WGL Holdings, Inc. Reports Second Quarter Fiscal Year 2015 Financial Results; Affirms Fiscal Year 2015 Non-GAAP Guidance

WASHINGTON--(BUSINESS WIRE)--

WGL Holdings, Inc. WGL:

Consolidated Results

WGL Holdings, Inc. WGL, the parent company of Washington Gas Light Company (Washington Gas) and other energy-related subsidiaries, today reported net income applicable to common stock determined in accordance with generally accepted accounting principles in the United States of America (GAAP) for the quarter ended March 31, 2015, of $81.5 million, or $1.63 per share, compared to net income applicable to common stock of $61.2 million, or $1.18 per share, reported for the quarter ended March 31, 2014.

For the six months ended March 31, 2015, net income applicable to common stock was $145.3 million, or $2.90 per share, an improvement of $65.5 million, or $1.36 per share, over net income applicable to common stock of $79.8 million, or $1.54 per share, for the same period of the prior fiscal year.

On a consolidated basis, WGL uses operating earnings (loss) to evaluate overall financial performance, and evaluates segment financial performance based on earnings before interest and taxes, as adjusted (adjusted EBIT). Both operating earnings (loss) and adjusted EBIT adjust for the accounting recognition of certain transactions that are not representative of the ongoing earnings of the company. Additionally, we believe that adjusted EBIT enhances the ability to evaluate segment performance because it excludes interest and income tax expense, which are affected by corporate-wide strategies such as capital financing and tax sharing allocations. Operating earnings (loss) and adjusted EBIT are non-GAAP financial measures, which are not recognized in accordance with GAAP and should not be viewed as alternatives to GAAP measures of performance. Refer to "Reconciliation of Non-GAAP Financial Measures," attached to this news release, for a detailed discussion of management's use of these measures and for reconciliations to GAAP financial measures.

For the quarter ended March 31, 2015, operating earnings were $101.0 million, or $2.02 per share, an improvement of $5.5 million, or $0.18 per share, over operating earnings of $95.5 million, or $1.84 per share, for the same quarter of the prior fiscal year. For the six months ended March 31, 2015, operating earnings were $159.0 million, or $3.18 per share, an improvement of $12.1 million, or $0.35 per share, over operating earnings of $146.9 million, or $2.83 per share, for the same period of the prior fiscal year.

"I am pleased to announce another solid quarter of earnings at WGL Holdings, with second quarter non-GAAP EPS of $2.02 growing 10% over 2014 results," said Terry McCallister, Chairman and Chief Executive Officer. "This growth is impressive given our strong results in the second quarter of 2014, and it demonstrates progress on our commitment to deliver exceptional levels of earnings growth for our shareholders. The majority of this growth was realized in our Retail Energy-Marketing segment as it returns toward historical earnings levels, but, in general, all of our businesses are delivering solid results consistent with our long-term expectations. We remain on track to deliver full year non-GAAP earnings in the high end of a range of $2.70 to $2.90 per share."

Second Quarter Results by Business Segment

Regulated Utility

For the three months ended March 31, 2015, the regulated utility segment reported adjusted EBIT of $152.4 million, compared to adjusted EBIT of $160.7 million for the same quarter of the prior fiscal year. For the six months ended March 31, 2015, the regulated utility segment reported adjusted EBIT of $249.0 million, compared to adjusted EBIT of $251.6 million for the same period of the prior fiscal year.

For both the three and six months ended March 31, 2015, the decline in adjusted EBIT primarily reflects higher expenses associated with: (i) labor and employee incentives; (ii) business-development related activities; (iii) maintenance of our distribution system and (iv) depreciation related to the growth in our utility plant. Additionally, for the three months ended March 31, 2015, lower realized margins associated with our asset optimization program also contributed to the decrease in adjusted EBIT. Partially offsetting these unfavorable variances are higher revenues from: (i) customer growth; (ii) favorable effects of changes in natural gas consumption patterns in the District of Columbia; (iii) rate recovery related to our accelerated pipe replacement programs; (iv) lower employee benefit costs and (v) for the six month period only, higher revenues from new base rates in Maryland and higher realized margins associated with our asset optimization program.

