Cascade Natural Gas Corporation Announces Fiscal 2005 Fourth Quarter and Full Year Earnings

Business Wire, Nov 16, 2005

SEATTLE -- Cascade Natural Gas Corporation (NYSE:CGC) reported fiscal 2005 earnings of $9.2 million, equivalent to $0.82 per share, compared to $13.3 million, or $1.19 per share, for fiscal 2004. For the fourth quarter, the Company reported a seasonal loss of $3.6 million equivalent to $0.32 per share compared to a seasonal loss of $2.6 million, or $0.23 per share in fiscal 2004.

When adjusted for one-time executive transition and staff reduction costs and non-operating mark-to-market valuations, totaling $2.4 million or $0.13 per share and $181,000 or $0.01 per share, respectively, our full year earnings would have been $0.96 per share for fiscal 2005 versus the $0.82 reported above. This falls within our guidance provided earlier this year of $0.92 to $0.97 excluding one-time organization changes and mark-to-market costs.

Financial and Operating Highlights

Operating Margins

Operating margin (revenue minus gas costs and revenue taxes) is primarily a function of customer growth and gas usage per customer. Our record net addition of 10,500 residential and commercial customers in fiscal 2005 contributed $3.2 million of additional margin compared to fiscal 2004. This was mostly offset by reductions in gas usage per residential and commercial customer of 3.8% and 4.4%, respectively, which reduced margins by $2.5 million. The addition of more efficient homes and businesses, reduced consumption per consumer and slightly warmer weather compared to last year drove the lower consumption rates. Weather statistics indicate that fiscal 2005 was 1% warmer than fiscal 2004 and 4% warmer than the average of the past five years.

Industrial distribution operating margin decreased by $717,000 year to year. This reduction is due to a variety of reasons including contract changes reducing minimum requirements, a decline in our number of customers and reduced usage by several sectors including chemical and paper manufacturing.

Cascade's margin on sales to electric generation plants was down $350,000 for the year with the decline attributable to lower-cost hydroelectric supplies and the increased wholesale price of gas.

Gas management services margin was down $1.9 million from last year. Cascade has lost sales and margin as a result of increased competition for the sale of gas supplies to large-volume customers. The comparison excludes a $181,000 unfavorable mark-to-market valuation in fiscal 2005 and an $836,000 positive valuation in 2004. These items had a $0.01 negative and a $0.05 favorable effect on fiscal year 2005 and 2004, respectively.

Increasing our for-fee service activities added $408,000 to margins. Changes in our estimates of Oregon revenue sharing favorably impacted the year-to-year comparison by $851,000.

For the fourth quarter, residential and commercial operating margins were up $466,000 compared to the same quarter in fiscal 2004, reflecting an increase in the number of customers served. The fourth quarter traditionally has the lowest level of customer consumption consistent with lower space heating needs during the warm months of July, August, and September. For-fee service revenue increased by $167,000 and electric generation operating margin was down $172,000 in the fourth quarter largely due to the high cost of natural gas. Adversely affecting the comparison were a reported reduction of $308,000 due to fourth quarter mark-to-market adjustments and $200,000 of favorable earnings adjustment for Oregon revenue sharing in the fourth quarter of fiscal 2004.

Operating Expenses

Operating expense increased by $4.7 million in fiscal 2005. One-time costs, from organization changes including the transition to a new executive team and severance costs relating to the elimination of 22 positions in September, drove $2.4 million of the increase. In addition, we wrote off $596,000 in projects cancelled during the fourth quarter. Increased bad debts as the result of transition activities related to our new call center and higher consumer gas bills also increased operating costs by $325,000. Our Sarbanes-Oxley efforts resulted in an increase of $337,000 in fees for outside services over fiscal 2004. Annual depreciation expense increased by $949,000, as noted below. Favorable items included interest expense reductions totaling $883,000 due to refinancing at reduced interest rates and $625,000 in benefit cost savings, primarily from reduced costs for employee and retiree medical.

The February 2005 consolidation of our 15 customer service centers into one center located in Bellingham, Washington resulted in a small net decrease in operating costs for fiscal 2005 with most of the savings being offset by implementation costs. Fiscal 2006 will benefit from a full year of approximately $750,000 in reduced costs, in addition to improved customer service.

In the fourth quarter, operating expense increased by $1.9 million. The recognition of the one-time cost for the position eliminations of $1.1 million and $596,000 in the write-off of terminated projects drove the increase.