Current Report






UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report  
 
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 2, 2017
 
 
 
 
 
 
 
 
Commission
File Number
  
Exact name of registrant as
specified in its charter; address of principal executive offices; registrant's telephone number, including area code
  
State or Other Jurisdiction of
Incorporation
  
I.R.S.
Employer
Identification
No.
1-16163
  
WGL Holdings, Inc.
101 Constitution Ave., N.W.
Washington, D.C. 20080
(703) 750-2000
  
Virginia
  
52-2210912
0-49807
  
Washington Gas Light Company
101 Constitution Ave., N.W.
Washington, D.C. 20080
(703) 750-4440
  
District of
Columbia
and Virginia
  
53-0162882
Former name or former address, if changed since last report: N/A
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
[  ]
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
[ ]
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
[  ]
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
[  ]
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

WGL Holdings, Inc.:

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Washington Gas Light Company:

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).






Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 







ITEM 2.02
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On August 2, 2017 , WGL Holdings, Inc. (WGL) issued a news release containing earnings and other summary financial information regarding its operating performance for the three and nine months ended June 30, 2017 . A copy of WGL’s news release is attached as Exhibit 99.1.
 
ITEM 9.01
FINANCIAL STATEMENTS AND EXHIBITS
(d)
Exhibits
The following exhibit is furnished herewith:
99.1
News Release issued August 2, 2017
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrants have duly caused this Report to be signed on their behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
 
 
 
 
WGL Holdings, Inc.
 
 
 
 
and
 
 
 
 
Washington Gas Light Company
 
 
 
 
(Registrants)
 
 
 
Date: August 2, 2017
 
 
 
/s/    William R. Ford        
 
 
 
 
William R. Ford
 
 
 
 
Vice President & Chief Accounting Officer
 
 
 
 
(Principal Accounting Officer)




Exhibit 99.1


WGLLOGOA12.JPG
FOR IMMEDIATE RELEASE
August 2, 2017
  
CONTACTS:
  
 
 
  
News Media
Brian Edwards
  
202-624-6620
 
 
 
 
  
Financial Community
Douglas Bonawitz
  
202-624-6129
WGL Holdings, Inc. Reports Third Quarter Fiscal Year 2017 Financial Results;
Maintains Fiscal Year 2017 Guidance
 
Third quarter consolidated GAAP earnings per share up — $0.16 per share vs. $0.04 per share

Third quarter non-GAAP operating earnings per share up — $0.26 per share vs. $0.23 per share
 
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 three months ended June 30, 2017 , of $8.3 million , or $0.16 per share, an improvement of $6.3 million, or $0.12 per share, over net income applicable to common stock of $2.0 million , or $0.04 per share, reported for the three months ended June 30, 2016 . For the nine months ended June 30, 2017, net income applicable to common stock was $189.3 million , or $3.68 per share, an improvement of $12.8 million, or $0.18 per share, over net income applicable to common stock of $176.5 million , or $3.50 per share for the same period of the prior fiscal year. Our operations are seasonal and, accordingly, our operating results for the three and nine months ended June 30, 2017, may not be indicative of the results expected for the 12 months ended September 30, 2017.
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 three months ended June 30, 2017 , operating earnings were $ 13.6 million , or $0.26 per share, an increase of $2.0 million, or $0.03 per share, over operating earnings of $ 11.6 million , or $0.23 per share, for the same quarter of the prior fiscal year. For the nine months ended June 30, 2017 , operating earnings were $169.1 million , or $3.29 per share, an improvement of $8.8 million, or $0.11 per share, over operating earnings of $160.3 million , or $3.18 per share, for the same period of the prior fiscal year.


1



Results by Business Segment

Regulated Utility
   
Three Months Ended June 30,
 
Increase/
 
Nine Months ended June 30,
 
Increase/
(In millions)
2017
 
2016
 
(Decrease)
 
2017
 
2016
 
(Decrease)
EBIT
$
11.2

 
$
(20.5
)
 
$
31.7

 
$
279.1

 
$
243.1

 
$
36.0

Adjusted EBIT
$
9.3

 
$
4.9

 
$
4.4

 
$
250.9

 
$
245.5

 
$
5.4


For the three and nine months ended June 30, 2017, the EBIT comparisons reflect higher unrealized margins associated with our asset optimization program, partially offset by unfavorable effects of warmer than normal weather in the District of Columbia.