Retail Energy-Marketing

For the three months ended March 31, 2015, the retail energy-marketing segment reported adjusted EBIT of $27.0 million, an increase of $34.8 million, over adjusted EBIT of $(7.8) million for the same quarter of the prior fiscal year. For the six months ended March 31, 2015, the retail energy-marketing segment reported adjusted EBIT of $36.0 million, an increase of $42.4 million, over adjusted EBIT of $(6.4) million for the same period of the prior fiscal year.

For both the three and six months ended March 31, 2015, the improvement in adjusted EBIT primarily reflects higher electricity margins due to lower capacity and ancillary service charges from the regional power grid operator (PJM) associated with fixed price retail contracts. Additionally, prior year electricity margins reflected extreme price movements on commodity prices as a result of colder than normal weather that occurred throughout January 2014. Partially offsetting this favorable variance were lower natural gas margins as benefits realized last year related to weather hedges did not recur. Natural gas margins from commercial optimization and wholesale transactions were higher in the current year which helped to reduce the decrease related to weather hedges.

Commercial Energy Systems

For the three months ended March 31, 2015, the commercial energy systems segment reported adjusted EBIT of $1.7 million, compared to adjusted EBIT of $2.2 million for the same quarter of the prior fiscal year. This decline reflects credits to expense in the comparative quarterly period for certain project expenses which did not recur in the current period. Additionally, the sustained winter weather in the eastern part of the U.S. impacted generation from our solar assets in the current period.

For the six months ended March 31, 2015, the commercial energy systems segment reported adjusted EBIT of $2.9 million, an increase of $0.7 million, over adjusted EBIT of $2.2 million, for the same period of the prior fiscal year. The improvement in adjusted EBIT reflects the growth in the federal contracting business due to improved contract margins. Partially offsetting this favorable variance were higher project expenses in the distributed generation and investment solar divisions.

Midstream Energy Services

For the three months ended March 31, 2015, the midstream energy services segment reported adjusted EBIT of $(3.1) million, compared to adjusted EBIT of $10.9 million for the same quarter of the prior fiscal year. For the six months ended March 31, 2015, the midstream energy services segment reported adjusted EBIT of $(0.5) million, compared to $12.8 million for the same period of the prior fiscal year. For both the three and six months ended March 31, 2015, the decline in adjusted EBIT primarily reflects lower storage and transportation spreads in the current year, partially offset by lower investment development expenses.

Interest Expense

For the quarter ended March 31, 2015, interest expense was $13.3 million, compared to interest expense of $9.5 million for the same period of the prior fiscal year. For the six months ended March 31, 2015, interest expense was $25.6 million, compared to interest expense of $18.5 million for the same period of the prior fiscal year. For both the three and the six months ended March 31, 2015, the increase reflects the issuance of unsecured medium term notes and private placement notes issued by Washington Gas and senior notes issued by WGL.

Earnings Outlook

We are affirming our consolidated non-GAAP operating earnings estimate for fiscal year 2015 in a range of $2.70 per share to $2.90 per share. In providing fiscal year 2015 earnings guidance, management is aware that there could be differences between what is reported GAAP earnings and estimated operating earnings for matters such as, but not limited to, unrealized mark-to-market positions for our energy-related derivatives. At this time, WGL management is not able to reasonably estimate the aggregate impact of these items on reported earnings and therefore is not able to provide a corresponding GAAP equivalent for its operating earnings guidance.

We assume no obligation to update this guidance. The absence of any statement by us in the future should not be presumed to represent an affirmation of this earnings guidance. For the assumptions underlying this guidance, please refer to the slides accompanying our webcast that will be posted to WGL's website, www.wgl.com.

Other Information

We will hold a conference call at 10:30 a.m., Eastern Time on May 7, 2015, to discuss our second quarter fiscal year 2015 financial results. The live conference call will be available to the public via a link located on WGL's website, www.wgl.com. To hear the live webcast, click on "Investor Relations" then "Events & Webcasts." The webcast and related slides will be archived on WGL's website through Friday, June 5, 2015.

