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Form 8-K WGL HOLDINGS INC For: Aug 05

August 6, 2015 6:06 AM EDT




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 5, 2015
 
 
 
 
 
 
 
 
Commission
File Number
  
Exact name of registrant as specified in its charter
and principal office address and telephone number
  
State 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: None
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))

 







ITEM 2.02
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On August 5, 2015, 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, 2015. 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 5, 2015
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 5, 2015
 
 
 
/s/    William R. Ford        
 
 
 
 
William R. Ford
 
 
 
 
Vice President & Chief Accounting Officer
 
 
 
 
(Principal Accounting Officer)







FOR IMMEDIATE RELEASE
August 5, 2015
  
CONTACTS:
  
 
 
  
News Media
Jim Monroe
  
202-624-6620
 
 
 
 
  
Financial Community
Douglas Bonawitz
  
202-624-6129
WGL Holdings, Inc. Reports Third Quarter Fiscal Year 2015 Financial Results;
Raises Fiscal Year 2015 Non-GAAP Guidance
 
Third quarter consolidated GAAP earnings per share — $(0.32) per share vs. $(0.23) per share

Year-to-date consolidated GAAP earnings up — $2.59 per share vs. $1.31 per share

Third quarter operating earnings per share up — $0.22 per share vs. $0.02 per share

Year-to-date operating earnings per share up — $3.39 per share vs. $2.85 per share

Operating earnings guidance for fiscal year 2015 — raised to a range of $2.90 per share to $3.10 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 a net loss 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, 2015, of $(15.7) million, or $(0.32) per share, compared to a net loss applicable to common stock of $(11.9) million, or $(0.23) per share, reported for the quarter ended June 30, 2014.
For the nine months ended June 30, 2015, net income applicable to common stock was $129.7 million, or $2.59 per share, an improvement of $61.8 million, or $1.28 per share, over net income applicable to common stock of $67.9 million, or $1.31 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, 2015, are not indicative of the results expected for the 12 months ending September 30, 2015.
On a consolidated basis, WGL uses operating earnings (loss) to evaluate overall financial performance, and evaluates segment financial performance based on earnings before interest and taxes, as adjusted (adjusted EBIT). Both 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. 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. 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, 2015, operating earnings were $10.7 million, or $0.22 per share, an improvement of $9.9 million, or $0.20 per share, over operating earnings of $0.8 million, or $0.02 per share, for the same quarter of the prior fiscal year. For the nine months ended June 30, 2015, operating earnings were $169.8 million, or $3.39 per share, an improvement of $22.0 million, or $0.54 per share, over operating earnings of $147.8 million, or $2.85 per share, for the same period of the prior fiscal year.

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“I am pleased to announce record third quarter results which put us on track to also achieve record full year non-GAAP earnings in 2015,” said Terry D. McCallister, Chairman and Chief Executive Officer.  “Earnings growth for the quarter was led by our Retail Energy-Marketing business, which has now seen four consecutive quarters of strong improvement in adjusted EBIT over prior year results.  We also saw increases in adjusted EBIT in our Commercial Energy Systems and Midstream Energy Solutions segments, as well as robust results in our core regulated utility. I believe this balanced performance attests to our ability to deliver energy answers that are valued by our customers through a carefully chosen portfolio of businesses.

“Given these strong third quarter results and our revised expectations for the fourth quarter, we are increasing our guidance for non-GAAP earnings by $0.20 to a range of $2.90 to $3.10 per share.”


