   (10.2 )%       4.9 %   (10.5 )%       4.5 %  
Average Active Customer Meters   1,144,974         1,132,904     1,141,249         1,129,159     1,138,596         1,126,300    
WGL ENERGY SERVICES                                      
Natural Gas Sales
Therm Sales (thousands of therms) 144,300 112,400 649,800 628,000 734,800 710,300
Number of Customers (end of period)   136,500         147,100     136,500         147,100     136,500         147,100    
Electricity Sales
Electricity Sales (thousands of kWhs) 3,201,900 2,893,100 9,321,100 8,549,900 12,828,200 11,571,400
Number of Accounts (end of period)   130,200         141,200     130,200         141,200     130,200         141,200    
WGL ENERGY SYSTEMS
Megawatts in service 137 98 137 98 137 98
Megawatt hours generated   66,068         45,862     143,014         98,632     191,445         129,894    
 

WGL Holdings, Inc.
Reconciliation of Non-GAAP Financial Measures
(Unaudited)

The tables below reconcile operating earnings (loss) on a consolidated basis to GAAP net income (loss) applicable to common stock and adjusted EBIT on a segment basis to EBIT. Management believes that operating earnings (loss) and adjusted EBIT provide a meaningful representation of our earnings from ongoing operations on a consolidated and segment basis, respectively. These measures facilitate analysis by providing consistent and comparable measures to help management, investors and analysts better understand and evaluate our operating results and performance trends, and assist in analyzing period-to-period comparisons. Additionally, we use these non-GAAP measures to report to the board of directors and to evaluate management's performance.

To derive our non-GAAP measures, we adjust for the accounting recognition of certain transactions (non-GAAP adjustments) based on at least one of the following criteria:

There are limits in using operating earnings (loss) and adjusted EBIT to analyze our consolidated and segment results, respectively, as they are not prepared in accordance with GAAP and may be different than non-GAAP financial measures used by other companies. In addition, using operating earnings (loss) and adjusted EBIT to analyze our results may have limited value as they exclude certain items that may have a material impact on our reported financial results. We compensate for these limitations by providing investors with the attached reconciliations to the most directly comparable GAAP financial measures.

The following tables represent the reconciliation of non-GAAP operating earnings to GAAP net income (loss) applicable to common stock (consolidated by quarter):

 
Fiscal Year 2016
    Quarterly Period Ended*
(In thousands, except per share data)   Dec. 31   Mar. 31   Jun. 30   Sept. 30   Fiscal Year
Operating earnings   $ 59,205   $ 89,490   $ 17,009     $ 165,704
Non-GAAP adjustments** 13,312 25,815 (24,881 ) 14,246
Income tax effect of non-GAAP adjustments***   (4,346 )   (9,017 )   9,897         (3,466 )
Net income applicable to common stock   $ 68,171     $ 106,288     $ 2,025         $ 176,484  
Diluted average common shares outstanding   50,030     50,282     50,905         50,418  
Operating earnings per share $ 1.18 $ 1.78 $ 0.33 $ 3.29
Per share effect of non-GAAP adjustments   0.18     0.33     (0.29 )       0.21  
Diluted earnings per average common share   $ 1.36     $ 2.11     $ 0.04         $ 3.50  
Fiscal Year 2015
    Quarterly Period Ended*
(In thousands, except per share data)   Dec. 31   Mar. 31   Jun. 30   Sept. 30   Fiscal Year
Operating earnings $ 58,004 $ 101,034 $ 10,734 $ 169,772
Non-GAAP adjustments** 10,892 (32,126 ) (44,082 ) (65,316 )
Income tax effect of non-GAAP adjustments***   (5,008 )   12,547     17,658         25,197  
Net income (loss) applicable to common stock   $ 63,888     $ 81,455     $ (15,690 )       $ 129,653  
Diluted average common shares outstanding   50,091     49,983     49,729         50,056  
Operating earnings per share $ 1.16 $ 2.02 $ 0.22 $ 3.39
Per share effect of non-GAAP adjustments   0.12     (0.39 )   (0.54 )       (0.80 )
Diluted earnings (loss) per average common share   $ 1.28     $ 1.63     $ (0.32 )       $ 2.59  

* Quarterly earnings per share may not sum to year-to-date or annual earnings per share as quarterly calculations are based on weighted average common and common equivalent shares outstanding, which may vary for each of those periods.

