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WGL Holdings, Inc. Reports Second Quarter Fiscal Year 2010 Earnings; Updates Fiscal Year 2010 Guidance


WASHINGTON, May 05, 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 March 31, 2010 of $78.7 million, or $1.56 per share, an increase of $3.6 million, or $0.07 per share, over net income of $75.1 million, or $1.49 per share, reported for the quarter ended March 31, 2009.

For the first six months of fiscal year 2010, we reported net income determined in accordance with GAAP of $126.3 million, or $2.50 per share, compared to net income of $129.7 million, or $2.58 per share, reported for the comparative period of fiscal year 2009. Our operations are seasonal and, accordingly, our operating results for the three and six months ended March 31, 2010, are not indicative of the results expected for the 12 months ending September 30, 2010.

"Our second quarter results remain strong for the regulated utility and retail energy-marketing segments demonstrating the strength of our business plans," said Terry McCallister, Chairman and Chief Executive Officer of WGL Holdings. "Our region continued to provide utility customer growth, while our non-utility operations took important steps on strategic initiatives that will expand their ability to consistently contribute earnings growth."

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 March 31, 2010, our non-GAAP operating earnings were $82.7 million, or $1.64 per share, substantially the same as the non-GAAP operating earnings of $82.8 million, or $1.65 per share, for the same quarter of the prior fiscal year. For the six months ended March 31, 2010, our non-GAAP operating earnings were $133.5 million, or $2.64 per share, down slightly from the non-GAAP operating earnings of $134.4 million, or $2.67 per share, for the same period of the prior fiscal year.

Second Quarter Results by Business Segment

Regulated Utility Segment

For the quarter ended March 31, 2010, our regulated utility segment reported net income of $91.0 million, or $1.80 per share, an increase of $15.6 million, or $0.31 per share, over net income of $75.4 million, or $1.49 per share, reported for the second quarter of the prior fiscal year. After adjustments, non-GAAP operating earnings for the regulated utility segment were $80.1 million, or $1.58 per share, for the quarter ended March 31, 2010, an increase of $1.1 million, or $0.01 per share, over non-GAAP operating earnings of $79.0 million, or $1.57 per share, for the same quarter of the prior fiscal year.

For the six months ended March 31, 2010, our regulated utility segment reported net income of $131.7 million, or $2.61 per share, an increase of $2.6 million, or $0.04 per share, over net income of $129.1 million, or $2.57 per share, reported for the six months ended March 31, 2009. After adjustments, non-GAAP operating earnings for the regulated utility segment were $124.0 million, or $2.46 per share, for the six months ended March 31, 2010, compared to non-GAAP operating earnings of $124.4 million, or $2.47 per share, for the same six months of the prior fiscal year.

For both the three and six month comparisons, non-GAAP operating earnings included: (i) an increase in average active customer meters from the prior period; (ii) favorable effects of changes in natural gas consumption patterns; (iii) an improvement reflecting lower regulatory obligations for the Virginia Earnings Sharing Mechanism; (iv) lower costs for weather protection products related to the District of Columbia and (v) lower interest expense related to both lower interest rates and decreased borrowing levels. Offsetting these improvements were: (i) a decrease in the recovery of inventory carrying costs, reflecting lower average storage gas inventory balances; (ii) a decrease in realized margins associated with our asset optimization program and (iii) higher employee benefit expense due to changes in plan asset values and plan valuation assumptions.

Retail Energy-Marketing Segment

For the quarter ended March 31, 2010, the retail energy-marketing segment reported a net loss of $(11.4) million, or $(0.23) per share, compared to a net loss of $(667,000), or $(0.01) per share, reported for the second quarter of the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $3.5 million, or $0.07 per share, for the quarter ended March 31, 2010 compared to non-GAAP operating earnings of $3.4 million, or $0.07 per share, for the same quarter of the prior fiscal year. Non-GAAP operating earnings reflect the offsetting effects of higher realized margins from the sale of electricity and higher operating expenses associated with marketing and customer acquisition costs. Electric sales margin improvements primarily reflect higher electric sales associated with customer growth, partially offset by lower unit margins. Natural gas sales volumes were relatively unchanged from the prior period.

