<PAGE> 1
UNITED STATES
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 JUNE 30, 2000
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.)
ONE OXFORD CENTRE, SUITE 3300, 301 GRANT STREET, PITTSBURGH, PENNSYLVANIA 15219
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (412) 553-5700
------------
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 latest practicable date.
Outstanding at
Class July 31, 2000
----- --------------
Common stock, no par value 32,584,000 shares
<PAGE> 2
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (Unaudited):
Statements of Consolidated Income for the Three and
Six Months Ended June 30, 2000 and 1999 1
Statements of Condensed Consolidated Cash Flows
for the Three and Six Months Ended June 30, 2000 and 1999 2
Condensed Consolidated Balance Sheets, June 30, 2000,
and December 31, 1999 3 - 4
Notes to Condensed Consolidated Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 - 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
SIGNATURE 26
INDEX TO EXHIBITS 27
</TABLE>
<PAGE> 3
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
(Thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $338,436 $190,574 $717,535 $608,108
Cost of sales 203,360 82,796 418,116 373,902
-------- -------- -------- --------
Net operating revenues 135,076 107,778 299,419 234,206
-------- -------- -------- --------
OPERATING EXPENSES:
Operation and maintenance 20,143 21,695 41,957 43,569
Exploration 1,929 2,518 2,940 3,020
Production 11,883 7,988 21,351 14,062
Selling, general and administrative 23,515 24,383 50,033 44,962
Depreciation, depletion and amortization 26,935 30,825 56,719 52,000
-------- -------- -------- --------
Total operating expenses 84,405 87,409 173,000 157,613
-------- -------- -------- --------
Operating income 50,671 20,369 126,419 76,593
Other loss (6,951) -- (6,951) --
Equity in nonconsolidated entities 990 577 2,424 1,250
-------- -------- -------- --------
EARNINGS BEFORE INTEREST & TAXES 44,710 20,946 121,892 77,843
Interest charges 19,239 8,965 35,034 18,228
-------- -------- -------- --------
Income before income taxes 25,471 11,981 86,858 59,615
Income taxes 9,246 4,743 31,530 22,638
-------- -------- -------- --------
NET INCOME $ 16,225 $ 7,238 $ 55,328 $ 36,977
======== ======== ======== ========
EARNINGS PER SHARE OF COMMON STOCK:
Basic:
Weighted average common shares outstanding 32,637 33,960 32,637 34,692
Net income $ 0.50 $ 0.21 $ 1.70 $ 1.07
======== ======== ======== ========
Diluted:
Weighted average common shares outstanding 33,152 34,152 33,121 34,818
Net income $ 0.49 $ 0.21 $ 1.67 $ 1.06
======== ======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE> 4
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
------------------------------------------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income from continuing operations $ 16,225 $ 7,238 $ 55,328 $ 36,977
Adjustments to reconcile net income to net cash
provided by operating activities:
Exploration expense 1,929 2,518 2,940 3,020
Depreciation, depletion, and amortization 26,935 30,825 56,719 52,000
Deferred income taxes (benefits) 1,213 4,909 116 4,876
Changes in other assets and liabilities (14,325) 28,046 (7,965) 12,781
--------- --------- --------- ---------
Net cash provided by operating activities 31,977 73,536 107,138 109,654
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (19,937) (24,794) (65,466) (46,283)
Acquisition of Statoil production assets -- -- (672,022) --
Proceeds from Gulf asset merger 158,214 -- 158,214 --
Production monetization 148,526 -- 148,526 --
Increase in investment in unconsolidated entities (126,066) (3,248) (129,451) (18,788)
Proceeds from sale of property -- 4,661 -- 4,661
Proceeds from sale of short-term investments -- 293,761 -- 430,091
Purchases of short-term investments -- (199,148) -- (336,621)
--------- --------- --------- ---------
Net cash provided by (used in) investing activities 160,737 71,232 (560,199) 33,060
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term loans (73,369) (48,405) 562,791 9,591
Dividends paid (9,628) (10,311) (19,301) (20,855)
Proceeds from issuance of long-term debt -- 17,000 -- 17,000
Proceeds from issuance of common stock -- 11 -- 11
Purchase of treasury stock (17,814) (10,815) (17,814) (55,418)
Proceeds from exercises under employee
compensation plans 5,006 8,966
--------- --------- --------- ---------
Net cash provided by (used in) financing activities (95,805) (52,520) 534,642 (49,671)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents 96,909 92,248 81,581 93,043
Cash and cash equivalents at beginning of period 2,703 9,768 18,031 8,973
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 99,612 $ 102,016 $ 99,612 $ 102,016
========= ========= ========= =========
CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized) $ 18,353 $ 2,690 $ 39,208 $ 14,372
========= ========= ========= =========
Income taxes $ 13,572 $ 1,233 $ 17,876 $ 517
========= ========= ========= =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE> 5
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
2000 1999
-------------------------------
(THOUSANDS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 99,612 $ 18,031
Accounts receivable 186,939 148,103
Unbilled revenues 32,926 46,686
Inventory 43,796 40,859
Deferred purchased gas cost 26,892 29,075
Prepaid expenses and other 41,394 44,084
---------- ----------
Total current assets 431,559 326,838
---------- ----------
INVESTMENT IN NONCONSOLIDATED ENTITIES 170,324 40,873
PROPERTY, PLANT AND EQUIPMENT 2,392,106 2,052,528
Less accumulated depreciation and depletion 771,101 831,097
---------- ----------
Net property, plant and equipment 1,621,005 1,221,431
---------- ----------
OTHER ASSETS 203,696 200,432
---------- ----------
Total $2,426,584 $1,789,574
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE> 6
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY JUNE 30, DECEMBER 31,
2000 1999
--------------------------------
(THOUSANDS)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term loans $ 770,277 $ 207,486
Accounts payable 123,164 81,444
Other current liabilities 165,457 140,600
---------- ----------
Total current liabilities 1,058,898 429,530
---------- ----------
LONG-TERM DEBT:
Debentures and medium-term notes 281,350 281,350
Nonrecourse project financing 17,000 17,000
---------- ----------
Total long-term debt 298,350 298,350
Deferred and other credits 274,863 293,884
Commitments and contingencies --
Preferred trust securities 125,000 125,000
CAPITALIZATION:
Common stockholders' equity
Common stock, no par value, authorized 80,000 shares;
shares issued June 30, 2000 and December 31, 1999, 37,252
280,101 280,617
Treasury stock, shares at cost June 30, 2000, 4,603;
December 31, 1999, 4,522 (142,761) (133,913)
Retained earnings 532,099 496,072
Accumulated other comprehensive income 34 34
---------- ----------
Total common stockholders' equity 669,473 642,810
---------- ----------
Total $2,426,584 $1,789,574
========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE> 7
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three and six- month periods ended
June 30, 2000 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2000.