Additionally, for both the three and nine months ended June 30, 2017, the comparisons of both EBIT and adjusted EBIT reflect new base rates in Virginia and the District of Columbia and increased customer growth. Partially offsetting these favorable variances were higher depreciation and amortization expenses associated with our new billing system, as well as the growth in our utility plant and, for the nine month period only, higher operation and maintenance expenses.

Retail Energy-Marketing
   
Three Months Ended June 30,
 
Increase/
 
Nine Months Ended June 30,
 
Increase/
(In millions)
2017
 
2016
 
(Decrease)
 
2017
 
2016
 
(Decrease)
EBIT
$
4.3

 
$
49.5

 
$
(45.2
)
 
$
42.8

 
$
52.1

 
$
(9.3
)
Adjusted EBIT
$
6.1

 
$
16.3

 
$
(10.2
)
 
$
29.2

 
$
29.9

 
$
(0.7
)

The EBIT comparisons for both the three and nine months ended June 30, 2017, reflect lower unrealized mark-to-market valuations on energy-related derivatives.

The comparisons for both EBIT and adjusted EBIT for the three months ended June 30, 2017, reflects both lower electricity and natural gas margins. Lower natural gas margins were due to (i) lower portfolio optimization including less favorable basis spreads and (ii) lower firm sales volumes. Electricity margins were lower, primarily due to lower weather-related sales volumes.

The comparisons for both EBIT and adjusted EBIT for the nine months ended June 30, 2017, reflects lower natural gas margins, partially offset by higher electricity margins. Natural gas margins were lower due to reduced firm sales volumes while electricity margins were due to lower capacity charges from the regional power grid operator (PJM).

Commercial Energy Systems
   
Three Months Ended June 30,
 
Increase/
 
Nine Months Ended June 30,
 
Increase/
(In millions)
2017
 
2016
 
(Decrease)
 
2017
 
2016
 
(Decrease)
EBIT
$
14.4

 
$
8.3

 
$
6.1

 
$
27.6

 
$
10.3

 
$
17.3

Adjusted EBIT
$
16.2

 
$
9.7

 
$
6.5

 
$
32.5

 
$
14.2

 
$
18.3

The increase in EBIT and adjusted EBIT primarily reflects higher earnings from alternative energy investments, including investments in tax equity partnerships. Distributed generation assets in service have increased, which increases both solar generation sales and solar renewable energy credit sales. Additionally, we incurred lower expenses this year compared to the prior year due to an impairment recorded in prior fiscal year related to an alternative energy investment. These improvements were partially offset by lower revenues from the energy-efficiency contracting business and higher expenses related to business development costs.






2


Midstream Energy Services
   
Three Months Ended June 30,
 
Increase/
 
Nine Months Ended June 30,
 
Increase/
(In millions)
2017
 
2016
 
(Decrease)
 
2017
 
2016
 
(Decrease)
EBIT
$
7.7

 
$
(16.9
)
 
$
24.6

 
$
21.2

 
$
17.6

 
$
3.6

Adjusted EBIT
$
9.1

 
$
5.7

 
$
3.4

 
$
10.5

 
$
10.4

 
$
0.1


For both the three and nine months ended June 30, 2017, the increase in EBIT primarily reflects higher valuations and realized margins related to storage inventory and the associated economic hedging transactions partially offset by lower valuations on our derivative contracts associated with our long-term transportation strategies.

For both the three and nine months ended June 30, 2017, the increase in both EBIT and adjusted EBIT primarily reflects higher realized margins on our transportation strategies and higher income related to our pipeline investments, partially offset by lower income related to less favorable storage spreads when compared to the same period of the prior fiscal year.

Although realized margins on our transportation strategies have increased year-over-year, both years reflect losses associated with certain gas purchases from Antero Resources Corporation (Antero) beginning in January 2016. The index price used to invoice these purchases had been the subject of an arbitration proceeding which WGL expected to result in a favorable outcome; therefore, the unfavorable impacts of these purchases had been removed from previously reported adjusted EBIT until the second quarter of fiscal year 2017. In February 2017, the arbitral tribunal ruled in favor of Antero, and as a result, both operating earnings and adjusted EBIT for prior periods have been recast, as appropriate, to reflect the impact of these losses. Losses realized during the three and nine months ended June 30, 2017, were $0.4 million and $7.8 million, respectively, associated with this purchase contract. Losses for both the three and nine months ended June 30, 2016 were $5.0 million and $8.8 million, respectively. Accumulated losses from the inception of the contract are $23.0 million. In March 2017, we filed suit in state court in Colorado related to the delivery point to which the gas is being delivered by Antero. Antero has filed a counterclaim for breach of contract for failure to purchase specified quantities of gas. We have filed an answer opposing this counterclaim. The case is still pending.