For the six months ended March 31, 2010, the retail energy-marketing segment reported a net loss of $(3.9) million, or $(0.08) per share, compared to a net loss of $(217,000) reported for the same period of the prior fiscal year. Non-GAAP operating earnings for the retail energy-marketing segment were $10.9 million, or $0.22 per share, for the six months ended March 31, 2010, an increase of $1.7 million, or $0.03 per share, over non-GAAP operating earnings of $9.2 million, or $0.19 per share, for the same period of the prior fiscal year. The period-over-period non-GAAP operating earnings improvement is primarily attributable to higher natural gas sales margins which were partially offset by higher operating expenses associated with marketing and customer acquisitions costs. Although natural gas sales volumes were slightly lower in the current period, higher unit margins recorded in the first fiscal quarter of 2010 contributed an overall improvement in natural gas margins for the current year. In contrast, electric sales volumes more than doubled for the six months ended March 31, 2010 compared to the prior year, however, lower non-GAAP unit margins offset the effect of this volume increase.

The variance in quarterly non-GAAP operating results for this segment were affected by both the volume of activity and pattern of margin recognition that results from sales under generally fixed-priced contracts with customers that were supplied by contract commitments that reflect the shape of the future commodity market at the time the sales contracts are entered into. Realized margins on natural gas sales also reflect comparative changes in the cost of gas inventories used to meet customer commitments.

Design-Build Energy Systems Segment

For the quarter ended March 31, 2010, the design-build energy systems segment reported a net loss of $(91,000), compared to net income of $1.2 million, or $0.02 per share, reported for the same quarter of the prior fiscal year. For the six months ended March 31, 2010, the design-build energy systems segment reported a net loss of $(303,000), or $(0.01) per share, compared to net income of $2.0 million, or $0.04 per share, reported for the same period of the prior fiscal year. The decrease in earnings for both the three and six month comparisons, are primarily due to delays in the initiation of certain planned project work for government agency customers. Operating expenses were also higher due to increased labor expense associated with expansion plans. There were no non-GAAP adjustments for this segment for either period.

Earnings Outlook

We are providing an updated consolidated earnings estimate for fiscal year 2010 based on non-GAAP operating earnings in a range of $2.25 per share to $2.37 per share, an increase of $0.03 per share in the midpoint of the range. This estimate includes projected fiscal year 2010 non-GAAP operating earnings from our regulated utility segment in a range of $1.86 per share to $1.92 per share, and projected fiscal year 2010 non-GAAP operating earnings from our unregulated business segments in a range of $0.39 per share to $0.45 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 website, wglholdings.com.