The balance sheet at December 31, 1999 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Equitable Resources' annual report
on Form 10-K for the year ended December 31, 1999.
B. Business Combinations/Dispositions - On February 15, 2000, Equitable
Resources, Inc. (Equitable or the Company), through its subsidiary, ERI
Investments, Inc., acquired the Appalachian oil and gas properties of
Statoil Energy, Inc. for $630 million plus working capital adjustments.
The Company acquired all of the issued and outstanding shares and
interests of Eastern States Oil & Gas, Inc. and Eastern States
Exploration Co. (collectively "Statoil"), subsidiaries of Statoil Energy,
Inc. The acquisition was initially funded through commercial paper and is
being replaced with transactions designed to monetize the oil and gas
properties. This acquisition has been accounted for under the purchase
method of accounting. Accordingly, the allocation of the cost of the
acquired assets and liabilities assumed has been made on the basis of the
estimated fair value. The consolidated financial statements include the
operating results of Statoil from the date of acquisition.
The following summarized unaudited pro forma financial information
assumes that the Statoil acquisition occurred on January 1, 1999.
Adjustments have been made for DD&A and certain other adjustments
together with related income tax effects.
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
-------------------------------------
(Thousands, except per share amounts)
<S> <C> <C>
Revenue $734,807 $671,151
======== ========
Net income $ 56,998 $ 40,560
======== ========
Earnings per share:
Basic $ 1.75 $ 1.17
======== ========
Diluted $ 1.72 $ 1.16
======== ========
</TABLE>
This information is not necessarily indicative of the results the Company
would have obtained had these events actually occurred on January 1,
1999, or of the Company's actual or future results of operations of the
combined companies.
5
<PAGE> 8
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
B. Business Combinations/Dispositions (Continued)
On April 10, 2000, Equitable combined its Gulf of Mexico operations with
Westport Oil and Gas Company for approximately $50 million in cash and
approximately 49% minority interest in the combined company. Equitable
will account for this $108.2 million investment under the equity method
of accounting. Westport recently filed a draft registration statement
with the Securities and Exchange Commission that did not report on
earnings for the second calendar quarter of 2000; therefore Equitable has
not included Westport second quarter 2000 results. This transaction is
not considered a significant disposition of assets, and no pro forma
disclosures have been provided.
On June 30, 2000, Equitable sold a substantial portion of its interest in
properties qualifying for nonconventional fuel tax credit to a
partnership which netted $122.2 million in cash and retained a minority
interest in this partnership. In anticipation of this transaction, the
Company had previously entered into financial hedges covering the first
two years of production. Removal of these hedges upon closing of this
transaction resulted in a $7 million pre-tax charge recorded as other
loss. Equitable accounted for its retained $26.3 million investment under
the equity method of accounting. Equitable will receive fees for
operating the wells and gathering and marketing the gas on behalf of the
purchaser.
C. Segment Disclosure - The Company reports operations in three segments
which reflect its lines of business. The Equitable Utilities segment's
activities are comprised of the operations of the Company's
state-regulated local distribution company, natural gas transportation,
storage and marketing activities involving the Company's interstate
natural gas pipelines, and supply and transportation services for the
natural gas market. The Equitable Production segment's activities are
comprised of the exploration, development, production, gathering and sale
of natural gas and oil, and the extraction and sale of natural gas
liquids. The NORESCO segment's activities are comprised of cogeneration
and power plant development, the development and implementation of energy
and water efficiency programs, performance contracting and central
facility plant operations. During 1999, the structure of the Company's
internal organization changed, causing the composition of the reportable
segments to change. Segment information for prior periods has been
restated to conform to this change.
Operating segments are evaluated on their contribution to the Company's
consolidated results, based on earnings before interest and taxes.
Interest charges and income taxes are managed on a consolidated basis and
allocated pro forma to operating segments. Headquarters costs are billed
to operating segments based on a fixed allocation of the annual
headquarters' operating budget. Differences between budget and actual
headquarters expenses are not allocated to operating segments, but
included as a reconciling item to consolidated earnings from continuing
operations.
6
<PAGE> 9
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
C. Segment Disclosure (Continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
--------------------------------------------------------------
(Thousands)
<S> <C> <C> <C> <C>
REVENUES FROM EXTERNAL CUSTOMERS:
Equitable Utilities $219,089 $104,868 $496,800 $445,200
Equitable Production 83,271 44,720 154,059 83,945
NORESCO 36,076 40,986 66,676 78,963
-------- -------- -------- --------
Total $338,436 $190,574 $717,535 $608,108
======== ======== ======== ========
INTERSEGMENT REVENUES:
Equitable Utilities $ 36,495 $ 21,823 $ 67,166 $ 40,215
Equitable Production 5,944 7,525 13,319 10,560
-------- -------- -------- --------
Total $ 42,439 $ 29,348 $ 80,485 $ 50,775
======== ======== ======== ========
SEGMENT EARNINGS BEFORE INTEREST AND TAXES:
Equitable Utilities $ 9,654 $ 8,240 $ 56,814 $ 53,495
Equitable Production 32,108 11,559 63,569 20,040
NORESCO 4,025 3,586 4,321 6,935
-------- -------- -------- --------
Total operating segments $ 45,787 $ 23,385 $124,704 $ 80,470
======== ======== ======== ========
LESS: RECONCILING ITEMS
Headquarters operating expenses $ 1,077 $ 2,439 $ 2,812 $ 2,627
Interest expense 19,239 8,965 35,034 18,228
Income tax expenses 9,246 4,743 31,530 22,638
-------- -------- -------- --------
Net income $ 16,225 $ 7,238 $ 55,328 $ 36,977
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------------------------
(Thousands)
<S> <C> <C>
SEGMENT ASSETS:
Equitable Utilities $ 999,317 $ 914,630
Equitable Production 1,274,061 670,828
NORESCO 139,981 145,925
---------- ----------
Total operating segments 2,413,359 1,731,383
Headquarters assets, including cash and short-term
investments and net intercompany accounts receivable 13,225 58,191
---------- ----------
Total $2,426,584 $1,789,574
========== ==========
</TABLE>
7
<PAGE> 10
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
D. Derivative Instruments and Hedging Activities - In June 1998, the
Financial Accounting Standards Board (FASB) issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." The
Company has not yet determined when it will adopt the provisions of this
statement, which may be implemented at the beginning of any fiscal
quarter. SFAS No. 133 will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not
hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair
value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities or firm commitments through
earnings or recognized in other comprehensive income until the hedged
item is recognized in earnings. The ineffective portion of a derivative's
change in fair value will be immediately recognized in earnings.
