Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
þ
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2017
OR
 
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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
Indicate by check mark whether each registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether each registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether each registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
WGL Holdings, Inc.:
 
Large accelerated filer þ
 
Accelerated filer ¨
 
Non-accelerated filer ¨
 
Smaller reporting company ¨
 
 
 
(Do not check if a smaller reporting company)                        
 
Emerging growth company ¨
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
Washington Gas Light Company:
 
Large accelerated filer ¨
 
Accelerated filer ¨
 
Non-accelerated filer þ
 
Smaller reporting company ¨
 
 
 
(Do not check if a smaller reporting company) 
 
Emerging growth company ¨
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 
Indicate by check mark whether each registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
Indicate the number of shares outstanding of each of the issuers’ classes of common stock, as of the latest practicable date.
WGL Holdings, Inc. common stock, no par value, outstanding as of April 30, 2017: 51,219,000 shares.
All of the outstanding shares of common stock ($1 par value) of Washington Gas Light Company were held by WGL Holdings, Inc. as of April 30, 2017.



WGL Holdings, Inc.
Washington Gas Light Company

For the Quarter Ended March 31, 2017
Table of Contents
 
PART I. Financial Information
 
 
 
Item 1. Financial Statements (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PART II. Other Information
 
 
 
 
 
 
 
 
 
 
 

 



(i)


WGL Holdings, Inc.
Washington Gas Light Company

INTRODUCTION
FILING FORMAT
This Quarterly Report on Form 10-Q is a combined report being filed by two separate registrants: WGL Holdings, Inc. (WGL) and Washington Gas Light Company (Washington Gas). Except where the content clearly indicates otherwise, any reference in the report to “WGL,” “we,” “us” or “our” is to the holding company or WGL and all of its subsidiaries, including Washington Gas, which is a wholly owned subsidiary of WGL.
Part I—Financial information in this Quarterly Report on Form 10-Q includes separate financial statements (i.e. balance sheets, statements of income and comprehensive income and statements of cash flows) for WGL and Washington Gas. The Notes to Consolidated Financial Statements are presented on a combined basis for both WGL and Washington Gas. The Management’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion) included under Item 2 is divided into two major sections for WGL and Washington Gas.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
Certain matters discussed in this report, excluding historical information, include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the outlook for earnings, dividends, revenues and other future financial business performance, strategies, 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 terms such as “will,” “should,” “would” and “could.” Forward-looking statements speak only as of today, and the registrants assume no duty to update them. Factors that could cause actual results to differ materially from forward-looking statements or historical performance include those discussed in Item 1A. Risk Factors in the combined Annual Report on Form 10-K for WGL and Washington Gas for the fiscal year ended September 30, 2016, in Part II, Item 1A, Risk Factors in this quarterly update on Form 10-Q and in our other filings with the Securities and Exchange Commission, and may include, but are not limited to the following:
the occurrence of any event, change or other circumstances that could give rise to the termination of the Agreement and Plan of Merger (merger agreement) among WGL, AltaGas Ltd. (AltaGas) and Wrangler, Inc.
the inability of WGL or AltaGas to satisfy conditions to the closing of the merger;
WGL's shareholders may not approve the merger agreement;
the required regulatory approvals and other clearances for the merger may not be received, may not be received in a timely manner, or may be received subject to imposed conditions or restrictions that cause a failure of a closing condition to the merger or that could have a detrimental impact on the combined company following completion of the merger;
the effect of the announcement of the merger on the ability of WGL to retain customers and retain and hire key personnel;
the effect of the announcement of the merger on the ability of WGL to maintain relationships with its suppliers;
potential litigation in connection with the merger;
the incurrence of significant costs for advisory services in connection with the merger;
the impact of the terms and conditions of the merger agreement on WGL’s interim operations and its ability to make significant changes to its business or pursue otherwise attractive business opportunities without the consent of AltaGas;
the level and rate at which we incur costs and expenses, and the extent to which we are allowed to recover from customers, through the regulatory process, such costs and expenses relating to constructing, operating and maintaining Washington Gas’ distribution system;
the availability of natural gas and electricity supply, interstate pipeline transportation and storage capacity;
factors beyond our control that affect the ability of natural gas producers, pipeline gatherers and natural gas processors to deliver natural gas into interstate pipelines for delivery to the entrance points of Washington Gas' distribution system;
security breaches of our information technology infrastructure, including cyber attacks and cyber-terrorism;
leaks, mechanical problems, incidents or other operational issues in our natural gas distribution system, including the effectiveness of our efforts to mitigate the effects of receiving low-HHC natural gas;
changes and developments in economic, competitive, political and regulatory conditions;
unusual weather conditions and changes in natural gas consumption patterns;

(ii)


WGL Holdings, Inc.
Washington Gas Light Company

changes in energy commodity market conditions, including the relative prices of alternative forms of energy such as electricity, fuel oil and propane;
changes in the value of derivative contracts and the availability of suitable derivative counterparties;
changes in our credit ratings, disruptions in credit market and equity capital market conditions or other factors that may affect our access to and cost of capital;
factors affecting the timing of construction and the effective operation of pipelines in which we have invested;
the credit worthiness of customers; suppliers and derivatives counterparties;
changes in laws and regulations, including tax, environmental, pipeline integrity and employment laws and regulations;
legislative, regulatory and judicial mandates or decisions affecting our business operations;
the timing and success of business and product development efforts and technological improvements;
the level of demand from government agencies and the private sector for commercial energy systems, and delays in federal government budget appropriations;
the pace of deregulation of energy markets and the availability of other competitive alternatives to our products and services;
changes in accounting principles;
our ability to manage the outsourcing of several business processes, including the transition of certain processes to new third party vendors;
strikes or work stoppages by unionized employees;
acts of nature and catastrophic events, including terrorist acts and
decisions made by management and co-investors in non-controlled investees.
All such factors are difficult to predict accurately and are generally beyond the direct control of the registrants. Readers are urged to use care and consider the risks, uncertainties and other factors that could affect our business as described in this Quarterly Report on Form 10-Q.