Other Activities
   
Three Months Ended June 30,
 
Increase/
 
Nine Months Ended June 30,
 
Increase/
(In millions)
2017
 
2016
 
(Decrease)
 
2017
 
2016
 
(Decrease)
EBIT
$
(1.6
)
 
$
(0.5
)
 
$
(1.1
)
 
$
(17.9
)
 
$
(2.8
)
 
$
(15.1
)
Adjusted EBIT
$
(0.9
)
 
$
(0.5
)
 
$
(0.4
)
 
$
(3.1
)
 
$
(2.8
)
 
$
(0.3
)

For the three and nine months ended June 30, 2017, the decrease in EBIT primarily relates to external costs associated with the planned merger with AltaGas Ltd. (AltaGas).
Earnings Outlook
We provide earnings guidance for consolidated non-GAAP operating earnings. In providing fiscal year 2017 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 $ 20.2 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 maintaining our consolidated non-GAAP operating earnings estimate for fiscal year 2017 in a range of $3.10 per share to $3.30 per share, with a focus on the lower end of the range as a result of lower non-GAAP EBIT expectations for our Retail Energy-Marketing business.

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.


3


Other Information

During the pendency period of the Merger Agreement between WGL and AltaGas, WGL will not conduct earnings calls. Additional information regarding financial results and recent regulatory events can be found in WGL's and Washington Gas' Form 10-Q for the quarter ended June 30, 2017 , as filed with the Securities and Exchange Commission, and is also available at www.wglholdings.com .

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.wgl.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, financing plans, legal developments relating to the Constitution Pipeline, AltaGas Ltd.’s proposed acquisition of us 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 the date of this release, 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, the possibility that the closing of the AltaGas transaction may not occur or may be delayed; litigation related to the AltaGas transaction or limitations or restrictions imposed by regulatory authorities that may delay or negatively impact the transaction; the potential loss of customers, employees or business partners as a result of the transaction and the factors discussed under the “Risk Factors” heading in our most recent annual report on Form 10-K and our quarterly report on Form 10-Q for the quarter ended June 30, 2017, and other documents that we have filed with, or furnished to, the U.S. Securities and Exchange Commission.


4


WGL Holdings, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)


(In thousands)
 
June 30, 2017
 
September 30, 2016
ASSETS
 
 
 
 
Property, Plant and Equipment
 
 
 
 
At original cost
 
$
5,856,655

 
$
5,542,916

Accumulated depreciation and amortization
 
(1,509,869
)
 
(1,415,679
)
Net property, plant and equipment
 
4,346,786

 
4,127,237

Current Assets
 
 
 
 
Cash and cash equivalents
 
9,570

 
5,573

Accounts receivable, net
 
574,013

 
491,020

Storage gas
 
210,531

 
207,132

Derivatives and other
 
168,181

 
139,749

Total current assets
 
962,295

 
843,474

Deferred Charges and Other Assets
 
1,064,412

 
1,078,739

Total Assets
 
$
6,373,493

 
$
6,049,450

CAPITALIZATION AND LIABILITIES
 
 
 
 
Capitalization
 
 
 
 
WGL Holdings common shareholders’ equity
 
$
1,521,283

 
$
1,375,561

Non-controlling interest
 
5,234

 
409

Washington Gas Light Company preferred stock
 
28,173

 
28,173

Total Equity
 
1,554,690

 
1,404,143

Long-term debt
 
1,235,623

 
1,435,045

Total capitalization
 
2,790,313

 
2,839,188

Current Liabilities
 
 
 
 
Notes payable and project financing
 
788,854

 
331,385

Accounts payable and other accrued liabilities
 
377,133

 
405,351

Derivatives and other
 
267,906

 
290,190

Total current liabilities
 
1,433,893

 
1,026,926

Deferred Credits
 
2,149,287

 
2,183,336

Total Capitalization and Liabilities
 
$
6,373,493

 
$
6,049,450



5


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)
 
2017
 
2016
 
2017
 
2016
OPERATING REVENUES
 
 
 
