Cascade Natural Gas Corporation Announces Fiscal 2006 Fourth Quarter and Full Year Earnings

Cascade Natural Gas Corporation (NYSE:CGC) reported fiscal 2006 earnings of $12.5 million, equivalent to $1.09 per share, compared to $9.2 million, or $0.82 per share, for fiscal 2005. For the fourth quarter, the Company reported a seasonal loss of $4 million equivalent to $0.35 per share compared to a seasonal loss of $3.6 million, or $0.32 per share in fiscal 2005. The Company earlier provided earnings guidance in the range of $1.12-$1.16, excluding fourth quarter merger related expenses. For comparison, when adjusted for fourth quarter merger related expenses of $2.1 million our full year earnings would have been $1.26 per share. The primary reasons for the difference were increased margins, lower operating expenses and interest from an income tax refund during the fourth quarter that was expected in the first quarter of fiscal 2007. Financial and Operating Highlights Operating Margins Full year total operating margin (revenue minus gas costs and revenue taxes) increased by $6.3 million compared to the prior year. Residential and commercial margins increased by $6.7 million for the year. Customer growth at 4.5%, with the addition of over 10,000 new customers, contributed $2.9 million to margins, while higher average consumption improved margins by $1.8 million. With cooler weather, average residential and commercial consumption increased by 2.9% and 5.4%, respectively. When measured in degree-days, this fiscal year was 10% cooler than the prior year. The difference between the consumption rates and the weather is attributed to weatherization efforts and curtailment resulting from the significant gas cost increases occurring nationwide early in the fiscal year. Miscellaneous services provided $0.8 million, and accrued revenues relating to the May 2006 implementation of weather and conservation decoupling in Oregon added $0.3 million. Changes relating to the treatment of Oregon gas cost differentials increased the reported margin by $879,000 when compared to fiscal 2005. Margins from sales to electric generation plants increased by $1.4 million, primarily due to two contract settlements totaling $1 million. Industrial margins were flat compared to the prior year. Gas Management margins were $162,000 higher this year than last. This was offset by an increase in unfavorable mark-to-market adjustments of $398,000 recorded in fiscal 2006 over the prior year. Operating margins reflect $548,000 in accrued Oregon Earnings Sharing reported for the fiscal year, compared to last year’s reversal of $525,000 in accrued sharing. An April agreement to institute weather and conservation decoupling reduced the target rate of return for when sharing is required with our Oregon customers. Together, these adversely impacted the year-to-year comparison by $1.1 million. For the fourth quarter, residential and commercial operating margins were up $1.3 million compared to the same quarter in fiscal 2005. This was due to changes instituted at the beginning of the year in the tariff-related assignment of annual Oregon demand charges between fiscal quarters as well as additional net residential and commercial margins. Changes in margins from other areas of our business were minor and offsetting. Cost of Operations, Interest & Other, and Income Tax Full year cost of operations (operating expense, depreciation and amortization, and property and miscellaneous taxes) increased by $780,000 compared to fiscal year 2005. Net of merger related costs of $2.7 million; full year cost of operations was $1.9 million lower. Favorable items include $2.4 million in transition costs recognized in fiscal 2005 and another $2.2 million in reduced spending across a broad range of operating costs. Offsetting these savings was a $1.5 million reduction in capitalized expenses, an increase of $741,000 in bad debt expense due to higher customer bills, and increased depreciation of $587,000. An $801,000 reduction in net interest cost is primarily the result of interest income recognized with the receipt of two income tax refunds. In the fourth quarter, cost of operations increased by $1 million compared to the same quarter in fiscal 2005. Primary drivers were $2.1 million in fourth quarter costs related to the merger and $1.3 million in one-time charges for organization changes in the same quarter of fiscal 2005. The Company’s effective income tax rate rose from 37.9% last year to 41.2% this year due to