Third Quarter Results by Business Segment

Regulated Utility
For the three months ended June 30, 2015, the regulated utility segment reported adjusted EBIT of $6.5 million, compared to adjusted EBIT of $8.0 million for the same quarter of the prior fiscal year. For the nine months ended June 30, 2015, the regulated utility segment reported adjusted EBIT of $255.5 million, compared to adjusted EBIT of $259.6 million for the same period of the prior fiscal year.
For both the three and nine months ended June 30, 2015, the decline in adjusted EBIT primarily reflects higher operating expenses associated with: (i) labor and employee incentives; (ii) business-development related activities and (iii) the growth in our utility plant. Partially offsetting these unfavorable variances were higher revenues from: (i) rate recovery related to our accelerated pipe replacement programs; (ii) realized margins associated with our asset optimization program and (iii) lower employee benefit costs. Additionally, for the nine month period, the regulated utility segment earned higher revenues from: (i) customer growth; (ii) favorable effects of changes in natural gas consumption patterns in the District of Columbia and (iii) new base rates in Maryland.
Retail Energy-Marketing
For the three months ended June 30, 2015, the retail energy-marketing segment reported adjusted EBIT of $18.7 million, an increase of $13.7 million, over adjusted EBIT of $5.0 million for the same quarter of the prior fiscal year. For the nine months ended June 30, 2015, the retail energy-marketing segment reported adjusted EBIT of $54.6 million, an increase of $56.1 million, over adjusted EBIT of $(1.5) million for the same period of the prior fiscal year.
For the three months ended June 30, 2015, the increase in adjusted EBIT resulted from an increase in both electricity and natural gas margins. Electricity margins increased due to lower capacity charges from the regional power grid operator (PJM) associated with fixed-price retail contracts. In addition, sales volumes were higher based on warmer weather and recent large commercial customer growth at lower unit margins. These positive benefits were slightly offset by increased PJM capacity costs implemented June 2015, which impact the timing of margin recognition for fixed-price retail contracts. The improvement in natural gas margins reflect lower natural gas purchase costs and favorable gas supply and pricing opportunities in the current period compared to the same period of the prior fiscal year.

Improved results for the nine months ended June 30, 2015, primarily reflect higher electricity margins due to lower PJM capacity charges. Additionally, prior year electricity margins were much lower, reflecting extreme price movements during the colder than normal weather which occurred January through March of 2014. These improved electric margins were slightly offset by lower sales volumes due to lower customer counts and lower margins on certain large commercial sales due to competition.
Commercial Energy Systems
For the three months ended June 30, 2015, the commercial energy systems segment reported adjusted EBIT of $7.8 million, an increase of $2.1 million, over adjusted EBIT of $5.7 million for the same quarter of the prior fiscal year. For the nine months ended June 30, 2015, the commercial energy systems segment reported adjusted EBIT of $10.7 million, an increase of $2.7 million, over adjusted EBIT of $8.0 million, for the same period of the prior fiscal year. The increase in adjusted EBIT reflects: (i) the growth in income producing distributed generation assets in service; (ii) higher income from state rebate programs for certain distributed generation projects and (iii) higher earnings from the federal contracting business due to higher contract margins. These favorable variances are partially offset by higher operating expenses due to additional in-service distributed generation assets.

2






Midstream Energy Services
For the three months ended June 30, 2015, the midstream energy services segment reported adjusted EBIT of $(1.4) million, an increase of $2.6 million, over adjusted EBIT of $(4.0) million for the same quarter of the prior fiscal year. The increase in adjusted EBIT primarily reflects favorable storage and transportation spreads this quarter compared to the same quarter of the prior fiscal year.
For the nine months ended June 30, 2015, the midstream energy services segment reported adjusted EBIT of $(1.9) million, compared to $8.8 million for the same period of the prior fiscal year. This comparison primarily reflects lower storage and transportation spreads in the current year, partially offset by lower investment development expenses and higher income related to our pipeline investments.
Consolidated Interest Expense
For the quarter ended June 30, 2015, interest expense was $13.1 million, compared to interest expense of $9.5 million for the same period of the prior fiscal year. For the nine months ended June 30, 2015, interest expense was $38.7 million, compared to interest expense of $28.0 million for the same period of the prior fiscal year. For both the three and the nine months ended June 30, 2015, the increase reflects increased long-term borrowings at Washington Gas and WGL.
Earnings Outlook
We are raising our consolidated non-GAAP operating earnings estimate for fiscal year 2015 in a range of $2.90 per share to $3.10 per share. In providing fiscal year 2015 earnings guidance, management is aware that there could be differences between what is reported GAAP earnings and estimated operating earnings for matters such as, but not limited to, unrealized mark-to-market positions for our energy-related derivatives. At this time, WGL management is not able to reasonably estimate the aggregate impact of these items on reported earnings and therefore is not able to provide a corresponding GAAP equivalent for its operating earnings guidance.
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.wgl.com.
Other Information
We will hold a conference call at 10:30 a.m., Eastern Time on August 6, 2015, to discuss our third quarter fiscal year 2015 financial results. The live conference call will be available to the public via a link located on WGL’s website, www.wgl.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, 2015.
WGL, headquartered in Washington, D.C., is a leading source for clean, efficient and diverse energy solutions. With activities across the U.S., WGL consists of Washington Gas, WGL Energy, WGL Midstream and Hampshire Gas. WGL Energy delivers a full ecosystem of energy offerings including natural gas, electricity, green power, carbon reduction, distributed generation and energy efficiency provided by WGL Energy Services, Inc. (formerly Washington Gas Energy Services, Inc.), WGL Energy Systems, Inc. (formerly Washington Gas Energy Systems, Inc.) and WGSW, Inc. WGL provides options for 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 and other future financial business performance or strategies and 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