Other Information

We will hold a conference call at 10:30 a.m. Eastern time on May 6, 2010, to discuss our second 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 website, 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 website through June 5, 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 website, 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 Six Months Ended
March 31, March 31,
(In thousands, except per share data) 2010 2009 2010 2009
OPERATING REVENUES
Utility $ 611,625 $ 642,397 $ 1,002,157 $ 1,164,878
Non-utility 445,013 398,491 781,904 702,098
Total Operating Revenues 1,056,638 1,040,888 1,784,061 1,866,976
OPERATING EXPENSES
Utility cost of gas 318,922 375,143 516,199 681,927
Non-utility cost of energy-related sales 451,783 387,074 764,988 679,312
Operation and maintenance 78,272 78,439 151,788 148,773
Depreciation and amortization 24,235 24,245 48,398 48,326
General taxes and other assessments 43,007 41,255 74,427 71,682
Total Operating Expenses 916,219 906,156 1,555,800 1,630,020
OPERATING INCOME 140,419 134,732 228,261 236,956
Other Income--Net 495 760 864 777
Interest Expense
Interest on long-term debt 10,008 10,520 19,903 20,472
AFUDC and other, net 194 955 56 3,182
Total Interest Expense 10,202 11,475 19,959 23,654
INCOME BEFORE INCOME TAXES 130,712 124,017 209,166 214,079
INCOME TAX EXPENSE 51,676 48,617 82,159 83,724
NET INCOME BEFORE PREFERRED STOCK DIVIDENDS 79,036 75,400 127,007 130,355
Dividends on Washington Gas preferred stock 330 330 660 660
NET INCOME APPLICABLE TO COMMON STOCK $ 78,706 $ 75,070 $ 126,347 $ 129,695
AVERAGE COMMON SHARES OUTSTANDING
Basic 50,366 50,130 50,305 50,071
Diluted 50,572 50,420 50,502 50,309
EARNINGS PER AVERAGE COMMON SHARE
Basic $ 1.56 $ 1.50 $ 2.51 $ 2.59
Diluted $ 1.56 $ 1.49 $ 2.50 $ 2.58
Net Income (Loss) Applicable To Common Stock--By Segment ($000):
Regulated utility $ 91,006 $ 75,375 $ 131,702 $ 129,092
Non-utility operations:
Retail energy-marketing (11,437 ) (667 ) (3,930 ) (217 )
Design-build energy systems (91 ) 1,201 (303 ) 2,033
Other activities (772 ) (839 ) (1,122 ) (1,213 )
Total non-utility (12,300 ) (305 ) (5,355 ) 603
NET INCOME APPLICABLE TO COMMON STOCK $ 78,706 $ 75,070 $ 126,347 $ 129,695
WGL Holdings, Inc.
Consolidated Balance Sheets
(Unaudited)
March 31, September 30,
(In thousands) 2010 2009
ASSETS
Property, Plant and Equipment
At original cost $ 3,296,753 $ 3,242,413
Accumulated depreciation and amortization (1,000,356 ) (973,272 )
Net property, plant and equipment 2,296,397 2,269,141
Current Assets
Cash and cash equivalents 123,454 7,845
Accounts receivable, net 512,805 308,915
Storage gas--at cost (first-in, first-out) 80,160 237,681
Other 157,790 129,073
Total current assets 874,209 683,514
Deferred Charges and Other Assets 449,266 397,235
Total Assets $ 3,619,872 $ 3,349,890
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $ 1,196,121 $ 1,097,698
Washington Gas Light Company preferred stock 28,173 28,173
Long-term debt 591,596 561,830
Total capitalization 1,815,890 1,687,701
Current Liabilities
Notes payable and current maturities of long-term debt 212,549 266,443
Accounts payable and other accrued liabilities 233,205 213,529
Other 244,580 154,644
Total current liabilities 690,334 634,616
Deferred Credits 1,113,648 1,027,573
Total Capitalization and Liabilities $ 3,619,872 $ 3,349,890
WGL Holdings, Inc.
Consolidated Financial and Operating Statistics
(Unaudited)
FINANCIAL STATISTICS
Twelve Months Ended
March 31,
2010 2009
Closing Market Price--end of period $34.65 $32.80
52-Week Market Price Range $35.02-$28.59 $37.08-$22.40
Price Earnings Ratio 14.9 13.9
Annualized Dividends Per Share $1.51 $1.47
Dividend Yield 4.4 % 4.5 %
Return on Average Common Equity 10.0 % 10.6 %
Total Interest Coverage (times) 5.6 5.0
Book Value Per Share--end of period $23.65 $22.88
Common Shares Outstanding--end of period (thousands) 50,570 50,141

