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WGL Holdings, Inc. Reports Improved 2006 Third Quarter Earnings and Updates Earnings Guidance

Category:

Monday, August 7, 2006 9:00 am EDT

Dateline:

WASHINGTON

Public Company Information:

NYSE:
WGL
"We attribute the quarter's sharply improved results to the strength of our utility operations, which continue to experience customer growth, the implementation of innovative regulatory mechanisms, and process improvements."

WASHINGTON--(BUSINESS WIRE)--WGL Holdings, Inc. (NYSE:WGL) (WGL Holdings or the Company), the parent company of Washington Gas Light Company and other energy-related subsidiaries, today reported a net loss of $1.8 million, or $0.04 per share, for the three months ended June 30, 2006, the third quarter of its fiscal year 2006. This represents a $6.4 million, or $0.13 per share, improvement over the net loss of $8.2 million, or $0.17 per share, reported for the same quarter of fiscal year 2005. Reporting a net loss for quarters ending June 30 is typical due to the seasonal nature of the Company's utility operations and the corresponding reduced demand for natural gas during this period. For the first nine months of fiscal year 2006, the Company reported net income of $99.4 million, or $2.03 per share, as compared to net income of $114.9 million, or $2.35 per share, reported for the corresponding period in fiscal year 2005.

During the quarter ended June 30, 2006, the Company completed a plan that will result in the disposition of American Combustion Industries, Inc. (ACI), an indirect, wholly owned subsidiary of WGL Holdings that was previously reported as part of the Company's commercial heating, ventilating and air conditioning (HVAC) business segment. ACI has been reported as a discontinued operation of WGL Holdings and, accordingly, its operating results (including a related impairment charge of $578,000 recorded in the quarter ended June 30, 2006), financial position and cash flows have been presented separately from the Company's continuing operations in the consolidated financial statements of WGL Holdings for all current and prior periods presented. Consolidated operating results for the three and nine months ended June 30, 2006 include after-tax losses of $1.2 million, or $0.03 per share, and $2.5 million, or $0.05 per share, respectively, representing ACI's net losses from operations (both amounts including a related impairment charge of $578,000 recorded in the current quarter).

The Company reported a consolidated net loss from continuing operations of $584,000, or $0.01 per share, for the third quarter of fiscal year 2006, an improvement of $6.8 million, or $0.14 per share, over the net loss from continuing operations of $7.4 million, or $0.15 per share, reported for the same quarter in fiscal year 2005. For the first nine months of fiscal year 2006, the Company reported net income from continuing operations of $101.9 million, or $2.08 per share, as compared to net income from continuing operations of $116.5 million, or $2.38 per share, reported for the corresponding period in fiscal year 2005.

Unless otherwise noted, earnings per share amounts are presented in this news release on a diluted basis, and are based on weighted average common and common equivalent shares outstanding. Because the Company's operations are seasonal, the Company's operating results for the three and nine months ended June 30, 2006 are not indicative of the results to be expected for the twelve months ending September 30, 2006.

Commenting on third quarter results and the outlook for the year, WGL Holdings' Chairman and CEO James H. DeGraffenreidt, Jr. said, "We attribute the quarter's sharply improved results to the strength of our utility operations, which continue to experience customer growth, the implementation of innovative regulatory mechanisms, and process improvements." DeGraffenreidt added, "Stronger gross margins generated by our retail energy- marketing business are likely to continue to drive end-of-year results, while success in new competitive electric markets is expected to yield growing market share and long-term benefit."

Results from Normal Operations

The Company reviews its financial performance based on its results from normal operations, which reflect normal weather, and are not influenced by unique transactions and discontinued operations. The Company's consolidated net loss from normal operations for the third quarter of fiscal year 2006 was $0.01 per share, a $0.14 per share improvement over the net loss of $0.15 per share reported for the same quarter of fiscal year 2005. This improvement primarily reflects: (i) decreased utility operation and maintenance expenses and general taxes; (ii) continued utility customer growth; (iii) increased earnings from greater carrying costs on higher balances of storage gas inventory at the regulated utility; and (iv) improved operating results from the Company's retail energy-marketing business. This improvement was partially offset by lower consumption of natural gas by utility customers due to factors other than weather, such as customer conservation, and higher interest expense. Net losses from normal operations for the quarters ended June 30, 2006 and 2005 exclude the effect of discontinued operations. There were no effects on results of operations from weather or unique transactions in the quarters ended June 30, 2006 and 2005.

For the first nine months of fiscal year 2006, the Company's consolidated earnings from normal operations were $2.05 per share as compared to earnings from normal operations of $2.28 per share reported for the corresponding period of the prior fiscal year. Earnings from normal operations for the current year-to-date period, when compared to the same period of the prior fiscal year, reflect: (i) lower consumption of natural gas by utility customers due to factors other than weather, such as customer conservation; (ii) higher utility operation and maintenance, depreciation and amortization, and interest expenses; and (iii) lower earnings from the Company's retail energy-marketing business. Items that favorably affected earnings from normal operations were: (i) continued utility customer growth; (ii) increased revenues from the conservation component of a regulatory mechanism known as the Revenue Normalization Adjustment (RNA) that was implemented in Maryland on October 1, 2005; and (iii) increased earnings from greater carrying costs on higher balances of storage gas inventory at the regulated utility.