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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.

4

WGL Holdings, Inc.
Consolidated Balance Sheets
(Unaudited)


(In thousands)
 
June 30, 2015
 
September 30, 2014
ASSETS
 
 
 
 
Property, Plant and Equipment
 
 
 
 
At original cost
 
$
4,822,149

 
$
4,582,764

Accumulated depreciation and amortization
 
(1,295,069
)
 
(1,268,319
)
Net property, plant and equipment
 
3,527,080

 
3,314,445

Current Assets
 
 
 
 
Cash and cash equivalents
 
66,051

 
8,811

Accounts receivable, net
 
371,410

 
298,978

Storage gas
 
147,506

 
333,602

Derivatives and other
 
163,460

 
194,124

Total current assets
 
748,427

 
835,515

Deferred Charges and Other Assets
 
732,958

 
706,539

Total Assets
 
$
5,008,465

 
$
4,856,499

CAPITALIZATION AND LIABILITIES
 
 
 
 
Capitalization
 
 
 
 
Common shareholders’ equity
 
$
1,266,373

 
$
1,246,576

Washington Gas Light Company preferred stock
 
28,173

 
28,173

Long-term debt
 
950,494

 
679,228

Total capitalization
 
2,245,040

 
1,953,977

Current Liabilities
 
 
 
 
Notes payable and current maturities of long-term debt
 
201,000

 
473,500

Accounts payable and other accrued liabilities
 
275,615

 
313,221

Derivatives and other
 
299,699

 
233,564

Total current liabilities
 
776,314

 
1,020,285

Deferred Credits
 
1,987,111

 
1,882,237

Total Capitalization and Liabilities
 
$
5,008,465

 
$
4,856,499



5

WGL Holdings, Inc.
Consolidated Statements of Income
(Unaudited)


  
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
(In thousands, except per share data)
 
2015
 
2014
 
2015
 
2014
OPERATING REVENUES
 
 
 
 
 
 
 
 
Utility
 
$
185,179

 
$
194,901

 
$
1,173,396

 
$
1,283,697

Non-utility
 
255,994

 
272,599

 
1,018,747

 
1,038,350

Total Operating Revenues
 
441,173

 
467,500

 
2,192,143

 
2,322,047

OPERATING EXPENSES
 
 
 
 
 
 
 
 
Utility cost of gas
 
59,286

 
64,448

 
499,128

 
710,436

Non-utility cost of energy-related sales
 
240,808

 
266,321

 
933,911

 
997,958

Operation and maintenance
 
98,642

 
89,964

 
295,309

 
277,805

Depreciation and amortization
 
30,696

 
27,622

 
90,159

 
81,516

General taxes and other assessments
 
29,308

 
28,634

 
126,475

 
126,376

Total Operating Expenses
 
458,740

 
476,989

 
1,944,982

 
2,194,091

OPERATING INCOME (LOSS)
 
(17,567
)
 
(9,489
)
 
247,161

 
127,956

Equity in earnings of unconsolidated affiliates
 
1,262

 
818

 
4,238

 
1,851

Other income (expenses) — net
 
2,329

 
(304
)
 
(1,688
)
 
257

Interest expense
 
13,140

 
9,503

 
38,704

 
28,020

INCOME (LOSS) BEFORE TAXES
 
(27,116
)
 
(18,478
)
 
211,007

 
102,044

INCOME TAX EXPENSE (BENEFIT)
 