UTILITY GAS STATISTICS

Three Months Ended Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
(In thousands) 2010 2009 2010 2009 2010 2009
Operating Revenues
Gas Sold and Delivered
Residential - Firm $ 430,570 $ 450,141 $ 694,461 $ 807,655 $ 874,061 $ 1,039,424
Commercial and Industrial - Firm 93,723 112,566 150,131 209,810 203,633 292,601
Commercial and Industrial - Interruptible 1,522 1,156 2,920 2,815 4,132 6,235
Electric Generation 275 275 550 550 1,100 1,099
526,090 564,138 848,062 1,020,830 1,082,926 1,339,359
Gas Delivered for Others
Firm 66,904 56,843 113,949 96,956 161,991 139,764
Interruptible 17,357 16,650 29,691 29,973 47,417 47,359
Electric Generation 53 107 101 182 276 392
84,314 73,600 143,741 127,111 209,684 187,515
610,404 637,738 991,803 1,147,941 1,292,610 1,526,874
Other 1,221 4,659 10,354 16,937 25,758 41,106
Total $ 611,625 $ 642,397 $ 1,002,157 $ 1,164,878 $ 1,318,368 $ 1,567,980
Three Months Ended Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
(In thousands of therms) 2010 2009 2010 2009 2010 2009
Gas Sales and Deliveries
Gas Sold and Delivered
Residential - Firm 352,690 351,057 569,441 579,215 680,212 693,403
Commercial and Industrial - Firm 84,019 93,259 137,216 160,509 179,746 210,605
Commercial and Industrial - Interruptible 1,416 974 2,867 2,192 4,052 4,676
438,125 445,290 709,524 741,916 864,010 908,684
Gas Delivered for Others
Firm 211,568 199,954 370,468 347,661 484,858 462,837
Interruptible 97,875 95,018 175,422 173,517 275,725 269,479
Electric Generation 12,418 22,857 23,550 46,320 79,989 103,466
321,861 317,829 569,440 567,498 840,572 835,782
Total 759,986 763,119 1,278,964 1,309,414 1,704,582 1,744,466
WASHINGTON GAS ENERGY SERVICES
Natural Gas Sales
Therm Sales (thousands of therms) 265,962 272,687 442,937 462,228 608,137 646,417
Number of Customers (end of period) 159,700 141,500 159,700 141,500 159,700 141,500
Electricity Sales
Electricity Sales (thousands of kWhs) 2,134,831 1,037,602 4,008,214 1,882,913 7,394,582 3,719,459
Number of Accounts (end of period) 130,100 70,600 130,100 70,600 130,100 70,600
UTILITY GAS PURCHASED EXPENSE
(excluding asset optimization) 77.27 ¢ 85.21 ¢ 74.58 ¢ 93.89 ¢ 74.51 ¢ 98.62 ¢
HEATING DEGREE DAYS
Actual

2,177

2,333

3,608

3,860

3,959

4,133
Normal 2,104 2,111 3,451 3,457 3,767 3,774
Percent Colder (Warmer) than Normal

3.5

% 10.5 %

4.5

% 11.7 %

5.1

% 9.5 %
Average Active Customer Meters 1,078,358 1,070,724 1,073,732 1,064,801 1,070,924 1,061,000

WGL HOLDINGS, INC.
USE OF NON-GAAP OPERATING EARNINGS (LOSS)
(Unaudited)

The attached reconciliations are provided to clearly identify adjustments made to net income calculated in accordance with generally accepted accounting principles in the United States of America (GAAP) to derive non-GAAP operating earnings (loss). Management believes non-GAAP operating earnings (loss) provides a more meaningful representation of our earnings from ongoing operations by adjusting for the effects of: (i) unrealized mark-to-market gains and losses from energy-related derivatives; (ii) certain gains and losses associated with optimizing the utility segment's capacity assets and (iii) certain unusual transactions. This presentation facilitates analysis by providing a consistent and comparable measure 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 this non-GAAP measure to report to the board of directors and to evaluate management's performance.