In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement No. 133." This statement delays the required implementation for
the Company until 2001.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Derivative
Instruments and Hedging Activities - an Amendment of FASB Statement No.
133." This statement addresses a limited number of implementation issues.
The Company has not yet determined what the effect of these
pronouncements will be on the earnings and financial position of the
Company.
E. Reclassification - Certain previously reported amounts have been
reclassified to conform with the 2000 presentation.
8
<PAGE> 11
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Equitable's consolidated net income for the quarter ended June 30,
2000, was $16.2 million, or $0.49 per diluted share, compared with net income of
$7.2 million, or $.21 per share, for the quarter ended June 30, 1999. This
represents a 133% increase in earnings per share versus the same period one year
ago.
The earnings improvement for the June 2000 quarter is attributable to
higher natural gas production and throughput derived from recent acquisitions
and improved commodity prices.
RESULTS OF OPERATIONS
EQUITABLE UTILITIES
Equitable 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 unregulated marketing of natural gas.
On December 15, 1999, the Company acquired the distribution,
transmission and production operations of Carnegie Natural Gas. The Carnegie
Natural Gas acquisition is complementary to Equitable's plans to grow its core
business and increase utilization and operational efficiencies of its local
distribution and interstate pipeline operations. The acquisition of Carnegie
added approximately 8,000 new distribution customers, 670 miles of transmission
and gathering pipeline and approximately 2.5 and 6.1 billion cubic feet (Bcf) of
throughput for the three and six months ended June 30, 2000, respectively. This
acquisition is not considered material; therefore, pro forma disclosures have
not been provided.
9
<PAGE> 12
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
EQUITABLE UTILITIES (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL RESULTS (THOUSANDS)
Utility revenues $ 54,501 $ 52,004 $189,867 $193,033
Marketing revenues 201,083 74,687 374,099 292,382
-------- -------- -------- --------
Total operating revenues 255,584 126,691 563,966 485,415
Purchased gas costs and revenue related taxes 210,831 73,641 434,011 351,746
-------- -------- -------- --------
Net operating revenues 44,753 53,050 129,955 133,669
Operating and maintenance expense 16,363 18,562 35,020 37,331
Selling, general and administrative expense 11,029 11,487 22,738 21,930
Depreciation, depletion and amortization 7,707 14,761 15,383 20,913
-------- -------- -------- --------
Total expenses 35,099 44,810 73,141 80,174
-------- -------- -------- --------
Earnings before interest and taxes (EBIT) $ 9,654 $ 8,240 $ 56,814 $ 53,495
======== ======== ======== ========
Capital expenditures $ 6,065 $ 4,728 $ 11,455 $ 10,111
VALUE DRIVERS
Total expenses/net revenues (%) 78.43% 84.47% 56.28% 59.98%
Earnings before interest and taxes
Distribution $ 4,379 $ 1,848 $ 38,811 $ 36,569
Pipeline $ 3,862 $ 5,056 $ 12,879 $ 13,351
Marketing $ 1,413 $ 1,336 $ 5,124 $ 3,575
</TABLE>
10
<PAGE> 13
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
EQUITABLE UTILITIES (CONTINUED)
THREE MONTHS ENDED JUNE 30, 2000
VS. THREE MONTHS ENDED JUNE 30, 1999
Earnings before interest and taxes (EBIT) increased 18% to $9.7 million
for the current period compared to $8.2 million for the same period in 1999.
Results for the June 1999 quarter benefited from the recognition of the
settlement of Equitrans' rate case which includes stranded cost recovery that
had a positive net result of $1.3 million. Excluding the Equitrans' rate
settlement, EBIT for the second quarter 2000 increased $2.8 million, or 41% over
the $6.9 million for the same period a year ago. The increase in 2000 is a
result of increased throughput and reductions in operating expenses.
SIX MONTHS ENDED JUNE 30, 2000
VS. SIX MONTHS ENDED JUNE 30, 1999
Earnings before interest and taxes increased 6% to $56.8 million for
the current period compared to $53.5 million for the same period in 1999. The
segment's results for the 1999 period included an $0.8 million benefit from the
previously mentioned Equitrans' rate case settlement. Excluding the settlement,
EBIT increased $4.1 million or 8% due principally to higher net operating
revenues resulting from the acquisition of Carnegie Natural Gas and increased
margins from energy marketing activities. Operating results improved despite
warmer than normal weather (normal is based on the 30-year average determined by
the National Oceanic and Atmospheric Administration).
DISTRIBUTION OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL RESULTS (THOUSANDS)
Net operating revenues $27,599 $24,812 $88,001 $84,973
Operating costs 18,777 18,708 40,322 39,905
Depreciation and amortization 4,443 4,256 8,868 8,499
------- ------- ------- -------
Earnings before interest and taxes $ 4,379 $ 1,848 $38,811 $36,569
======= ======= ======= =======
OPERATING INFORMATION
Degree days (normal = Qtr - 712, YTD - 3,728) 541 562 3,113 3,476
O & M per customer $ 65.29 $ 66.39 $140.29 $143.83
Volumes (MMcf)
Residential 3,681 3,409 15,414 15,875
Commercial industrial 6,077 3,604 17,618 12,350
------- ------- ------- -------
Total gas sales and transportation 9,758 7,013 33,032 28,225
======= ======= ======= =======
</TABLE>
11
<PAGE> 14
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
EQUITABLE UTILITIES (CONTINUED)
THREE MONTHS ENDED JUNE 30, 2000
VS. THREE MONTHS ENDED JUNE 30, 1999
Weather in the distribution service territory during the current period
was 24% warmer than normal and 4% warmer than last year. However, total system
throughput actually increased 2.7 Bcf, versus the same period last year,
primarily as a result of the acquisition of Carnegie Natural Gas.