 

(iii)

WGL Holdings, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
Part I—Financial Information
Item 1—Financial Statements


(In thousands)
March 31,
2017
 
September 30,
2016
ASSETS
 
 
 
Property, Plant and Equipment
 
 
 
At original cost
$
5,745,531

 
$
5,542,916

Accumulated depreciation and amortization
(1,472,749
)
 
(1,415,679
)
Net property, plant and equipment
4,272,782

 
4,127,237

Current Assets
 
 
 
Cash and cash equivalents
7,462

 
5,573

Receivables
 
 
 
Accounts receivable
496,082

 
329,989

Gas costs and other regulatory assets
35,798

 
15,294

Unbilled revenues
205,744

 
173,076

Allowance for doubtful accounts
(27,770
)
 
(27,339
)
Net receivables
709,854

 
491,020

Materials and supplies—principally at average cost
17,394

 
18,414

Storage gas
139,134

 
207,132

Prepaid taxes
27,022

 
33,397

Other prepayments
66,528

 
42,626

Derivatives
12,498

 
18,510

Other
24,467

 
26,802

Total current assets
1,004,359

 
843,474

Deferred Charges and Other Assets
 
 
 
Regulatory assets
 
 
 
Gas costs
122,441

 
179,856

Pension and other post-retirement benefits
213,143

 
223,242

Other
100,718

 
98,592

Prepaid post-retirement benefits
188,546

 
180,686

Derivatives
65,835

 
55,020

Investments in direct financing leases, capital leases
26,402

 
29,780

Investments in unconsolidated affiliates
408,699

 
303,491

Other
6,810

 
8,072

Total deferred charges and other assets
1,132,594

 
1,078,739

  Total Assets
$
6,409,735

 
$
6,049,450

CAPITALIZATION AND LIABILITIES
 
 
 
Capitalization
 
 
 
WGL Holdings common shareholders’ equity
$
1,537,882

 
$
1,375,561

Non-controlling interest
3,251

 
409

Washington Gas Light Company preferred stock
28,173

 
28,173

Total equity
1,569,306


1,404,143

Long-term debt
1,235,432

 
1,435,045

Total capitalization
2,804,738

 
2,839,188

Current Liabilities
 
 
 
Current maturities of long-term debt
250,000

 

Notes payable and project financing
532,320

 
331,385

Accounts payable and other accrued liabilities
389,881

 
405,351

Wages payable
18,361

 
17,908

Accrued interest
7,441

 
7,645

Dividends declared
26,452

 
25,283

Customer deposits and advance payments
60,398

 
86,384

Gas costs and other regulatory liabilities
42,244

 
12,973

Accrued taxes
21,452

 
15,672

Derivatives
31,292

 
82,334

Other
52,278

 
41,991

Total current liabilities
1,432,119

 
1,026,926

Deferred Credits
 
 
 
Unamortized investment tax credits
171,852

 
163,493

Deferred income taxes
844,915

 
726,763

Accrued pensions and benefits
234,018

 
228,377

Asset retirement obligations
207,571

 
203,105

Regulatory liabilities
 
 
 
Accrued asset removal costs
294,625

 
310,788

Other post-retirement benefits
106,860

 
113,875

Other
10,382

 
14,450

Derivatives
183,263

 
304,198

Other
119,392

 
118,287

Total deferred credits
2,172,878

 
2,183,336

Commitments and Contingencies (Note 13)

 

Total Capitalization and Liabilities
$
6,409,735

 
$
6,049,450

The accompanying notes are an integral part of these statements.

4


WGL Holdings, Inc.
Condensed Consolidated Statements of Income (Unaudited)
Part I—Financial Information
Item 1—Financial Statements (continued)
 
  
Three Months Ended 
 March 31,
 
Six Months Ended 
 March 31,
(In thousands, except per share data)
2017
 
2016
 
2017
 
2016
OPERATING REVENUES
 
 
 
 
 
 
 
Utility
$
466,270

 
$
442,837

 
$
793,333

 
$
730,990

Non-utility
375,480

 
392,852

 
657,904

 
718,083

Total Operating Revenues
841,750

 
835,689

 
1,451,237

 
1,449,073

OPERATING EXPENSES
 
 
 
 
 
 
 
Utility cost of gas
134,458

 
121,055

 
209,958

 
171,080

Non-utility cost of energy-related sales
301,780

 
351,720

 
554,666

 
634,207

Operation and maintenance
118,261

 
103,933

 
218,978

 
199,352

Depreciation and amortization
39,110

 
33,170

 
74,393

 
64,582

General taxes and other assessments
50,544

 
51,400

 
90,932

 
87,932

Total Operating Expenses
644,153

 
661,278

 
1,148,927

 
1,157,153

OPERATING INCOME
197,597

 
174,411

 
302,310

 
291,920

Equity in earnings of unconsolidated affiliates
7,344

 
4,768

 
7,609

 
6,031

Other income (expenses) — net
(1,953
)
 
795

 
(1,475
)
 
1,774

Interest expense
14,255

 
12,999

 
30,490

 
25,759

INCOME BEFORE INCOME TAXES
188,733

 
166,975

 
277,954

 
273,966

INCOME TAX EXPENSE
70,778

 
60,357

 
104,232

 
98,847

NET INCOME
$
117,955

 
$
106,618

 
$
173,722

 
$
175,119

Non-controlling interest
(5,439
)
 

 
(7,974
)
 

Dividends on Washington Gas Light Company preferred stock
330

 
330

 
660

 
660

NET INCOME APPLICABLE TO COMMON STOCK
$
123,064

 
$
106,288

 
$
181,036

 
$
174,459

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
 
 
 
 
 
 
 
Basic
51,217

 
50,009

 
51,192

 
49,918

Diluted
51,476

 
50,282

 
51,458

 
50,166

EARNINGS PER AVERAGE COMMON SHARE
 
 
 
 
 
 
 
Basic
$
2.40

 
$
2.13

 
$
3.54

 
$
3.49

Diluted
$
2.39

 
$
2.11

 
$
3.52

 
$
3.48

DIVIDENDS DECLARED PER COMMON SHARE
$
0.5100

 
$
0.4875

 
$
0.9975

 
$
0.9500

The accompanying notes are an integral part of these statements.


5


WGL Holdings, Inc.
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
Part I—Financial Information
Item 1—Financial Statements (continued)
 
  
Three Months Ended 
 March 31,
 
Six Months Ended March 31,
(In thousands)
2017
 
2016
 
2017
 
2016
NET INCOME
$
117,955

 
$
106,618

 
$
173,722

 
$
175,119

OTHER COMPREHENSIVE INCOME, BEFORE INCOME TAXES:
 
 
 
 
 
 
 
Qualified cash flow hedging instruments
48

 
(18,634
)
 
49,503

 
(17,550
)
Pension and other post-retirement benefit plans
 
 
 
 
 
 
 
Change in net prior service credit
(217
)
 
(214
)
 
(434
)
 
(428
)
Change in actuarial net loss
588

 
419

 
1,176

 
838

Total other comprehensive income (loss) before taxes
$
419

 
$
(18,429
)
 
$
50,245

 
$
(17,140
)
INCOME TAX EXPENSE (BENEFIT) RELATED TO OTHER COMPREHENSIVE INCOME
167

 
(7,649
)
 
20,580

 
(7,118
)
OTHER COMPREHENSIVE INCOME (LOSS)
$
252

 
$
(10,780
)
 
$
29,665

 
$
(10,022
)
COMPREHENSIVE INCOME
$
118,207

 
$
95,838

 
$
203,387

 
$
165,097

   Non-controlling interest
(5,439
)
 

 
(7,974
)
 

   Dividends on Washington Gas Light Company preferred stock
330

 
330

 
660

 
660

COMPREHENSIVE INCOME ATTRIBUTABLE TO WGL HOLDINGS
$
123,316

 
$
95,508

 
$
210,701

 
$
164,437

The accompanying notes are an integral part of these statements.