Earnings from normal operations for the nine months ended June 30, 2006 and 2005 exclude the effect of variations from normal weather. The Company's weather protection strategy in fiscal year 2006 is designed to provide full protection from the negative financial effects of warmer-than-normal weather, and can provide a benefit from colder-than-normal weather. For the nine months ended June 30, 2006, net income was enhanced in relation to normal weather by an estimated $2.5 million (after-tax), or $0.05 per share, driven primarily from the colder-than-normal weather experienced during the first quarter of fiscal year 2006. The effects on net income of weather and the Company's related weather protection products for the nine months ended June 30, 2006 are more fully discussed later in this news release. For the comparable nine-month period in fiscal year 2005, weather, when measured by heating degree days, was 6.2 percent colder than normal, contributing an estimated $5 million (after-tax), or $0.10 per share, to net income for that period.

Earnings from normal operations for the nine months ended June 30, 2006 also exclude the effect of unique transactions related to the Company's regulated utility and energy-marketing segments. Earnings from normal operations exclude a charge of $4.6 million (pre-tax), or $0.06 per share, recorded by the regulated utility segment in the current nine-month period related to a proposed order from a Hearing Examiner, which the Company is currently appealing to the Public Service Commission of Maryland (PSC of MD), that recommends the disallowance of certain natural gas costs incurred by the regulated utility and collected from customers in a prior fiscal year. Also excluded to derive earnings from normal operations is income recognized by the energy-marketing segment from its reversal in the current nine-month period of $3.1 million (pre-tax), or $0.04 per share, related to fees that were previously assessed by the Public Service Commission of the District of Columbia (PSC of DC) and expensed in prior fiscal years. The reversal of these expenses stemmed from a favorable court decision in the current year-to- date period resulting from an appeal by the Company regarding these fees. There were no unique transactions in the comparable nine-month period of the prior fiscal year.

Reconciliations of the Company's and the regulated utility segment's earnings (loss) per share reported in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP) to earnings (loss) per share from normal operations are included with this news release.

Three Months Ended June 30, 2006

Regulated Utility Operations

The operating results of the Company's core regulated utility segment are the primary influence on overall consolidated operating results. For the three months ended June 30, 2006, the regulated utility segment reported a seasonal net loss of $6.8 million, or $0.14 per share, an improvement of $4.3 million, or $0.09 per share, over the net loss of $11.1 million, or $0.23 per share, reported for the same quarter of the prior fiscal year. This improvement reflects the addition of approximately 22,000 active customer meters since the end of the same quarter of the prior fiscal year, coupled with $1.5 million (pre-tax), or $0.02 per share, of increased earnings from greater carrying costs on a higher balance of storage gas inventory that was the result of both higher natural gas prices and volumes. Tempering these improvements was a decrease of 21.5 million therms, or 12.8 percent, in total natural gas deliveries to firm customers during the third quarter of fiscal year 2006 that was attributable, in part, to the lower consumption of natural gas by customers due to factors other than weather, such as customer conservation. Although the decline in natural gas deliveries also was attributable to warmer weather in the current quarter in relation to the same quarter of the prior fiscal year, weather had a negligible effect on operating results for both quarters ended June 30, 2006 and 2005.

Third quarter 2006 operating results of the regulated utility segment also benefited from a $4.1 million (pre-tax) decrease in operation and maintenance expenses that reduced the net loss per share by $0.05. Principally contributing to the decrease in these expenses was a $2.0 million reduction in group insurance costs, $760,000 of reduced gas transportation and engineering related costs, $117,000 of reduced expenses for uncollectible accounts, and other miscellaneous items. Results from the regulated utility segment also benefited from lower general taxes that were partially offset by increased interest expense.

Non-Utility Operations

The Company's continuing non-utility operations, principally comprised of the results of the unregulated energy-marketing segment and the remaining portion of the commercial HVAC segment, reported net income of $6.2 million, or $0.13 per share, for the three months ended June 30, 2006, as compared to net income of $3.6 million, or $0.08 per share, reported for the same period of the prior fiscal year. The increased earnings from non-utility operations principally were attributable to the Company's retail energy-marketing business.

The retail energy-marketing segment reported net income of $6.1 million, or $0.13 per share, for the third quarter ended June 30, 2006, a $2.1 million, or $0.05 per share, increase over net income of $4.0 million, or $0.08 per share, reported for the same quarter in fiscal year 2005. The year-over-year improvement in earnings for this segment reflects higher gross margins from the sale of natural gas and electricity, and lower selling, general and administrative expenses.

Higher gross margins from the sale of natural gas reflect higher gross margins per therm, partially offset by a 5.9 percent decrease in natural gas sales volumes primarily due to warmer weather in the current quarter relative to the same quarter of the prior fiscal year. The higher gross margins per therm resulted, in part, from a larger number of commercial customers entering into long-term, fixed-price contracts during the first quarter of fiscal year 2006 compared to the same period in the prior year. Gross margins recognized on fixed-price sales contracts vary over their term as such margins are based on the spread between the fixed sales price billed each month and the monthly fluctuating commodity cost. During the first two quarters of fiscal year 2006, the Company's winter heating season, spreads on these contracts were relatively narrow due to higher natural gas costs in relation to the fixed sales prices associated with these contracts. However, these spreads widened in the current quarter due to lower natural gas costs, improving gross margins in the 2006 third quarter when compared to the same quarter last year.

Higher gross margins from natural gas sales for the current quarter also reflect mark-to-market gains in the current quarter (net of the cost of weather hedges), as compared to mark-to-market losses incurred in the same quarter of the prior fiscal year. These valuation gains or losses are associated with certain contracts used to mitigate risks associated with the volatility in the market price of natural gas and, in the current quarter, sales contracts that provide customers flexibility on the price and volumes of natural gas being sold. Changes in the mark-to-market valuation of these instruments increased net income for the current quarter in relation to the same quarter last year by $491,000 (after-tax), or $0.01 per share.

