A. MARK ABRAMOVIC Senior Vice President and Chief Financial Officer Phone: (412) 261-3000 May 12, 1997 Securities and Exchange Commission Washington, DC 20549 Gentlemen: Pursuant to the requirements of the Securities Exchange Act of 1934, we are transmitting herewith the attached Form 10-Q for the quarter ended March 31, 1997. Sincerely yours, EQUITABLE RESOURCES, INC. /s/ A. Mark Abramovic A. Mark Abramovic Senior Vice President and Chief Financial Officer
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______ COMMISSION FILE NUMBER 1-3551 EQUITABLE RESOURCES, INC. (Exact name of registrant as specified in its charter) PENNSYLVANIA 25-0464690 (State of incorporation or organization) (IRS Employer Identification No.) 420 BOULEVARD OF THE ALLIES, PITTSBURGH, PENNSYLVANIA 15219 (Address of principal executive offices, including zip code) Registrant's telephone number, including area code: (412) 261-3000 ------------ NONE (Former name, former address and former fiscal year, if changed since last report) ------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of issuer's classes of common stock, as of the close of the period covered by this report. Outstanding at Class March 31, 1997 Common stock, no par value 35,519,102 shares
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES Index Page No. PART I. FINANCIAL STATEMENTS: Statements of Consolidated Income for the Three Months Ended March 31, 1997 and 1996, and the Twelve Months Ended March 31, 1997 and 1996 1 Statements of Consolidated Cash Flows for the Three Months Ended March 31, 1997 and 1996 and the Twelve Months Ended March 31, 1997 and 1996 2 Consolidated Balance Sheets, March 31, 1997 and 1996 and December 31, 1996 3 - 4 Long-Term Debt, March 31, 1997 and 1996 5 Notes to Consolidated Financial Statements 6 Gas Produced, Purchased and Sold 7 - 10 Information by Business Segment 11 Management's Discussion and Analysis of Financial Condition and Results of Operations 12 - 18 PART II. OTHER INFORMATION 19 SIGNATURE 20
<TABLE> <CAPTION> EQUITABLE RESOURCES, INC. AND SUBSIDIARIES Statements of Consolidated Income (Thousands Except Per Share Amounts) Three Months Ended Twelve Months Ended March 31, March 31, 1997 1996 1997 1996 <S> <C> <C> <C> <C> Operating Revenues.......................... $ 552,575 640,278 $ 1,774,096 $ 1,661,577 Cost of Energy Purchased.................... 401,189 475,471 1,293,874 1,128,272 ----------- ---------- ----------- --------- Net operating revenues................. 151,386 164,807 480,222 533,305 ----------- ---------- ----------- ----------- Operating Expenses: Operation................................ 57,367 52,661 218,479 202,848 Maintenance.............................. 6,672 5,908 27,308 25,565 Depreciation and depletion............... 19,982 21,582 80,781 97,582 Impairment of assets..................... - - - 121,081 Taxes other than income.................. 14,018 15,253 40,922 43,186 ----------- ---------- ----------- ----------- Total operating expenses............... 98,039 95,404 367,490 490,262 ----------- ---------- ----------- ----------- Operating Income............................ 53,347 69,403 112,732 43,043 Other Income................................ 1,729 2,169 2,558 3,167 Interest Charges............................ 11,299 10,474 42,650 47,706 ----------- ---------- ----------- ----------- Income (Loss) Before Income Taxes........... 43,777 61,098 72,640 (1,496) Income Taxes (Benefits)..................... 15,987 22,372 24,197 (14,015) ----------- ---------- ----------- ----------- Net Income ................................. $ 27,790 $ 38,726 $ 48,443 $ 12,519 =========== =========== ========== =========== Average Common Shares Outstanding........... 35,462 35,035 35,301 34,892 =========== ========== =========== =========== Earnings Per Share of Common Stock.......... $.78 $1.11 $1.37 $.36 ==== ===== ===== ==== Dividends Per Share of Common Stock......... $.59 $.59 $1.18 $1.18 ==== ==== ===== ===== </TABLE>
<TABLE> <CAPTION> EQUITABLE RESOURCES, INC. AND SUBSIDIARIES Statements of Consolidated Cash Flows (Thousands) Three Months Ended Twelve Months Ended March 31, March 31, 1997 1996 1997 1996 <S> <C> <C> <C> <C> Cash Flows from Operating Activities: Net income........................................... $ 27,790 $ 38,726 $ 48,443 $ 12,519 --------- --------- --------- --------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Impairment of assets.............................. - - - 121,081 Depreciation and depletion........................ 19,982 21,582 80,781 97,582 Deferred income taxes (benefits).................. (444) 12,824 12,823 (51,908) Other - net....................................... 3,132 2,754 1,436 (556) Changes in other assets and liabilities: Accounts receivable and unbilled revenues....... 27,455 (89,321) 68,867 (143,435) Gas stored underground.......................... 15,156 9,758 (4,177) 3,525 Material and supplies........................... 3,661 2,068 (4,342) (552) Deferred purchased gas cost..................... 22,022 (8,583) (19,314) (19,548) Prepaid expenses and other...................... 9,272 (341) (668) (6,438) Regulatory assets............................... 268 365 282 2,154 Accounts payable................................ (57,390) 68,853 (76,459) 138,041 Accrued taxes................................... 2,409 8,347 (3,400) 10,550 Accrued interest................................ (4,208) (2,203) (4,995) 1,218 Refunds due customers........................... 4,943 672 3,157 (8,372) Customer credit balances........................ (6,167) (8,716) (159) (186) Deferred revenue................................ (8,530) (5,426) (25,304) 124,448 Other - net..................................... (1,099) 16,437 (20,947) 6,029 --------- --------- --------- --------- Total adjustments............................. 30,462 29,070 7,581 273,633 --------- --------- --------- --------- Net cash provided by operating activities...................... 58,252 67,796 56,024 286,152 --------- --------- --------- --------- Cash Flows from Investing Activities: Capital expenditures................................. (19,832) (18,831) (111,285) (106,219) Proceeds from sale of property....................... 216 425 3,971 24,388 --------- --------- --------- --------- Net cash used in investing activities....... (19,616) (18,406) (107,314) (81,831) --------- --------- --------- --------- Cash Flows from Financing Activities: Issuance of common stock............................. 40 543 1,803 2,641 Purchase of treasury stock........................... - - (33) (171) Dividends paid....................................... (20,600) (20,702) (41,446) (51,575) Proceeds from issuance of long-term debt............. - - 144,919 17,836 Repayments and retirements of long-term debt......... (157) - (150,597) (24,500) Increase (decrease) in short-term loans.............. 15,432 (3,654) 88,986 (109,513) --------- --------- --------- --------- Net cash (used) provided by financing activities...................... (5,285) (23,813) 43,632 (165,282) --------- --------- --------- --------- Increase (decrease) in cash and cash equivalents........ 33,351 25,577 (7,658) 39,039 Cash and cash equivalents at beginning of period ....... 14,737 30,169 55,746 16,707 --------- --------- --------- --------- Cash and cash equivalents at end of period.............. $ 48,088 $ 55,746 $ 48,088 $ 55,746 ========= ========= ========= ========= Cash paid (received) during the period for: Interest (net of amount capitalized)................. $ 12,679 $ 11,688 $ 44,016 $ 44,629 ========= ========= ========= ========= Income taxes......................................... $ (5,227) $ 606 $ 4,623 $ 42,343 ======== ========= ========= ========= </TABLE>
<TABLE> <CAPTION> EQUITABLE RESOURCES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Thousands) March 31, December 31, 1997 1996 1996 ASSETS <S> <C> <C> <C> Current Assets: Cash and cash equivalents............................... $ 48,088 $ 55,746 $ 14,737 Accounts receivable (less accumulated provision for doubtful accounts: March 31, 1997 $13,601; 1996 $13,075; December 31, 1996, $10,714)........................... 269,079 336,771 296,175 Unbilled revenues ...................................... 20,911 22,612 24,157 Gas stored underground - current inventory.............. 4,341 164 19,497 Material and supplies................................... 14,851 10,509 18,512 Deferred purchased gas cost............................. 38,057 18,743 60,079 Prepaid expenses and other.............................. 43,332 42,664 52,604 ------------- ------------ ------------- Total current assets............................... 438,659 487,209 485,761 ------------- ------------ ------------- Property, Plant and Equipment: Supply and Logistics (successful efforts method) ....... 1,231,850 1,177,124 1,220,756 Utilities .............................................. 996,330 957,225 988,425 Services................................................ 2,001 111 1,810 ------------- ------------ ------------- Total property, plant and equipment................ 2,230,181 2,134,460 2,210,991 Less accumulated depreciation and depletion........... 750,240 682,507 731,306 ------------- ------------ ------------- Net property, plant and equipment.................. 1,479,941 1,451,953 1,479,685 ------------- ------------ ------------- Other Assets: Regulatory assets....................................... 72,882 84,876 73,150 Goodwill ............................................... 11,634 - 8,396 Other................................................... 48,336 49,567 49,307 ------------- ------------ ------------- Total other assets.................................... 132,852 134,443 130,853 ------------- ------------ ------------- Total.............................................. $ 2,051,452 $ 2,073,605 $ 2,096,299 ============= ============ ============= </TABLE>
<TABLE> <CAPTION> EQUITABLE RESOURCES, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Thousands) March 31, December 31, 1997 1996 1996 CAPITALIZATION AND LIABILITIES <S> <C> <C> <C> Current Liabilities: Short-term loans................................... $ 220,332 $ 131,346 $ 204,900 Accounts payable................................... 174,579 251,038 231,969 Accrued taxes...................................... 23,054 26,454 20,645 Accrued interest................................... 7,644 12,639 11,852 Refunds due customers.............................. 19,832 16,675 14,889 Customer credit balances........................... 884 1,043 7,051 Deferred income taxes.............................. 8,617 10,352 19,009 Other.............................................. 16,489 26,520 10,099 ------------ ------------- ------------- Total current liabilities..................... 