6

WGL Holdings, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
Part I—Financial Information
Item 1—Financial Statements (continued)

  
Six Months Ended March 31,
(In thousands)
2017
 
2016
OPERATING ACTIVITIES
 
 
 
Net income
$
173,722

 
$
175,119

ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
 
 
 
Depreciation and amortization
74,393

 
64,582

Amortization of:
 
 
 
Other regulatory assets and liabilities—net
1,797

 
649

Debt related costs
873

 
676

Deferred income taxes—net
77,278

 
102,753

Accrued/deferred pension and other post-retirement benefit cost
10,819

 
9,888

Earnings in equity interest
(7,609
)
 
6,031

Compensation expense related to stock-based awards
8,605

 
7,562

Provision for doubtful accounts
3,373

 
6,672

Impairment loss

 
3,000

Other non-cash credits—net
3,401

 
(10,075
)
CHANGES IN ASSETS AND LIABILITIES
 
 
 
Accounts receivable and unbilled revenues—net
(210,871
)
 
(188,728
)
Gas costs and other regulatory assets/liabilities—net
8,767

 
(22,881
)
Storage gas
67,998

 
77,496

Prepaid taxes
6,375

 
10,188

Other prepayments
(23,902
)
 
(37,617
)
Accounts payable and other accrued liabilities
24,840

 
23,656

Customer deposits and advance payments
(25,986
)
 
(5,549
)
Unamortized investment tax credits
8,359

 
20,244

Accrued taxes
5,780

 
17,988

Accrued interest
(204
)
 
117

Other current assets
3,355

 
(7,682
)
Other current liabilities
(32,614
)
 
(18,727
)
Deferred gas costs—net
57,415

 
66,688

Deferred assets—other
(13,478
)
 
(17,865
)
Deferred liabilities—other
(3,413
)
 
(52,990
)
Derivatives
(127,273
)
 
(94,089
)
Other—net
(531
)
 
(128
)
Net Cash Provided by Operating Activities
91,269

 
136,978

FINANCING ACTIVITIES
 
 
 
Common stock issued
298

 
31,900

Long-term debt issued
50,000

 
250,000

Long-term debt retired

 
(25,000
)
Debt issuance costs
(404
)
 
(284
)
Notes payable issued —net
230,806

 
(47,000
)
Contributions from non-controlling interest
10,816

 

Project financing
9,429

 
20,390

Dividends on common stock and preferred stock
(49,220
)
 
(45,462
)
Other financing activities—net
2,305

 
1,998

Net Cash Provided by Financing Activities
254,030

 
186,542

INVESTING ACTIVITIES
 
 
 
Capital expenditures (excluding Allowance for Funds Used During Construction)
(266,545
)
 
(206,928
)
Investments in non-utility interests
(89,295
)
 
(118,583
)
Distributions and receipts from non-utility interests
2,827

 
3,740

Proceeds from the sale of assets
10,466

 

Loans to external parties
(863
)
 
1,392

Net Cash Used in Investing Activities
(343,410
)
 
(320,379
)
INCREASE IN CASH AND CASH EQUIVALENTS
1,889

 
3,141

Cash and Cash Equivalents at Beginning of Year
5,573

 
6,733

Cash and Cash Equivalents at End of Period
$
7,462

 
$
9,874

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Income taxes paid (refunded)—net
$
(4,650
)
 
$
2,601

Interest paid
$
32,429

 
$
25,341

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Project financing activities
$
(29,871
)
 
$

Capital expenditure accruals included in accounts payable and other accrued liabilities
$
41,892

 
$
47,350

Dividends paid in common stock
$
1,362

 
$
1,300

Stock issued related to compensation
$
6,564

 
$
6,742

Transfer of investments to property, plant and equipment
$
3,959

 
$

Transfer of accounts receivable to investments
$
10,031

 
$

The accompanying notes are an integral part of these statements.

7


Washington Gas Light Company
Condensed Balance Sheets (Unaudited)
Part I—Financial Information
Item 1—Financial Statements (continued)

(In thousands)
March 31,
2017
 
September 30,
2016
ASSETS
 
 
 
Property, Plant and Equipment
 
 
 
At original cost
$
5,045,922

 
$
4,874,905

Accumulated depreciation and amortization
(1,394,852
)
 
(1,348,173
)
Net property, plant and equipment
3,651,070

 
3,526,732

Current Assets
 
 
 
Cash and cash equivalents
1

 
1

Receivables
 
 
 
Accounts receivable
272,494

 
140,457

Gas costs and other regulatory assets
35,798

 
15,294

Unbilled revenues
133,160

 
89,945

Allowance for doubtful accounts
(20,604
)
 
(20,220
)
Net receivables
420,848

 
225,476

Materials and supplies—principally at average cost
17,348

 
18,368

Storage gas
31,067

 
82,473

Prepaid taxes
12,825

 
16,826

Other prepayments
21,097

 
10,924

Receivables from associated companies
19,617

 
13,799

Derivatives
3,379

 
7,285

Other
66

 
51

Total current assets
526,248

 
375,203

Deferred Charges and Other Assets
 
 
 
Regulatory assets
 
 
 
Gas costs
122,441

 
179,856

Pension and other post-retirement benefits
211,937

 
221,971

Other
100,656

 
98,527

Prepaid post-retirement benefits
187,521

 
179,675

Derivatives
23,262

 
25,590

Other
2,445

 
2,001

Total deferred charges and other assets
648,262

 
707,620

  Total Assets
$
4,825,580

 
$
4,609,555

CAPITALIZATION AND LIABILITIES
 
 
 
Capitalization
 
 
 
Common shareholder’s equity
$
1,220,617

 
$
1,113,446

Preferred stock
28,173

 
28,173

Long-term debt
939,221

 
939,015

Total capitalization
2,188,011

 
2,080,634

Current Liabilities
 
 
 
Notes payable and project financing
227,748

 
104,385

Accounts payable and other accrued liabilities
194,362

 
204,980

Wages payable
16,718

 
16,235

Accrued interest
3,604

 
3,758

Dividends declared
22,099

 
21,453

Customer deposits and advance payments
59,750

 
80,936

Gas costs and other regulatory liabilities
42,244

 
12,973

Accrued taxes
26,480

 
17,639

Payables to associated companies
78,551

 
65,770

Derivatives
24,408

 
58,295

Other
7,217

 
7,193

Total current liabilities
703,181

 
593,617

Deferred Credits
 
 
 
Unamortized investment tax credits
4,473

 
4,851

Deferred income taxes
849,405

 
763,720

Accrued pensions and benefits
231,947

 
226,339

Asset retirement obligations
203,207

 
199,377

Regulatory liabilities
 
 
 
Accrued asset removal costs
294,625

 
310,788

Other post-retirement benefits
106,210

 
113,169

Other
10,382

 
14,450

Derivatives
157,573

 
232,040

Other
76,566

 
70,570

Total deferred credits
1,934,388

 
1,935,304

Commitments and Contingencies (Note 13)

 

Total Capitalization and Liabilities
$
4,825,580

 
$
4,609,555

The accompanying notes are an integral part of these statements.