(11,756
)
 
(6,868
)
 
80,364

 
33,152

NET INCOME (LOSS)
 
(15,360
)
 
(11,610
)
 
130,643

 
68,892

Dividends on Washington Gas Light Company preferred stock
 
330

 
330

 
990

 
990

NET INCOME (LOSS) APPLICABLE TO COMMON STOCK
 
$
(15,690
)
 
$
(11,940
)
 
$
129,653

 
$
67,902

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
 
 
 
 
 
 
 
 
Basic
 
49,729

 
51,921

 
49,814

 
51,871

Diluted
 
49,729

 
51,921

 
50,056

 
51,885

EARNINGS (LOSS) PER AVERAGE COMMON SHARE
 
 
 
 
 
 
 
 
Basic
 
$
(0.32
)
 
$
(0.23
)
 
$
2.60

 
$
1.31

Diluted
 
$
(0.32
)
 
$
(0.23
)
 
$
2.59

 
$
1.31



6

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

FINANCIAL STATISTICS
  
 
Twelve Months Ended
June 30,
  
 
2015
 
2014
Closing Market Price — end of period
 
$54.29
 
$43.10
52-Week Market Price Range
 
$59.08 - $37.77
 
$46.80-$35.88
Price Earnings Ratio
 
16.3
 
139.0
Annualized Dividends Per Share
 
$1.85
 
$1.76
Dividend Yield
 
3.4%
 
4.1%
Return on Average Common Equity
 
13.1%
 
1.2%
Total Interest Coverage (times)
 
6.4
 
1.5
Book Value Per Share — end of period
 
$25.47
 
$24.76
Common Shares Outstanding — end of period (thousands)
 
49,729
 
51,940
UTILITY GAS STATISTICS
  
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
Twelve Months Ended
June 30,
 
(In thousands)
 
2015
 
 
 
2014
 
2015
 
 
 
2014
 
2015
 
 
 
2014
 
Operating Revenues
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gas Sold and Delivered
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential — Firm
 
$
99,905

 
  
 
$
105,915

 
$
755,025

 
 
 
$
824,179

 
$
821,925

 
  
 
$
885,188

 
Commercial and Industrial — Firm
 
23,723

 
 
 
27,284

 
172,177

 
 
 
196,523

 
189,440

 
 
 
213,589

 
Commercial and Industrial — Interruptible
 
387

 
 
 
328

 
2,361

 
 
 
2,070

 
2,558

 
 
 
2,501

 
Electric Generation
 
275

 
 
 
275

 
825

 
 
 
825

 
1,100

 
 
 
1,100

 
 
 
124,290

 
 
 
133,802

 
930,388

 
 
 
1,023,597

 
1,015,023

 
 
 
1,102,378

 
Gas Delivered for Others
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Firm
 
42,562

 
 
 
38,697

 
176,502

 
 
 
172,658

 
202,924

 
 
 
197,364

 
Interruptible
 
9,616

 
 
 
10,598

 
44,209

 
 
 
51,136

 
52,401

 
 
 
59,168

 
Electric Generation
 
125

 
 
 
118

 
364

 
 
 
365

 
515

 
 
 
540

 
 
 
52,303

 
 
 
49,413

 
221,075

 
 
 
224,159

 
255,840

 
 
 
257,072

 
 
 
176,593

 
 
 
183,215

 
1,151,463

 
 
 
1,247,756

 
1,270,863

 
 
 
1,359,450

 
Other
 
8,586

 
 
 
11,686

 
21,933

 
 
 
35,941

 
35,787

 
 
 
46,572

 
Total
 
$
185,179

 
  
 
$
194,901

 
$
1,173,396

 
 
 
$
1,283,697

 
$
1,306,650

 
  
 
$
1,406,022

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
 
Three Months Ended
June 30,
 
Nine Months Ended
June 30,
 
Twelve Months Ended
June 30,
 
(In thousands of therms)
 
2015
 
 
 
2014
 
2015
 
 
 
2014
 
2015
 
 
 
2014
 
Gas Sales and Deliveries
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Gas Sold and Delivered
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residential — Firm
 
74,454

 
 
 
70,872

 
702,214
 
 
 