Gross margins from electric sales increased during the current three-month period, reflecting an increase in the margin per kilowatt hour sold, partially offset by a 21.2 percent decline in electric sales volumes. Electric customers grew 31 percent in the current quarter when compared to the same quarter of the prior fiscal year. This customer growth was concentrated near the end of the current quarter and was principally the result of new competitive opportunities that emerged due to sharp increases in competing rates offered by electric utilities in Maryland, Delaware and the District of Columbia.

The retail energy-marketing segment also benefited $1.5 million (pre-tax), or $0.02 per share, from the reversal in the current quarter of certain administrative fees that were previously accrued during fiscal year 2006, coupled with reduced bad debt expenses. The reversal of administrative fees, which are normally levied by a regulatory body, resulted from a decision of the regulatory body in July 2006 not to levy such fees to the energy-marketing business for fiscal year 2006.

The Company's commercial HVAC segment, excluding the effects of discontinued operations, reported net income of $205,000 for the third quarter of fiscal year 2006, as compared to net income of $186,000 reported for the same quarter in fiscal year 2005.

Nine Months Ended June 30, 2006

Regulated Utility Operations

The regulated utility segment reported net income of $97.6 million, or $2.00 per share, for the first nine months of fiscal year 2006, as compared to net income of $103.4 million, or $2.11 per share, for the corresponding period of the prior fiscal year. This comparison primarily reflects a decrease in total natural gas deliveries to firm customers of 85.1 million therms, or 7.2 percent, to 1.104 billion therms delivered during the nine months ended June 30, 2006. The decline in natural gas deliveries reflects 8.2 percent warmer weather in the current nine-month period than in the comparable period of the prior fiscal year. Weather was 2.7 percent warmer than normal during the current year-to-date period, as compared to 6.2 percent colder than normal during the corresponding period of the prior fiscal year. The year-over-year comparison of natural gas deliveries to firm customers also reflects lower consumption of natural gas by customers due to factors other than weather, such as customer conservation. Mitigating the financial effects of warmer weather and lower consumption of natural gas during the current nine-month period were: (i) the application of the Maryland RNA and other weather protection strategies, as discussed below; (ii) the addition of approximately 22,000 active customer meters since the end of the same quarter of the prior fiscal year; and (iii) $6.6 million (pre-tax), or $0.08 per share, of increased earnings from greater carrying costs on a higher balance of storage gas inventory.

As mentioned, the Company's various weather protection strategies, coupled with the timing of heating degree days during the current nine-month period, resulted in weather having a favorable effect on net income despite warmer- than-normal weather. Prior to October 1, 2005, the Company managed weather risk for all jurisdictions of the regulated utility with a weather insurance policy designed to protect against 50 percent of the effects of warmer-than- normal weather. That policy expired on September 30, 2005. Commencing in fiscal year 2006, the Company began utilizing the following new mechanisms to manage weather risk: (i) the RNA billing mechanism implemented in Maryland on October 1, 2005; (ii) a weather insurance policy for the District of Columbia effective October 1, 2005 and (iii) a weather derivative in Virginia effective December 18, 2005 which expired on May 31, 2006. The RNA is a mechanism that is designed to stabilize the level of net revenues collected from Maryland customers by eliminating the effect of deviations in customer usage caused by variations in weather from normal levels and certain other factors such as customer conservation. Deliveries to Maryland customers represent approximately 40 percent of therms delivered by the regulated utility.

The weather insurance policy and the weather derivative utilized in the District of Columbia and Virginia, respectively, were designed to provide full protection for the regulated utility from the negative financial effects of warmer-than-normal weather. If weather is colder than normal, the Company retains any associated benefits. The regulated utility segment benefited $5.5 million (after-tax), or $0.11 per share, in the current nine-month period from these weather protection products in relation to the corresponding period of the prior fiscal year. This enhancement to earnings in the current nine-month period includes the estimated benefits of the insurance and the derivative, and the related expenses of these products.

Utility net revenues of the regulated utility segment for the nine months ended June 30, 2006 were unfavorably affected by a charge of $4.6 million (pre-tax), or $0.06 per share, recorded in the second quarter of fiscal year 2006 to reflect a proposed order by a Hearing Examiner of the PSC of MD that recommends the disallowance of certain natural gas costs incurred by the regulated utility and billed to Maryland customers from September 2003 through August 2004. An appeal filed by the regulated utility is currently pending before the PSC of MD.

Earnings of the regulated utility segment for the first nine months of the current fiscal year reflect a $6.9 million (pre-tax), or $0.09 per share, increase in operation and maintenance expenses. Principally contributing to this increase was $3.2 million of higher expenses for uncollectible accounts, $2.4 million of increased expenses associated with information technology projects and $541,000 of increased labor and labor-related expenses. This increase in labor and labor-related expenses is net of $1.4 million of lower employee benefit costs primarily due to reductions in group insurance and other post-retirement benefit costs. Results from the regulated utility segment also reflect higher depreciation and amortization expense and increased interest expense that, together, reduced pre-tax income by $4.8 million, or $0.06 per share.

Non-Utility Operations

The Company's continuing non-utility operations reported net income of $4.3 million, or $0.08 per share, for the nine months ended June 30, 2006, as compared to net income of $13.1 million, or $0.27 per share, reported for the corresponding nine-month period of the prior fiscal year.