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

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

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

Forward-Looking Statements

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

WGL Holdings, Inc.
Consolidated Balance Sheets
(Unaudited)
(In thousands)		March 31, 2015				September 30, 2014
ASSETS
Property, Plant and Equipment
At original cost		$	4,727,512			$	4,582,764
Accumulated depreciation and amortization		(1,275,721		)		(1,268,319		)
Net property, plant and equipment		3,451,791				3,314,445
Current Assets
Cash and cash equivalents		9,287				8,811
Accounts receivable, net		674,970				298,978
Storage gas		96,123				333,602
Derivatives and other		143,950				194,124
Total current assets		924,330				835,515
Deferred Charges and Other Assets		774,242				706,539
Total Assets		$	5,150,363			$	4,856,499
CAPITALIZATION AND LIABILITIES
Capitalization
Common shareholders' equity		$	1,303,684			$	1,246,576
Washington Gas Light Company preferred stock		28,173				28,173
Long-term debt		950,469				679,228
Total capitalization		2,282,326				1,953,977
Current Liabilities
Notes payable and current maturities of long-term debt		220,000				473,500
Accounts payable and other accrued liabilities		324,046				313,221
Derivatives and other		357,026				233,564
Total current liabilities		901,072				1,020,285
Deferred Credits		1,966,965				1,882,237
Total Capitalization and Liabilities		$	5,150,363			$	4,856,499

WGL Holdings, Inc.
Consolidated Statements of Income
(Unaudited)
		Three Months Ended March 31,								Six Months Ended March 31,
(In thousands, except per share data)		2015				2014				2015				2014
OPERATING REVENUES
Utility		$	606,505			$	702,255			$	988,217			$	1,088,796
Non-utility		395,228				471,995				762,753				765,751
Total Operating Revenues		1,001,733				1,174,250				1,750,970				1,854,547
OPERATING EXPENSES
Utility cost of gas		310,138				459,107				439,842				645,988
Non-utility cost of energy-related sales		356,535				426,286				693,103				731,637
Operation and maintenance		104,287				99,699				196,667				187,841
Depreciation and amortization		30,103				27,304				59,463				53,894
General taxes and other assessments		57,784				57,121				97,167				97,742
Total Operating Expenses		858,847				1,069,517				1,486,242				1,717,102
OPERATING INCOME		142,886				104,733				264,728				137,445
Equity in earnings of unconsolidated affiliates		1,832				543				2,976				1,033
Other income (expenses) — net		338				342				(4,017		)		561
Interest expense		13,254				9,525				25,564				18,517
INCOME BEFORE TAXES		131,802				96,093				238,123				120,522
INCOME TAX EXPENSE		50,017				34,550				92,120				40,020
NET INCOME		81,785				61,543				146,003				80,502
Dividends on Washington Gas Light Company preferred stock		330				330				660				660
NET INCOME APPLICABLE TO COMMON STOCK		$	81,455			$	61,213			$	145,343			$	79,842
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic		49,720				51,875				49,851				51,846
Diluted		49,983				51,899				50,055				51,864
EARNINGS PER AVERAGE COMMON SHARE
Basic		$	1.64			$	1.18			$	2.92			$	1.54
Diluted		$	1.63			$	1.18			$	2.90			$	1.54

WGL Holdings, Inc.
Consolidated Financial and Operating Statistics
(Unaudited)
FINANCIAL STATISTICS
		Twelve Months Ended March 31,
		2015		2014
Closing Market Price — end of period		$56.40		$40.06
52-Week Market Price Range		$59.08-$37.77		$46.96-$35.35
Price Earnings Ratio		16.7		114.5
Annualized Dividends Per Share		$1.85		$1.68
Dividend Yield		3.3%		4.2%
Return on Average Common Equity		13.4%		1.4%
Total Interest Coverage (times)		7.1		1.5
Book Value Per Share — end of period		$26.22		$25.32
Common Shares Outstanding — end of period (thousands)		49,729		51,901