702,558
 
738,620

 
 
 
737,624

 
Commercial and Industrial — Firm
 
23,710

 
 
 
22,341

 
181,617
 
 
 
182,918
 
198,852

 
 
 
199,913

 
Commercial and Industrial — Interruptible
 
341

 
 
 
304

 
1,786
 
 
 
1,765
 
2,214

 
 
 
2,192

 
 
 
98,505

 
 
 
93,517

 
885,617
 
 
 
887,241
 
939,686

 
 
 
939,729

 
Gas Delivered for Others
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Firm
 
67,054

 
 
 
76,366

 
506,193
 
 
 
485,326
 
556,371

 
 
 
536,093

 
Interruptible
 
46,665

 
 
 
52,704

 
217,812
 
 
 
222,473
 
263,043

 
 
 
265,896

 
Electric Generation
 
57,862

 
 
 
33,906

 
113,072
 
 
 
93,035
 
164,440

 
 
 
149,714

 
 
 
171,581

 
 
 
162,976

 
837,077
 
 
 
800,834
 
983,854

 
 
 
951,703

 
Total
 
270,086

 
 
 
256,493

 
1,722,694
 
 
 
1,688,075
 
1,923,540

 
 
 
1,891,432

 
WGL ENERGY SERVICES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Natural Gas Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Therm Sales (thousands of therms)
 
112,400

 
 
 
116,200

 
628,000

 
 
 
635,800
 
710,300

 
 
 
707,700

 
Number of Customers (end of period)
 
147,100

 
 
 
161,300

 
147,100

 
 
 
161,300
 
147,100

 
 
 
161,300

 
Electricity Sales
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Electricity Sales (thousands of kWhs)
 
2,893,100

 
 
 
2,790,300

 
8,549,900

 
 
 
8,670,900
 
11,571,400

 
 
 
11,942,300

 
Number of Accounts (end of period)
 
141,200

 
 
 
169,600

 
141,200

 
 
 
169,600
 
141,200

 
 
 
169,600

 
UTILITY GAS PURCHASED EXPENSE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(excluding asset optimization)
 
52.84

 
¢ 
 
65.72

¢ 
56.21

¢ 
 
 
68.63

¢ 
55.96

 
¢ 
 
67.73

¢ 
HEATING DEGREE DAYS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Actual
 
203

 
 
 
277

 
3,929
 
 
 
4,111
 
3,929

 
 
 
4,120

 
Normal
 
296

 
 
 
295

 
3,746
 
 
 
3,738
 
3,759

 
 
 
3,751

 
Percent Colder (Warmer) than Normal
 
(31.4
)%
 
 
 
(6.1
)%
 
4.9
%
 
 
 
10.0
%
 
4.5
%
 
 
 
9.8
%
 
Average Active Customer Meters
 
1,132,904

 
 
 
1,119,953

 
1,129,159
 
 
 
1,116,530
 
1,126,300

 
 
 
1,113,893

 


7

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


The tables below reconcile adjusted EBIT on a segment basis to GAAP net income (loss) applicable to common stock and operating earnings (loss) to GAAP net income (loss) applicable to common stock on a consolidated basis. Management believes that adjusted EBIT and operating earnings (loss) provide a more meaningful representation of our earnings from ongoing operations on a segment and consolidated 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 adjusted EBIT and operating earnings (loss) to analyze our segment and consolidated results, respectively, as they are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. In addition, using adjusted EBIT and operating earnings (loss) 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 table summarizes the reconciliations of adjusted EBIT by segment to its most comparable GAAP financial measure, income before income taxes:
 
  
 
Three Months Ended June 30,
 
Nine Months Ended June 30,
(In thousands)
 
2015
 
2014
 
2015
 
2014
Adjusted EBIT:
 
 
 
 
 
 
 
 
Regulated utility
 
$
6,549

 
$
7,968

 
$
255,500

 
$
259,557

Retail energy-marketing
 
18,655

 
4,963

 
54,641

 
(1,461
)
Commercial energy systems
 
7,812

 
5,747

 
10,663

 
7,950

Midstream energy services
 
(1,399
)
 
(3,980
)
 
(1,895
)
 
8,808

Other activities(*)
 
(970
)
 
