10-QPeriod: Q3 FY2001

EQT Corp Quarterly Report for Q3 Ended Sep 30, 2001

Filed November 9, 2001For Securities:EQT

Summary

Equitable Resources, Inc. (EQT) reported solid financial results for the nine months ended September 30, 2001. Net income significantly increased to $127.5 million, up from $74.5 million in the same period of 2000, driven by higher average sales prices realized on produced volumes and a reduction in interest expenses. Diluted earnings per share also saw a substantial increase, rising to $1.93 from $1.12 year-over-year. The company benefited from strong performance in its Equitable Production segment, which saw increased EBIT due to higher market prices for natural gas and improved operating efficiencies, partly offsetting the impact of asset sales and previous work stoppages. Financially, EQT demonstrated improved liquidity with cash flows from operating activities increasing to $115.7 million for the nine months, up from $66.4 million in the prior year. This was supported by higher commodity gas prices. The company continued its share repurchase program, contributing to the increased EPS. While the Equitable Utilities segment experienced some operational challenges, including charges for process improvements and workforce reductions, its overall performance remained stable, and the company is making progress on performance-based rate frameworks. The NORESCO segment saw increased revenue and backlog, though EBIT decreased due to higher expenses and a shift in gross margin recognition timing.

Key Highlights

  • 1Net income for the nine months ended September 30, 2001, surged to $127.5 million, a significant increase from $74.5 million in the prior year period.
  • 2Diluted earnings per share improved to $1.93 for the nine months, up from $1.12 in the same period last year, partly due to stock buybacks.
  • 3Operating cash flow for the first nine months of 2001 increased substantially to $115.7 million, reflecting higher commodity gas prices.
  • 4The Equitable Production segment reported strong EBIT growth, benefiting from higher natural gas market prices and operational efficiencies.
  • 5Interest expenses were reduced significantly compared to the prior year, contributing to improved net income.
  • 6The company adopted SFAS 133 for accounting of derivative instruments, which led to a $37 million cumulative adjustment to other comprehensive income.
  • 7Equitable Utilities is working on performance-based rate frameworks and saw progress with Pennsylvania PUC approval for pipeline transportation cost management.

Frequently Asked Questions

The primary drivers for the substantial increase in net income were higher average sales prices realized on produced volumes, particularly in the Equitable Production segment, and a significant reduction in interest charges. The company's stock repurchase program also contributed to improved earnings per share.

Equitable Resources adopted SFAS 133, 'Accounting for Derivative Instruments and Hedging Activities,' effective January 1, 2001. This required all derivatives to be recognized at fair value on the balance sheet. The adoption resulted in a $37 million cumulative effect adjustment to Accumulated Other Comprehensive Income at September 30, 2001. The company expects to recognize $36.2 million of net gains on derivative instruments currently in other comprehensive income as earnings within the next twelve months.

The company has adequate borrowing capacity, maintaining a revolving credit agreement for $650 million. Cash flows from operating activities improved significantly, providing more liquidity. Financing activities showed a decrease in cash used compared to the prior year, partly due to the large Statoil acquisition in 2000. The company is working to replace a portion of its credit agreement expiring in 2001 and has reclassified certain project financing to current liabilities due to defaults, with plans to refinance or restructure.

The Equitable Production segment showed strong EBIT growth due to higher gas prices and operational efficiencies. Equitable Utilities experienced mixed results, with stable overall EBIT but some charges for process improvements. The NORESCO segment saw revenue growth and a record backlog, but its EBIT decreased due to higher expenses and a shift in gross margin recognition. Westport Resources, a significant non-consolidated investment, underwent a merger with Belco Oil & Gas.