 
 
 
 
 
Utility
 
$
198,968

 
$
181,622

 
$
992,301

 
$
912,612

Non-utility
 
275,396

 
258,965

 
933,300

 
977,048

Total Operating Revenues
 
474,364

 
440,587

 
1,925,601

 
1,889,660

OPERATING EXPENSES
 
 
 
 
 
 
 
 
Utility cost of gas
 
49,881

 
65,739

 
259,839

 
236,819

Non-utility cost of energy-related sales
 
233,025

 
197,880

 
787,691

 
832,087

Operation and maintenance
 
97,477

 
97,461

 
316,455

 
296,813

Depreciation and amortization
 
39,094

 
33,786

 
113,487

 
98,368

General taxes and other assessments
 
32,032

 
32,038

 
122,964

 
119,970

Total Operating Expenses
 
451,509

 
426,904

 
1,600,436

 
1,584,057

OPERATING INCOME
 
22,855

 
13,683

 
325,165

 
305,603

Equity in earnings of unconsolidated affiliates
 
7,508

 
4,527

 
15,117

 
10,558

Other income (expenses) — net
 
884

 
1,915

 
(591
)
 
3,689

Interest expense
 
25,062

 
12,998

 
55,552

 
38,757

INCOME BEFORE TAXES
 
6,185

 
7,127

 
284,139

 
281,093

INCOME TAX EXPENSE
 
2,149

 
4,772

 
106,381

 
103,619

NET INCOME
 
$
4,036

 
$
2,355

 
$
177,758

 
$
177,474

Non-controlling interest
 
(4,559
)
 

 
(12,533
)
 

Dividends on Washington Gas Light Company preferred stock
 
330

 
330

 
990

 
990

NET INCOME APPLICABLE TO COMMON STOCK
 
$
8,265

 
$
2,025

 
$
189,301

 
$
176,484

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
 
 
 
 
 
 
 
 
Basic
 
51,219

 
50,622

 
51,200

 
50,158

Diluted
 
51,493

 
50,905

 
51,469

 
50,418

EARNINGS PER AVERAGE COMMON SHARE
 
 
 
 
 
 
 
 
Basic
 
$
0.16

 
$
0.04

 
$
3.70

 
$
3.52

Diluted
 
$
0.16

 
$
0.04

 
$
3.68

 
$
3.50


The following table reconciles EBIT by operating segment to net income applicable to common stock.
  
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
(In thousands)
 
2017
 
2016
 
2017
 
2016
EBIT:
 
 
 
 
 
 
 
 
Regulated utility
 
$
11,226

 
$
(20,458
)
 
$
279,114

 
$
243,102

Retail energy-marketing
 
4,335

 
49,544

 
42,775

 
52,055

Commercial energy systems
 
14,354

 
8,286

 
27,564

 
10,251

Midstream energy services
 
7,651

 
(16,908
)
 
21,160

 
17,631

Other activities
 
(1,622
)
 
(517
)
 
(17,887
)
 
(2,773
)
Intersegment eliminations
 
(138
)
 
178

 
(502
)
 
(416
)
Total
 
$
35,806

 
$
20,125

 
$
352,224

 
$
319,850

Interest expense
 
25,062

 
12,998

 
55,552

 
38,757

Income tax expense
 
2,149

 
4,772

 
106,381

 
103,619

Dividends on Washington Gas preferred stock
 
330

 
330

 
990

 
990

Net income applicable to common stock
 
$
8,265

 
$
2,025

 
$
189,301

 
$
176,484


6


WGL Holdings, Inc.
Consolidated Financial and Operating Statistics
(Unaudited)

FINANCIAL STATISTICS
   
 
Twelve Months Ended
June 30,
   
 
2017
 
2016
Closing Market Price — end of period
 
$83.85
 
$70.79
52-Week Market Price Range
 
$84.30 - $58.69
 
$74.10 - $51.86
Price Earnings Ratio
 
23.8
 
19.9
Annualized Dividends Per Share
 
$2.04
 
$1.95
Dividend Yield
 
2.4%
 
2.8%
Return on Average Common Equity
 
12.3%
 
13.3%
Total Interest Coverage (times)
 
4.9
 
6.4
Book Value Per Share — end of period
 
$29.70
 
$27.64
Common Shares Outstanding — end of period (thousands)
 
51,219
 
51,058
UTILITY GAS STATISTICS
   
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
Twelve Months Ended
June 30,
 