 

** Refer to the reconciliations of adjusted EBIT to EBIT below for further details on our non-GAAP adjustments.

 

*** 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.

 
 

WGL Holdings, Inc.

Reconciliation of Non-GAAP Financial Measures

(Unaudited)

 

The following tables summarize non-GAAP adjustments by operating segment and present a reconciliation of adjusted EBIT to EBIT. EBIT is defined as earnings before interest and taxes from continuing operations. Items we do not include in EBIT are interest expense, inter-company financing activity, dividends on Washington Gas preferred stock, and income taxes.

 
Three Months Ended June 30, 2016
(In thousands)  

Regulated

Utility

 

Retail
Energy-

Marketing

 

Commercial

Energy

Systems

 

Midstream

Energy

Services

 

Other

Activities(j)

 

Eliminations

  Total
Adjusted EBIT   $ 4,947     $ 16,316     $ 9,657     $ 14,425     $ (517 )   $ 178     $ 45,006  
Non-GAAP adjustments:              
Unrealized mark-to-market valuations on energy-related derivatives(a) (25,182 ) 33,228 8,085 16,131
Storage optimization program(b) (688 ) (688 )
DC weather impact(c) 465 465
Distributed generation asset related investment tax credits(d) (1,371 ) (1,371 )
Change in measured value of inventory(e) (30,646 ) (30,646 )
Losses associated with Antero contract(f)               (8,772 )           (8,772 )
Total non-GAAP adjustments   $ (25,405 )   $ 33,228     $ (1,371 )   $ (31,333 )   $     $     $ (24,881 )
EBIT   $ (20,458 )   $ 49,544     $ 8,286     $ (16,908 )   $ (517 )   $ 178     $ 20,125  
                             
Three Months Ended June 30, 2015
(In thousands)  

Regulated

Utility

 

Retail
Energy-

Marketing

 

Commercial

Energy

Systems

 

Midstream

Energy

Services

 

Other

Activities(j)

 

Eliminations

  Total
Adjusted EBIT   $ 6,549     $ 18,655     $ 7,812     $ (1,399 )   $ (970 )   $ (541 )   $ 30,106  
Non-GAAP adjustments:
Unrealized mark-to-market valuations on energy-related derivatives(a) (10,426 ) (2,001 ) (21,840 ) (34,267 )
Storage optimization program (b) (644 ) (644 )
DC weather impact(c) (1,276 ) (1,276 )
Distributed generation asset related investment tax credits(d) (1,081 ) (1,081 )
Change in measured value of inventory(e) (3,368 ) (3,368 )
Impairment loss on Springfield Operations Center(g) (465 ) (465 )
Unrecovered government contracting costs(h)           (2,981 )               (2,981 )
Total non-GAAP adjustments   $ (12,811 )   $ (2,001 )   $ (4,062 )   $ (25,208 )   $     $     $ (44,082 )
EBIT   $ (6,262 )   $ 16,654     $ 3,750     $ (26,607 )   $ (970 )   $ (541 )   $ (13,976 )
 
 
WGL Holdings, Inc.
Reconciliation of Non-GAAP Financial Measures

(Unaudited)

 
 
Nine Months Ended June 30, 2016
(In thousands)  

Regulated

Utility

 

Retail
Energy-

Marketing

 

Commercial

Energy

Systems

 

Midstream

Energy

Services

 

Other

Activities(j)

 

Eliminations

  Total
Adjusted EBIT   $ 245,485     $ 29,937     $ 14,190     $ 19,181     $ (2,773 )   $ (416 )   $ 305,604  
Non-GAAP adjustments:              
Unrealized mark-to-market valuations on energy-related derivatives(a) 7,934 22,118 30,407 60,459
Storage optimization program(b) (1,039 ) (1,039 )
DC weather impact(c) (9,278 ) (9,278 )
Distributed generation asset related investment tax credits(d) (3,939 ) (3,939 )
Change in measured value of inventory(e) (23,185 ) (23,185 )
Losses associated with Antero contract(f)               (8,772 )           (8,772 )
Total non-GAAP adjustments   $ (2,383 )   $ 22,118     $ (3,939 )   $ (1,550 )   $     $     $ 14,246  
EBIT   $ 243,102     $ 52,055     $ 10,251     $ 17,631     $ (2,773 )   $ (416 )   $ 319,850  
                             