The retail energy-marketing segment reported net income of $5.0 million, or $0.10 per share, for the nine months ended June 30, 2006, as compared to net income of $13.9 million, or $0.28 per share, reported for the same period in fiscal year 2005. The $8.9 million, or $0.18 per share, year-over-year decline in earnings for this business primarily reflects lower gross margins from the sale of natural gas and electricity, that was partially offset by the reversal of expenses in the current year-to-date period of $3.1 million (pre- tax), or $0.04 per share, related to certain fees assessed by the PSC of DC that were accrued in prior fiscal years.

Lower gross margins from natural gas sales primarily reflect lower gross margins per therm that resulted, in part, from a larger number of commercial customers entering into long-term, fixed-price contracts during the first quarter of fiscal year 2006, when natural gas costs were relatively high compared to the same period in the prior fiscal year, thereby causing a compression in gross margins during the first half of fiscal year 2006. This was partially offset by increased gross margins during the 2006 third quarter, due to lower natural gas costs in relation to the fixed sales prices associated with these contracts. Lower gross margins from natural gas sales for the current nine-month period also reflect increased mark-to-market losses and weather hedge costs associated with certain of its contracts used to mitigate the risk in the volatility of natural gas prices, partially offset by mark-to-market gains in the current period on sales contracts that provide customers flexibility on the price and volumes of natural gas being sold. The increased mark-to-market losses (net of gains) decreased net income by $3.2 million (after-tax), or $0.07 per share, for the nine months ended June 30, 2006. Gross margins from electric sales fell during the current year-to-date period, reflecting a 29 percent decline in sales volumes that was partially offset by an increase in the margin per kilowatt hour sold.

The Company's commercial HVAC segment, excluding the effects of discontinued operations, reported net income of $324,000, or $0.01 per share, for the first nine months of fiscal year 2006, virtually unchanged from the results reported for the corresponding period in fiscal year 2005.

Earnings Outlook

The Company is providing a consolidated earnings estimate for the full fiscal year 2006 to only reflect a forecast of the Company's earnings from continuing operations. That estimate is a range of $1.82 per share to $1.90 per share. This estimate includes projected full fiscal year 2006 earnings from its regulated business segment in a range of $1.63 per share to $1.67 per share from the previous range of $1.59 per share to $1.65 per share, and projected full fiscal year 2006 earnings from continuing operations related to its unregulated businesses in a range of $0.19 per share to $0.23 per share. The annual guidance for the consolidated entity includes an estimated seasonal net loss from continuing operations for the fourth quarter of fiscal year 2006 in the range of $(0.26) per share to $(0.18) per share. This reflects an estimate from continuing operations for the fourth quarter related to its unregulated businesses of a range of $0.11 per share to $0.15 per share. The guidance also assumes no effect that may result from performing earnings tests on a quarterly basis pursuant to a December 18, 2003 rate order issued by the State Corporation Commission of Virginia, and no change in the assumptions used for known and potential regulatory contingencies, including those assumptions used to account for and record regulatory assets and liabilities at June 30, 2006. The guidance also assumes no effect of unusual items that could arise in the future, and excludes results from discontinued operations and future gains or losses related to such discontinued operations. This guidance has been determined as of August 4, 2006, and includes the forecasted results of continuing operations only. The Company assumes no obligation to update this guidance. The absence of any statement by the Company in the future should not be presumed to represent an affirmation of the earnings guidance given herein.

Other Information

The Company will hold a conference call at 10:30 a.m. Eastern time on August 8, 2006, to discuss its third quarter financial results. The live conference call will be available to the public via a link located on the WGL Holdings Web site, http://www.wglholdings.com. Slides providing details of the Company's results of operations will be posted to the Web site. To hear the live webcast, click on the "Live 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 August 31, 2006.

Headquartered in Washington, D.C., WGL Holdings is the parent company of Washington Gas Light Company, a natural gas utility that serves over one million customers throughout metropolitan Washington, D.C., and the surrounding region. In addition, it holds a group of energy-related retail businesses that focus primarily on retail energy-marketing and commercial heating, ventilating and air conditioning services.

Additional information about WGL Holdings is available on its Web site, http://www.wglholdings.com.

Note: This news release and other statements by the Company 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 the Company believes such forward-looking statements are based on reasonable assumptions, it cannot give assurance that every objective will be achieved. Forward-looking statements speak only as of today, and the Company assumes no duty to update them.

As previously disclosed in the Company's filings with the Securities and Exchange Commission, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: the level and rate at which costs and expenses are incurred and the extent to which they are allowed to be recovered from customers through the regulatory process in connection with constructing, operating and maintaining the Company's natural gas distribution system; the ability to implement successful approaches to modify the current or future composition of gas delivered to customers or to remediate the effects of the current or future composition of gas delivered to customers, as a result of the introduction of gas from the Dominion Cove Point facility to the Company's natural gas distribution system; the ability to recover the costs of implementing steps to accommodate delivery of natural gas to customers as a result of the receipt of gas from Cove Point; variations in weather conditions from normal levels; the availability of natural gas supply and interstate pipeline transportation and storage capacity; the ability of natural gas producers, pipeline gatherers, and natural gas processors to deliver natural gas into interstate pipelines for delivery by those interstate pipelines to the entrance points of the regulated utility's natural gas distribution system as a result of factors beyond the control of the Company or its subsidiaries; changes in economic, competitive, political and regulatory conditions and developments; changes in capital and energy commodity market conditions; changes in credit ratings of debt securities of WGL Holdings, Inc. or Washington Gas Light Company that may affect access to capital or the cost of debt; changes in credit market conditions and creditworthiness of customers and suppliers; changes in relevant laws and regulations, including tax, environmental and employment laws and regulations; legislative, regulatory and judicial mandates or decisions affecting business operations or the timing of recovery of costs and expenses; the timing and success of business and product development efforts and technological improvements; the pace of deregulation efforts and the availability of other competitive alternatives to the Company's products and services; changes in accounting principles; acts of God and terrorist activities; and other uncertainties. The outcome of negotiations and discussions the Company may hold with other parties from time to time regarding utility and energy-related investments and strategic transactions that are both recurring and non-recurring may also affect future performance. For a further discussion of the risks and uncertainties, see the Company's most recent annual report on Form 10-K, its quarterly reports on Form 10-Q and other reports filed with the Securities and Exchange Commission.