(In thousands)
 
2017
 
 
 
2016
 
2017
 
 
 
2016
 
2017
 
 
 
2016
 
Operating Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gas Sold and Delivered
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential — Firm
 
$
115,557

 
  
 
$
102,091

 
610,984

 
 
 
549,498

 
$
676,656

 
  
 
$
611,862

 
Commercial and Industrial — Firm
 
26,722

 
 
 
24,038

 
132,693

 
 
 
120,259

 
149,079

 
 
 
136,226

 
Commercial and Industrial — Interruptible
 
479

 
 
 
257

 
2,132

 
 
 
1,863

 
2,450

 
 
 
2,081

 
 
 
142,758

 
 
 
126,386

 
745,809

 
 
 
671,620

 
828,185

 
 
 
750,169

 
Gas Delivered for Others
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Firm
 
36,285

 
 
 
35,416

 
178,384

 
 
 
177,811

 
207,282

 
 
 
206,513

 
Interruptible
 
11,859

 
 
 
9,783

 
40,998

 
 
 
38,118

 
49,180

 
 
 
46,386

 
Electric Generation
 
359

 
 
 
480

 
935

 
 
 
1,411

 
1,478

 
 
 
1,875

 
 
 
48,503

 
 
 
45,679

 
220,317

 
 
 
217,340

 
257,940

 
 
 
254,774

 
 
 
191,261

 
 
 
172,065

 
966,126

 
 
 
888,960

 
1,086,125

 
 
 
1,004,943

 
Other
 
7,707

 
 
 
9,557

 
26,175

 
 
 
23,652

 
37,681

 
 
 
37,317

 
Total
 
$
198,968

 
  
 
$
181,622

 
992,301

 
 
 
912,612

 
$
1,123,806

 
  
 
$
1,042,260

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   
 
Three Months Ended
June 30,
Nine Months Ended
June 30,
 
Twelve Months Ended
June 30,
 
(In thousands of therms)
 
2017
 
 
 
2016
 
2017
 
 
 
2016
 
2017
 
 
 
2016
 
Gas Sales and Deliveries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gas Sold and Delivered
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential — Firm
 
67,951

 
 
 
82,186

 
561,591

 
 
 
556,876

 
595,340

 
 
 
589,536

 
Commercial and Industrial — Firm
 
24,778

 
 
 
28,392

 
149,396

 
 
 
153,101

 
164,127

 
 
 
169,027

 
Commercial and Industrial — Interruptible
 
266

 
 
 
295

 
2,544

 
 
 
2,346

 
2,969

 
 
 
2,632

 
 
 
92,995

 
 
 
110,873

 
713,531

 
 
 
712,323

 
762,436

 
 
 
761,195

 
Gas Delivered for Others
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Firm
 
76,151

 
 
 
89,059

 
420,477

 
 
 
441,029

 
480,478

 
 
 
492,961

 
Interruptible
 
61,035

 
 
 
49,396

 
200,770

 
 
 
194,930

 
244,853

 
 
 
237,382

 
Electric Generation
 
22,482

 
 
 
65,905

 
59,310

 
 
 
168,284

 
182,278

 
 
 
234,273

 
 
 
159,668

 
 
 
204,360

 
680,557

 
 
 
804,243

 
907,609

 
 
 
964,616

 
Total
 
252,663

 
 
 
315,233

 
1,394,088

 
 
 
1,516,566

 
1,670,045

 
 
 
1,725,811

 
Utility Gas Purchase Expense (excluding asset optimization)
 
57.74

 
¢ 
 
38.21

¢ 
42.46
 
¢ 
 
35.35

¢ 
42.10

 
¢ 
 
35.92

¢ 
HEATING DEGREE DAYS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Actual
 
198

 
 
 
388

 
3,121

 
 
 
3,340

 
3,121

 
 
 
3,340

 
Normal
 
290

 
 
 
290

 
3,706

 
 
 
3,719

 
3,706

 
 
 
3,731

 
Percent Colder (Warmer) than Normal
 
(31.7
)%
 
 
 
33.8
%
 
(15.8
)%
 
 
 
(10.2
)%
 
(15.8
)%
 
 
 
(10.5
)%
 
Average Active Customer Meters
 
1,157,152

 
 
 
1,144,974

 
1,153,224

 
 
 
1,141,249

 
1,148,092

 
 