471,431 476,067 520,414 ------------ ------------- ------------- Long--Term Debt ....................................... 421,830 415,692 422,112 ------------ ------------- ------------- Deferred and Other Credits: Deferred income taxes.............................. 265,360 277,377 260,700 Deferred investment tax credits.................... 19,619 20,716 19,892 Deferred revenue................................... 99,144 124,448 107,674 Other.............................................. 20,759 23,605 23,224 ------------ ------------- ------------- Total deferred and other credits.............. 404,882 446,146 411,490 ------------ ------------- ------------- Capitalization: Common stockholders' equity: Common stock, no par value, authorized 80,000 shares; shares issued March 31, 1997, 35,688; March 31, 1996, 35,440; December 31, 1996, 35,515 ....................................... 231,820 224,500 227,660 Retained earnings ............................... 527,057 520,060 519,867 Treasury stock, shares at cost March 31, 1997, 169 ; March 31, 1996, 339; December 31, 1996, 169..................................... (4,023) (7,722) (4,023) Foreign currency translation..................... (1,545) (1,138) (1,221) ------------ ------------- ------------- Total common stockholders' equity............. 753,309 735,700 742,283 ------------ ------------- ------------- Total..................................... $ 2,051,452 $ 2,073,605 $ 2,096,299 ============ ============= ============= </TABLE>
<TABLE> <CAPTION> EQUITABLE RESOURCES, INC. AND SUBSIDIARIES Long-Term Debt (Thousands) Annual Maturities Debt Maturities After One Year March 31, March 31, 1997 1996 1997 1996 <S> <C> <C> <C> <C> 8 1/4% Debentures, due July 1, 1996 (a)............... $ - $ - $ - $ 75,000 7 1/2% Debentures, due July 1, 1999 ($75,000 principal amount net of unamortized original issue discount) (b).......... - - 72,450 71,540 9 1/2% Convertible subordinated debentures, due January 15, 2006.................. - 652 9.9% Debentures, due April 15, 2013 (c,d)............. 5,880 75,000 7 3/4% Debentures, due July 15, 2026 (b).............. 150,000 - Medium-Term Notes: 7.2% to 9.0% Series A, due 1998 thru 2021......... 100,000 100,000 5.1% to 7.6% Series B, due 2003 thru 2023......... 75,500 75,500 6.8% to 7.6% Series C, due 2007 thru 2018......... 18,000 18,000 -------- --------- ----------- ----------- Total.......................................... $ - $ - $ 421,830 $ 415,692 ======== ========= =========== =========== <FN> (a) 8 1/4% Debentures were retired with proceeds from issuance of the 7 3/4% Debentures due July 15, 2026. (b) Not redeemable prior to maturity. (c) $69,120,000 retired as of March 31, 1997 through tender offer. Financing of the tender offer was through issuance of the 7 3/4% Debentures due July 15, 2026. (d) Annual sinking fund payments of $3,750,000 are required beginning in 1999. </FN> </TABLE>
Equitable Resources, Inc. and Subsidiaries Notes to Consolidated Financial Statements A. The accompanying financial statements should be read in conjunction with the Company's 1996 Summary Annual Report and Form 10-K. B. In the opinion of the Company, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the financial position as of March 31, 1997 and 1996 and the results of operations for the three and twelve months then ended and cash flows for the three and twelve months then ended. See Note G below. C. The results of operations for the three-month periods ended March 31, 1997 and 1996 are not indicative of results for a full year because of the seasonal nature of the Company's operations and volatility of oil and gas commodity prices. D. Certain amounts contained in prior period comparative information have been reclassified to conform with the 1997 presentation. E. At March 31, 1997, 10,320,000 shares of Common Stock were reserved as follows: 566,000 shares for issuance under the Key Employee Restricted Stock Option and Stock Appreciation Rights Incentive Compensation Plan, 1,726,000 shares for issuance under the Long-Term Incentive Plan, 76,000 shares for issuance under the Non-Employee Directors' Stock Incentive Plan, 81,000 shares for issuance under the Company's Dividend Reinvestment and Stock Purchase Plan, and 7,871,000 shares for possible use in connection with future acquisitions. F. On January 24,1997, the Company acquired all of the outstanding stock of Scallop Thermal Management, Inc. (Scallop) in exchange for 128,397 authorized, but previously unissued shares of the Company's common stock valued at $3.75 million. This acquisition was accounted for under the purchase method of accounting. Scallop is an energy services and performance contracting company specializing in energy management solutions for institutional, municipal and Fortune 500 customers. The effect of this acquisition on the consolidated financial statements of the Company is not material. G. The Company currently has a $12.5 million investment in a 25% general partnership interest in the Avoca bedded salt, natural gas storage project. The project has recently encountered technical difficulties which have significantly delayed development and could potentially result in the discontinuation of the project. The Company is reevaluating the project's economic viability and will determine the appropriate reserve for loss upon completion of that evaluation.