Net operating revenues increased $2.8 million from the same period last
year. This increase is primarily due to the increased throughput mentioned above
and increased natural gas transportation margins.
Total operating expenses of $23.2 million for the 2000 quarter were
essentially unchanged from the same period in 1999 despite the Carnegie
acquisition and an increased provision for performance-related bonuses. These
operating expense levels were a result of the segment's continued process
improvement initiatives.
SIX MONTHS ENDED JUNE 30, 2000
VS. SIX MONTHS ENDED JUNE 30, 1999
Weather in the distribution service territory for the six months ended
June 30,2000, was 16% warmer than normal and 10% warmer than last year. Despite
the warmer weather, total system throughput increased 4.8 Bcf, versus the same
period last year, primarily as a result of the acquisition of Carnegie Natural
Gas.
Net operating revenues for the six months ended June 30, 2000,
increased $3.0 million from the same period last year. This increase is
primarily due to the increased throughput mentioned above and increased natural
gas transportation margins.
Total operating expenses for the six month period increased $.8 million
from the same period in 1999. As previously mentioned, the increase is due
primarily to the acquisition of Carnegie Natural Gas and increased provision for
performance-related bonuses offset, in part, by the benefit of the Company's
continued focus on productivity improvements.
12
<PAGE> 15
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
EQUITABLE UTILITIES (CONTINUED)
PIPELINE OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
----------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL RESULTS (THOUSANDS)
Net operating revenues $13,784 $25,400 $33,058 $41,857
Operating costs 6,708 9,889 13,760 16,191
Depreciation and amortization 3,214 10,455 6,419 12,315
------- ------- ------- -------
Earnings before interest and taxes $ 3,862 $ 5,056 $12,879 $13,351
======= ======= ======= =======
OPERATING INFORMATION
TRANSPORTATION THROUGHPUT (MMBTU) 15,846 19,227 39,079 39,671
</TABLE>
THREE MONTHS ENDED JUNE 30, 2000
VS. THREE MONTHS ENDED JUNE 30, 1999
Net operating revenues for the three months ended June 30, 2000, were
$13.8 compared to $25.4 million for the same period in 1999. Second quarter 2000
and 1999 net operating revenues include $1.6 million and $12.9 respectively, for
the recovery of stranded costs in rates and the previously mentioned Equitrans'
rate case settlement. Excluding the impact of the rate settlement and cost
recovery, net operating revenues of $12.2 million for the current period
decreased $0.3 million compared to the same period a year ago. This decrease in
net operating revenues was primarily due to reduced revenues from extraction
services resulting from a change in contract arrangements.
Total operating expenses were $9.9 million for the 2000 quarter
compared with operating expenses of $20.3 million for the 1999 quarter, a
decrease of $10.4. The operating expenses for 2000 include $1.3 million of
amortization expense related to the recovery of stranded costs in rates.
Operating expense for the 1999 include $8.7 million of amortization expense
related to the recovery of stranded costs in rates and $2.6 million of process
improvements. Excluding these two items in both periods, operating expenses of
$8.6 million reflect a decrease of $0.4 million from $9.0 million for the same
period a year ago despite the Carnegie acquisition. The decrease in operating
expense for the 2000 quarter was a result of a change in contract arrangements
and continued focus on productivity improvements.
Excluding the impact of the rate case settlement and process
improvement charges in both periods, earnings before interest and taxes of $3.6
million for the current period increased $0.1 million from 1999. This increase
is due primarily to continued focus on productivity improvements.
13
<PAGE> 16
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
EQUITABLE UTILITIES (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000
VS. SIX MONTHS ENDED JUNE 30, 1999
Net operating revenues for the six months ended June 30, 2000, were
$33.1 million compared to $41.9 million for the same period in 1999. Net
operating revenues for 2000 and 1999 include $3.2 million and $12.9
respectively, for the recovery of stranded costs in rates and the previously
mentioned Equitrans' rate case settlement. Net operating revenues of $29.8
million for the current period, excluding the impact of the rate settlement,
increased $0.8 million compared to the same period a year ago. This increase in
net operating revenues was primarily due to the acquisition of Carnegie
Interstate Pipeline.
Total operating expenses were $20.2 million for the 2000 quarter
compared with operating expenses of $28.5 million for the 1999 quarter, a
decrease of $8.3 million. The operating expenses for 2000 include $2.6 million
of amortization expense related to the recovery of stranded costs in rates.
Operating expense for the 1999 include $8.7 million of amortization expense
related to the recovery of stranded costs in rates and $2.6 million for
improvement of utility segment operating processes and consolidation of
facilities. Excluding the non-recurring items in both periods, operating
expenses of $17.6 million increased $0.4 million from $17.2 million for the same
period last year, due primarily to the acquisition of Carnegie Interstate
pipeline and an increased provision for performance-related bonuses.
EQUITABLE MARKETING
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL RESULTS (THOUSANDS)
Net operating revenues $ 3,370 $ 2,838 $ 8,896 $ 6,839
Operating costs 1,907 1,452 3,676 3,165
Depreciation and amortization 50 50 96 99
------- ------- -------- --------
Earnings before interest and taxes $ 1,413 $ 1,336 $ 5,124 $ 3,575
======= ======= ======== ========
Marketed gas sales (MMBtu) 54,908 31,231 115,377 123,992
Net operating revenues/MMBtu $0.0614 $0.0909 $ 0.0771 $ 0.0552
</TABLE>
14
<PAGE> 17
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
EQUITABLE UTILITIES (CONTINUED)
THREE MONTHS ENDED JUNE 30, 2000
VS. THREE MONTHS ENDED JUNE 30, 1999
The $.5 million increase in net operating revenues is attributable to
greater sales volumes associated with asset management activities.
Total operating expenses for the current period increased $.5 million
from the same period in 1999. The increase is due principally to the increased
investment in the segment's commercialization strategy.