8


Washington Gas Light Company
Condensed Statements of Income (Unaudited)
Part I—Financial Information
Item 1—Financial Statements (continued)
  
Three Months Ended March 31,
 
Six Months Ended March 31,
(In thousands)
2017
 
2016
 
2017
 
2016
OPERATING REVENUES
$
475,021

 
$
452,024

 
$
809,007

 
$
747,270

OPERATING EXPENSES
 
 
 
 
 
 
 
Utility cost of gas
143,189

 
130,242

 
225,620

 
187,360

Operation and maintenance
86,754

 
81,210

 
168,920

 
160,518

Depreciation and amortization
33,116

 
28,757

 
63,242

 
55,962

General taxes and other assessments
46,104

 
47,589

 
82,359

 
80,227

Total Operating Expenses
309,163

 
287,798

 
540,141

 
484,067

OPERATING INCOME
165,858

 
164,226

 
268,866

 
263,203

Other expense — net
(1,357
)
 
(501
)
 
(2,136
)
 
(721
)
Interest expense
13,005

 
10,395

 
25,767

 
20,718

INCOME BEFORE INCOME TAXES
151,496

 
153,330

 
240,963

 
241,764

INCOME TAX EXPENSE
57,886

 
58,897

 
91,892

 
92,719

NET INCOME
$
93,610

 
$
94,433

 
$
149,071

 
$
149,045

Dividends on Washington Gas preferred stock
330

 
330

 
660

 
660

NET INCOME APPLICABLE TO COMMON STOCK
$
93,280

 
$
94,103

 
$
148,411

 
$
148,385

The accompanying notes are an integral part of these statements.


9


Washington Gas Light Company
Condensed Statements of Comprehensive Income (Unaudited)
Part I—Financial Information
Item 1—Financial Statements (continued)
  
Three Months Ended 
 March 31,
 
Six Months Ended March 31,
(In thousands)
2017
 
2016
 
2017
 
2016
NET INCOME
$
93,610

 
$
94,433

 
$
149,071

 
$
149,045

OTHER COMPREHENSIVE INCOME, BEFORE INCOME TAXES:
 
 
 
 
 
 
 
Pension and other post-retirement benefit plans
 
 
 
 
 
 
 
Change in net prior service credit
(217
)
 
(214
)
 
(434
)
 
(428
)
Change in actuarial net loss
588

 
419

 
1,176

 
838

Total pension and other post-retirement benefit plans
$
371

 
$
205

 
$
742

 
$
410

INCOME TAX EXPENSE RELATED TO OTHER COMPREHENSIVE INCOME
148

 
81

 
295

 
162

OTHER COMPREHENSIVE INCOME
$
223

 
$
124

 
$
447

 
$
248

COMPREHENSIVE INCOME
$
93,833

 
$
94,557

 
$
149,518

 
$
149,293

The accompanying notes are an integral part of these statements.

10


Washington Gas Light Company
Condensed Statements of Cash Flows (Unaudited)
Part I—Financial Information
Item 1—Financial Statements (continued)


  
Six Months Ended March 31,
(In thousands)
2017
 
2016
OPERATING ACTIVITIES
 
 
 
Net income
$
149,071

 
$
149,045

ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
 
 
 
Depreciation and amortization
63,242

 
55,962

Amortization of:
 
 
 
Other regulatory assets and liabilities—net
1,797

 
649

Debt related costs
692

 
629

Deferred income taxes—net
61,408

 
75,133

Accrued/deferred pension and other post-retirement benefit cost
7,551

 
9,863

Compensation expense related to stock-based awards
8,094

 
6,396

Provision for doubtful accounts
2,410

 
5,494

Other non-cash charges—net
1,965

 
1,759

CHANGES IN ASSETS AND LIABILITIES
 
 
 
Accounts receivable, unbilled revenues and receivables from associated companies—net
(183,096
)
 
(163,608
)
Gas costs and other regulatory assets/liabilities—net
8,767

 
(22,881
)
Storage gas
51,406

 
55,447

Prepaid taxes
4,001

 
13,831

Other prepayments
(10,173
)
 
(14,147
)
Accounts payable and other accrued liabilities, including payables to associated companies
16,017

 
24,136

Customer deposits and advance payments
(21,186
)
 
(5,749
)
Accrued taxes
8,841

 
17,305

Accrued interest
(154
)
 
4

Other current assets
1,005

 
2,375

Other current liabilities
(3,450
)
 
(3,157
)
Deferred gas costs—net
57,415

 
66,688

Deferred assets—other
(9,241
)
 
(16,114
)
Deferred liabilities—other
7,933

 
(5,638
)
Derivatives
(102,120
)
 
(89,890
)
Other—net
1,290

 
(36
)
Net Cash Provided by Operating Activities
123,485

 
163,496

FINANCING ACTIVITIES
 
 
 
Long-term debt retired

 
(25,000
)
Debt issuance costs
(399
)
 
(171
)
Notes payable issued —net
121,329

 
44,000

Project financing
2,034

 
20,390

Dividends on common stock and preferred stock
(42,921
)
 
(40,538
)
Other financing activities—net
2,248

 
1,949

Net Cash Provided by Financing Activities
82,291

 
630

INVESTING ACTIVITIES
 
 
 
Capital expenditures (excluding Allowance for Funds Used During Construction)
(205,776
)
 
(159,420
)
Net Cash Used In Investing Activities
(205,776
)
 
(159,420
)
INCREASE IN CASH AND CASH EQUIVALENTS

 
4,706

Cash and Cash Equivalents at Beginning of Year
1

 
1

Cash and Cash Equivalents at End of Period
$
1

 
$
4,707

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Income taxes refunded — net
$
(6,449
)
 
$

Interest paid
$
25,478

 
$
20,300

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES
 
 
 
Project financing activities
$
(29,871
)
 
$

Capital expenditure accruals included in accounts payable and other accrued liabilities
$
28,063

 
$
31,116

The accompanying notes are an integral part of these statements.

