- 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
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 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.
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.
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.
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.
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
WGL Holdings, Inc. Condensed Consolidated
Statements of Income
(Unaudited)
Three Months
EndedJune 30, Nine Months EndedJune 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 EndedJune 30,
Nine Months EndedJune 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
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 EndedJune
30, Nine Months EndedJune 30,
Twelve Months EndedJune 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 EndedJune 30, Nine Months
EndedJune 30, Twelve Months
EndedJune 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
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; andiii. 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):
WGL Holdings, Inc. (Consolidated by Quarter)
Reconciliation of Non-GAAP Financial Measures
(Unaudited)
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.
(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.
WGL Holdings, Inc. Reconciliation of Non-GAAP
Financial Measures
(Unaudited)
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
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)
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 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 external costs
associated with the Merger Agreement with AltaGas.
(g)
Guarantee on behalf of a third party
associated with a solar investment.
(h)
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.
(i)
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.
(j)
Activities and transactions between
segments that are eliminated in consolidation.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170802006582/en/
WGL Holdings, Inc.News
MediaBrian Edwards,
202-624-6620orFinancial
CommunityDouglas Bonawitz, 202-624-6129
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