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WGL Holdings, Inc., Reports First Quarter Fiscal Year 2010 Earnings; Raises Fiscal Year 2010 Guidance

WASHINGTON, Feb 03, 2010 (BUSINESS WIRE) -- 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 determined in accordance with generally accepted accounting principles in the United States of America (GAAP) for the quarter ended December 31, 2009 of $47.6 million, or $0.94 per share, compared to net income of $54.6 million, or $1.09 per share, reported for the quarter ended December 31, 2008.

Commenting on first quarter results, WGL Holdings' Chairman and CEO Terry McCallister said, "We are pleased to report a solid quarter of operating earnings for the first three months of fiscal year 2010." McCallister added, "With the regional economy showing the initial signs of recovery, we are well positioned to benefit from renewed growth in our region. In addition to our traditional services, the increasing focus on clean energy solutions will bring more opportunities to our non-utility businesses."

Financial performance is evaluated based on non-GAAP operating earnings (loss). Non-GAAP operating earnings (loss) excludes the effects of: (i) unrealized mark-to-market gains (losses) on energy-related derivatives; (ii) certain gains and losses associated with optimizing the utility segment's system capacity assets and (iii) certain unusual transactions. Refer to "Use of Non-GAAP Operating Earnings (Loss)" and supporting reconciliations attached to this news release for a detailed discussion of management's use of this non-GAAP financial measure, as well as reconciliations of net income determined in accordance with GAAP to non-GAAP operating earnings (loss) for both our consolidated and segment results.

For the quarter ended December 31, 2009, our non-GAAP operating earnings were $50.8 million, or $1.01 per share, compared to non-GAAP operating earnings of $51.7 million, or $1.03 per share, for the same quarter of the prior fiscal year.

First Quarter Results by Business Segment

Regulated Utility Segment

For the quarter ended December 31, 2009, our regulated utility segment reported net income of $40.7 million, or $0.81 per share, compared to net income of $53.7 million, or $1.07 per share, reported for the first quarter of the prior fiscal year. After adjustments, non-GAAP operating earnings for the regulated utility segment were $43.9 million, or $0.87 per share, for the quarter ended December 31, 2009, compared to non-GAAP operating earnings of $45.4 million, or $0.90 per share, for the same quarter of the prior fiscal year. For the first quarter of 2010, non-GAAP operating earnings were lower due to a decrease in the recovery of carrying costs reflecting lower average storage gas inventory balances and higher employee benefit expense due to changes in plan asset values and plan valuation assumptions. Partially offsetting these unfavorable effects was an increase of over 10,300 average active customer meters versus the same quarter of the prior fiscal year and lower interest expense related to lower weighted average interest rates associated with our borrowings.

Retail Energy-Marketing Segment

For the quarter ended December 31, 2009, the retail energy-marketing segment reported net income of $7.5 million, or $0.15 per share, an increase of $7.1 million, or $0.14 per share, over net income of $450,000, or $0.01 per share, reported for the first quarter of the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $7.5 million, or $0.15 per share, for the first quarter ended December 31, 2009, an increase of $1.7 million, or $0.03 per share, over non-GAAP operating earnings of $5.8 million, or $0.12 per share, for the same quarter of the prior fiscal year. The increase in non-GAAP operating earnings primarily reflects higher realized margins from the sale of natural gas, due to a rise in margin per therm sold, reflecting lower priced inventory withdrawals and more favorable weather conditions as compared to the same quarter of the prior fiscal year. Partially offsetting this increase is a decrease in realized electric margins reflecting compression of unit margins as compared to the first quarter of the prior fiscal year. Higher operating expenses related to increased marketing initiatives primarily from mass-marketing efforts targeted toward residential and small commercial customers also reduced operating earnings. During the quarter ended December 31, 2009, our retail energy-marketing company's marketing initiatives resulted in the net addition of 12,600 residential customers.

Design-Build Energy Systems Segment

For the quarter ended December 31, 2009, the design-build energy systems segment reported a net loss of ($212,000), or ($0.01) per share, compared to net income of $832,000, or $0.02 per share, reported for the first quarter of the prior fiscal year. This decrease in earnings is primarily due to the timing of project work in the first quarter of 2010 compared to the same quarter of the prior fiscal year. There were no non-GAAP adjustments for this segment for either period.

Earnings Outlook

We are raising our GAAP earnings estimate for the fiscal year 2010 in a range of $2.25 to $2.37 per share to reflect stronger projected margins for our retail energy-marketing segment and lower costs associated with our regulated utility segment. This estimate includes projected fiscal year 2010 earnings from our regulated utility segment in a range of $1.72 per share to $1.78 per share and projected fiscal year 2010 earnings from our unregulated business segments in a range of $0.53 per share to $0.59 per share.

