WGL Wgl Holdings (delisted)

• Consolidated GAAP earnings per share up — $1.36 per share vs. $1.28 per share
• Operating earnings per share up — $1.18 per share vs. $1.16 per share
• Operating earnings guidance for fiscal year 2016 — affirming a range of $3.00 per share to $3.20 per share
• Dividend increase of $0.10 per share, or 5%, to an annualized level of $1.95 per share; marking the 40th consecutive annual dividend increase

WGL Holdings, Inc. (NYSE: WGL):

Consolidated Results

WGL Holdings, Inc. (NYSE: WGL), the parent company of Washington Gas Light Company (Washington Gas) and other energy-related subsidiaries, today reported net income applicable to common stock determined in accordance with generally accepted accounting principles in the United States of America (GAAP) for the quarter ended December 31, 2015, of $68.2 million, or $1.36 per share, compared to net income applicable to common stock of $63.9 million, or $1.28 per share, reported for the quarter ended December 31, 2014.

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 December 31, 2015, operating earnings were $59.2 million, or $1.18 per share, compared to operating earnings of $58.0 million, or $1.16 per share, for the same quarter of the prior fiscal year.

“Our first quarter results have exceeded our expectations in spite of unseasonably warm weather in the quarter. Our portfolio of energy solutions is showing balanced results. Our utility had a solid quarter, and I am particularly pleased with the growth in adjusted EBIT in our non-utility businesses compared to the first quarter of the prior year,” said Terry D. McCallister, Chairman and Chief Executive Officer. “Our midstream energy services and commercial energy systems segments both saw strong earnings growth in the period, and our retail energy-marketing business continued to post robust results as well. Given this strong start to the year, we are guiding to the high end of our previously announced full year range of $3.00 to $3.20 per share.”

“I am also happy to announce that our board of directors has approved a ten-cent increase in our dividend to an annual rate of $1.95 per share. This increase is consistent with our previously announced goal of maintaining a 5% dividend growth rate, and reflects our continued confidence in our ability to achieve our strategic goals and deliver strong earnings and dividend growth rates to our shareholders. This increase marks the 40th year of consecutive dividend increases and the 165th year that we have paid a dividend.”

First Quarter Results by Business Segment

Regulated Utility

For the quarter ended December 31, 2015, the regulated utility segment reported adjusted EBIT of $86.6 million, compared to adjusted EBIT of $96.6 million for the same quarter of the prior fiscal year. This comparison primarily reflects lower revenues due to: (i) reduction in certain natural gas consumption patterns in the District of Columbia; (ii) lower realized margins associated with our asset optimization program and (iii) a decrease in the recovery of carrying costs on lower average storage gas inventory balances. Additionally, the regulated utility incurred higher expenses associated with: (i) labor and employee incentives; (ii) support activity costs and (iii) system integrity activities. Partially offsetting these unfavorable variances were higher revenues from customer growth and rate recovery related to our accelerated pipe replacement programs.

Retail Energy-Marketing

For the quarter ended December 31, 2015, the retail energy-marketing segment reported adjusted EBIT of $5.2 million, compared to adjusted EBIT of $9.0 million for the same quarter of the prior fiscal year. This comparison primarily reflects lower electric margins due to higher capacity charges from the regional power grid operator (PJM) and lower unit margins on large commercial customer sales. Partially offsetting these declines were higher natural gas margins due to favorable gas supply and pricing opportunities and higher weather hedge payments.

Commercial Energy Systems

For the quarter ended December 31, 2015, the commercial energy systems segment reported adjusted EBIT of $2.2 million, an increase of $1.0 million, over adjusted EBIT of $1.2 million for the same quarter of the prior fiscal year. The increase in adjusted EBIT reflects: (i) improved margins from the energy-efficiency contracting business and (ii) the growth in distributed generation assets in service, including higher income from state rebate programs and solar renewable energy credit sales. These improvements are partially offset by higher operating and depreciation expense.

Midstream Energy Services

For the quarter ended December 31, 2015, the midstream energy services segment reported adjusted EBIT of $13.1 million, an increase of $10.5 million, over adjusted EBIT of $2.6 million for the same quarter of the prior fiscal year. The increase in adjusted EBIT primarily reflects strategic utilization of storage assets and favorable spreads this quarter compared to the same quarter of the prior fiscal year.