<TABLE> <CAPTION> Three Months Ended March 31, 1997 Supply and Intersegment Logistics Utilities Services Eliminations Consolidated <S> <C> <C> <C> <C> <C> Gas Produced, Purchased and Sold (MMcf): Produced 12,728 560 13,288 --------- --------- --------- --------- --------- Purchased: Other producers 72,255 13,687 16,556 102,498 Inter-segment purchases 198 2,543 14,006 (16,747) --------- --------- --------- --------- Total purchases 72,453 16,230 30,562 (16,747) 102,498 --------- --------- --------- --------- --------- Total produced and purchased 85,181 16,790 30,562 (16,747) 115,786 Deduct: Net increase (decrease) in gas in storage (5,245) (5,245) Extracted natural gas liquids (equivalent gas volumes) 2,261 2,261 System use and unaccounted for 523 70 593 --------- --------- --------- --------- --------- Total 82,397 21,965 30,562 (16,747) 118,177 ========= ========= ========= ========= ========= Gas Sales (MMcf): Residential 12,896 12,896 Commercial 1,673 1,673 Industrial and Utility 5,431 (2,559) 2,872 Production 12,728 (209) 12,519 Marketing 69,669 1,965 30,562 (13,979) 88,217 --------- --------- --------- --------- --------- Total 82,397 21,965 30,562 (16,747) 118,177 ========= ========= ========= ========= ========= Natural Gas Transported (MMcf) 28,523 20,489 (11,687) 37,325 ========= ========= ========= ========= ========= Oil Produced and Sold (thousands of bls) 411 411 ========= ========= Natural Gas Liquids Sold (thousands of gallons) 68,788 68,788 ========= ========= Average Selling Price: Residential Gas Sales (per Mcf) $10.205 Commercial Gas Sales 10.027 Industrial and Utility Gas Sales 3.118 Produced Natural Gas $ 2.262 Marketed Natural Gas 3.350 3.164 $3.459 Oil (per barrel) 18.219 Natural Gas Liquids (per gallon) .398 </TABLE>
<TABLE> <CAPTION> Three Months Ended March 31, 1996 Supply and Intersegment Logistics Utilities Services Eliminations Consolidated <S> <C> <C> <C> <C> <C> Gas Produced, Purchased and Sold (MMcf): Produced 16,378 573 16,951 --------- --------- --------- --------- --------- Purchased: Other producers 135,184 19,319 154,503 Inter-segment purchases 931 5,359 (6,290) --------- --------- --------- --------- Total purchases 136,115 24,678 (6,290) 154,503 --------- --------- --------- --------- --------- Total produced and purchased 152,493 25,251 (6,290) 171,454 Deduct: Net increase (decrease) in gas in storage (5,299) (5,299) Extracted natural gas liquids (equivalent gas volumes) 1,735 1,735 System use and unaccounted for 439 2,704 3,143 --------- --------- --------- --------- --------- Total 150,319 27,846 (6,290) 171,875 ========= ========= ========= =========- ========= Gas Sales (MMcf): Residential 15,017 15,017 Commercial 6,332 6,332 Industrial and Utility 3,389 (447) 2,942 Production 16,378 (295) 16,083 Marketing 133,941 3,108 (5,548) 131,501 --------- --------- --------- --------- --------- Total 150,319 27,846 (6,290) 171,875 ========= ========= ========= ========= ========= Natural Gas Transported (MMcf) 30,277 12,249 (7,322) 35,204 ========= ========= ========= ========= ========= Oil Produced and Sold (thousands of bls) 450 450 ========= ========= Natural Gas Liquids Sold (thousands of gallons) 51,479 51,479 ========= ========= Average Selling Price: Residential Gas Sales (per Mcf) $8.075 Commercial Gas Sales 6.212 Industrial and Utility Gas Sales 3.963 Produced Natural Gas $ 2.363 Marketed Natural Gas 2.890 3.971 Oil (per barrel) 16.927 Natural Gas Liquids (per gallon) .329 </TABLE>
<TABLE> <CAPTION> Twelve Months Ended March 31, 1997 Supply and Intersegment Logistics Utilities Services Eliminations Consolidated <S> <C> <C> <C> <C> <C> Gas Produced, Purchased and Sold (MMcf): Produced 53,645 2,505 56,150 --------- --------- --------- --------- --------- Purchased: Other producers 387,151 60,495 40,745 488,391 Inter-segment purchases 6,190 12,978 45,732 (64,900) --------- --------- --------- --------- Total purchases 393,341 73,473 86,477 (64,900) 488,391 --------- --------- --------- --------- --------- Total produced and purchased 446,986 75,978 86,477 (64,900) 544,541 Deduct: Net increase (decrease) in gas in storage 1,710 1,710 Extracted natural gas liquids (equivalent gas volumes) 8,917 - 8,917 System use and unaccounted for 1,960 2,338 4,298 --------- --------- --------- --------- --------- Total 436,109 71,930 86,477 (64,900) 529,616 ========= ========= ========= ========= ========= Gas Sales (MMcf): Residential 28,428 28,428 Commercial 5,846 5,846 Industrial and Utility 28,689 (7,546) 21,143 Production 53,645 (34,066) 19,579 Marketing 382,464 8,967 86,477 (23,288) 454,620 --------- --------- --------- --------- --------- Total 436,109 71,930 86,477 (64,900) 529,616 ========= ========= ========= ========= ========= Natural Gas Transported (MMcf) 118,609 78,585 (40,989) 156,205 ========= ========= ========= ========= ========= Oil Produced and Sold (thousands of bls) 1,688 1,688 ========= ========= Natural Gas Liquids Sold (thousands of gallons) 297,888 297,888 ========= ========= Average Selling Price: Residential Gas Sales (per Mcf) $9.919 Commercial Gas Sales 7.843 Industrial and Utility Gas Sales 2.940 Produced Natural Gas $ 1.855 Marketed Natural Gas 2.263 2.793 $3.091 Oil (per barrel) 15.042 Natural Gas Liquids (per gallon) .373 </TABLE>