 
1,138,596

 
WGL ENERGY SERVICES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Natural Gas Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Therm Sales (thousands of therms)
 
113,500

 
 
 
144,300

 
603,100

 
 
 
649,800

 
703,900

 
 
 
734,800

 
Number of Customers (end of period)
 
119,100

 
 
 
136,500

 
119,100

 
 
 
136,500

 
119,100

 
 
 
136,500

 
Electricity Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electricity Sales (thousands of kWhs)
 
3,048,400

 
 
 
3,201,900

 
9,199,900

 
 
 
9,321,100

 
12,969,400

 
 
 
12,828,200

 
Number of Accounts (end of period)
 
117,100

 
 
 
130,200

 
117,100

 
 
 
130,200

 
117,100

 
 
 
130,200

 
WGL ENERGY SYSTEMS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Megawatts in service
 
207

 
 
 
137

 
207

 
 
 
137

 
207

 
 
 
137

 
Megawatt hours generated
 
89,843

 
 
 
66,068

 
197,113

 
 
 
143,014

 
264,238

 
 
 
191,445

 

7


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:
To better match the accounting recognition of transactions with their economics;
To better align with regulatory view/recognition;
To eliminate the effects of:
i.
Significant out of period adjustments;
ii.
Other significant items that may obscure historical earnings comparisons and are not indicative of performance trends; and
iii.
For adjusted EBIT, other items which may obscure segment comparisons.
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 applicable to common stock (consolidated by quarter):
Fiscal Year 2017
   
 
Quarterly Period Ended (1)
(In thousands, except per share data)
 
Dec. 31 (2)
 
Mar. 31
 
Jun. 30
 
Sept. 30
 
Fiscal Year
Operating earnings
 
$
59,362

 
$
96,087

 
$
13,635

 
 
 
$
169,084

Non-GAAP adjustments (3)
 
(2,324
)
 
38,468

 
(3,093
)
 
 
 
33,051

De-designated interest rate swaps (4)
 

 
2,516

 
(7,757
)
 
 
 
(5,241
)
Income tax effect of non-GAAP adjustments (5)
 
934

 
(14,007
)
 
5,480

 
 
 
(7,593
)
Net income applicable to common stock
 
$
57,972

 
$
123,064

 
$
8,265

 
 
 
$
189,301

Diluted average common shares outstanding
 
51,445

 
51,476

 
51,493

 
 
 
51,469

Operating earnings per share
 
$
1.15

 
$
1.87

 
$
0.26

 
 
 
$
3.29

Per share effect of non-GAAP adjustments
 
(0.03
)
 
0.52

 
(0.10
)
 
 
 
0.39

Diluted earnings per average common share
 
$
1.12

 
$
2.39

 
$
0.16

 
 
 
$
3.68

Fiscal Year 2016
   
 
Quarterly Period Ended (1)
(In thousands, except per share data)
 
Dec. 31
 
Mar. 31
 
Jun. 30 (2)
 
Sept. 30
 
Fiscal Year
Operating earnings
 
$
59,205

 
$
89,490

 
$
11,561

 
 
 
$
160,256

Non-GAAP adjustments (3)
 
13,312

 
25,815

 
(16,109
)
 
 
 
23,018

Income tax effect of non-GAAP adjustments (5)
 
(4,346
)
 
(9,017
)
 
6,573

 
 
 
(6,790
)
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

 
$
0.23

 
 
 
$
3.18

Per share effect of non-GAAP adjustments
 
0.18

 
0.33

 
(0.19
)
 
 
 
0.32

Diluted earnings per average common share
 
$
1.36

 
$
2.11

 
$
0.04

 

 
$
3.50

(1) 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.


8

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


(2) Prior year non-GAAP measures have been recast to include $8.8 million of losses associated with the index price used in certain gas purchases from Antero. The index price used to invoice these purchases had been the subject of an arbitration proceeding; however, in February 2017, the arbitral tribunal ruled in favor of Antero.

(3) Refer to the reconciliations of adjusted EBIT to EBIT below for further details on our non-GAAP adjustments. Note that non-GAAP adjustments associated with interest expense or income taxes are shown separately and are not included in the reconciliation from adjusted EBIT to EBIT.

(4) 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.

(5) 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.