the treatment of certain merger related costs. Capital Spending and Funding of Operations Capital spending in fiscal 2006 was $16 million, a $12 million reduction from fiscal 2005. During fiscal 2006, the company reduced debt by $13.2 million and increased its cash position by $7.5 million. This was achieved as a result of improved operating results, tight controls on capital spending and a reduction of deferred gas costs. No notes were retired and no new debt was issued in fiscal 2006. We had one outstanding note obligation of $8 million due on October 2, 2006, which was paid in full with cash generated during fiscal 2006. Dividends and Other The Company previously announced its declaration of a regular quarterly cash dividend of $0.24 per common share, payable November 15, 2006 to shareholders of record at October 31, 2006. As previously announced, on July 8, 2006, the Company entered into a definitive merger agreement with MDU Resources Group, Inc. Under terms of the agreement, MDU Resources will acquire the Company for $26.50 per share in cash. On October 27, 2006, the shareholders approved the merger agreement at a special shareholders meeting. The Hart-Scott-Rodino federal anti-trust application and the merger docket applications for the states of Washington and Oregon have all been filed. Cascade Natural Gas Corporation is a local distribution company providing natural gas service to approximately 236,000 residential, commercial, and large industrial customers in the states of Washington and Oregon. Forward Looking Statements The Company’s discussion in this report, or in any information incorporated herein by reference, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, are forward-looking statements, including statements concerning plans, objectives, goals, strategies, and future events or performance. The disclaimers under the caption "Forward-Looking Statements”, included in the Company’s Quarterly Report on Form 10-Q filed on August 7, 2006 for the quarter ended June 30, 2006, apply in their entirety to all forward-looking statements contained in this report. Cascade Natural Gas Corporation Financial Highlights - (Thousands, except per share amounts) Fourth Quarter Fiscal 2006   Fiscal Year 2006 Fiscal Year 2005   Three Months Ended Year to Date Three Months Ended Year ended Dec 31 Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Sep 30   Revenues $158,632  $162,796  $76,400  $57,000  $454,828  $104,613  $117,711  $56,315  $47,861  $326,500  Operating Margin 30,791  33,231  18,398  15,639  98,059  28,922  30,842  17,674  14,277  91,715  Cost of Operations 15,042  16,060  16,870  18,091  66,063  15,584  16,245  16,412  17,042  65,283    Operating Income (Loss) 15,749  17,171  1,528  (2,452) 31,996  13,338  14,597  1,262  (2,765) 26,432  Interest and Other 2,972  2,884  2,142  2,754  10,752  2,894  2,976  2,891  2,792  11,553  Income Taxes 4,737  5,301  (87) (1,196) 8,755  3,812  4,269  (502) (1,947) 5,632    Net Income (Loss) $ 8,040  $ 8,986  $ (527) $ (4,010) $ 12,489  $ 6,632  $ 7,352  $ (1,127) $ (3,610) $ 9,247    Common Shares Outstanding: End of Period 11,439  11,471  11,499  11,506  11,506  11,292  11,338  11,384  11,413  11,413  Average 11,428  11,455  11,487  11,504  11,468  11,279  11,312  11,367  11,396  11,339    Earnings (Loss) Per Share Basic and diluted $ 0.70  $ 0.78  $ (0.05) $ (0.35) $ 1.09  $ 0.59  $ 0.65  $ (0.10) $ (0.32) $ 0.82    Dividends Paid per share $ 0.24  $ 0.24  $ 0.24  $ 0.24  $ 0.96  $ 0.24  $ 0.24  $ 0.24  $ 0.24  $ 0.96    Capital Expenditures (net) $ 3,756  $ 4,306  $ 4,421  $ 3,535  $ 16,018  $ 7,770  $ 7,759  $ 6,038  $ 6,444  $ 28,011    Book Value Per Share $ 10.88  $ 11.40  $ 11.14  $ 10.61  $ 10.61  $ 10.89  $ 11.32  $ 10.99  $ 10.39  $ 10.39    Market Closing Price $ 19.51  $ 19.70  $ 21.09  $ 26.09  $ 26.09  $ 21.20  $ 19.96  $ 20.50  $ 21.77  $ 21.77    Active Customers (End of Period) 235  238  236  236  236  225  228  225  227  227    Gas Deliveries (Therms): Residential & Commercial 95,682  97,231  40,346  22,978  256,237  82,643  92,637  39,632  22,843  237,755  Industrial & Other 230,396  211,874  129,967  246,564  818,801  227,779  228,890  176,178  211,305  844,152    Degree Days 5-Year Average 2,106  2,299  925  278  5,608  2,091  2,271  806  212  5,380  Actual 2,250  2,269  900  268  5,687  1,945  2,230  769  226  5,170    Colder (warmer) than 5-year avg. 7% (1%) (3%) (4%) 1% (7%) (2%) (5%) 7% (4%)   Colder (warmer) than prior year 16% 2% 17% 19% 10% (8%) (1%) 16% 15% (1%)