<TABLE> <CAPTION> Twelve Months Ended March 31, 1996 Supply and Intersegment Logistics Utilities Services Eliminations Consolidated <S> <C> <C> <C> <C> <C> Gas Produced, Purchased and Sold (MMcf): Produced 64,100 2,712 66,812 --------- --------- --------- --------- --------- Purchased: Other producers 485,254 55,816 541,070 Inter-segment purchases 13,698 13,722 (27,420) --------- --------- --------- --------- Total purchases 498,952 69,538 (27,420) 541,070 --------- --------- --------- --------- --------- Total produced and purchased 563,052 72,250 (27,420) 607,882 Deduct: Net increase (decrease) in gas in storage (1,682) (1,682) Extracted natural gas liquids (equivalent gas volumes) 8,086 8,086 System use and unaccounted for 2,108 3,025 5,133 --------- --------- --------- --------- --------- Total 552,858 70,907 (27,420) 596,345 ========= ========= ========= ========= ========= Gas Sales (MMcf): Residential 31,097 31,097 Commercial 9,048 9,048 Industrial and Utility 18,711 (10,796) 7,915 Production 64,100 (532) 63,568 Marketing 488,758 12,051 (16,092) 484,717 --------- --------- --------- --------- --------- Total 552,858 70,907 (27,420) 596,345 ========= ========= ========= ========= ========= Natural Gas Transported (MMcf) 126,089 67,816 (35,112) 158,793 ========= ========= ========= ========= ========= Oil Produced and Sold (thousands of bls) 1,871 1,871 ========= ========= Natural Gas Liquids Sold (thousands of gallons) 249,186 249,186 ========= ========= Average Selling Price: Residential Gas Sales (per Mcf) $8.532 Commercial Gas Sales 6.833 Industrial and Utility Gas Sales 2.439 Produced Natural Gas $1.796 Marketed Natural Gas 1.982 2.466 Oil (per barrel) 16.602 Natural Gas Liquids (per gallon) .291 </TABLE>
<TABLE> <CAPTION> EQUITABLE RESOURCES, INC. AND SUBSIDIARIES Information by Business Segment (Thousands) Three Months Ended Twelve Months Ended March 31, March 31, 1997 1996 1997 1996 (Thousands) <S> <C> <C> <C> <C> OPERATING REVENUES: Supply and logistics.......................... $ 308,822 $ 458,766 $1,168,717 $1,277,083 Utilities .................................... 194,096 202,384 499,153 467,821 Services...................................... 108,602 2,095 278,842 2,568 Sales between segments........................ (58,945) (22,967) (172,616) (85,895) --------- --------- --------- --------- Total................................... $ 552,575 $ 640,278 $1,774,096 $1,661,577 ========= ========= ========== ========== OPERATING INCOME (LOSS): Supply and logistics.......................... $ 15,040 $ 21,114 $ 45,936 $ (15,532) Utilities..................................... 39,273 52,481 76,112 63,757 Services...................................... (966) (4,192) (9,316) (5,182) --------- --------- --------- --------- Total................................... $ 53,347 $ 69,403 $ 112,732 $ 43,043 ========= ========= ========= ========= CAPITAL EXPENDITURES: Supply and logistics.......................... $ 11,120 $ 13,180 $ 70,557 $ 62,419 Utilities..................................... 8,383 5,651 39,563 43,769 Services...................................... 329 - 1,165 31 --------- --------- --------- --------- Total................................... $ 19,832 $ 18,831 $ 111,285 $ 106,219 ========= ========= ========= ========= </TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Equitable's consolidated net income for the quarter ended March 31, 1997 was $27.8 million, or $.78 per share, compared with $38.7 million, or $1.11 per share, for the quarter ended March 31, 1996. The decrease in income is due to decreased retail gas sales reflecting weather that was 12 percent warmer than the 1996 period, a 22 percent decrease in natural gas production, and a four percent decrease in average selling prices for produced natural gas. Consolidated net income for the twelve months ended March 31, 1997 was $48.4 million or $ 1.37 per share, compared with $12.5 million or $.36 per share for the twelve months ended March 31, 1996. Earnings for the current period include an after-tax gain of $4.4 million, or $.13 per share, from the curtailment of the Company's defined benefit pension plan for certain non-utility employees. Although a nonrecurring gain, the curtailment will reduce operating costs in the future. Earnings for the prior period include an after-tax charge of $74.2 million , or $2.12 per share, due to the recognition of impairment of assets of $121.1 million, pursuant to the methodology of Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Earnings for the prior period also include a non-recurring after-tax gain of $29.1 million, or $.83 per share, related to the Columbia Gas Transmission (Columbia) bankruptcy settlement and $6.6 million, or $.19 per share, resulting from regulatory approval for accelerated recovery of future gas costs. Net income, excluding the effect of the items detailed above, was 14 percent lower than the 1996 period due to lower residential and commercial gas sales reflecting weather that was seven percent warmer than the prior period, lower nonconventional fuels tax credits, lower natural gas production and costs incurred for the start-up and development of new operations. These items were partially offset by higher margins from sale of natural gas liquids, lower depreciation, lower depletion rates and lower interest costs. RESULTS OF OPERATIONS In 1996, the Company began reporting operations in three business segments--supply and logistics, utilities, and services. The supply and logistics segment represents primarily the operations previously reported as the exploration and production segment and the energy marketing segment. The utilities segment represents primarily the operations previously reported as the natural gas distribution segment and the natural gas transmission segment. The services segment represents a portion of marketed gas sales previously reported in the other segments along with several new lines of business. This discussion supplements the detailed financial information by business segment presented on page 11. Parenthetical percentages included in the discussion of operating income denote the approximate relative impact of the particular factor on the period-to-period change.