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 less amounts attributable to non-controlling interests. 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, 2017
(In thousands)
 
Regulated
Utility
 
Retail Energy-
Marketing
 
Commercial
Energy
Systems
 
Midstream
Energy
Services
 
Other
Activities (i)
 

Eliminations (j)
 
Total
Adjusted EBIT
 
$
9,256

 
$
6,119

 
$
16,155

 
$
9,087

 
$
(852
)
 
$
(866
)
 
$
38,899

Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized mark-to-market valuations on energy-related derivatives (a)
 
3,229

 
(1,784
)
 

 
(6,384
)
 

 
728

 
(4,211
)
Storage optimization program (b)
 
91

 

 

 

 

 

 
91

DC weather impact (c)
 
(1,350
)
 

 

 

 

 

 
(1,350
)
Distributed generation asset related investment tax credits (d)
 

 

 
(1,801
)
 

 

 

 
(1,801
)
Change in measured value of inventory (e)
 

 

 

 
4,948

 

 

 
4,948

Merger related costs (f)
 

 

 

 

 
(770
)
 

 
(770
)
Total non-GAAP adjustments (h)
 
$
1,970

 
$
(1,784
)
 
$
(1,801
)
 
$
(1,436
)
 
$
(770
)
 
$
728

 
$
(3,093
)
EBIT
 
$
11,226

 
$
4,335

 
$
14,354

 
$
7,651

 
$
(1,622
)
 
$
(138
)
 
$
35,806

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2016
(In thousands)
 
Regulated
Utility
 
Retail Energy-
Marketing
 
Commercial
Energy
Systems
 
Midstream
Energy
Services
 
Other
Activities (i)
 

Eliminations (j)
 
Total
Adjusted EBIT
 
$
4,947

 
$
16,316

 
$
9,657

 
$
5,653

 
$
(517
)
 
$
178


$
36,234

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
)
Total non-GAAP adjustments (h)
 
$
(25,405
)
 
$
33,228

 
$
(1,371
)
 
$
(22,561
)
 
$

 
$

 
$
(16,109
)
EBIT
 
$
(20,458
)
 
$
49,544

 
$
8,286

 
$
(16,908
)
 
$
(517
)
 
$
178

 
$
20,125




9

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


Nine Months Ended June 30, 2017
(In thousands)
 
Regulated
Utility
 
Retail Energy-
Marketing
 
Commercial
Energy
Systems
 
Midstream
Energy
Services (h)
 
Other
Activities (i)
 

Eliminations (j)
 
Total
Adjusted EBIT
 
$
250,859

 
$
29,163

 
$
32,539

 
$
10,496

 
$
(3,111
)
 
$
(773
)
 
$
319,173

Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized mark-to-market valuations on energy-related derivatives (a)
 
39,715

 
13,612

 

 
7,597

 

 
271

 
61,195

Storage optimization program (b)
 
293

 

 

 

 

 

 
293

DC weather impact (c)
 
(11,753
)
 

 

 

 

 

 
(11,753
)
Distributed generation asset related investment tax credits (d)
 

 

 
(4,975
)
 

 

 

 
(4,975
)
Change in measured value of inventory (e)
 

 

 

 
3,067

 

 

 
3,067

Merger related costs (f)
 

 

 

 

 
(12,675
)
 

 
(12,675
)
Third-party guarantee (g)
 

 

 

 

 
(2,101
)
 

 
(2,101
)
Total non-GAAP adjustments
 
$
28,255

 
$
13,612

 
$
(4,975
)
 
$
10,664

 
$
(14,776
)
 
$
271

 
$
33,051

EBIT
 
$
279,114

 
$
42,775

 
$
27,564

 
$
21,160

 
$
(17,887
)
 
$
(502
)
 
$
352,224

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended June 30, 2016
(In thousands)
 
Regulated
Utility
 
Retail Energy-
Marketing
 
Commercial
Energy
Systems
 
Midstream
Energy
Services (h)
 
Other
Activities (i)
 

Eliminations (j)
 
Total
Adjusted EBIT
 
$
245,485

 
$
29,937

 
$
14,190

 
$
10,409

 
$
(2,773
)
 
$
(416
)
 
$
296,832

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
)
Total non-GAAP adjustments
 
$
(2,383
)
 
$
22,118

 
$
(3,939
)
 
$
7,222

 
$

 
$

 
$
23,018

EBIT
 
$
243,102

 
$
52,055

 
$
10,251

 
$
17,631

 
$
(2,773
)
 
$
(416
)
 
$
319,850


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)