Consolidated Interest Expense

For the quarter ended December 31, 2015, interest expense was $12.8 million, compared to interest expense of $12.3 million for the same period of the prior fiscal year. The increase reflects long-term borrowings at Washington Gas and WGL.

Earnings Outlook

We are affirming our consolidated non-GAAP operating earnings estimate for fiscal year 2016 in a range of $3.00 per share to $3.20 per share, with expectations toward the higher end of this range. In providing fiscal year 2016 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.wglholdings.com.

Other Information

We will hold a conference call at 10:30 a.m., Eastern Time on February 8, 2016, to discuss our first quarter fiscal year 2016 financial results. The live conference call will be available to the public via a link located on WGL’s website, www.wglholdings.com. To hear the live webcast, click on “Investor Relations” then “Events & Webcasts.” The webcast and related slides will be archived on WGL’s website through at least March 8, 2016.

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

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

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

Forward-Looking Statements

This news release and other statements by us include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the outlook for earnings, revenues, dividends and other future financial business performance 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 conditional verbs such as “will,” “should,” “would,” and “could.” Although we believe such forward-looking statements are based on reasonable assumptions, we cannot give assurance that every objective will be achieved. Forward-looking statements speak only as of today, and we assume no duty to update them. Factors that could cause actual results to differ materially from those expressed or implied include, but are not limited to, general economic conditions and the factors discussed under the “Risk Factors” heading in our most recent annual report on Form 10-K and other documents that we have filed with, or furnished to, the U.S. Securities and Exchange Commission.

  WGL Holdings, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

  (In thousands)   December 31, 2015   September 30, 2015 ASSETS     Property, Plant and Equipment At original cost $ 5,090,450 $ 5,003,910 Accumulated depreciation and amortization   (1,343,829 )   (1,331,182 ) Net property, plant and equipment   3,746,621     3,672,728   Current Assets Cash and cash equivalents 15,778 6,733 Accounts receivable, net 449,035 358,491 Storage gas 212,969 211,443 Derivatives and other   240,214     171,874   Total current assets   917,996     748,541   Deferred Charges and Other Assets   835,638     840,090   Total Assets   $ 5,500,255     $ 5,261,359   CAPITALIZATION AND LIABILITIES Capitalization Common shareholders’ equity $ 1,289,102 $ 1,243,247 Washington Gas Light Company preferred stock 28,173 28,173 Long-term debt   945,582     944,201   Total capitalization   2,262,857     2,215,621   Current Liabilities Notes payable and current maturities of long-term debt 552,875 357,000 Accounts payable and other accrued liabilities 309,339 325,146 Derivatives and other   318,735     300,768   Total current liabilities   1,180,949     982,914   Deferred Credits   2,056,449     2,062,824   Total Capitalization and Liabilities   $ 5,500,255     $ 5,261,359       WGL Holdings, Inc. Condensed Consolidated Statements of Income

(Unaudited)

    Three Months Ended     December 31, (In thousands, except per share data)   2015   2014 OPERATING REVENUES   Utility $ 288,153 $ 381,712 Non-utility   325,231     367,525   Total Operating Revenues   613,384     749,237   OPERATING EXPENSES Utility cost of gas 50,025 129,704 Non-utility cost of energy-related sales 282,487 336,568 Operation and maintenance 95,419 92,380 Depreciation and amortization 31,412 29,360 General taxes and other assessments   36,532     39,383   Total Operating Expenses   495,875     627,395   OPERATING INCOME 117,509 121,842 Equity in earnings of unconsolidated affiliates 1,263 1,144 Other income (expenses) — net 979 (4,355 ) Interest expense   12,760     12,310   INCOME BEFORE TAXES 106,991 106,321 INCOME TAX EXPENSE   38,490     42,103   NET INCOME $ 68,501 $ 64,218 Dividends on Washington Gas Light Company preferred stock   330     330   NET INCOME APPLICABLE TO COMMON STOCK   $ 68,171     $ 63,888   WEIGHTED AVERAGE COMMON SHARES OUTSTANDING Basic 49,807 49,946 Diluted   50,030     50,091   EARNINGS PER AVERAGE COMMON SHARE Basic $ 1.37 $ 1.28 Diluted   $ 1.36     $ 1.28       WGL Holdings, Inc. Consolidated Financial and Operating Statistics