(1,920
)
 
(3,290
)
 
(6,657
)
Eliminations
 
(541
)
 
(532
)
 
(592
)
 
110

Total
 
$
30,106

 
$
12,246

 
$
315,027

 
$
268,307

Non-GAAP adjustments(1)
 
(44,082
)
 
(21,221
)
 
(65,316
)
 
(138,243
)
Interest expense
 
13,140

 
9,503

 
38,704

 
28,020

Income (loss) before income taxes
 
$
(27,116
)
 
$
(18,478
)
 
$
211,007

 
$
102,044

Income tax expense (benefit)
 
(11,756
)
 
(6,868
)
 
80,364

 
33,152

Dividends on Washington Gas preferred stock
 
330

 
330

 
990

 
990

Net income (loss) applicable to common stock
 
$
(15,690
)
 
$
(11,940
)
 
$
129,653

 
$
67,902

 
(*)
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.


8

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


The following tables represent the reconciliation of operating earnings to its most comparable GAAP financial measure, net income applicable to common stock (consolidated by quarter):
 
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(1)
 
10,892

 
(32,126
)
 
(44,082
)
 
 
 
(65,316
)
Income tax expense (benefit) on 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

Fiscal Year 2014
  
 
Quarterly Period Ended(**)
(In thousands, except per share data)
 
Dec. 31
 
Mar. 31
 
Jun. 30
 
Sept. 30
 
Fiscal Year
Operating earnings
 
$
51,398

 
$
95,526

 
827

 
 
 
$
147,751

Non-GAAP adjustments(1)
 
(58,843
)
 
(58,179
)
 
(21,221
)
 
 
 
(138,243
)
Income tax expense on non-GAAP adjustments
 
22,453

 
23,866

 
8,454

 
 
 
54,773

Regulatory asset - tax effect Medicare Part D (***)
 
3,621

 

 

 
 
 
3,621

Net income (loss) applicable to common stock
 
$
18,629

 
$
61,213

 
$
(11,940
)
 
 
 
$
67,902

Diluted average common shares outstanding
 
51,827

 
51,899

 
51,921

 
 
 
51,885

Operating earnings per share
 
$
0.99

 
$
1.84

 
0.02

 
 
 
$
2.85

Per share effect of non-GAAP adjustments
 
(0.63
)
 
(0.66
)
 
(0.25
)
 
 
 
(1.54
)
Diluted earnings (loss) per average common share
 
$
0.36

 
$
1.18

 
$
(0.23
)
 
 
 
$
1.31

(**) 
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.
(***) 
In March 2010, the Patient Protection and Affordable Care Act (PPACA) eliminated future Medicare Part D (Med D) tax benefits for Washington Gas’ tax years beginning after September 30, 2013. On March 30, 2012, based on positions taken by the Public Service Commission of Maryland (PSC of MD) in Washington Gas’ rate case, Washington Gas determined that it is not probable that the PSC of MD would permit recovery of this asset. Therefore, the Maryland portion of the regulatory asset related to the Med D benefit was charged to tax expense. In November of 2013, the PSC of MD issued an order authorizing Washington Gas to establish a regulatory asset and amortize the costs related to the change in tax treatment of Med D.


9

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


 
(1) 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, 2015
(In thousands)
 
Regulated
Utility
 
Retail-Energy
Marketing
 
Commercial
Energy
Systems
 
Midstream
Energy
Services
 
Other
Activities
 
Intersegment
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
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2014
(In thousands)
 
Regulated
Utility
 
Retail-Energy
Marketing
 
Commercial
Energy
Systems
 
Midstream
Energy
Services
 
Other
Activities
 
Intersegment
Eliminations
 
Total
Adjusted EBIT
 
$
7,968

 
$
4,963

 
$
5,747

 
$
(3,980
)
 
$
(1,920
)
 
$
(532
)
 
$
12,246

Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized mark-to-market valuations on energy-related derivatives(a)
 
(1,224
)
 
(3,677
)
 

 
(13,785
)
 

 

 
(18,686
)
Storage optimization program (b)
 
88

 

 

 

 

 

 
88

DC weather impact(c)
 
(507
)
 

 

 

 

 

 
(507
)
Distributed generation asset related investment tax credits(d)
 