11


WGL Holdings, Inc.
Washington Gas Light Company
Part I—Financial Information
Item 1—Financial Statements (continued)
Notes to Condensed Consolidated Financial Statements (Unaudited)



NOTE 1. ACCOUNTING POLICIES
Basis of Presentation
WGL Holdings, Inc. (WGL) is a holding company that owns all of the shares of common stock of Washington Gas Light Company (Washington Gas), a regulated natural gas utility, and all of the shares of common stock of Washington Gas Resources Corporation (Washington Gas Resources) and Hampshire Gas Company (Hampshire). Washington Gas Resources owns all of the shares of common stock of four non-utility subsidiaries that include WGL Energy Services, Inc. (WGL Energy Services), WGL Energy Systems, Inc. (WGL Energy Systems), WGL Midstream, Inc. (WGL Midstream) and WGSW, Inc. (WGSW). Except where the content clearly indicates otherwise, “WGL,” “we,” “us” or “our” refers to the holding company or the consolidated entity of WGL Holdings, Inc. and all of its subsidiaries. Unless otherwise noted, these notes apply equally to WGL and Washington Gas.
The condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Therefore, certain financial information and note disclosures accompanying annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) are omitted in this interim report. The interim consolidated financial statements and accompanying notes should be read in conjunction with the combined Annual Report on Form 10-K for WGL and Washington Gas for the fiscal year ended September 30, 2016. Due to the seasonal nature of our businesses, the results of operations for the periods presented in this report are not necessarily indicative of actual results for the full fiscal years ending September 30, 2017 and 2016 of either WGL or Washington Gas.
The accompanying unaudited condensed financial statements for WGL and Washington Gas reflect all normal recurring adjustments that are necessary, in our opinion, to present fairly the results of operations in accordance with GAAP. On October 1, 2016, WGL and Washington Gas adopted ASU 2015-03 and ASU 2015-15. These standards require an entity to account for debt issuance costs as a deduction from the carrying amount of debt in the balance sheet and the amortization of debt issuance costs presented as interest expense, consistent with debt discounts. Prior period amounts related to other deferred charges and other assets and long-term debt in the accompanying condensed balance sheets have been reclassified to conform to the current period presentation.
For a complete description of our accounting policies, refer to Note 1 of the Notes to Consolidated Financial Statements of the combined Annual Report on Form 10-K for WGL and Washington Gas for the fiscal year ended September 30, 2016.

Storage Gas Valuation
For Washington Gas and WGL Energy Services, storage gas inventories are accounted for using the first-in, first-out method. For WGL Midstream, storage gas inventory is accounted for using the weighted average cost method. Our inventory is stated at the lower-of-cost or market. Interim period inventory losses attributable to lower-of-cost or market adjustments may be reversed if the market value of the inventory is recovered by the end of the same fiscal year.
For the three and six months ended March 31, 2017, WGL and Washington Gas did not record any lower-of-cost or market adjustments. For the three and six months ended March 31, 2016, WGL recorded an increase to non-utility operating revenues due to a lower-of-cost or market adjustment of $0.8 million and recorded a decrease to non-utility operating revenues due to a lower-of-cost or market adjustment of $1.1 million, respectively. For the three and six months ended March 31, 2016, Washington Gas did not record any lower-of-cost market adjustments.

12


WGL Holdings, Inc.
Washington Gas Light Company
Part I—Financial Information
Item 1—Financial Statements (continued)
Notes to Condensed Consolidated Financial Statements (Unaudited)

ACCOUNTING STANDARDS ADOPTED IN FISCAL YEAR 2017
 
Standard
  
Description
  
Date of adoption
 
  
Effect on the financial statements or other significant matters
ASU 2015-03 and ASU 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Cost and Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
 
The standard requires an entity to present debt issuance costs in the balance sheet as a direct deduction of the debt liability and the amortization of debt issuance costs be presented as interest expense in a manner consistent with its accounting treatment of debt discounts. The standard requires retrospective application.

An entity can defer and present debt issuance costs related to line-of-credit arrangements as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.

The new guidance does not change the recognition and measurement guidance for debt issuance costs.
 
October 1, 2016
 
Implementation of these standards resulted in a reduction of other deferred assets and long-term debt in our Consolidated Balance Sheets. The amounts that were reclassified at September 30, 2016 for WGL and Washington Gas were $9.3 million and $6.8 million, respectively.
ASU 2015-02 and ASU 2016-17, Consolidation (Topic 810): Amendments to the Consolidation Analysis and Interests Held through Related Parties that are Under Common Control

 
The standards changed the analysis to be performed in determining whether certain types of legal entities should be consolidated, specifically the analysis of limited partnerships and similar entities, fee arrangements and related party relationships. The standard permits prospective or retrospective application for different parts.
The consolidation guidance was also amended as to how a reporting entity, that is the single decision maker of a VIE, should treat indirect interests in the entity held through related parties that are under common control with the reporting entity, when determining whether it is the primary beneficiary of that VIE.
 
October 1, 2016
 
The amendments to the consolidation guidance under these standards were applied and did not have an impact on the financial statements.

13


WGL Holdings, Inc.
Washington Gas Light Company
Part I—Financial Information
Item 1—Financial Statements (continued)
Notes to Condensed Consolidated Financial Statements (Unaudited)

ASU 2015-05, Intangibles-Goodwill and Other -Internal-Use Software (Subtopic 350-40)-Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement
 
The standard clarifies that a cloud computing customer may account for the arrangement as a software license when (1) the customer has a contractual right to take possession of the software at any time during the hosting period without significant penalty, and (2) it is feasible for the customer to either operate the software on its own hardware or contract with another party unrelated to the vendor to host the software. If the arrangement does not meet these criteria, it would be accounted for as a service contract and accounted for as an operating expense in the period incurred.

 
October 1, 2016
 
WGL elected to apply the standard on a prospective basis, which did not have a material impact on the financial statements.

OTHER NEWLY ISSUED ACCOUNTING STANDARDS
 
Standard
  
Description
  
Required date of adoption
 
  
Effect on the financial statements or other significant matters
ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
 
This standard requires entities to report the service cost component in the same financial statement line item as other compensation costs arising from services rendered by the pertinent employees during the period.  The other components of net benefit cost are to be presented separately from service cost and outside of operating income.  In addition, only the service cost component of net benefit cost is eligible for capitalization.  Changes to the presentation of service costs and other components of net benefit cost should be applied retrospectively. Changes in capitalization practices should be implemented prospectively.