(Unaudited)

  FINANCIAL STATISTICS   Twelve Months Ended     December 31,     2015   2014 Closing Market Price — end of period $62.99   $54.62 52-Week Market Price Range $65.55 - $50.89 $56.79-$35.35 Price Earnings Ratio 23.2 18.5 Annualized Dividends Per Share $1.85 $1.76 Dividend Yield 2.9% 3.2% Return on Average Common Equity 10.7% 12.0% Total Interest Coverage (times) 5.1 6.8 Book Value Per Share — end of period $25.87 $25.00 Common Shares Outstanding — end of period (thousands)   49,833   49,709    

UTILITY GAS STATISTICS

 

Three Months Ended

  Twelve Months Ended    

December 31,

  December 31, (In thousands)   2015   2014   2015   2014 Operating Revenues     Gas Sold and Delivered Residential — Firm $ 167,689 $ 243,734 $ 740,621 $ 889,891 Commercial and Industrial — Firm 36,609 56,418 168,129 209,987 Commercial and Industrial — Interruptible 518 718 2,378 2,464 Electric Generation     275         275         1,100         1,100           205,091         301,145         912,228         1,103,442     Gas Delivered for Others Firm 61,903 56,121 210,986 198,978 Interruptible 11,505 13,736 50,246 60,040 Electric Generation     176         132         597         534           73,584         69,989         261,829         259,552     278,675 371,134 1,174,057 1,362,994 Other     9,478         10,578         35,428         49,128     Total   $ 288,153       $ 381,712       $ 1,209,485       $ 1,412,122                                               Three Months Ended Twelve Months Ended     December 31,     December 31, (In thousands of therms)   2015   2014   2015   2014 Gas Sales and Deliveries Gas Sold and Delivered Residential — Firm 152,924 217,059 670,740 729,955 Commercial and Industrial — Firm 44,892 59,178 183,257 196,160 Commercial and Industrial — Interruptible     720         1,055         1,736         2,686           198,536         277,292         855,733         928,801     Gas Delivered for Others Firm 133,278 160,006 531,397 536,867 Interruptible 62,535 77,659 245,139 267,668 Electric Generation     43,225         26,255         196,032         133,540           239,038         263,920         972,568         938,075     Total     437,574         541,212         1,828,301         1,866,876     Utility Gas Purchase Expense (excluding asset optimization)  

 

36.26

 

¢

 

 

56.18

 

¢

 

 

50.91

 

¢

 

 

67.90

 

¢

HEATING DEGREE DAYS Actual 956 1,255 3,630 3,972 Normal 1,331 1,343 3,746 3,750 Percent Colder (Warmer) than Normal     (28.2 )%       (6.6 )%       (3.1 )%       5.9 %   Average Active Customer Meters     1,135,765         1,123,272         1,133,059         1,120,257     WGL ENERGY SERVICES                                         Natural Gas Sales Therm Sales (thousands of therms) 189,500 201,000 701,500 708,600 Number of Customers (end of period)     141,300         153,400         141,300         153,400     Electricity Sales Electricity Sales (thousands of kWhs) 2,926,400 2,668,500 12,314,900 11,532,500 Number of Accounts (end of period)     135,000         156,600         135,000         156,600     WGL ENERGY SYSTEMS Megawatts in service 119 82 119 82 Megawatt hours generated     33,448         17,820         137,271         79,374      

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

The tables below reconcile adjusted EBIT on a segment basis to GAAP income (loss) before income taxes and reconcile operating earnings (loss) on a consolidated basis to GAAP net income (loss) applicable to common stock. 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; andiii. 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 than 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 income before income taxes:

      Three Months Ended December 31, (In thousands)   2015   2014 Adjusted EBIT:     Regulated utility $ 86,623 $ 96,556 Retail energy-marketing 5,245 8,955 Commercial energy systems 2,195 1,168 Midstream energy services 13,129 2,566 Other activities(*) (780 ) (1,474 ) Eliminations   27     (32 ) Total   $ 106,439     $ 107,739   Non-GAAP adjustments(1) 13,312 10,892 Interest expense   12,760     12,310   Income before income taxes   $ 106,991     $ 106,321   Income tax expense 38,490 42,103 Dividends on Washington Gas preferred stock   330     330   Net income applicable to common stock   $ 68,171     $ 63,888     (*)   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.    