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SUPPLY AND LOGISTICS Supply and logistics operations are comprised of the sale of produced natural gas, oil and natural gas liquids, contract drilling, marketing of natural gas and electricity, and storage and intrastate transportation of natural gas in Louisiana. Operating revenues were $308.8 million for the quarter ended March 31, 1997 compared with $458.8 million for the quarter ended March 31, 1996. The decrease in operating revenues is due to a 48% decrease in marketed natural gas sales volumes and a decrease in both the production and average selling price of produced natural gas of 22% and 4%, respectively. The decreased operating revenues were offset by a 16% increase in the average selling price of marketed natural gas, an increase in both the average selling price and production of natural gas liquids of 21% and 34%, respectively, and higher marketed sales of electricity. Operating revenues for the twelve months ended March 31, 1997 were $1,168.7 million compared with $1,277.1 million for the twelve months ended March 31, 1996. The 1996 revenues include $40.2 million of nonrecurring amounts from the Columbia bankruptcy settlement and $11.0 of additional revenue from direct bill settlements. The decrease in revenues of $57.2 million, excluding the nonrecurring amounts, is due primarily to a 22% decrease in marketed natural gas sales volumes, a 16% decrease in natural gas production, and a 10% decrease in oil production. These decreases were partially offset by a 14% increase in the average selling price of marketed natural gas, an increase in both the average selling price and production of natural gas liquids of 28% and 20%, respectively, and increased revenues from the marketing of electricity. THREE MONTHS ENDED TWELVE MONTHS ENDED MARCH 31, MARCH 31, SUPPLY AND LOGISTICS 1997 1996 1997 1996 OPERATING REVENUES (THOUSANDS): Marketed Natural Gas....... $ 233,375 $ 387,123 $ 865,472 $ 968,548 Produced Natural Gas ...... 28,785 38,695 99,490 115,108 Produced Natural Gas Liquids 27,392 16,921 111,099 72,405 Produced Oil............... 7,488 7,617 25,391 31,063 Contract Drilling.......... 3,453 3,164 19,479 14,642 Marketed Electricity....... 4,193 1,361 17,999 1,361 Natural Gas Transportation. 1,781 1,723 7,728 8,835 Natural Gas Storage........ 953 --- 2,052 --- Direct Billing Settlements. --- --- 7,815 32,582 Other...................... 1,402 2,162 12,192 32,539 - ------------------------------------------------------------------------------ Total Revenues........... $ 308,822 $ 458,766 $1,168,717 $1,277,083 =============================================================================== SALES QUANTITIES: Marketed Natural Gas (MMcf) 69,669 133,941 382,464 488,758 Produced Natural Gas (MMcf) 12,728 16,378 53,645 64,100 Oil (MBls)................. 411 450 1,688 1,871 Natural Gas Liquids (thousands of gallons).............. 68,788 51,479 297,888 249,186 Transportation Deliveries (MMcf) 28,523 30,277 118,609 126,089
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SUPPLY AND LOGISTICS (CONTINUED) Cost of energy purchased includes natural gas and electricity purchased for marketing activities and natural gas purchased for the production of natural gas liquids. The cost of energy purchased amounted to $251.3 million for the quarter ended March 31, 1997 compared with $396.2 million for the quarter ended March 31, 1996. The decrease for the quarter reflects lower requirements for decreased marketed natural gas sales activity, partially offset by the increase in production of natural gas liquids and increased marketed electricity activity. Energy purchased for the twelve months ended March 31, 1997 amounted to $948.1 compared to $1,008.9 for the twelve months ended March 31, 1996. The decrease in purchased energy for the twelve month period is due to decreased marketed natural gas requirements, partially offset by increased production of natural gas liquids. Other operating expenses were $42.5 million for the quarter ended March 31, 1997 compared with $41.5 million for the quarter ended March 31, 1996. Although total operating expenses between periods remained substantially the same, the 1997 quarter reflects decreased depreciation and depletion expense resulting from lower natural gas and oil production, in addition to decreased exploration expense, offset by initial operating costs for storage service which began full operations during the second quarter of 1996, and higher expenses for natural gas liquids processing reflecting increased production. Other operating expenses for the twelve months ended March 31, 1997 were $174.7 million compared with $283.7 million for the twelve months ended March 31, 1996. Other operating expenses for 1996 include a charge of $95.1 million for impairment of assets. The decrease in operating expenses for the current period, excluding the charge for asset impairment, is due primarily to decreased depreciation and depletion expense, reflecting lower production and lower depletion rates. Operating income was $15.0 million for the quarter ended March 31, 1997 compared with $21.1 million for the quarter ended March 31, 1996. The decrease in operating income is primarily due to decreased natural gas production (105%), and decreased average selling prices for produced natural gas (20%). These factors were partially offset by higher margins from sale of natural gas liquids (70%) and lower exploration expense (10%). Operating income for the twelve months ended March 31, 1997 was $45.9 million compared with an operating loss of $15.5 million for the twelve months ended March 31, 1996. The increase in operating income of $17.5 million, excluding the effect of nonrecurring items and charge for impairment of assets in the 1996 period, is a result of lower depletion rates (65%), higher average selling prices for produced natural gas (20%), and higher margins from the sale of natural gas liquids (30%). These items were partially offset by lower natural gas production (70%) and lower sales of produced oil (35%).