Cascade Natural Gas Corporation Announces First Quarter Earnings

Cascade Natural Gas Corporation (NYSE:CGC) reports fiscal year 2007 first quarter earnings of $6.8 million, or $0.59 per share, compared to $8.0 million, or $0.70 per share, for the first quarter of fiscal year 2006. Included in current year earnings are expenses related to the Company’s pending merger with MDU Resources Group Inc., which reduced reported fiscal 2007 first quarter earnings by $1.5 million, or $0.13 per share. In addition, the Company recorded a one-time charge net of taxes of $492,000, or $0.04 per share, related to various organizational changes made during the first quarter of fiscal year 2007. Also, fiscal year 2006 earnings were negatively impacted by $0.03 per share due to a mark-to-market charge recorded in that period. After considering these factors, the first quarter fiscal 2007 earnings would have been $0.76 per share compared to $0.73 per share in the first quarter of fiscal 2006. Financial and Operating Highlights Operating Margins First quarter operating margin (revenue minus gas costs, revenue taxes and other costs of sales) increased $1.5 million over the same period last year. Residential and commercial margins contributed $1.0 million of the improvement, substantially all of which is provided by a 4.1% increase in the number of customers. Weather in the quarter was 5.1% warmer than last year, driving down per-customer gas usage. This decline in consumption depressed margins by $825,000, but was offset by credits related to regulatory incentives for lower gas costs and by margin recognized under the Company’s Oregon decoupling mechanism. This decoupling mechanism is designed to permit the Company to recover its costs and earn a fair return by mitigating the impacts of weather and conservation on customers’ gas usage. Margins from industrial and electric generation customers were comparable to last year. The quarter-to-quarter margin comparison was favorably affected by a $579,000 mark-to-market charge recorded last year, and unfavorably affected by a $190,000 accrual for estimated earnings sharing in Oregon. Cost of Operations First quarter Cost of Operations (operating expense, depreciation and amortization, and property and miscellaneous taxes) increased by $2.2 million compared to the same quarter in fiscal year 2006. Excluding $1.5 million of merger-related costs and $799,000 ($492,000 net of taxes) of one-time charges relating to organizational changes, Cost of Operations was comparable to the same period last year. Capital Spending and Funding of Operations Capital spending during the quarter was $4.1 million compared to $3.8 million in the first quarter of fiscal year 2006. The Company has adequate liquidity and established borrowing lines to meet its anticipated capital needs and peak winter gas purchase requirements. In October 2006, the Company retired a note obligation of $8 million with cash generated during fiscal 2006. No other long-term debt of the Company matures this fiscal year and cash flow is anticipated to be adequate to fund operations, dividends, and capital spending. Dividends and Other Items The Company previously announced its declaration of a regular quarterly cash dividend of $0.24 per common share, payable February 15 to shareholders of record at January 31, 2007. 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 process is complete and there were no issues cited. Applications for regulatory approval of the merger have been filed in the states of Washington and Oregon. The process is ongoing with evidentiary hearings scheduled for Washington in May 2007 and Oregon in June 2007. On January 12, 2007, the Company received orders from the Washington Utilities and Transportation Commission (WUTC) on its rate case and in a separate complaint proceeding filed by Cost Management Services, Inc. (CMS) relating to the Company's gas management services. The WUTC conditionally accepted the settlement agreement worked out by all parties relating to its rate case that will allow the Company to collect an additional $7 million in revenues, less $800,000 in Low Income Assistance to be provided by the Company. The new rates went into effect on January 19, 2007. The WUTC order also requires that prior to final implementation of the Company’s proposed Conservation Alliance Plan (decoupling), the Company must file a full conservation plan that includes an earnings cap that will limit the operation of the decoupling mechanism if the Company is already achieving its allowed 8.85% overall rate of return. The development and filing of the conservation plan will be accomplished over the next several months. In relation to the CMS complaint, the WUTC’s order allows the Company to continue to provide gas management services, but the Company is now required to file with the Commission its tariffs and contracts for these services. Use of Non-GAAP Financial Measure Where noted in the press release, the Company, in addition to presenting its earnings information in conformity with Accounting Principles Generally Accepted in the United States of America (GAAP), has provided non-GAAP earnings data that reflect adjustments to exclude first quarter fiscal 2007 merger-related costs of $1.5 million, or $0.13 per share, and a one-time charge net of taxes of $492,000, or $0.04 per share, related to various organizational changes made during the first quarter of fiscal year 2007. The Company believes these non-GAAP financial measures are useful to investors because the items excluded are not indicative of the Company's continuing operating results. Also, the Company's management uses this non-GAAP financial measure as an indicator for internal performance management, planning and forecasting. Cascade Natural Gas Corporation is a local distribution company providing natural gas service to approximately 244,000 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 Annual Report on Form 10K filed on December 8, 2006 for the year ended September 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) First Quarter Fiscal 2007     Fiscal Year 2007 Fiscal Year 2006   Three Months Ended Year Three Months Ended Year to to Dec 31 Mar 31 Jun 30 Sep 30 Date Dec 31 Mar 31 Jun 30 Sep 30 Date   Revenues $ 157,184  $ 157,184  $ 159,208  $ 163,018  $ 76,594  $ 57,144  $ 455,964  Operating Margin 32,281  32,281  30,791  33,231  18,398  15,639  98,059  Cost of Operations   17,279          17,279    15,042    16,060    16,870    18,091    66,063    Operating Income (Loss) 15,002  15,002  15,749  17,171  1,528  (2,452) 31,996  Interest and Other 3,032  3,032  2,972  2,884  2,142  2,754  10,752  Income Taxes   5,181          5,181    4,737    5,301    (87)   (1,196)   8,755    Net Income (Loss) $ 6,789  $ 6,789  $ 8,040  $ 8,986  $ (527) $ (4,010) $ 12,489    Common Shares Outstanding: End of Period 11,507  11,507  11,439  11,471  11,499  11,506  11,506  Average 11,506  11,506  11,428  11,455  11,487  11,504  11,468    Earnings (Loss) Per Share Basic and diluted $ 0.59  $ 0.59  $ 0.70  $ 0.78  $ (0.05) $ (0.35) $ 1.09    Dividends Paid per share $ 0.24  $ 0.24  $ 0.24  $ 0.24  $ 0.24  $ 0.24  $ 0.96    Capital Expenditures (net) $ 4,102  $ 4,102  $ 3,756  $ 4,306  $ 4,421  $ 3,535  $ 16,018    Book Value Per Share $ 10.98  $ 10.98  $ 10.88  $ 11.40  $ 11.14  $ 10.61  $ 10.61    Market Closing Price $ 25.92  $ 25.92  $ 19.51  $ 19.70  $ 21.09  $ 26.09  $ 26.09    Active Customers (End of Period) 244  244  235  238  236  236  236    Gas Deliveries (Therms): Residential & Commercial 93,653  93,653  95,682  97,231  40,346  22,978  256,237  Industrial & Other 241,632  241,632  230,396  211,874  129,967  246,564  818,801    Degree Days 5-Year Average 2,116  2,116  2,106  2,299  925  278  5,608  Actual 2,136  2,136  2,250  2,269  900  268  5,687    Colder (warmer) than 5-year avg. 1% 1% 7% (1%) (3%) (4%) 1%   Colder (warmer) than prior year (5%) (5%) 16% 2% 17% 19% 10%