We also are raising our consolidated earnings estimate for fiscal year 2010 based on non-GAAP operating earnings in a range of $2.22 per share to $2.34 per share. This estimate includes projected fiscal year 2010 non-GAAP operating earnings from our regulated utility segment in a range of $1.79 per share to $1.85 per share, and projected fiscal year 2010 non-GAAP operating earnings from our unregulated business segments in a range of $0.43 per share to $0.49 per share. Refer to the "Reconciliation of GAAP Earnings Guidance to Non-GAAP Earnings Guidance" attached to this news release for a reconciliation of our GAAP earnings per share estimate to our estimate based on non-GAAP operating earnings per share.

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 the WGL Holdings Web site, www.wglholdings.com.

Other Information

We will hold a conference call at 10:30 a.m. Eastern time on February 4, 2010, to discuss our first quarter financial results for fiscal year 2010. The live conference call will be available to the public via a link located on the WGL Holdings Web site, www.wglholdings.com. To hear the live Webcast, click on the "Webcast" link located on the home page of the referenced site. The Webcast and related slides will be archived on the WGL Holdings Web site through March 4, 2010.

Headquartered in Washington, D.C., WGL Holdings has three operating segments: (i) the regulated utility segment which primarily consists of Washington Gas, a natural gas utility that serves over one million customers throughout metropolitan Washington, D.C., and the surrounding region; (ii) the retail energy-marketing segment, which consists of Washington Gas Energy Services, Inc., a third-party marketer that competitively sells natural gas and electricity and (iii) the design-build energy systems segment, which consists of Washington Gas Energy Systems, Inc., a provider of design-build energy efficiency solutions to government and commercial clients. Additional information about WGL Holdings is available on our Web site, 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 net income determined in accordance with GAAP to non-GAAP operating earnings (loss) for both our consolidated and segment results as well as reconciliations of our GAAP earnings guidance to our non-GAAP earnings guidance.

Forward-Looking Statements

This news release and other statements by us include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the outlook for earnings, revenues and other future financial business performance or strategies and expectations. Forward-looking statements are typically identified by words such as, but not limited to, "estimates," "expects," "anticipates," "intends," "believes," "plans," and similar expressions, or future or 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 we have filed with, or furnished to, the U.S. Securities and Exchange Commission.

WGL Holdings, Inc.
Consolidated Statements of Income
(Unaudited)
Three Months Ended
December 31,
(In thousands, except per share data) 2009 2008
OPERATING REVENUES
Utility $ 390,532 $ 522,481
Non-utility 336,891 303,607
Total Operating Revenues 727,423 826,088
OPERATING EXPENSES
Utility cost of gas 197,277 306,784
Non-utility cost of energy-related sales 313,205 292,238
Operation and maintenance 73,516 70,334
Depreciation and amortization 24,163 24,081
General taxes and other assessments 31,420 30,427
Total Operating Expenses 639,581 723,864
OPERATING INCOME 87,842 102,224
Other Income (Expenses)--Net 369 17
Interest Expense
Interest on long-term debt 9,895 9,952

Other - net, including AFUDC

(138 ) 2,227
Total Interest Expense 9,757 12,179
INCOME BEFORE INCOME TAXES 78,454 90,062
INCOME TAX EXPENSE 30,483 35,107
NET INCOME BEFORE PREFERRED STOCK DIVIDENDS 47,971 54,955
Dividends on Washington Gas preferred stock 330 330
NET INCOME APPLICABLE TO COMMON STOCK $ 47,641 $ 54,625
AVERAGE COMMON SHARES OUTSTANDING
Basic 50,241 50,022
Diluted 50,429 50,208
EARNINGS PER AVERAGE COMMON SHARE
Basic $ 0.95 $ 1.09
Diluted $ 0.94 $ 1.09
Net Income (Loss) Applicable To Common Stock--By Segment ($000):
Regulated utility $ 40,696 $ 53,717
Non-utility operations:
Retail energy-marketing 7,507 450
Design-build energy systems (212 ) 832
Other activities (350 ) (374 )
Total non-utility 6,945 908
NET INCOME APPLICABLE TO COMMON STOCK $ 47,641 $ 54,625

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WGL Holdings, Inc.
Consolidated Balance Sheets
(Unaudited)
December 31, September 30,
(In thousands) 2009 2009
ASSETS
Property, Plant and Equipment
At original cost $ 3,257,411 $ 3,242,413
Accumulated depreciation and amortization (980,371 ) (973,272 )
Net property, plant and equipment 2,277,040 2,269,141
Current Assets
Cash and cash equivalents 13,622 7,845