The economic substance underlying our adjustments to calculate non-GAAP operating earnings (loss) is as follows:

There are limits in using non-GAAP operating earnings (loss) to analyze our results, as they are not prepared in accordance with GAAP and may be different from non-GAAP financial measures used by other companies. In addition, using non-GAAP operating earnings (loss) per share to analyze our earnings may have limited value as it excludes 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 net income, the most directly comparable GAAP financial measure.

WGL HOLDINGS, INC. (Consolidating by Segment)
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP OPERATING EARNINGS (LOSS)

(Unaudited)

Quarter Ended March 31, 2010
Design-Build
Regulated Retail Energy- Energy Other
(In thousands, except per share data) Utility Marketing Systems Activities* Consolidated
GAAP net income (loss) $ 91,006 $ (11,437 ) $ (91 ) $ (772 ) $ 78,706
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) (9,760 ) 14,907 - - 5,147
Storage optimization program (b) 871 - - - 871
Amortization of derivative contract termination (c) (579 ) - - - (579 )
Weather derivative products (d) (1,424 ) - - - (1,424 )
Non-GAAP operating earnings (loss) $ 80,114 $ 3,470 $ (91 ) $ (772 ) $ 82,721
GAAP diluted earnings (loss) per average common share (50,572 shares) $ 1.80 $ (0.23 ) $ - $ (0.01 ) $ 1.56
Per share effect of non-GAAP adjustments (0.22 ) 0.30 - - 0.08
Non-GAAP operating earnings (loss) per share $ 1.58 $ 0.07 $ - $ (0.01 ) $ 1.64
Quarter Ended March 31, 2009
Design-Build
Regulated Retail Energy- Energy Other
(In thousands, except per share data) Utility Marketing Systems Activities* Consolidated
GAAP net income (loss) $ 75,375 $ (667 ) $ 1,201 $ (839 ) $ 75,070
Adjusted for (item shown after-tax):
Unrealized mark-to-market loss on energy-related derivatives (a) 1,105 5,302 - - 6,407
Storage optimization program (b) 2,538 - - - 2,538
Reversal of prior period electric costs (d) - (1,229 ) - - (1,229 )
Non-GAAP operating earnings (loss) $ 79,018 $ 3,406 $ 1,201 $ (839 ) $ 82,786
GAAP diluted earnings (loss) per average common share (50,420 shares) $ 1.49 $ (0.01 ) $ 0.02 $ (0.01 ) $ 1.49
Per share effect of non-GAAP adjustments 0.08 0.08 - - 0.16
Non-GAAP operating earnings (loss) per share $ 1.57 $ 0.07 $ 0.02 $ (0.01 ) $ 1.65
Six Months Ended March 31, 2010
Design-Build
Regulated Retail Energy- Energy Other
(In thousands, except per share data) Utility Marketing Systems Activities* Consolidated
GAAP net income (loss) $ 131,702 $ (3,930 ) $ (303 ) $ (1,122 ) $ 126,347
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) (7,351 ) 14,869 - - 7,518
Storage optimization program (b) 1,256 - - - 1,256
Amortization of derivative contract termination (c) (964 ) - - - (964 )
Weather derivative products (d) (638 ) - - - (638 )
Non-GAAP operating earnings (loss) $ 124,005 $ 10,939 $ (303 ) $ (1,122 ) $ 133,519
GAAP diluted earnings (loss) per average common share (50,502 shares) $ 2.61 $ (0.08 ) $ (0.01 ) $ (0.02 ) $ 2.50
Per share effect of non-GAAP adjustments (0.15 ) 0.30 - (0.01 ) 0.14
Non-GAAP operating earnings (loss) per share $ 2.46 $ 0.22 $ (0.01 ) $ (0.03 ) $ 2.64
Six Months Ended March 31, 2009
Design-Build
Regulated Retail Energy- Energy Other
(In thousands, except per share data) Utility Marketing Systems Activities* Consolidated
GAAP net income (loss) $ 129,092 $ (217 ) $ 2,033 $ (1,213 ) $ 129,695
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss (gain) on energy-related derivatives (a) (5,188 ) 10,635 - - 5,447
Storage optimization program (b) 3,305 - - - 3,305
Reversal of reserve for natural gas costs (c) (2,781 ) - - - (2,781 )
Reversal of prior period electric costs (d) - (1,229 ) - - (1,229 )
Non-GAAP operating earnings (loss) $ 124,428 $ 9,189 $ 2,033 $ (1,213 ) $ 134,437
GAAP diluted earnings (loss) per average common share (50,309 shares) $ 2.57 $ - $ 0.04 $ (0.03 ) $ 2.58
Per share effect of non-GAAP adjustments (0.10 ) 0.19 - - 0.09
Non-GAAP operating earnings (loss) per share $ 2.47 $ 0.19 $ 0.04 $ (0.03 ) $ 2.67
* Per share amounts for "Other Activities" may include adjustments for rounding