UTILITY GAS STATISTICS
		Three Months Ended March 31,								Six Months Ended March 31,								Twelve Months Ended March 31,
(In thousands)			2015				2014				2015				2014				2015				2014
Operating Revenues
Gas Sold and Delivered
Residential — Firm		$	411,386			$	473,343			$	655,120			$	718,264			$	827,935			$	879,286
Commercial and Industrial — Firm			92,036				109,022				148,454				169,240				193,001				211,242
Commercial and Industrial — Interruptible			1,256				1,221				1,974				1,742				2,499				2,655
Electric Generation			275				275				550				550				1,100				1,100
			504,953				583,861				806,098				889,796				1,024,535				1,094,283
Gas Delivered for Others
Firm			77,819				77,739				133,940				133,961				199,059				192,595
Interruptible			20,857				27,513				34,593				40,538				53,383				58,515
Electric Generation			107				132				239				246				508				620
			98,783				105,384				168,772				174,745				252,950				251,730
			603,736				689,245				974,870				1,064,541				1,277,485				1,346,013
Other			2,769				13,010				13,347				24,255				38,887				42,400
Total		$	606,505			$	702,255			$	988,217			$	1,088,796			$	1,316,372			$	1,388,413
		Three Months Ended March 31,								Six Months Ended March 31,								Twelve Months Ended March 31,
(In thousands of therms)			2015				2014				2015				2014				2015				2014
Gas Sales and Deliveries
Gas Sold and Delivered
Residential — Firm			410,701				405,619				627,760				631,686				735,038				740,061
Commercial and Industrial — Firm			98,729				97,407				157,907				160,577				197,483				200,644
Commercial and Industrial — Interruptible			390				897				1,445				1,461				2,177				2,287
			509,820				503,923				787,112				793,724				934,698				942,992
Gas Delivered for Others
Firm			279,133				250,319				439,139				408,960				565,683				534,053
Interruptible			93,488				92,072				171,147				169,769				269,082				263,591
Electric Generation			28,955				22,011				55,210				59,129				140,484				171,091
			401,576				364,402				665,496				637,858				975,249				968,735
Total			911,396				868,325				1,452,608				1,431,582				1,909,947				1,911,727
WGL ENERGY SERVICES
Natural Gas Sales
Therm Sales (thousands of therms)			314,500				309,000				515,600				519,500				714,100				691,000
Number of Customers (end of period)			150,000				165,000				150,000				165,000				150,000				165,000
Electricity Sales
Electricity Sales (thousands of kWhs)			2,988,200				3,052,200				5,656,700				5,880,600				11,468,500				12,165,000
Number of Accounts (end of period)			150,100				181,000				150,100				181,000				150,100				181,000
UTILITY GAS PURCHASED EXPENSE
(excluding asset optimization)			56.88	¢			76.23	¢			56.63	¢			68.97	¢			57.26	¢			66.34	¢
HEATING DEGREE DAYS
Actual			2,471				2,440				3,726				3,834				4,003				4,143
Normal			2,107				2,099				3,450				3,443				3,758				3,755
Percent Colder (Warmer) than Normal			17.3	%			16.2	%			8	%			11.4	%			6.5	%			10.3	%
Average Active Customer Meters			1,132,836				1,119,993				1,127,843				1,115,361				1,123,632				1,111,271

	WGL HOLDINGS, INC.
	RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
	(Unaudited)
The tables below reconcile operating earnings (loss) to GAAP net income (loss) applicable to common stock on a consolidated basis and adjusted EBIT on a segment basis to GAAP net income (loss) applicable to common stock. Management believes operating earnings (loss) and adjusted EBIT provide a more meaningful representation of our earnings from ongoing operations on a consolidated and segment basis, respectively. These measures facilitate analysis by providing consistent and comparable measures to help management, investors and analysts better understand and evaluate our operating results and performance trends, and assist in analyzing period-to-period comparisons. Additionally, we use these non-GAAP measures to report to the board of directors and to evaluate management's performance.
To derive our non-GAAP measures, we adjust for the accounting recognition of certain transactions (non-GAAP adjustments) based on at least one of the following criteria:
•	To better match the accounting recognition of transactions with their economics;
•	To better align with regulatory view/recognition;
•	To eliminate the effects of:
	i. Significant out of period adjustments;
	ii. Other significant items that may obscure historical earnings comparisons and are not indicative of performance trends; and
	iii. For adjusted EBIT, other items which may obscure segment comparisons.
There are limits in using operating earnings (loss) and adjusted EBIT to analyze our consolidated and segment results, respectively, 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 operating earnings (loss) and adjusted EBIT to analyze our results may have limited value as they exclude certain items that may have a material impact on our reported financial results. We compensate for these limitations by providing investors with the attached reconciliations to the most directly comparable GAAP financial measures.
The following table summarizes the reconciliations of adjusted EBIT by segment to its most comparable GAAP financial measure, income before income taxes:

		Three Months Ended March 31,								Six Months Ended March 31,
(In thousands)		2015				2014				2015				2014
Adjusted EBIT:
Regulated utility		$	152,395			$	160,734			$	248,951			$	251,589
Retail energy-marketing		27,031				(7,782		)		35,986				(6,424		)
Commercial energy systems		1,683				2,226				2,851				2,203
Midstream energy services		(3,062		)		10,948				(496		)		12,788
Other activities(*)		(846		)		(2,827		)		(2,320		)		(4,737		)
Eliminations		(19		)		498				(51		)		642
Total		177,182				163,797				284,921				256,061
Non-GAAP adjustments(1)		(32,126		)		(58,179		)		(21,234		)		(117,022		)
Interest expense		13,254				9,525				25,564				18,517
Income before income taxes		131,802				96,093				238,123				120,522
Income tax expense		50,017				34,550				92,120				40,020
Dividends on Washington Gas preferred stock		330				330				660				660
Net income applicable to common stock		$	81,455			$	61,213			$	145,343			$	79,842

(*)		Activities and transactions that are not significant enough on a stand-alone basis to warrant treatment as an operating segment and that do not fit into one of our four operating segments.

WGL HOLDINGS, INC. (Consolidated by Quarter)

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Unaudited)

The following tables represent the reconciliation of operating earnings to its most comparable GAAP financial measure, net income applicable to common stock (consolidated by quarter):

Fiscal Year 2015
		Quarterly Period Ended(**)
(In thousands, except per share data)		Dec. 31				Mar. 31				Jun. 30		Sept. 30		Fiscal Year
Operating earnings		$	58,004			$	101,034							$	159,038
Non-GAAP adjustments(1)		10,892				(32,126		)						(21,234		)
Income tax expense (benefit) on non-GAAP adjustments		(5,008		)		12,547								7,539
Net income applicable to common stock		$	63,888			$	81,455							$	145,343
Diluted average common shares outstanding		50,091				49,983								50,055
Operating earnings per share		$	1.16			$	2.02							$	3.18
Per share effect of non-GAAP adjustments		0.12				(0.39		)						(0.28		)
Diluted earnings per average common share		$	1.28			$	1.63							$	2.90
Fiscal Year 2014
		Quarterly Period Ended(**)
(In thousands, except per share data)		Dec. 31				Mar. 31				Jun. 30		Sept. 30		Fiscal Year
Operating earnings		$	51,398			$	95,526							$	146,924
Non-GAAP adjustments(1)		(58,843		)		(58,179		)						(117,022		)
Income tax expense on non-GAAP adjustments		22,453				23,866								46,319
Regulatory asset - tax effect Medicare Part D (***)		3,621				—								3,621
Net income applicable to common stock		$	18,629			$	61,213							$	79,842
Diluted average common shares outstanding		51,827				51,899								51,864
Operating earnings per share		$	0.99			$	1.84							$	2.83
Per share effect of non-GAAP adjustments		(0.63		)		(0.66		)						(1.29		)
Diluted earnings per average common share		$	0.36			$	1.18							$	1.54

(**)		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.
(***)		In March 2010, the Patient Protection and Affordable Care Act (PPACA) eliminated future Medicare Part D (Med D) tax benefits for Washington Gas' tax years beginning after September 30, 2013. On March 30, 2012, based on positions taken by the Public Service Commission of Maryland (PSC of MD) in Washington Gas' rate case, Washington Gas determined that it is not probable that the PSC of MD would permit recovery of this asset. Therefore, the Maryland portion of the regulatory asset related to the Med D benefit was charged to tax expense. In November of 2013, the PSC of MD issued an order authorizing Washington Gas to establish a regulatory asset and amortize the costs related to the change in tax treatment of Med D.