 

 
(735
)
 

 

 

 
(735
)
Change in measured value of inventory(e)
 

 

 

 
959

 

 

 
959

Incremental professional service fees (j)
 

 

 

 

 
(471
)
 

 
(471
)
Impairment loss on proposed Chillum liquefied natural gas facility(k)
 
(1,869
)
 

 

 

 

 

 
(1,869
)
Total non-GAAP adjustments
 
$
(3,512
)
 
$
(3,677
)
 
$
(735
)
 
$
(12,826
)
 
$
(471
)
 
$

 
$
(21,221
)
EBIT
 
$
4,456

 
$
1,286

 
$
5,012

 
$
(16,806
)
 
$
(2,391
)
 
$
(532
)
 
$
(8,975
)


10

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


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended June 30, 2015
(In thousands)
 
Regulated
Utility
 
Retail-Energy
Marketing
 
Commercial
Energy
Systems
 
Midstream
Energy
Services
 
Other
Activities
 
Intersegment
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
)
Investment impairment(f)
 

 

 

 

 
(5,625
)
 

 
(5,625
)
Impairment loss on Springfield Operations Center(g)
 
(465
)
 

 

 

 

 

 
(465
)
Unrecovered government contracting costs(h)
 

 

 
(2,981
)
 

 

 

 
(2,981
)
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

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended June 30, 2014
(In thousands)
 
Regulated
Utility
 
Retail-Energy
Marketing
 
Commercial
Energy
Systems
 
Midstream
Energy
Services
 
Other
Activities
 
Intersegment
Eliminations
 
Total
Adjusted EBIT
 
$
259,557

 
$
(1,461
)
 
$
7,950

 
$
8,808

 
$
(6,657
)
 
$
110

 
$
268,307

Non-GAAP adjustments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Unrealized mark-to-market valuations on energy-related derivatives(a)
 
(105,280
)
 
6,647

 

 
(38,130
)
 

 

 
(136,763
)
Storage optimization program(b)
 
4,106

 

 

 

 

 

 
4,106

DC weather impact(c)
 
2,212

 

 

 

 

 

 
2,212

Distributed generation asset related investment tax credits(d)
 

 

 
(1,989
)
 

 

 

 
(1,989
)
Change in measured value of inventory(e)
 

 

 

 
(88
)
 

 

 
(88
)
Competitive service provider imbalance cash settlement(i)
 
488

 

 

 

 

 

 
488

Incremental professional services fees(j)
 

 

 

 

 
(3,570
)
 

 
(3,570
)
Impairment loss on Springfield Operations Center(g)
 
(770
)
 

 

 

 

 

 
(770
)
Impairment loss on proposed Chillum liquefied natural gas facility(k)
 
(1,869
)
 

 

 

 

 

 
(1,869
)
Total non-GAAP adjustments
 
$
(101,113
)
 
$
6,647

 
$
(1,989
)
 
$
(38,218
)
 
$
(3,570
)
 
$

 
$
(138,243
)
EBIT
 
$
158,444

 
$
5,186

 
$
5,961

 
$
(29,410
)
 
$
(10,227
)
 
$
110

 
$
130,064


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 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, since 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. For fiscal year 2015, Washington Gas did not enter into weather protection products due to the pricing environment. 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 its 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. This adjustment also includes the estimated effects of certain sharing mechanisms on all of our non-GAAP unrealized gains and losses. 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.
(f)
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. We do not believe this impairment charge is indicative of our historical or future performance trends.
(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 the company exits its participation in this program.

11

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


(i)
Represents amounts collected by the regulated utility segment in relation to the refund to customers ordered by the PSC of MD in September 2011 associated with a cash settlement of gas imbalances with competitive service providers.
(j)
These costs include incremental legal and consulting costs in connection with business development activities. These costs are unpredictable and may vary greatly with each opportunity. Management believes that excluding these costs allows management and investors to better compare, analyze and forecast the performance of our revenue generating opportunities.
(k)
On July 7, 2014, the Virginia State Corporation Commission (SCC of VA) disallowed full recovery of certain costs related to a proposed Chillum liquefied natural gas facility, therefore a portion of the associated regulatory asset was impaired.







12


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