 
October 1, 2018
 
We are in the process of evaluating the impact the adoption of this standard will have on our financial statements.
ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
 
This standard simplifies several aspects of the accounting for share-based payment transactions, including accounting for income taxes, forfeitures, and statutory tax withholding requirements.
 
October 1, 2017
 
We are in the process of evaluating the impact the adoption of this standard will have on our financial statements.

14


WGL Holdings, Inc.
Washington Gas Light Company
Part I—Financial Information
Item 1—Financial Statements (continued)
Notes to Condensed Consolidated Financial Statements (Unaudited)

ASU 2016-15, Statement of Cash Flows (Topic 230)—Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force)
 
This update provides guidance on the classification of certain cash receipts and payments in the statement of cash flows.
 
October 1, 2018
 
We are in the process of evaluating the impact the adoption of this standard will have on our financial statements.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606), including subsequent ASUs clarifying the guidance.



 
ASU 2014-09 establishes a comprehensive revenue recognition model clarifying the method used to determine the timing and requirements for revenue recognition from contracts with customers. The disclosure requirements under the new standard will enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.


 
October 1, 2018
 
An implementation team is currently evaluating all revenue streams and reviewing contracts with customers, as well as, related financial statement disclosures to determine the impact the adoption of this standard will have on our financial statements. WGL is also monitoring unresolved industry specific implementation issues that could impact the timing of revenue recognition for our regulated utility tariff based sales, including the evaluation of collectability from customers if a utility has regulatory mechanisms to help assure recovery of uncollected accounts from ratepayers and accounting for contributions in aid of construction (CIAC). WGL has not yet made a decision on the method or date of adoption.

ASU 2016-01, Financial Instruments (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
 
The new standard amends certain disclosure requirements associated with the fair value of financial instruments, and significantly revises an entity’s accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value.
 
October 1, 2018
 
We performed a preliminary evaluation and the adoption of this standard will primarily impact the disclosure of our financial instruments.

ASU 2016-02, Leases (Topic 842)
 
This standard requires recognition of a right-to-use asset and lease liability on the statement of financial position and disclosure of key information about leasing arrangements. The standard requires application using a modified retrospective approach.
 
October 1, 2019
 
We are in the process of evaluating the impact the adoption of this standard will have on our financial statements. We may elect early adoption.

15


WGL Holdings, Inc.
Washington Gas Light Company
Part I—Financial Information
Item 1—Financial Statements (continued)
Notes to Condensed Consolidated Financial Statements (Unaudited)

ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
 
For credit losses on financial instruments, this standard changes the current incurred loss impairment methodology to an expected loss methodology and requires consideration of a broader range of reasonable and supportable information to determine credit loss estimates.
 
October 1, 2020
 
We are in the process of evaluating the impact the adoption of this standard will have on our financial statements.


NOTE 2. ACCOUNTS PAYABLE AND OTHER ACCRUED LIABILITIES
The tables below provide details for the amounts included in “Accounts payable and other accrued liabilities” on the balance sheets for both WGL and Washington Gas.
 
WGL Holdings, Inc.
(In millions)
March 31, 2017
 
September 30, 2016
Accounts payable—trade
$
341.4

 
$
353.0

Employee benefits and payroll accruals
24.5

 
34.4

Other accrued liabilities
24.0

 
18.0

Total
$
389.9

 
$
405.4


Washington Gas Light Company
(In millions)
March 31, 2017

 
September 30, 2016

Accounts payable—trade
$
153.5

 
$
161.0

Employee benefits and payroll accruals
23.2

 
32.2

Other accrued liabilities
17.7

 
11.8

Total
$
194.4

 
$
205.0


NOTE 3. SHORT-TERM DEBT
WGL and Washington Gas satisfy their short-term financing requirements through the sale of commercial paper, financing arrangements with third-party lenders, or through bank borrowings. Due to the seasonal nature of the regulated utility and retail energy-marketing segments, short-term financing requirements can vary significantly during the year. Revolving credit agreements are maintained to support outstanding commercial paper and to permit short-term borrowing flexibility. The policy of each WGL and Washington Gas is to maintain bank credit facilities in amounts equal to or greater than the expected maximum commercial paper position. The following is a summary of committed credit available at March 31, 2017 and September 30, 2016.

16


WGL Holdings, Inc.
Washington Gas Light Company
Part I—Financial Information
Item 1—Financial Statements (continued)
Notes to Condensed Consolidated Financial Statements (Unaudited)

Committed Credit Available ($ In millions)
March 31, 2017
WGL(b)
 
Washington Gas
 
Total Consolidated
Committed credit agreements
 
 
 
 
 
Unsecured revolving credit facility, expires December 19, 2019(a)
$
450.0

 
$
350.0

 
$
800.0

Less: Commercial Paper
293.5

 
188.0

 
481.5

Net committed credit available
$
156.5

 
$
162.0

 
$
318.5

Weighted average interest rate
1.18
%
 
0.94
%
 
1.09
%
September 30, 2016
 
 
 
 
 
Committed credit agreements
 
 
 
 
 
Unsecured revolving credit facility, expires December 19, 2019(a)
$
450.0

 
$
350.0

 
$
800.0

Less: Commercial Paper
227.0

 
42.0

 
269.0

Net committed credit available
$
223.0

 
$
308.0

 
$
531.0

Weighted average interest rate
0.73
%
 
0.46
%
 
0.69
%
(a) 
Both WGL and Washington Gas have the right to request extensions with the banks’ approval. WGL’s revolving credit facility permits it to borrow an additional $100 million, with the banks’ approval, for a total of $550 million. Washington Gas’ revolving credit facility permits it to borrow an additional $100 million, with the banks’ approval, for a total of $450 million.
(b) 
WGL includes WGL Holdings and all subsidiaries other than Washington Gas.
At March 31, 2017 and September 30, 2016, there were no outstanding bank loans from WGL’s or Washington Gas’ revolving credit facilities.

PROJECT FINANCING
Washington Gas has obtained third-party project financing on behalf of the Federal government to provide funds during the construction of certain energy management services projects entered into under Washington Gas' area-wide contract. In connection with work completed under the area-wide contract, the construction work is performed by WGL Energy Systems on behalf of Washington Gas and an inter-company payable is recorded for work provided by WGL Energy Systems. As work is performed, Washington Gas establishes a receivable representing the government's obligation to remit principal and interest. The payable and receivable are equal to each other at the end of the construction period, but there may be timing differences in the recognition of the project related payable and receivable during the construction period. When these projects are formally “accepted” by the government and deemed complete, Washington Gas assigns the ownership of the receivable to the third party lender in satisfaction of the obligation and removes both the receivable and the obligation related to the financing from its financial statements.