WGL HOLDINGS, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

(Unaudited)

(1) The following tables summarize non-GAAP adjustments, by operating segment and present a reconciliation of adjusted EBIT to EBIT. EBIT is defined as earnings before interest and taxes from continuing operations. Items we do not include in EBIT are interest expense, inter-company financing activity, dividends on Washington Gas preferred stock, and income taxes.

Three Months Ended March 31, 2015
(In thousands)		Regulated Utility				Retail- Energy Marketing				Commercial Energy Systems				Midstream Energy Services				Other Activities				Intersegment Eliminations				Total
Adjusted EBIT		$	152,395			$	27,031			$	1,683			$	(3,062	)		$	(846	)		$	(19	)		$	177,182
Non-GAAP adjustments:
Unrealized mark-to-market valuations on energy-related derivatives(a)		(27,979		)		11,395				—				(7,478		)		—				—				(24,062		)
Storage optimization program(b)		1,581				—				—				—				—				—				1,581
DC weather impact(c)		4,283				—				—				—				—				—				4,283
Distributed generation asset related investment tax credits(d)		—				—				(961		)		—				—				—				(961		)
Change in measured value of inventory(e)		—				—				—				(12,967		)		—				—				(12,967		)
Total non-GAAP adjustments		$	(22,115	)		$	11,395			$	(961	)		$	(20,445	)		$	—			$	—			$	(32,126	)
EBIT		$	130,280			$	38,426			$	722			$	(23,507	)		$	(846	)		$	(19	)		$	145,056
Three Months Ended March 31, 2014
(In thousands)		Regulated Utility				Retail- Energy Marketing				Commercial Energy Systems				Midstream Energy Services				Other Activities				Intersegment Eliminations				Total
Adjusted EBIT		$	160,734			$	(7,782	)		$	2,226			$	10,948			$	(2,827	)		$	498			$	163,797
Non-GAAP adjustments:																						—
Unrealized mark-to-market valuations on energy-related derivatives(a)		(77,925		)		6,392				—				(1,784		)		—				—				(73,317		)
Storage optimization program (b)		2,157				—				—				—				—				—				2,157
Change in measured value of inventory(e)		—				—				—				12,441				—				—				12,441
Incremental professional service fees (h)		—				—				—				—				(2,348		)		—				(2,348		)
DC weather impact (c)		3,569				—				—				—				—				—				3,569
Distributed generation asset related investment tax credits(d)		—				—				(681		)		—				—				—				(681		)
Total non-GAAP adjustments		$	(72,199	)		$	6,392			$	(681	)		$	10,657			$	(2,348	)		$	—			$	(58,179	)
EBIT		$	88,535			$	(1,390	)		$	1,545			$	21,605			$	(5,175	)		$	498			$	105,618

WGL HOLDINGS, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(Unaudited)
Six Months Ended March 31, 2015
(In thousands)		Regulated Utility				Retail- Energy Marketing				Commercial Energy Systems				Midstream Energy Services				Other Activities				Intersegment Eliminations				Total
Adjusted EBIT		$	248,951			$	35,986			$	2,851			$	(496	)		$	(2,320	)		$	(51	)		$	284,921
Non-GAAP adjustments:
Unrealized mark-to-market valuations on energy-related derivatives(a)		(2,902		)		(13,455		)		—				851				—				—				(15,506		)
Storage optimization program(b)		(2,599		)		—				—				—				—				—				(2,599		)
DC weather impact(c)		1,457				—				—				—				—				—				1,457
Distributed generation asset related investment tax credits(d)		—				—				(1,870		)		—				—				—				(1,870		)
Change in measured value of inventory(e)		—				—				—				2,909				—				—				2,909
Investment impairment(f)		—				—				—				—				(5,625		)		—				(5,625		)
Total non-GAAP adjustments		$	(4,044	)		$	(13,455	)		$	(1,870	)		$	3,760			$	(5,625	)		$	—			$	(21,234	)
EBIT		$	244,907			$	22,531			$	981			$	3,264			$	(7,945	)		$	(51	)		$	263,687
Six Months Ended March 31, 2014
(In thousands)		Regulated Utility				Retail- Energy Marketing				Commercial Energy Systems				Midstream Energy Services				Other Activities				Intersegment Eliminations				Total
Adjusted EBIT		$	251,589			$	(6,424	)		$	2,203			$	12,788			$	(4,737	)		$	642			$	256,061
Non-GAAP adjustments:
Unrealized mark-to-market valuations on energy-related derivatives(a)		(104,056		)		10,324				—				(24,345		)		—				—				(118,077		)
Storage optimization program(b)		4,018				—				—				—				—				—				4,018
DC weather impact(c)		2,719				—				—				—				—				—				2,719
Distributed generation asset related investment tax credits(d)		—				—				(1,254		)		—				—				—				(1,254		)
Change in measured value of inventory(e)		—				—				—				(1,047		)		—				—				(1,047		)
Competitive service provider imbalance cash settlement(g)		488				—				—				—				—				—				488
Incremental professional services fees(h)		—				—				—				—				(3,099		)		—				(3,099		)
Impairment loss on Springfield Operations Center(i)		(770		)		—				—				—				—				—				(770		)
Total non-GAAP adjustments		$	(97,601	)		$	10,324			$	(1,254	)		$	(25,392	)		$	(3,099	)		$	—			$	(117,022	)
EBIT		$	153,988			$	3,900			$	949			$	(12,604	)		$	(7,836	)		$	642			$	139,039