Please see the following comparative statements for additional information. Also included are reconciliations of the Company's and regulated utility segment's earnings (loss) per share reported in accordance with GAAP to earnings (loss) per share from normal operations.

 
WGL Holdings, Inc.
Consolidated Statements of Income
For Periods Ended June 30, 2006 and 2005
(Unaudited)
       

Three Months Ended

Nine Months Ended

June 30,

June 30,
(In thousands, except per
share data) 2006 2005 2006 2005
 
UTILITY OPERATIONS
Operating Revenues $183,595 $197,629 $1,490,588 $1,241,806
Less: Cost of gas 87,402 99,576 972,351 712,746
Revenue taxes 9,268 9,930 46,721 50,804
Utility Net Revenues 86,925 88,123 471,516 478,256
 
Other Operating Expenses
Operation and maintenance 57,899 62,033 184,484 177,568
Depreciation and amortization 23,210 22,663 69,267 66,277
General taxes 8,818 10,389 31,862 31,643
Income tax expense (benefit) (5,262 ) (5,931 ) 57,981 64,783

Utility Other Operating Expenses

84,665 89,154 343,594 340,271

Utility Operating Income (Loss)

2,260 (1,031 ) 127,922 137,985
 
NON-UTILITY OPERATIONS
Operating Revenues
Retail energy-marketing 159,911 143,613 812,762 634,819

Heating, ventilating and air conditioning (HVAC)

3,276 1,637 10,358 7,234
Other non-utility activities 139 386 564 999

Non-Utility Operating Revenues

163,326 145,636 823,684 643,052
 
Other Operating Expenses
Operating expenses 150,778 138,969 809,396 624,446
Income taxes 4,588 2,600 4,805 7,214

Non-Utility Operating Expenses

155,366 141,569 814,201 631,660

Non-Utility Operating Income

7,960 4,067 9,483 11,392
 
TOTAL OPERATING INCOME 10,220 3,036 137,405 149,377
Other Income (Expenses) - Net
Income (expenses) - net 1,813 386 2,716 879
Income tax benefit (expense) (660 ) (282 ) (897 ) (348 )

Other Income (Expenses) - Net

1,153 104 1,819 531
 
INCOME BEFORE INTEREST EXPENSE 11,373 3,140 139,224 149,908
Interest expense 11,627 10,217 36,312 32,445

Dividends on Washington Gas preferred stock

330 330 990 990

INCOME (LOSS) FROM CONTINUING OPERATIONS

(584 ) (7,407 ) 101,922 116,473

Loss from discontinued operations, net of income tax benefit

(1,240 ) (786 ) (2,477 ) (1,588 )

NET INCOME (LOSS) (APPLICABLE TO COMMON STOCK)

$(1,824 ) $(8,193 ) $99,445 $114,885
 

AVERAGE COMMON SHARES OUTSTANDING

Basic 48,762 48,695 48,754 48,684
Diluted 48,762 48,695 48,891 48,991
 

EARNINGS (LOSS) PER AVERAGE COMMON SHARE

Basic

Income (loss) from continuing operations

$(0.01 ) $(0.15 ) $2.09 $2.39

Loss from discontinued operations

(0.03 ) (0.02 ) (0.05 ) (0.03 )

Basic earnings (loss) per average share

$(0.04 ) $(0.17 ) $2.04 $2.36
 
Diluted

Income (loss) from continuing operations

$(0.01 ) $(0.15 ) $2.08 $2.38

Loss from discontinued operations

(0.03 ) (0.02 ) (0.05 ) (0.03 )

Diluted earnings (loss) per average share

$(0.04 ) $(0.17 ) $2.03 $2.35
 
 

Net Income (Loss) Applicable To Common Stock-By Segment ($000):

 
Regulated utility $(6,825 ) $(11,053 ) $97,599 $103,390
 
Non-utility operations:
Retail energy-marketing 6,124 4,036 4,951 13,929
Commercial HVAC 205 186 324 300
Total major non-utility 6,329 4,222 5,275 14,229

Other, principally non-utility activities

(88 ) (576 ) (952 ) (1,146 )
Total non-utility 6,241 3,646 4,323 13,083

INCOME (LOSS) FROM CONTINUING OPERATIONS

(584 ) (7,407 ) 101,922 116,473

Loss from discontinued operations, net of income tax benefit

(1,240 ) (786 ) (2,477 ) (1,588 )

NET INCOME (LOSS) (APPLICABLE TO COMMON STOCK)

$(1,824 ) $(8,193 ) $99,445 $114,885
 
   
Twelve Months Ended
June 30,
(In thousands, except per share data) 2006 2005
 
UTILITY OPERATIONS
Operating Revenues $1,628,172 $1,364,956
Less: Cost of gas 1,032,503 762,139
Revenue taxes 54,087 58,230
Utility Net Revenues 541,582 544,587
 