(Footnote references are described below)

WGL HOLDINGS, INC. (Consolidated by Quarter)
RECONCILIATION OF GAAP NET INCOME TO
NON-GAAP OPERATING EARNINGS

(Unaudited)

Fiscal Year 2010
Quarterly Period Ended (f)
(In thousands, except per share data) Dec. 31 Mar. 31 Jun. 30 Sept. 30 Year-To-Date
GAAP net income $ 47,641 $ 78,706 $ 126,347
Adjusted for (items shown after-tax):
Unrealized mark-to-market loss on energy-related derivatives (a) 2,371 5,147 7,518
Storage optimization program (b) 385 871 1,256
Amortization of derivative contract termination (c) (385 ) (579 ) (964 )
Weather derivative products (d) 786 (1,424 ) (638 )
Non-GAAP operating earnings $ 50,798 $ 82,721 $ 133,519
Diluted average common shares outstanding 50,429 50,572 50,502
GAAP diluted earnings per average common share $ 0.94 $ 1.56 $ 2.50
Per share effect of non-GAAP adjustments 0.07 0.08 0.14
Non-GAAP operating earnings per share $ 1.01 $ 1.64 $ 2.64
Fiscal Year 2009
Quarterly Period Ended (f)
(In thousands, except per share data) Dec. 31 Mar. 31 Jun. 30 Sept. 30 Year-To-Date
GAAP net income $ 54,625 $ 75,070 $ 129,695
Adjusted for (items shown after-tax):

Unrealized mark-to-market loss (gain) on energy-related derivatives (a)

(960 ) 6,407 5,447
Storage optimization program (b) 767 2,538 3,305
Reversal of reserve for natural gas costs (c) (2,781 ) - (2,781 )
Reversal of prior period electric costs (d) - (1,229 ) (1,229 )
Non-GAAP operating earnings $ 51,651 $ 82,786 $ 134,437
Diluted average common shares outstanding 50,208 50,420 50,309
GAAP diluted earnings per average common share $ 1.09 $ 1.49 $ 2.58
Per share effect of non-GAAP adjustments (0.06 ) 0.16 0.09
Non-GAAP operating earnings per share $ 1.03 $ 1.65 $ 2.67

Footnotes:

(a)

Represents the change in the unrealized mark-to-market positions of our energy-related derivatives that were recorded to income during the period. For the regulated utility segment, the relevant customer sharing percentage for realized asset optimization margins as approved by the regulators is used to allocate our unrealized mark-to-market gains and losses between regulatory assets/liabilities and earnings. All unrealized mark-to-market gains and losses for the retail energy-marketing segment are recorded directly to income.

(b)

Adjustments to shift the timing of storage optimization margins 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)

During the fourth quarter of fiscal year 2009, Washington Gas terminated a long-term energy-related derivative contract related to its transportation capacity optimization and recognized an associated loss of $3.9 million for GAAP purposes. For non-GAAP purposes, this loss is being recognized in this period and in future periods to be matched against the margins earned as a result of the termination, consistent with the regulatory sharing treatment.