Footnotes:
(a)		Adjustments to eliminate unrealized mark-to-market gains (losses) for our energy-related derivatives for our regulated utility and retail energy-marketing operations as well as certain derivatives related to the optimization of transportation capacity for the midstream energy services segment. With the exception of certain transactions related to the optimization of system capacity assets as discussed below, when these derivatives settle, the realized economic impact is reflected in our non-GAAP results, as we are only removing interim unrealized mark-to-market amounts.
(b)		Adjustments to shift the timing of storage optimization margins for the regulated utility segment from the periods recognized for GAAP purposes to the periods in which such margins are recognized for regulatory sharing purposes. In addition, lower-of-cost or market adjustments related to system and non-system storage optimization are eliminated for non-GAAP reporting, since the margins will be recognized for regulatory purposes when the withdrawals are made at the unadjusted historical cost of storage inventory.
(c)		Eliminates the estimated financial effects of warm or cold weather in the District of Columbia, as measured consistent with our regulatory tariff. For fiscal year 2015, Washington Gas did not enter into weather protection products due to the pricing environment. Washington Gas has regulatory weather protection mechanisms in Maryland and Virginia designed to neutralize the estimated financial effects of weather. Utilization of normal weather is an industry standard, and it is our practice to evaluate our rate-regulated revenues by utilizing normal weather and to provide estimates and guidance on the basis of normal weather.
(d)		To reclassify the amortization of deferred investment tax credits from income taxes to operating income for the Commercial Energy Systems segment. These credits are a key component of the operating success of this segment and therefore are included within adjusted EBIT to help management and investors better assess its performance.
(e)		For our Midstream Energy Services segment, adjustments to reflect storage inventory at market or at a value based on the price used to value the physical forward sales contract that is economically hedging the storage inventory. This adjustment also includes the estimated effects of certain sharing mechanisms on all of our non-GAAP unrealized gains and losses. Adjusting our storage optimization inventory in this fashion better aligns the settlement of both our physical and financial transactions and allows investors and management to better analyze the results of our non-utility asset optimization strategies.
(f)		Represents an impairment of an equity investment in a solar holding company, accounted for at cost, which occurred in the first quarter of fiscal year 2015. We do not believe this impairment charge is indicative of our historical or future performance trends.
(g)		Represents amounts collected by the regulated utility segment in relation to the refund to customers ordered by the PSC of MD in September 2011 associated with a cash settlement of gas imbalances with competitive service providers.
(h)		These costs include incremental legal and consulting costs in connection with business development activities. These costs are unpredictable and may vary greatly with each opportunity. Management believes that excluding these costs allows management and investors to better compare, analyze and forecast the performance of our revenue generating opportunities.
(i)		During the first quarter of fiscal year 2014, Washington Gas recorded an impairment charge related to its Springfield Operations Center. Non-GAAP earnings have been adjusted to reflect a comparable measure in analyzing period-to-period comparisons.