WGL Holdings, Inc. (Consolidated by Quarter)

Reconciliation of Non-GAAP Financial Measures

(Unaudited)

  The following tables represent the reconciliation of operating earnings to net income applicable to common stock (consolidated by quarter):   Fiscal Year 2016     Quarterly Period Ended (In thousands, except per share data)   Dec. 31   Mar. 31   Jun. 30   Sept. 30   Fiscal Year Operating earnings   $ 59,205         $ 59,205 Non-GAAP adjustments(1) 13,312 13,312 Income tax effect of non-GAAP adjustments   (4,346 )               (4,346 ) Net income applicable to common stock   $ 68,171                 $ 68,171   Diluted average common shares outstanding   50,030                 50,030   Operating earnings per share $ 1.18 $ 1.18 Per share effect of non-GAAP adjustments   0.18                 0.18   Diluted earnings per average common share   $ 1.36                 $ 1.36   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 $ 58,004 Non-GAAP adjustments(1) 10,892 10,892 Income tax effect of non-GAAP adjustments   (5,008 )               (5,008 ) Net income applicable to common stock   $ 63,888                 $ 63,888   Diluted average common shares outstanding   50,091                 50,091   Operating earnings per share $ 1.16 $ 1.16 Per share effect of non-GAAP adjustments   0.12                 0.12   Diluted earnings per average common share   $ 1.28                 $ 1.28      

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 December 31, 2015 (In thousands)  

RegulatedUtility

 

RetailEnergy-Marketing

 

CommercialEnergySystems

 

MidstreamEnergyServices

 

OtherActivities

 

Eliminations

  Total Adjusted EBIT   $ 86,623     $ 5,245     $ 2,195     $ 13,129     $ (780 )   $ 27     $ 106,439   Non-GAAP adjustments:               Unrealized mark-to-market valuations on energy-related derivatives(a) 19,423 (5,812 ) — 10,836 — — 24,447 Storage optimization program(b) 475 — — — — — 475 DC weather impact(c) (7,232 ) — — — — — (7,232 ) Distributed generation asset related investment tax credits(d) — — (1,252 ) — — — (1,252 ) Change in measured value of inventory(e)   —     —     —     (3,126 )   —     —     (3,126 ) Total non-GAAP adjustments   $ 12,666     $ (5,812 )   $ (1,252 )   $ 7,710     $ —     $ —     $ 13,312   EBIT   $ 99,289     $ (567 )   $ 943     $ 20,839     $ (780 )   $ 27     $ 119,751                                 Three Months Ended December 31, 2014 (In thousands)  

RegulatedUtility

 

RetailEnergy-Marketing

 

CommercialEnergySystems

 

MidstreamEnergyServices

 

OtherActivities

 

Eliminations

  Total Adjusted EBIT   $ 96,556     $ 8,955     $ 1,168     $ 2,566     $ (1,474 )   $ (32 )   $ 107,739   Non-GAAP adjustments: Unrealized mark-to-market valuations on energy-related derivatives(a) 25,077 (24,850 ) — 8,329 — — 8,556 Storage optimization program (b) (4,180 ) — — — — — (4,180 ) DC weather impact(c) (2,826 ) — — — — — (2,826 ) Distributed generation asset related investment tax credits(d) — — (909 ) — — — (909 ) Change in measured value of inventory(e) — — — 15,876 — — 15,876 Investment Impairment(f)   —     —     —     —     (5,625 )   —     (5,625 ) Total non-GAAP adjustments   $ 18,071     $ (24,850 )   $ (909 )   $ 24,205     $ (5,625 )   $ —     $ 10,892   EBIT   $ 114,627     $ (15,895 )   $ 259     $ 26,771     $ (7,099 )   $ (32 )   $ 118,631    

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, 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. 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. 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 did not believe this impairment charge was indicative of our historical or future performance trends.

 

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WGL Holdings, Inc.News MediaJim Monroe, 202-624-6620orFinancial CommunityDouglas Bonawitz, 202-624-6129