Other Operating Expenses
Operation and maintenance 244,248 230,843
Depreciation and amortization 92,849 88,665
General taxes 40,697 39,520
Income tax expense (benefit) 42,380 53,870
Utility Other Operating Expenses 420,174 412,898
Utility Operating Income (Loss) 121,408 131,689
 
NON-UTILITY OPERATIONS
Operating Revenues
Retail energy-marketing 950,989 786,912

Heating, ventilating and air conditioning (HVAC)

12,606 9,236
Other non-utility activities 990 1,340
Non-Utility Operating Revenues 964,585 797,488
 
Other Operating Expenses
Operating expenses 938,391 777,792
Income taxes 10,522 7,591
Non-Utility Operating Expenses 948,913 785,383
Non-Utility Operating Income 15,672 12,105
 
TOTAL OPERATING INCOME 137,080 143,794
Other Income (Expenses) - Net
Income (expenses) - net 4,128 1,624
Income tax benefit (expense) (1,197 ) (1,288 )
Other Income (Expenses) - Net 2,931 336
 
INCOME BEFORE INTEREST EXPENSE 140,011 144,130
Interest expense 47,170 42,685
Dividends on Washington Gas preferred stock 1,320 1,320
INCOME (LOSS) FROM CONTINUING OPERATIONS 91,521 100,125

Loss from discontinued operations, net of income tax benefit

(3,468 ) (3,250 )
NET INCOME (LOSS) (APPLICABLE TO COMMON STOCK) $88,053 $96,875
 
AVERAGE COMMON SHARES OUTSTANDING
Basic 48,741 48,676
Diluted 48,933 48,957
 
EARNINGS (LOSS) PER AVERAGE COMMON SHARE
Basic
Income (loss) from continuing operations $1.88 $2.06
Loss from discontinued operations (0.07 ) (0.07 )
Basic earnings (loss) per average share $1.81 $1.99
 
Diluted
Income (loss) from continuing operations $1.87 $2.05
Loss from discontinued operations (0.07 ) (0.07 )
Diluted earnings (loss) per average share $1.80 $1.98
 
 

Net Income (Loss) Applicable To Common Stock-By Segment ($000):

 
Regulated utility $81,701 $86,542
 
Non-utility operations:
Retail energy-marketing 13,316 16,150
Commercial HVAC (1,290 ) (1,100 )
Total major non-utility 12,026 15,050
Other, principally non-utility activities (2,206 ) (1,467 )
Total non-utility 9,820 13,583
INCOME (LOSS) FROM CONTINUING OPERATIONS 91,521 100,125

Loss from discontinued operations, net of income tax benefit

(3,468 ) (3,250 )
NET INCOME (LOSS) (APPLICABLE TO COMMON STOCK) $88,053 $96,875
 
 
 
WGL Holdings, Inc.
Consolidated Balance Sheets
June 30, 2006 and 2005
(Unaudited)
 

June 30,

(In thousands) 2006 2005
 
ASSETS
Property, Plant and Equipment
At original cost $2,890,380 $2,729,678
Accumulated depreciation and amortization (864,136 ) (793,302 )
Net property, plant and equipment 2,026,244 1,936,376
 
Current Assets
Cash and cash equivalents 88,078 68,756
Accounts receivable, net 205,572 178,816
Storage gas -- at cost (first-in, first-out) 193,053 128,747
Other 49,026 42,353
Current assets of discontinued operations 6,711 8,931
Total current assets 542,440 427,603
Deferred Charges and Other Assets
Deferred charges and other assets 148,114 133,230
Other assets of discontinued operations - 958
Total deferred charges and other assets 148,114 134,188
Total Assets $2,716,798 $2,498,167
 
 
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity $946,556 $922,462
Washington Gas Light Company preferred stock 28,173 28,173
Long-term debt 581,788 523,681
Total capitalization 1,556,517 1,474,316
 
Current Liabilities

Notes payable and current maturities of long-term debt

144,974 76,787
Accounts payable and other accrued liabilities 172,433 164,211
Other 145,359 139,604
Current liabilities of discontinued operations 2,435 2,619
Total current liabilities 465,201 383,221
Deferred Credits
Deferred credits 694,781 640,299
Other liabilities of discontinued operations 299 331
Total deferred credits 695,080 640,630
Total Capitalization and Liabilities $2,716,798 $2,498,167
 
 
WGL Holdings, Inc.
Consolidated Financial and Operating Statistics
For Periods Ended June 30, 2006 and 2005
(Unaudited)
         
COMMON STOCK DATA
June 30, 2006 52 Week
Closing Price Price Range
 
$28.95 $34.79-$27.04
 
 
Earnings Per Share Annualized
Twelve Months Ended June 30, P/E Dividend Yield
2006 2005
 
Basic 16.0 $1.35 4.7 %

Income from continuing operations

$1.88 $2.06

Loss from discontinued operations

(0.07 ) (0.07 )

Basic earnings per average share

$1.81 $1.99
 
Diluted

Income from continuing operations

$1.87 $2.05

Loss from discontinued operations

(0.07 ) (0.07 )

Diluted earnings per average share

$1.80 $1.98
 
   
FINANCIAL STATISTICS
Twelve Months Ended
June 30, June 30,
2006 2005
 
Return on Average Common Equity 9.4 % 10.7 %
Total Interest Coverage (times)(1) 4.0 4.8
Book Value Per Share (end of period) $19.41 $18.94

Common Shares Outstanding-end of period (thousands)

48,762 48,696
 

(1) Calculated using income from continuing operations.