SIX MONTHS ENDED JUNE 30, 2000
VS. SIX MONTHS ENDED JUNE 30, 1999
Net operating revenues for the six months ended June 30, 2000,
increased $2.1 million from the same period last year. This increase is
attributable to higher unit margins. The sale of gas in storage allowed the
Company to benefit from the increasing natural gas prices. The decrease in
throughput is a result of the expiration of low margin contracts during the
first six months of 1999 related to the discontinued supply and trading group.
Total operating expenses for the six-month period increased $.5 million
from the same period in 1999 reflecting an increased focus on the segment's
commercialization strategy.
15
<PAGE> 18
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
EQUITABLE PRODUCTION
Production operations comprise the production and sale of natural gas,
natural gas liquids and crude oil through Equitable Production Company
(Equitable Production). In 1999, the exploration and production operations
conducted by Equitrans were transferred to Equitable Production-East from
Equitable Utilities. The financial results of both segments have been restated
to reflect the new structure for all periods presented. Effective with the
quarter ended June 30, 2000, Equitable Production will no longer be classified
as "East" and Gulf" with the exception of historical value driver information.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 89,215 $52,245 $ 167,378 $94,505
Cost of energy purchased 8,220 6,037 14,038 10,964
-------- ------- --------- -------
Net operating revenues 80,995 46,208 153,340 83,541
Operating expenses:
Operation and maintenance 3,778 3,133 6,936 6,237
Lease operating expense 11,883 6,710 21,351 12,785
Dry hole -- 1,247 3 1,277
Other exploration 1,929 2,548 2,937 3,019
Selling, general and administrative 6,712 6,108 13,201 11,384
Depreciation, depletion and amortization 17,634 14,903 38,392 28,799
-------- ------- --------- -------
Total operating expenses 41,936 34,649 82,820 63,501
Operating income 39,059 11,559 70,520 20,040
Other income (loss) (6,951) -- (6,951) --
-------- ------- --------- -------
Earnings before interest and taxes $ 32,108 $11,559 $ 63,569 $20,040
======== ======= ========= =======
Capital expenditures $ 13,841 $20,347 $ 725,012 $39,952
VALUE DRIVERS
Natural gas sales (MMcf) - East 21,383 10,129 37,833 20,430
Natural gas sales (MMcf) - Gulf -- 5,789 5,535 11,372
-------- ------- --------- -------
Crude oil production (000s BBls) - East 150 114 279 224
Crude oil production (000s BBls) - Gulf -- 194 75 251
-------- ------- --------- -------
Natural gas liquids production (000s Gals.) - East 9,403 15,203 18,086 31,621
Natural gas liquids production (000s Gals.) - Gulf -- 1,736 1,513 4,091
-------- ------- --------- -------
Produced natural gas and oil (MMcfe) - East 24,110 11,402 42,554 22,770
Produced natural gas and oil (MMcfe) - Gulf -- 6,955 5,984 12,881
Average selling prices:
Natural gas - East (per MMBtu) $ 2.92 $ 2.05 $ 2.73 $ 1.92
Natural gas - Gulf (per MMBtu) $ -- $ 2.10 $ 2.51 $ 1.88
-------- ------- --------- -------
Crude oil - East (per barrel) $ 25.70 $ 13.97 $ 22.16 $ 11.91
Crude oil - Gulf (per barrel) $ -- $ 14.42 $ 14.74 $ 13.63
-------- ------- --------- -------
Natural gas liquids - East (per gallon) $ 0.27 $ 0.27 $ 0.35 $ 0.24
Natural gas liquids - Gulf (per gallon) $ -- $ 0.25 $ 0.49 $ 0.19
LOE/Mcfe Sales - East $ 0.533 $ 0.474 $ 0.504 $ 0.439
LOE/Mcfe Sales - Gulf $ -- $ 0.229 $ 0.243 $ 0.250
-------- ------- --------- -------
G&A/Mcfe Sales - East $ 0.301 $ 0.380 $ 0.293 $ 0.361
G&A/Mcfe Sales - Gulf $ -- $ 0.288 $ 0.275 $ 0.273
-------- ------- --------- -------
Depletion/MCFE Produced - East $ 0.495 $ 0.425 $ 0.521 $ 0.436
Depletion/MCFE Produced - Gulf $ -- $ 1.122 $ 1.128 $ 1.117
</TABLE>
16
<PAGE> 19
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
EQUITABLE PRODUCTION (CONTINUED)
THREE MONTHS ENDED JUNE 30, 2000
VS. THREE MONTHS ENDED JUNE 30, 1999
Equitable Production had earnings before interest and taxes for the
June 2000 quarter of $32.1 million compared to $11.6 million for the 1999
quarter. The segment's positive results were primarily due to increased natural
gas and crude oil production related to the acquisition of Statoil completed
February 15, 2000, as described in Note B. The positive results also reflect
higher commodity prices during the quarter. These results were partially offset
by a per Mcfe increase in lease operating expense (LOE) and depletion. The
increased LOE is due to higher severance and ad valorem taxes, resulting from
higher commodity prices in the current year. The higher depletion rate is
primarily due to the Statoil acquisition.
Net operating revenues for the second quarter 2000 increased 75% to
$81.0 million compared to $46.2 million in 1999. Adjusted for the Gulf
operations which contributed $16.0 million in operating revenues in the 1999
quarter results, the increase in operating revenues is $50.8 million. The
increase was primarily due to increased sales volumes related to the Statoil
acquisition and higher effective commodity prices. The Statoil acquisition added
10.4 billion cubic feet equivalent (Bcfe) of natural gas sales in the current
quarter and accounted for an increase of $39.9 million in net operating
revenues. Equitable Production's average selling prices for natural gas and
crude oil increased 40% and 84%, respectively, over second quarter 1999's
average selling prices. The increase in average prices resulted in a $10.8
million increase in net operating revenues from prior year.
Operating expenses for the second quarter of 2000 totaled $41.9
million, an increase of $7.3 million from the same period in 1999. Adjusted for
the Gulf operations which contributed $14.0 million in operating expenses in the
1999 quarter results, the increase in operating expenses is $21.3 million. The
2000 operating expenses include approximately $17.7 million associated with the
Statoil acquisition. Excluding the Gulf Operations, current quarter per unit
depletion increased from $0.43 to $0.50 as a result of the acquisition.