(d)

During the fourth quarter of fiscal year 2009, Washington Gas received a premium payment of $2.1 million for an HDD derivative contract written to manage its exposure to variations from normal weather in the District of Columbia during fiscal year 2010. Written weather derivatives are recorded at fair value rather than being valued based on actual variations from normal weather. Thus, any portion of recorded fair value that is not directly offset by an increase/decrease in revenue due to weather is excluded for non-GAAP purposes.

(e)

In the quarter ended December 31, 2008, Washington Gas recorded a $4.6 million reversal of a reserve for disallowed gas costs in Maryland and recorded income of $4.6 million due to a February 5, 2009 Order issued by the Public Service Commission of Maryland (PSC of MD). This Order resolved a contingency related to a proposed order issued by a Hearing Examiner of the PSC of MD in fiscal year 2006.

(f)

Quarterly earnings per share may not sum to year-to-date or annual earnings per share as quarterly calculations are based on weighted average common and common equivalent shares outstanding, which may vary for each of those periods.

WGL HOLDINGS, INC.
RECONCILIATION OF GAAP EARNINGS GUIDANCE TO
NON-GAAP EARNINGS GUIDANCE
FISCAL YEAR ENDING SEPTEMBER 30, 2010
Consolidated
Low High
GAAP Earnings Per Share Guidance Range $ 2.29 $ 2.41
Adjusted for:
Unrealized mark-to-market gain on energy-related derivatives (a) (0.07 ) (0.07 )
Storage optimization program 0.01 0.01
Amortization of derivative contract termination (b) (0.02 ) (0.02 )
Partial settlement of the Supplemental Employee Retirement Program (c) 0.04 0.04
Non-GAAP Operating Earnings Per Share Guidance Range $ 2.25 $ 2.37
Regulated Utility Segment
Low High
GAAP Earnings Per Share Guidance Range $ 1.96 $ 2.02
Adjusted for:

Unrealized mark-to-market gain on energy-related derivatives (a)

(0.13 ) (0.13 )
Storage optimization program 0.01 0.01
Amortization of derivative contract termination (b) (0.02 ) (0.02 )
Partial settlement of the Supplemental Employee Retirement Program (c) 0.04 0.04
Non-GAAP Operating Earnings Per Share Guidance Range $ 1.86 $ 1.92
Unregulated Business Segments
Low High
GAAP Earnings Per Share Guidance Range $ 0.33 $ 0.39
Adjusted for:

Unrealized mark-to-market loss on energy-related derivatives (a)

0.06 0.06
Non-GAAP Operating Earnings Per Share Guidance Range $ 0.39 $ 0.45

Footnotes:

(a)

Represents the estimated reversal of certain of our existing unrealized mark-to-market positions related to our energy derivatives that will be recorded to income during fiscal year 2010. For the regulated utility segment, to the extent that our unrealized mark-to-market gains and losses are not shared with customers, these amounts are recorded directly to income. All unrealized mark-to-market gains and losses for the retail energy-marketing segment are recorded directly to income.

(b)

During the fourth quarter of fiscal year 2009, Washington Gas terminated a long-term energy-related derivative contract related to its transportation capacity optimization and recognized an associated loss of $3.9 million for GAAP purposes. For non-GAAP purposes, this loss is being recognized in this period and in future periods to be matched against the margins earned as a result of the termination, consistent with the regulatory sharing treatment.

(c)

Represents the partial settlement of the Supplemental Employee Retirement Program due to lump sum distributions to certain retired employees that are scheduled in 2010.

SOURCE: WGL Holdings, Inc.

WGL Holdings, Inc.
News Media
Ruben Rodriguez, 202-624-6620
or
Financial Community
Robert Dennis, 202-624-6129

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