Nine Months Ended June 30, 2015
(In thousands)  

Regulated

Utility

 

Retail
Energy-

Marketing

 

Commercial

Energy

Systems

 

Midstream

Energy

Services

 

Other

Activities(j)

 

Eliminations

  Total
Adjusted EBIT   $ 255,500     $ 54,641     $ 10,663     $ (1,895 )   $ (3,290 )   $ (592 )   $ 315,027  
Non-GAAP adjustments:
Unrealized mark-to-market valuations on energy-related derivatives(a) (13,328 ) (15,456 ) (20,989 ) (49,773 )
Storage optimization program (b) (3,243 ) (3,243 )
DC weather impact(c) 181 181
Distributed generation asset related investment tax credits(d) (2,951 ) (2,951 )
Change in measured value of inventory(e) (459 ) (459 )
Impairment loss on Springfield Operations Center(g) (465 ) (465 )
Unrecovered government contracting costs(h) (2,981 ) (2,981 )
Investment impairment(i)                   (5,625 )       (5,625 )
Total non-GAAP adjustments   $ (16,855 )   $ (15,456 )   $ (5,932 )   $ (21,448 )   $ (5,625 )   $     $ (65,316 )
EBIT   $ 238,645     $ 39,185     $ 4,731     $ (23,343 )   $ (8,915 )   $ (592 )   $ 249,711  
 
 

Footnotes:

(a)

 

Adjustments to eliminate unrealized mark-to-market gains (losses) for our energy-related derivatives for our regulated utility and retail energy-marketing operations as well as certain derivatives related to the optimization of transportation capacity for the midstream energy services segment. With the exception of certain transactions related to the optimization of system capacity assets as discussed in footnote (b) below, when these derivatives settle, the realized economic impact is reflected in our non-GAAP results, as we are only removing interim unrealized mark-to-market amounts.

(b)

Adjustments to shift the timing of storage optimization margins for the regulated utility segment from the periods recognized for GAAP purposes to the periods in which such margins are recognized for regulatory sharing purposes. In addition, lower-of-cost or market adjustments related to system and non-system storage optimization are eliminated for non-GAAP reporting because the margins will be recognized for regulatory purposes when the withdrawals are made at the unadjusted historical cost of storage inventory.

(c)

Eliminates the estimated financial effects of warm or cold weather in the District of Columbia, as measured consistent with our regulatory tariff. Washington Gas has regulatory weather protection mechanisms in Maryland and Virginia designed to neutralize the estimated financial effects of weather. Utilization of normal weather is an industry standard, and it is our practice to evaluate our rate-regulated revenues by utilizing normal weather and to provide estimates and guidance on the basis of normal weather.

(d)

To reclassify the amortization of deferred investment tax credits from income taxes to operating income for the commercial energy systems segment. These credits are a key component of the operating success of this segment and therefore are included within adjusted EBIT to help management and investors better assess the segment's performance.

(e)

For our midstream energy services segment, adjustments to reflect storage inventory at market or at a value based on the price used to value the physical forward sales contract that is economically hedging the storage inventory. Adjusting our storage optimization inventory in this fashion better aligns the settlement of both our physical and financial transactions and allows investors and management to better analyze the results of our non-utility asset optimization strategies. Additionally, this adjustment also includes the net effect of certain sharing mechanisms on the difference between the changes in our non-GAAP storage inventory valuations and the unrealized gains and losses on derivatives not subject to non-GAAP adjustments.

(f)

Adjustment to eliminate losses associated with the index price used in certain gas purchases from Antero, which are the subject of arbitration. These losses are expected to reverse in future periods upon completion of the arbitration proceedings.

(g)

Represents an impairment charge as well as accrued selling expenses related to Washington Gas' Springfield Operations Center.

(h)

Represents unrecovered government contracting costs under the Small Business Administration's Business Development 8(a) Program. We do not anticipate any further unrecovered costs as WGL has exited its participation in this program.

(i)

Represents an impairment of an equity investment in a solar holding company, accounted for at cost, which occurred in the first quarter of fiscal year 2015.

(j)

Activities and transactions that are not significant enough on a standalone basis to warrant treatment as an operating segment and that do not fit into one of our four operating segments.

 

WGL Holdings, Inc.
News Media
Jim Monroe, 202-624-6620
or
Financial Community
Douglas Bonawitz, 202-624-6129

Source: WGL Holdings, Inc.

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