In December 2016, WGL Energy Systems entered into an agreement to obtain third-party financing and receive funds directly from the third party lender during the construction period associated with the related energy management service projects. As a result, Washington Gas will no longer be liable under future third party financing arrangements, for projects entered into under the area-wide contract. The general terms of the financing agreement are the same as the prior financing arrangements between Washington Gas and the third party lender mentioned above. Washington Gas will continue to record a receivable representing the government’s obligation, and will record an inter-company payable to WGL Energy Systems for the construction work performed for the same amount.
As of March 31, 2017, Washington Gas recorded $57.0 million in "Unbilled revenues" on the balance sheet and WGL and Washington Gas recorded $50.8 million and $39.7 million, respectively, in a corresponding short-term obligation to third party lenders in "Notes payable and project financing", for energy management services projects that were not complete. As of September 30, 2016, Washington Gas recorded a $73.3 million "Unbilled revenues" on the balance sheet and a $62.4 million corresponding short-term obligation to third party lenders in "Notes payable and project financing" for energy management services projects that were not complete. WGL Energy Systems did not obtain any third-party project financing on behalf of the Federal government for the fiscal year ended September 30, 2016. Because these projects are financed for government agencies which have minimal credit risk, and with which we have previous collection experience, neither WGL nor Washington Gas recorded a corresponding reserve for bad debts related to these receivables at March 31, 2017 or September 30, 2016.

17


WGL Holdings, Inc.
Washington Gas Light Company
Part I—Financial Information
Item 1—Financial Statements (continued)
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 4. LONG-TERM DEBT
UNSECURED NOTES
WGL and Washington Gas issue long-term notes with individual terms regarding interest rates, maturities and call or put options. These notes can have maturity dates of one or more years from the date of issuance.
At March 31, 2017 and September 30, 2016, WGL had the capacity under a shelf registration to issue an unspecified amount of long-term debt securities. As a result of certain covenants included in the Merger Agreement among WGL, AltaGas and Wrangler, Inc., WGL is limited to the length of term that we may issue debt. Refer to Note 16 — Planned Merger with AltaGas Ltd. for a discussion of the proposed merger.
At March 31, 2017 and September 30, 2016 Washington Gas had the capacity under a shelf registration statement to issue up to $350.0 million of additional Medium-Term Notes (MTNs).
The following tables show the outstanding notes as of March 31, 2017 and September 30, 2016.
Long-Term Debt Outstanding
($ In millions)
WGL(a)
 
Washington Gas
 
Total Consolidated
March 31, 2017
 
 
 
 
 
Long-term debt (b)
$
550.0

 
$
946.0

 
$
1,496.0

Unamortized discount
(1.6
)
 
(0.1
)
 
(1.7
)
Unamortized debt expense
(2.2
)
 
(6.7
)
 
(8.9
)
   Total Long-Term Debt

$
546.2

 
$
939.2

 
$
1,485.4

Weighted average interest rate
2.64
%
 
5.12
%
 
4.20
%
September 30, 2016
 
 
 
 
 
Long-term debt (b)
$
500.0

 
$
946.0

 
$
1,446.0

Unamortized discount
(1.6
)
 
(0.1
)
 
(1.7
)
Unamortized debt expense
(2.4
)
 
(6.9
)
 
(9.3
)
   Total Long-Term Debt

$
496.0

 
$
939.0

 
$
1,435.0

Weighted average interest rate
2.50
%
 
5.12
%
 
4.21
%
(a) 
WGL includes WGL Holdings and all subsidiaries other than Washington Gas.
(b) 
Includes Senior Notes and term loans for WGL and both MTNs and private placement notes for Washington Gas. Represents face value including current maturities.

The following tables show long-term debt issuances and retirements for the six months ended March 31, 2017 and 2016.
Long-Term Debt Issuances and Retirements
($ In millions)
Principal(b)
 
Interest
Rate
 
Effective
Cost(d)
 
Nominal
Maturity Date
Six Months Ended March 31, 2017
 
 
 
 
 
 
 
WGL(a)
 
 
 
 
 
 
 
Issuances:
 
 
 
 
 
 
 
1/26/2017
$
50.0

 
1.57
%
(c) 
1.57
%
 
1/26/2019
Total consolidated issuances
$
50.0

 
 
 
 
 
 
Six Months Ended March 31, 2016
 
 
 
 
 
 
 
WGL (a)
 
 
 
 
 
 
 
Issuances:
 
 
 
 
 
 
 
2/18/2016
250.0

 
1.24
%
(c) 
1.24
%
 
2/18/2018
Total
$
250.0

 
 
 
 
 
 
Washington Gas
 
 
 
 
 
 
 
Retirements:
$
25.0

 
5.17
%
 
n/a

 
1/18/2016
Total
$
25.0

 
 
 
 
 
 
(a)WGL includes WGL Holdings and all subsidiaries other than Washington Gas.
(b)Represents face amount of senior notes and term loans for WGL and both MTNs and private placement notes for Washington Gas.
(c)Floating rate per annum that will be determined from time to time based on parameters set forth in the credit agreement.

18


WGL Holdings, Inc.
Washington Gas Light Company
Part I—Financial Information
Item 1—Financial Statements (continued)
Notes to Condensed Consolidated Financial Statements (Unaudited)

(d)The estimated effective cost of the issued notes.






19


WGL Holdings, Inc.
Washington Gas Light Company
Part I—Financial Information
Item 1—Financial Statements (continued)
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 5. COMMON SHAREHOLDERS’ EQUITY
The tables below reflect the components of “Common shareholders’ equity” for WGL and “Common shareholder’s equity” for Washington Gas for the six months ended March 31, 2017 and 2016.

WGL Holdings, Inc.
Components of Common Shareholders’ Equity
(In thousands, except shares)
Common Stock
 
Paid-In
Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Loss, Net of Taxes
 
WGL Holdings Common Shareholders' Equity
 
Non-controlling Interest
 
Washington Gas Light Company Preferred Stock
 
Total Equity
Shares
Amount
 
 
 
 
 
 
 
Balance at
September 30, 2016
51,080,612

$
574,496

 
$
12,519

 
$
827,085

 
$
(38,539
)
 
$
1,375,561

 
$
409

 
$
28,173

 
$
1,404,143

Net income


 

 
181,036

 

 
181,036

 
(7,974
)
 
660

 
173,722

Contributions from non-controlling interest


 

 

 

 

 
10,816

 

 
10,816

Other
comprehensive income


 

 

 
29,665

 
29,665

 

 

 
29,665

Stock-based compensation(a)
112,146

6,564

 
(5,268
)
 
(238
)
 

 
1,058

 

 

 
1,058

Issuance of
common stock(b)
26,242

1,653

 

 

 

 
1,653

 

 

 
1,653

Dividends declared:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Common stock


 

 
(51,091
)
 