 
     
UTILITY GAS STATISTICS
Three Months Ended

Nine Months Ended

June 30, June 30,
(In thousands) 2006 2005 2006 2005
 
Operating Revenues
Gas Sold and Delivered
Residential - Firm $102,953 $118,468 $978,068 $801,591
Commercial and
Industrial - Firm 34,863 38,527 314,064 251,958

Commercial and Industrial - Interruptible

1,808 1,973 6,749 7,059
Electric Generation 274 275 957 825
139,898 159,243 1,299,838 1,061,433
Gas Delivered for Others
Firm 22,972 22,331 119,070 124,884
Interruptible 8,655 7,162 34,717 30,695
Electric Generation 59 120 207 236
31,686 29,613 153,994 155,815
171,584 188,856 1,453,832 1,217,248
Other 12,011 8,773 36,756 24,558
Total $183,595 $197,629 $1,490,588 $1,241,806
 
 
 
Three Months Ended Nine Months Ended
June 30, June 30,
(In thousands of therms) 2006 2005 2006 2005
 
Gas Sales and Deliveries
Gas Sold and Delivered
Residential - Firm 60,329 74,660 552,288 591,013
Commercial and
Industrial - Firm 26,331 29,376 193,171 202,095

Commercial and Industrial - Interruptible

1,511 1,771 4,781 6,340
88,171 105,807 750,240 799,448
Gas Delivered for Others
Firm 59,458 63,562 358,492 395,947
Interruptible 48,912 53,061 207,064 230,501
Electric Generation 21,916 16,370 47,775 34,879
130,286 132,993 613,331 661,327
Total 218,457 238,800 1,363,571 1,460,775
 
WASHINGTON GAS ENERGY SERVICES
Natural Gas Sales

Therm Sales (thousands of therms)

114,750 121,999 615,538 623,564
 

Number of Customers (end of period)

144,900 149,100 144,900 149,100
 
Electricity Sales

Electricity Sales (thousands of kWhs)

471,255 598,222 1,390,160 1,961,340
 

Number of Accounts (end of period)

49,100

37,400 49,100 37,400
 

UTILITY GAS PURCHASED EXPENSE (excluding off system)

98.99

c

94.46

c

129.06

c

88.93

c

 
HEATING DEGREE DAYS
Actual 255 365 3,688 4,018
Normal 306 306 3,791 3,782

Percent Colder (Warmer) than Normal

(16.7 )% 19.3 % (2.7 )% 6.2 %
 

Number of Active Customer Meters (end of period)

1,032,198 1,010,272 1,032,198 1,010,272
 
 
 
Twelve Months Ended
June 30,
(In thousands) 2006 2005
 
Operating Revenues
Gas Sold and Delivered
Residential - Firm $1,049,782 $865,916
Commercial and Industrial - Firm 343,186 276,107

Commercial and Industrial - Interruptible

8,514 8,354
Electric Generation 1,232 1,100
1,402,714 1,151,477
Gas Delivered for Others
Firm 134,960 141,959
Interruptible 41,139 36,884
Electric Generation 499 299
176,598 179,142
1,579,312 1,330,619
Other 48,860 34,337
Total $1,628,172 $1,364,956
 
 
 
Twelve Months Ended
June 30,
(In thousands of therms) 2006 2005
 
Gas Sales and Deliveries
Gas Sold and Delivered
Residential - Firm 586,526 627,087
Commercial and Industrial - Firm 213,663 223,799

Commercial and Industrial - Interruptible

6,250 7,604
806,439 858,490
Gas Delivered for Others
Firm 396,644 432,308
Interruptible 256,487 277,928
Electric Generation 86,770 44,391
739,901 754,627
Total 1,546,340 1,613,117
 
WASHINGTON GAS ENERGY SERVICES
Natural Gas Sales
Therm Sales (thousands of therms) 705,650 709,424
 

Number of Customers (end of period)

144,900 149,100
 
Electricity Sales

Electricity Sales (thousands of kWhs)

2,109,289 3,423,450
 

Number of Accounts (end of period)

49,100 37,400
 

UTILITY GAS PURCHASED EXPENSE (excluding off system)

127.43

c

88.65

c

 
HEATING DEGREE DAYS
Actual 3,693 4,025
Normal 3,807 3,799

Percent Colder (Warmer) than Normal

(3.0 )% 5.9 %
 

Number of Active Customer Meters (end of period)

1,032,198 1,010,272
 
 
WGL HOLDINGS, INC. (CONSOLIDATED)
RECONCILIATION OF REPORTED GAAP EARNINGS (LOSS) PER SHARE AND
ADJUSTED EARNINGS (LOSS) PER SHARE
(Unaudited)
 
August 7, 2006
 
The reconciliation below is provided to demonstrate management's utilization of historical earnings (loss) per share, as derived in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP), and adjusted earnings (loss) per share from normal operations, a non- GAAP measure. This reconciliation is provided to more clearly identify the results from normal operations for WGL Holdings, Inc. and its consolidated subsidiaries (the Company), and identify certain unique transactions that are not expected to repeat. This information should assist investors and analysts to track progress towards achieving the Company's five-year financial objectives, which are based on normal weather, and uninfluenced by: (i) single, one-time, non-repeating transactions and (ii) the Company's discontinued operations.
 
Utilization of normal weather is an industry standard, and it is the practice of the Company to provide estimates and guidance on the basis of normal weather. Actual performance and results may vary from normal weather projections and the Company consistently identifies and explains this variation to assist users in the analysis of actual results versus the guidance. There may be other uses for the data, and the Company does not imply that this is the only use or the best use of this data for purposes of this analysis.
 