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) UTILITIES Utilities operations are comprised of the sale and transportation of natural gas to retail customers at state-regulated rates, interstate transportation and storage of natural gas subject to federal regulation and the marketing of natural gas. Revenues were $194.1 million for the quarter ended March 31, 1997 compared with $202.4 for the quarter ended March 31, 1996. The decrease in revenues is due to lower residential gas sales volumes reflecting weather that was 12 percent warmer than the 1996 quarter and customer conservation, the effect of commercial customers switching to transportation service, and declines of 20% and 37%, respectively, in the average selling price and sales volumes of marketed natural gas. These decreases were offset by increased industrial and utility gas sales, reflecting the switch of industrial customers from transportation to gas sales service, and higher residential rates reflecting pass-through of higher regulatory purchased gas costs to customers. Operating revenues for the twelve months ended March 31, 1997 were $499.2 million compared with $467.8 million for the twelve months ended March 31, 1996. Operating revenues for the 1996 period include $4.8 million related to the Columbia bankruptcy settlement. The increase in revenues, excluding the effect of the settlement, is due primarily to higher residential rates reflecting pass-through of higher regulatory purchased gas costs to customers and a 53% increase in industrial and utility gas sales volumes. These items were partially offset by lower sales to residential and commercial customers reflecting 7% warmer weather and the effect of commercial customers switching to transportation service. THREE MONTHS ENDED TWELVE MONTHS ENDED MARCH 31, MARCH 31, UTILITIES 1997 1996 1997 1996 OPERATING REVENUES (THOUSANDS): Residential Gas Sales...... $ 131,609 $ 121,268 $ 281,977 $ 265,316 Commercial Gas Sales ...... 16,776 39,332 45,852 61,829 Industrial and Utility Gas Sales 16,933 13,432 84,334 45,635 Marketed Gas Sales......... 6,218 12,341 25,049 29,723 Transportation Service..... 18,485 11,616 45,036 42,165 Storage Service............ 1,908 1,813 7,400 7,859 Other...................... 2,167 2,582 9,505 15,294 - ------------------------------------------------------------------------------ Total Revenues........... $ 194,096 $ 202,384 $ 499,153 $ 467,821 ============================================================================== SALES QUANTITIES: Residential Gas Sales...... 12,896 15,017 28,428 31,097 Commercial Gas Sales ...... 1,673 6,332 5,846 9,048 Industrial and Utility Gas Sales 5,431 3,389 28,689 18,711 Marketed Gas Sales......... 1,965 3,108 8,967 12,051 Transportation Deliveries . 20,489 12,249 78,585 67,816 Heating Degree Days........ 2,723 3,090 5,611 6,042
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) UTILITIES (CONTINUED) Cost of energy purchased amounted to $105.8 million for the quarter ended March 31, 1997 compared with $99.6 million for the quarter ended March 31, 1996. The increase is due to the pass-through of higher regulatory purchased gas costs to retail customers, partially offset by lower purchased quantities of gas as a result of reduced gas sales. Energy purchased for the twelve months ended March 31, 1997 was $252.5 million compared with $198.0 million for the twelve months ended March 31, 1996. The increase is due to the pass-through of higher regulatory purchased gas costs to retail customers, in addition to increased purchases for industrial and utility gas sales, partially offset by lower retail sales volumes. Other operating expenses for the quarter ended March 31, 1997 of $49.0 million remained substantially the same as the $50.3 million for the quarter ended March 31, 1996. Other operating expenses for the twelve months ended March 31, 1997 were $170.6 million compared with $206.0 million for the twelve months ended March 31, 1996. Other operating expenses for the twelve months ended March 31, 1996 include a charge of $25.6 million for impairment of assets. The decrease in other operating expenses for the twelve-month period, excluding the charge for impairment of assets, reflects savings from reengineering efforts. Operating income was $39.3 million for the quarter ended March 31, 1997 compared with $52.5 million for the quarter ended March 31, 1996. The decrease in operating income is due to the impact of lower residential and commercial sales volumes reflecting 12% warmer weather and commercial customers switching from gas sales to transportation service. Operating income for the twelve months ended March 31, 1997 was $76.1 million compared with $63.8 million for the twelve months ended March 31, 1996. The decrease of $8.5 million in operating income, excluding the charge for impairment of assets and Columbia settlement in the 1996 period, is due primarily to a 6 Bcf decrease in residential and commercial gas sales (170%) and the effect of commercial customers switching to transportation service (75%), partially offset by lower operating expenses (125%), increased industrial and utility gas sales (65%), and increased transportation throughput (35%). SERVICES Services operations are comprised of marketing of natural gas, cogeneration development, water efficiency and program development, performance contracting, and central facility plant operations. This operation was formed in mid-1996 by combining certain of the Company's natural gas marketing activities with the newly acquired operations of Independent Energy Company (IEC), Conogen, Inc. and Pequod Associates, Inc. In January 1997, the Company also acquired Scallop Thermal Management, Inc. The variances in the following operating result comparisons reflect the recent development of this segment.