 
(51,091
)
 

 

 
(51,091
)
Preferred stock


 

 

 

 

 

 
(660
)
 
(660
)
Balance at
March 31, 2017
51,219,000

$
582,713

 
$
7,251

 
$
956,792

 
$
(8,874
)
 
$
1,537,882

 
$
3,251

 
$
28,173

 
$
1,569,306

Balance at September 30, 2015
49,728,662

$
485,456

 
$
14,934

 
$
757,093

 
$
(14,236
)
 
$
1,243,247

 
$

 
$
28,173

 
$
1,271,420

Net income


 

 
174,459

 

 
174,459

 

 
660

 
175,119

Other
comprehensive income


 

 

 
(10,022
)
 
(10,022
)
 

 

 
(10,022
)
Stock-based compensation(a)
115,974

6,742

 
(4,838
)
 
(80
)
 

 
1,824

 

 

 
1,824

Issuance of
common stock
(b)
492,250

33,200

 

 

 

 
33,200

 

 

 
33,200

Dividends declared:
 
 
 
 
 
 
 
 
 


 
 
 
 
 


Common stock


 

 
(47,594
)
 

 
(47,594
)
 

 

 
(47,594
)
Preferred stock


 

 

 

 

 

 
(660
)
 
(660
)
Balance at
March 31, 2016
50,336,886

$
525,398

 
$
10,096

 
$
883,878

 
$
(24,258
)
 
$
1,395,114

 
$

 
$
28,173

 
$
1,423,287


(a) Includes dividend equivalents related to our performance shares.
(b) Includes dividend reinvestment and common stock purchase plans.




20


WGL Holdings, Inc.
Washington Gas Light Company
Part I—Financial Information
Item 1—Financial Statements (continued)
Notes to Condensed Consolidated Financial Statements (Unaudited)

Washington Gas Light Company
Components of Common Shareholder’s Equity
(In thousands, except shares)
Common Stock
 
Paid-In
Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive Income (Loss), Net of Taxes
 
Total
Shares
Amount
 
 
 
 
Balance at September 30, 2016
46,479,536

$
46,479

 
$
488,135

 
$
586,662

 
$
(7,830
)
 
$
1,113,446

Net income


 

 
149,071

 

 
149,071

Other comprehensive income


 

 

 
447

 
447

Stock-based compensation(a)


 
1,220

 

 

 
1,220

Dividends declared:
 
 
 
 
 
 
 
 
 
 
Common stock


 

 
(42,907
)
 

 
(42,907
)
Preferred stock


 

 
(660
)
 

 
(660
)
Balance at March 31, 2017
46,479,536

$
46,479

 
$
489,355

 
$
692,166

 
$
(7,383
)
 
$
1,220,617

(a) Stock-based compensation is based on the stock awards of WGL that are allocated to Washington Gas Light Company for its pro-rata share.

21


WGL Holdings, Inc.
Washington Gas Light Company
Part I—Financial Information
Item 1—Financial Statements (continued)
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 6. EARNINGS PER SHARE
Basic EPS of WGL is computed by dividing net income by the weighted average number of common shares outstanding during the reported period. Diluted EPS assumes the issuance of common shares pursuant to stock-based compensation plans at the beginning of the applicable period unless the effect of such issuance would be anti-dilutive. The following table reflects the computation of our basic and diluted EPS for the three and six months ended March 31, 2017 and 2016.

Basic and Diluted EPS
(In thousands, except per share data)
Net Income
Applicable to
Common Stock
 
Shares
 
Per Share
Amount
Three Months Ended March 31, 2017
 
 
 
 
 
Basic EPS
$
123,064

 
51,217

 
$
2.40

Stock-based compensation plans

 
259

 
 
Diluted EPS
$
123,064

 
51,476

 
$
2.39

Three Months Ended March 31, 2016
 
 
 
 
 
Basic EPS
$
106,288

 
50,009

 
$
2.13

Stock-based compensation plans

 
273

 
 
Diluted EPS
$
106,288

 
50,282

 
$
2.11

Six Months Ended March 31, 2017
 
 
 
 
 
Basic EPS
$
181,036

 
51,192

 
$
3.54

Stock-based compensation plans

 
266

 
 
Diluted EPS
$
181,036

 
51,458

 
$
3.52

Six Months Ended March 31, 2016
 
 
 
 
 
Basic EPS
$
174,459

 
49,918

 
$
3.49

Stock-based compensation plans

 
248

 
 
Diluted EPS
$
174,459

 
50,166

 
$
3.48

There were no anti-dilutive shares for the three or six months ended March 31, 2017 or for the three months ended March 31, 2016. For the six months ended March 31, 2016, 76,000 performance shares issuable pursuant to our stock-based compensation plans were not considered in the diluted share calculation due to the anti-dilutive effect of such shares.
NOTE 7. INCOME TAXES
As of March 31, 2017 and September 30, 2016, our uncertain tax positions were approximately $44.9 million and $42.3 million, respectively, primarily due to the change in tax accounting for repairs. If the amounts of unrecognized tax benefits are eventually realized, it would not materially impact the effective tax rate. It is reasonably possible that the amount of the unrecognized tax benefit with respect to some of WGL’s and Washington Gas’ uncertain tax positions will significantly increase or decrease in the next 12 months. At this time, however, an estimate of the range of reasonably possible outcomes cannot be determined.
Under ASC Topic 740, Income Taxes, Washington Gas recognizes any accrued interest associated with uncertain tax positions in interest expense and recognizes any accrued penalties associated with uncertain tax positions in other expenses in the statements of income. At March 31, 2017 and September 30, 2016, we did not have an accrual of interest expense related to uncertain tax positions.
WGL files a consolidated federal tax return and various other state returns. We are no longer subject to income tax examinations by the Internal Revenue Service for years ended prior to September 30, 2012, except for pending carryback refund claims. Substantially all state income tax years in major jurisdictions are closed for years ended prior to September 30, 2012.
NOTE 8. DERIVATIVE AND WEATHER-RELATED INSTRUMENTS
DERIVATIVE INSTRUMENTS
Regulated Utility Operations
Washington Gas enters into contracts that qualify as derivative instruments and are accounted for under ASC Topic 815. These derivative instruments are recorded at fair value on our balance sheets and Washington Gas does not currently designate

22


WGL Holdings, Inc.
Washington Gas Light Company
Part I—Financial Information
Item 1—Financial Statements (continued)
Notes to Condensed Consolidated Financial Statements (Unaudited)

any derivatives as hedges under ASC Topic 815. Washington Gas’ derivative instruments relate to: (i) Washington Gas’ asset optimization program; (ii) managing price risk associated with the purchase of gas to serve utility customers and (iii) managing interest rate risk.
Asset Opt