Adjusting for the Gulf operations, SG&A, on a per unit basis, has decreased 21%
to $0.30 per thousand cubic feet equivalent (Mcfe) compared to $0.38 per Mcfe in
1999 as a result of initial synergies from the acquisition and ongoing process
improvements. This decrease was offset by an increase in LOE per Mcfe of 13% to
$0.53 compared to $0.47 per Mcfe in 1999, adjusted for the Gulf operations. The
increase in unit LOE reflects increased severance taxes due to higher sales
prices.
In the second quarter 2000, Equitable monetized 65 Bcfe of production
which netted $122.2 million. This volume represents seven years' production from
wells acquired from Statoil that contain just under 200 Bcfe of proved reserves.
The proceeds from this sale will be used to pay down acquisition-related
short-term debt. Equitable Production will receive upwards of $0.50/Mcf in fees
for operating the wells and gathering and marketing the gas on behalf of the
purchaser. In anticipation of this transaction, the Company had previously
entered into financial hedges covering the first two years of this production.
Removal of these hedges upon closing of this transaction resulted in a $7
million pre-tax charge.
17
<PAGE> 20
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 2000
VS. SIX MONTHS ENDED JUNE 30, 1999
Equitable Production's earnings before interest and taxes for the six
months ended June 30, 2000 were $63.6 million compared to $20.0 million for same
period in 1999. The segment's positive results were primarily due to increased
natural gas and crude oil production related to the acquisition of Statoil. The
positive results also reflect higher commodity prices during the period. These
results were partially offset by a per Mcfe increase in lease operating expense
(LOE) and depletion. Additionally, the second quarter 2000 excludes the results
associated with the Gulf operations as described in the quarter discussion.
Net operating revenues for the six months ended June 30, 2000 increased
84% to $153.3 million compared to $83.5 million in 1999. Adjusted for the Gulf
operations the increase in operating revenues is $79.9 million. The increase was
primarily due to increased sales volumes related to the Statoil acquisition and
higher effective commodity prices. The Statoil acquisition added 15.9 billion
cubic feet equivalent (Bcfe) of natural gas sales in the current quarter and
accounted for an increase of $59.3 million in net operating revenues. Equitable
Production's average selling prices for natural gas and crude oil increased 39%
and 86%, respectively, over the same period in 1999's average selling prices.
The increase in average prices resulted in a $20.1 million increase in net
operating revenues from prior year.
Operating expenses for the period ended June 30, 2000 totaled $82.8
million, an increase of $19.3 million from the same period in 1999. Adjusted for
the Gulf operations the increase in operating expenses is $32.9 million. The
2000 operating expenses include approximately $27.2 million associated with the
Statoil acquisition. Operating expense variances for the six month period are
consistent with those in the current quarter described above.
Equitable has combined its Gulf operations with Westport Oil and Gas
Company. As part of the transaction, Equitable received approximately $50
million in cash, which was used to reduce acquisition-related short-term debt
and approximately 49% interest in Westport Resources. Westport recently filed a
draft registration statement with the Securities and Exchange Commission that
did not report on earnings for the second calendar quarter of 2000; therefore
Equitable has not included Westport second quarter 2000 results.
18
<PAGE> 21
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
NORESCO
NORESCO provides energy and energy related products and services that
are designed to reduce its customers' operating costs and improve their
productivity. NORESCO's customers include commercial, governmental,
institutional and industrial end-users. The majority of NORESCO's revenue and
earnings comes from energy saving performance contracting services. NORESCO
provides the following integrated energy management services: project
development and engineering analysis; construction; management; financing;
equipment operation and maintenance; and energy savings metering, monitoring and
verification. NORESCO also manages the segment's facilities management division,
which develops and operates private power, cogeneration and central plant
facilities in the U.S. and selected international markets.
During the first quarter of 2000, NORESCO decided to exit the
international project development business. The risk profile of that market
sector is changing, requiring both skills and scale that are not consistent with
NORESCO's and the rest of the corporation's core strengths. This decision does
not impact the existing completed projects owned by NORESCO.
NORESCO is currently considering the sale of ERI Services, Inc., whose
primary business is providing performance contracting and other services to
numerous Federal government agencies. Because NORESCO provides competing
services to the same customers, the two companies must be operated separately,
limiting the overall benefit to Equitable. No actual determination has been made
as to whether a sale will occur.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
OPERATIONAL DATA (THOUSANDS)
Construction backlog, end of period $52,075 $85,324 $52,075 $85,324
Construction completed $16,647 $40,043 $36,637 $73,555
FINANCIAL RESULTS (THOUSANDS)
Total operating revenues $36,076 $40,986 $66,676 $78,963
Contract costs 26,749 32,470 50,553 61,972
------- ------- ------- -------
Net operating revenues 9,327 8,516 16,123 16,991
------- ------- ------- -------
Selling, general and administrative expenses 5,053 4,368 11,693 9,057
Amortization of goodwill 1,041 935 1,978 1,872
Depreciation and depletion 198 204 555 377
------- ------- ------- -------
Total expenses 6,292 5,507 14,226 11,306
Equity earnings of non-consolidated entities
990 577 2,424 1,250
------- ------- ------- -------
Earnings before interest and taxes $ 4,025 $ 3,586 $ 4,321 $ 6,935
======= ======= ======= =======
Capital expenditures $ 1,041 $ 684 $ 1,382 $ 936
VALUE DRIVERS
Gross profit margin 25.9% 20.8% 24.2% 21.5%
SG&A as a % of revenue 14.0% 10.7% 17.5% 11.5%
Development expenses as a % of revenue 3.5% 1.9% 4.4% 1.8%
</TABLE>
19
<PAGE> 22
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
NORESCO (CONTINUED)
THREE MONTHS ENDED JUNE 30, 2000
VS. THREE MONTHS ENDED JUNE 30, 1999
Construction backlog in the current year decreased to $52.1 million, a
$33.2 million decline from the same period in 1999. Included in this decrease is
$21.4 million related to energy infrastructure projects in the 1999 backlog for
which there is no construction backlog at the end of this period.
The NORESCO segment's earnings before interest and taxes increased $0.4
million to $4.0 million from the same period last year. This increase was caused
primarily by an increase in gross margins on performance contracting
construction projects and operational energy infrastructure power plants.