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SERVICES (CONTINUED) Operating results for the quarter ended March 31, 1997 were a loss of $1.0 million compared with a loss of $4.2 million for the quarter ended March 31, 1996. Operating results for the twelve months ended March 31, 1997 were a loss of $9.3 million compared with a loss of $5.2 million for the twelve months ended March 31, 1996. The variances in these results were caused by the impact of the start-up and development costs incurred throughout the 1996 calendar year. CAPITAL RESOURCES AND LIQUIDITY OPERATING ACTIVITIES Cash required for operations is affected primarily by the seasonal nature of the Company's natural gas distribution operations and volatility of oil and gas commodity prices. Gas purchased for storage during the nonheating season is financed with short-term loans, which are repaid as gas is withdrawn from storage and sold during the heating season. In addition, short-term loans are used to provide other working capital requirements during the nonheating season and as interim financing for a portion of capital expenditures. The Company expects to finance its 1997 capital expenditures with cash generated from operations and temporarily with short-term loans. The Company uses exchange-traded natural gas, crude oil and propane futures contracts and options and over-the-counter natural gas and crude oil swap agreements and options to hedge exposures to energy price changes. INVESTING ACTIVITIES The Company's business requires major ongoing expenditures for replacements, improvements, and additions to its utility plant and continuing development and expansion of its resource production activities. A total of $187.1 million has been authorized for the 1997 capital expenditure program, with $121.7 allocated to supply and logistics, $40.4 for utilities, and $25.0 for services. Capital expenditures for the three months ended March 31, 1997 were $19.8 million. The Company has a partnership interest in the Avoca bedded salt, natural gas storage project which has recently encountered technical difficulties. The Company is currently reevaluating the economic viability of the project. See Note G to the consolidated financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) FINANCING ACTIVITIES The Company has adequate borrowing capacity to meet its financing requirements. Bank loans and commercial paper, supported by available credit, are used to meet short-term financing requirements. At March 31, 1997, $219.0 million of commercial paper and $1.0 million of bank loans were outstanding at an average annual interest rate of 5.40%. The Company maintains a revolving Credit Agreement with a group of banks providing $500 million of available credit. The agreement requires a facility fee of one-tenth of one percent. Adequate credit is expected to continue to be available in the future. The Company is in the process of reevaluating its supply and logistics efforts with regard to its oil and gas properties in the western United States and internationally, in addition to its Gulf mid-stream assets. As a result, the Company has announced it is considering the sale of certain oil and gas properties which will allow the Company to refocus its exploration and development efforts in the Appalachian and Gulf of Mexico areas. BALANCE SHEET CHANGES The decrease in accounts receivable and accounts payable is due primarily to lower gas marketing activity. The change in deferred purchased gas cost is due to the timing of pass-through of gas costs to ratepayers. Changes in deferred purchased gas costs generally do not affect results of operations due to regulatory procedures for purchased gas cost recovery in rates. The increase in goodwill reflects the acquisition of Conogen, Inc., Pequod Associates, Inc. and Scallop Thermal Management, Inc.
PART II. OTHER INFORMATION Item 2. Changes in Securities See Note F to the consolidated financial statements regarding the Company's acquisition of Scallop Thermal Management, Inc. (Scallop). The 128,397 shares of the Company's common stock were issued to Scallop's five shareholders. The shares were deemed exempt from registration under Section 4(2) of the Securities Act of 1933 because they were issued only to the five top managers of Scallop, all of whom received substantial financial information about the Company and who acknowledged in writing the restrictions on resale under the Securities Act of 1933 and that they were not acquiring the shares in connection with any plan of distribution. The shares were subsequently registered for resale on a Form S-3. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: None (b) Reports on Form 8-K during the quarter ended March 31, 1997: Form 8-K dated February 20, 1997, addressing the Company's periodic release of forward-looking statements related to such matters as anticipated financial performance, business prospects, capital projects, new products, and operational matters and the potential uncertainties that may impact these forward-looking statements.
Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EQUITABLE RESOURCES, INC. ---------------------------------- (Registrant) /s/ A. Mark Abramovic ---------------------------------- A. Mark Abramovic Senior Vice President and Chief Financial Officer Date: May 12, 1997