 
WGL Holdings, Inc. (Consolidated)
Reconciliation of Reported GAAP Earnings (Loss) Per Share to
Adjusted Earnings (Loss) Per Share from Normal Operations
Fiscal Year 2006 By Quarter (1)(2)
         
Fiscal Year 2006 Results
Quarter Ended
Year-To-
Dec. 31 Mar. 31 Jun. 30 Sept. 30 Date

GAAP diluted earnings (loss) per share

$0.91 $1.16 $(0.04 ) $2.03

Less: (Loss) from discontinued operations - net

(0.02 ) (0.01 ) (0.03 ) (0.05 )

GAAP diluted earnings (loss) per share from continuing operations

0.93 1.17 (0.01 ) 2.08
Adjustments for:

Warmer (colder) than normal weather

(0.07 ) 0.02 - (0.05 )

Reserve for disallowance of natural gas costs

- 0.06 - 0.06

Energy-marketing reversal of fee expense

- (0.04 ) - (0.04 )

Adjusted diluted earnings (loss) per share from normal operations

$0.86 $1.21 $(0.01 ) $2.05
 
 
 
WGL Holdings, Inc. (Consolidated)
Reconciliation of Reported GAAP Earnings (Loss) Per Share to
Adjusted Earnings (Loss) Per Share from Normal Operations
Fiscal Year 2005 By Quarter (1)(2)
 
Fiscal Year 2005 Results
Quarter Ended
Year-To-
Dec. 31 Mar. 31 Jun. 30 Sept. 30 Date
 

GAAP diluted earnings (loss) per share

$0.88 $1.63 $(0.17 ) $2.35

Less: (Loss) from discontinued operations - net

(0.01 ) (0.01 ) (0.02 ) (0.03 )

GAAP diluted earnings (loss) per share from continuing operations

0.89 1.64 (0.15 ) 2.38
Adjustments for:
Colder than normal weather - (0.10 ) - (0.10 )

Adjusted diluted earnings (loss) per share from normal operations

$0.89 $1.54 $(0.15 ) $2.28
 
 
(1)

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

 
(2)

During the quarter ended June 30, 2006, the Company discontinued the operations of a portion of its commercial heating, ventilation and air conditioning business segment. The operating results of the discontinued operation, including a related impairment charge recorded in the third quarter of 2006, have been presented separately from the operating results of the Company's continuing operations for all periods ended June 30, 2006. All prior periods presented herein have been restated to conform to the current fiscal year's presentation of the Company's discontinued operation.

 
 
WGL HOLDINGS, INC. (REGULATED UTILITY SEGMENT)
RECONCILIATION OF REPORTED GAAP EARNINGS (LOSS) PER SHARE AND
ADJUSTED EARNINGS (LOSS) PER SHARE
(Unaudited)
 
August 7, 2006
 
The reconciliation below is provided to demonstrate management's utilization of historical earnings (loss) per share, as derived in accordance with Generally Accepted Accounting Principles in the United States of America (GAAP), and adjusted earnings (loss) per share from normal operations, a non- GAAP measure. This reconciliation is provided to more clearly identify the results from normal operations for the Company's regulated utility segment, and identify certain unique transactions that are not expected to repeat. This information should assist investors and analysts to track progress towards achieving the Company's five-year financial objectives, which are based on normal weather and uninfluenced by single, one-time, non-repeating transactions.
 
Utilization of normal weather is an industry standard, and it is the practice of the Company to provide estimates and guidance on the basis of normal weather. Actual performance and results may vary from normal weather projections, and the Company consistently identifies and explains this variation to assist users in the analysis of actual results versus the guidance. There may be other uses for the data, and the Company does not imply that this is the only use or the best use of this data for purposes of this analysis.
 
 
WGL Holdings, Inc. (Regulated Utility Segment)
Reconciliation of Reported GAAP Earnings (Loss) Per Share to
Adjusted Earnings (Loss) Per Share from Normal Operations
Fiscal Year 2006 By Quarter (1)
         
Fiscal Year 2006 Results
Quarter Ended
Year-To-
Dec. 31 Mar. 31 Jun. 30 Sept. 30 Date
 

GAAP diluted earnings (loss) per share

$0.92 $1.22 $(0.14 ) $2.00
Adjustments for:

Warmer (colder) than normal weather

(0.07 ) 0.02 - (0.05 )

Reserve for disallowance of natural gas costs

- 0.06 - 0.06

Adjusted diluted earnings (loss) per share from normal operations

$0.85 $1.30 $(0.14 ) $2.01
 
 
 
WGL Holdings, Inc. (Regulated Utility Segment)
Reconciliation of Reported GAAP Earnings (Loss) Per Share to
Adjusted Earnings (Loss) Per Share from Normal Operations
Fiscal Year 2005 By Quarter (1)
 
Fiscal Year 2005 Results
Quarter Ended
Year-To-
Dec. 31 Mar. 31 Jun. 30 Sept. 30 Date
 

GAAP diluted earnings (loss) per share

$0.81 $1.52 $(0.23 ) $2.11
Adjustments for:
Colder-than-normal weather - (0.10 ) - (0.10 )

Adjusted diluted earnings (loss) per share from normal operations

$0.81 $1.42 $(0.23 ) $2.01
 
(1)

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

 

Contact:

WGL Holdings, Inc.
News Media:
Jan Davis, Office: +1-202-624-6383
Cell: +1-703-408-3962
or
Financial Community:
Melissa E. Adams, Office: +1-202-624-6410