The increase in operating expenses of $0.8 million, or 15%, from $5.5
million incurred during the same period last year was primarily due to an
increase of $0.5 in project development costs.
Equity earnings of non-consolidated entities increased by $0.4 million
to $1.0 million due to the start of commercial operation for two international
energy infrastructure power plants.
SIX MONTHS ENDED JUNE 30, 2000
VS. SIX MONTHS ENDED JUNE 30, 1999
The NORESCO segment's earnings before interest and taxes decreased $2.6
million to $4.3 million from the same period last year. This decrease was caused
primarily by a decrease in construction activities, an increase in project
development expense, and the decision to exit the international energy
infrastructure business. These were in part offset by an increase in gross
margins on performance contracting construction projects and operational energy
infrastructure power plants.
The increase in operating expenses of $2.9 million, from $11.3 million
incurred during the same period last year was primarily due to an increase of
$1.7 million in project development costs and $1 million in costs to exit the
international energy infrastructure business during the first quarter of 2000.
Equity earnings of non-consolidated entities increased by $1.2 million to
$2.4 million due to the start of commercial operation for two international
energy infrastructure power plants.
20
<PAGE> 23
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY
WORKING CAPITAL
The results of operations of Equitable is primarily impacted by the
seasonal nature of Equitable Utilities' distribution operations and the
volatility of oil and gas commodity prices.
The distribution segment experienced a decrease in net accounts
receivable at June 30, 2000 of $22 million as a result of the seasonally warmer
weather. This was offset by a $25 million and $6.5 million increase in the
Marketing and NORESCO segments, respectively. Accounts payable for the Marketing
segment increased $50 million, offset by moderate decreases in both the
Production and NORESCO segments. The significant increase in the Marketing
segment is due to significant increases in the price of gas during 2000. The
increase in Marketing's accounts receivable is moderated $56 million by the
segment's improved collections over the prior year.
Short-term debt has increased in 2000 due to the acquisition of
Statoil. However, short-term debt has decreased during the second quarter as the
Company continues to replace the short-term debt with a combination of
financings and cash from asset sales.
HEDGING
The Company's overall objective in its hedging program is to protect
earnings from undue exposure to the risk of changing commodity prices. Since it
is primarily a natural gas company, this leads to different approaches for
hedging natural gas than for crude oil and natural gas liquids.
With respect to hedging the Company's exposure to changes in natural
gas commodity prices, management's objective is to provide price protection for
the majority of expected production for the year 2000 and a smaller portion for
2001. Its preference is to use derivative instruments that create a price floor,
in order to provide downside protection while allowing the Company to
participate in upward price movements. This is accomplished with the use of a
mix of costless collars, straight floors and some fixed price swaps. This mix
allows the Company to participate in a range of prices, while protecting
shareholders from significant price deterioration.
Crude oil, natural gas and natural gas liquids prices are currently at
relatively high levels compared to historical averages. As a result, the Company
has used swaps and other derivative instruments to lock in current prices for
the majority of expected production of crude oil and of natural gas liquids for
the year 2000.
CAPITAL EXPENDITURES
The Company expended approximately $65 million in the six months ended
June 30, 2000, compared to $46 million spent in the same period one year ago.
Expenditures in both years represented growth projects in the Equitable
Production and NORESCO segments, and replacements, improvements and additions to
plant assets in the Equitable Utilities segment. Production expended
approximately $53 million, Utilities approximately $11 million, and NORESCO
$1 million.
21
<PAGE> 24
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)
INVESTMENTS IN NON-CONSOLIDATED SUBSIDIARIES
The NORESCO segment has equity ownership interests in independent power
plant (IPP) projects located domestically and in selected foreign countries.
Long-term power purchase agreements (PPA's) are signed with the customer whereby
they agree to purchase the energy generated by the plant. The length of these
contracts ranges from 5 to 30 years. These projects generally are financed on a
project basis with non-recourse financings established at the foreign subsidiary
level.
As described in Note B, Equitable combined its Gulf of Mexico
operations with Westport Oil and Gas Company during the second quarter of 2000.
As part of the transaction, Equitable received approximately $50 million in
cash, which was used to reduce acquisition-related short-term debt and
approximately 49% interest in Westport Resources. Westport recently filed a
draft registration statement with the Securities and Exchange Commission that
did not report on earnings for the second calendar quarter of 2000; therefore,
Equitable has not included Westport second quarter 2000 results.
ACQUISITIONS AND DISPOSITIONS
In February 2000, the Company acquired the Appalachian production
assets of Statoil Energy Inc. for $630 million plus working capital. The Company
initially funded this acquisition through short-term debt, to be replaced by a
combination of financings and cash from asset sales.
On April 10, 2000, the Company combined its Gulf operations with
Westport Oil and Gas Company, a private oil and gas exploration company based in
Denver. The Company received $50 million in cash and approximately 49% minority
interest in the combined company. This minority interest will be included as an
investment in non-consolidated entities.
As described in Note B, on June 30, 2000, Equitable sold a substantial
portion of its interest in properties qualifying for nonconventional fuel tax
credit to a partnership. The Company retained a $26.3 million interest in the
partnership which will be included as an investment in non-consolidated
entities.
SHORT-TERM BORROWINGS
Cash required for operations is affected primarily by the seasonal
nature of the Company's natural gas distribution operations and the volatility
of oil and gas commodity prices. Short-term loans are used to support working
capital requirements during the summer months and are repaid as gas is sold
during the heating season.
Bank loans and commercial paper, supported by available credit, are
used to meet short-term financing requirements. Interest rates on these
short-term loans averaged 6.10% during the six months ended June 30, 2000. The
Company maintains a revolving credit agreement with a group of banks providing
$500 million of available credit, which expires in 2001. In addition, in January
2000, the Company obtained an additional $500 million, 364-day revolving credit
agreement to back the issuance of commercial paper. Effective February 1, 2000,
the Company has the authority and credit backing to support a $1 billion
commercial paper program. This program is being used to temporarily finance the
acquisition of the Appalachian oil and gas properties of Statoil Energy
described above, as well as on-going working capital and other short-term
financing requirements.
22
<PAGE> 25
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
FINANCING
The Company has adequate borrowing capacity to meet its financing
requirements.
INFORMATION REGARDING FORWARD LOOKING STATEMENTS
Disclosures in this report may include forward-looking statements
related to projected Company plans and expected results of operations. The
Company notes that a variety of factors could cause the Company's actual results
to differ materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements. The risks and
uncertainties that may affect the operations, performance, development and
results of the Company business include, but are not limited to, the following:
weather conditions, the pace of deregulation of retail natural gas and
electricity markets, the timing and extent of changes in commodity prices for
natural gas and crude oil, changes in interest rates, availability of financing,
the timing and extent of the Company's success in acquiring natural gas and
crude oil properties and in discovering, developing and producing reserves,
delays in obtaining necessary governmental approvals, the impact of competitive
factors on profit margins in various markets in which the Company competes, and
the successful integration of acquired companies.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have not been any material changes regarding quantitative and
qualitative disclosures about market risk regarding the volatility of future
prices for natural gas, crude oil and propane from the information reported in
the Company's 1999 Annual Report on Form 10-K.
The Company's amount of variable rate short-term debt has increased
dramatically in 2000 due to the acquisition of Statoil, as described in Note B,
moderately increasing the Company's exposure to future earnings due to changes
in interest rates. However, as previously disclosed, the Company plans to reduce
short-term debt by alternative financing and sale of assets.
23
<PAGE> 26
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held on May 17, 2000.
(c) Brief description of matters voted upon:
(1) Elected the named directors to serve three-year terms
as follows:
<TABLE>
<CAPTION>
Director Shares Voted For Shares Withheld
------------------------------------------------------------------------------
<S> <C> <C>
E. Lawrence Keyes, Jr. 29,469,730 310,440
Thomas A. McConomy 29,481,771 298,399
Malcolm M. Prine 29,475,400 304,770
</TABLE>
(2) Ratified appointment of Ernst & Young, LLP, as
independent auditors for the year ended December 31,
2000. Vote was 28,239,003 shares for; 1,493,546 shares
against and 47,621 shares abstained.
Item 5. Other Information
On May 17, 2000, the Board of Directors, at a regular meeting of
the Board, approved resolutions amending the Company's By-Laws
(Sections 1.08 and 3.07) in order 1) to clarify the procedures to
be followed and provide for advance notice in connection with
shareholder proposals to be presented at the annual and all special
meetings of shareholders and, 2) to make the advance notice period
for shareholder nominations of directors consistent with the notice
period required for shareholder proposals. The amended by-laws are
included in this filing as Exhibit 3.02.
Shareholder Proposals for 2001: Shareholder proposals submitted for
inclusion in next year's proxy materials must be received by the
Company no later than November 30, 2000. As a result of the recent
bylaw changes disclosed in this 10-Q, shareholder proposals
submitted to be considered at the 2001 Annual Meeting without
inclusion in next year's proxy materials must be received by the
Company not less than 90 days, but not more than 120 days, prior to
the anniversary date of the previous year's Annual Meeting. As last
year's Annual Meeting was held on May 17, 2000, proposals must be
received after January 16, 2001 and before February 17, 2001. If
the Company is not notified of a shareholder proposal by the
appropriate date, then proxies held by management of the Company
may provide the discretion to vote against such shareholder
proposal, even though such proposal is not discussed in the Proxy
Statement. Proposals should be addressed to the Corporate
Secretary, Equitable Resources, Inc., One Oxford Centre, Suite
3300, Pittsburgh, Pennsylvania 15219. Next year's annual meeting is
scheduled to be held on May 17, 2001.
On July 19, 2000, the Board of Directors appointed George L. Miles,
Jr. to serve as a director and as a member of the Audit Committee.
Also on July 19, 2000, the Board of Directors elected James M. Funk
Senior Vice President of Equitable Resources.
In April 2000, Equitable Production gave notice to an affiliated
company, Kentucky West Virginia Gas Company (KWV), of its intention
to terminate its well-tending agreement with KWV effective October
2000. KWV is currently engaged in negotiations with the union
representing its field service employees under a contract that
expires in mid-October. The Company is unable to predict the future
impact of these events on its labor relations, earnings and
financial position.
24
<PAGE> 27
PART II. OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.02 Equitable Resources, Inc. By-Laws (Amended through May 17,
2000).
10.1 Employment Agreement dated June 12, 2000 by and between
Equitable Resources, Inc. and James M. Funk.
10.2 Change of Control Agreement dated June 12, 2000 by and
between Equitable Resources, Inc. and James M. Funk.
10.3 Equitable Resources, Inc. Deferred Compensation Plan
(Amended and Restated Effective May 16, 2000)
10.4 Equitable Resources, Inc. Directors' Deferred Compensation
Plan (Amended And Restated Effective May 16, 2000)
(b) Reports on Form 8-K during the quarter ended June 30, 2000:
Form 8-K current report dated April 10, 2000, announcing
completion of the combination of the Registrant's, Equitable
Resources, Inc., Gulf of Mexico assets with Westport Oil and
Gas Company.
Form 8-K current report dated May 30, 2000, announcing the
relocation of the Production segment's headquarters from
Alexandria, Virginia to Pittsburgh, Pennsylvania, and
revision to the capital spending plan for the year 2000.
Form 8-K current report dated May 30, 2000, announcing
appointment of Murry S. Gerber, President and Chief Executive
Officer as Chairman of the Board of Directors.
Form 8-K current report dated May 12, 2000, announcing the
appointment of James M. Funk as President of Equitable
Production.
25
<PAGE> 28
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/ David L. Porges
---------------------------
David L. Porges
Executive Vice President
and Chief Financial Officer
Date: August 11, 2000
26
<PAGE> 29
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Document Description
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.02 Equitable Resources, Inc. By-Laws (Amended Filed Herewith
through May 17, 2000)
10.1 Employment Agreement dated June 12, 2000 Filed Herewith
by and between Equitable Resources, Inc. and
James M. Funk.
10.2 Change of Control Agreement dated June 12, 2000 Filed Herewith
by and between Equitable Resources, Inc. and
James M. Funk.
10.3 Equitable Resources, Inc. Deferred Compensation Plan Filed Herewith
(Amended and Restated Effective May 16, 2000)
10.4 Equitable Resources, Inc. Directors' Deferred Filed Herewith
Compensation Plan (Amended And Restated Effective
May 16, 2000)
27 Financial Data Schedule for the Period Ended Filed Herewith
June 30, 2000
</TABLE>
27
