10-QPeriod: Q3 FY2003

EQT Corp Quarterly Report for Q3 Ended Sep 30, 2003

Filed November 6, 2003For Securities:EQT

Summary

For the nine months ended September 30, 2003, EQT Corp. (EQT) reported consolidated income from continuing operations before cumulative effect of accounting change of $124.1 million, or $1.96 per diluted share, an increase from $108.2 million, or $1.68 per diluted share, in the same period of 2002. This growth was driven by higher realized selling prices, increased equity earnings from investments (notably Westport), and improved sales volumes. The company also saw benefits from the absence of a significant impairment charge recorded in the prior year for its Jamaica power plant. Total operating revenues for the nine months increased to $746.3 million from $735.1 million. While the Equitable Utilities segment experienced a decline in revenues, primarily due to lower marketing revenues, this was offset by strong performance in the Equitable Supply segment, which benefited from higher commodity prices and increased sales volumes. The NORESCO segment saw a decrease in revenue due to reduced construction activity. The company continues to manage its market risk through derivative instruments, with a focus on hedging natural gas price exposure. Significant accounting changes were adopted, including the consolidation of Hunterdon Cogeneration Partnership LP and Plymouth Cogeneration Limited Partnership under FIN 46, and the reclassification of the Westport investment to an available-for-sale security.

Key Highlights

  • 1Net income for the nine months ended September 30, 2003, increased to $120.5 million ($1.90 per diluted share) from $111.7 million ($1.73 per diluted share) in the prior year.
  • 2Total operating revenues for the nine months increased to $746.3 million from $735.1 million.
  • 3The Equitable Supply segment reported strong operating income growth of 19% to $144.8 million for the nine months, driven by higher commodity prices and increased sales volumes.
  • 4The company adopted new accounting standards, including FIN 46 for variable interest entities and SFAS No. 143 for asset retirement obligations, resulting in a cumulative effect of accounting change impacting net income.
  • 5The investment in Westport Resources Corporation was reclassified from the equity method to an available-for-sale security, resulting in an unrealized gain of $172.0 million recorded in accumulated other comprehensive income.
  • 6Capital expenditures for the nine months were $190.5 million, including $44.2 million for the acquisition of the remaining interest in Appalachian Basin Partners, LP.
  • 7The company issued $200 million of Notes in February 2003 and used a portion of the proceeds to redeem $125 million of Trust Preferred Capital Securities.

Frequently Asked Questions

The increase in net income was primarily driven by higher realized selling prices for natural gas, increased equity earnings from investments (particularly Westport), and higher sales volumes from production. The absence of a significant impairment charge recorded in the prior year for the Jamaica power plant also contributed positively.

The company changed its accounting treatment for its investment in Westport Resources Corporation from the equity method to an available-for-sale security, effective March 31, 2003. This change was due to a decrease in ownership percentage and eliminated the inclusion of Westport's results in EQT's earnings after that date. The investment was reclassified to fair market value, resulting in a significant unrealized gain recognized in accumulated other comprehensive income.

The adoption of FIN 46 required the consolidation of certain variable interest entities. EQT began consolidating Plymouth Cogeneration Limited Partnership and Hunterdon Cogeneration Partnership LP. This resulted in the removal of equity investments and an increase in minority interest on the balance sheet, along with the inclusion of their assets and liabilities.

EQT utilizes derivative instruments, primarily price swaps and futures, to hedge its exposure to natural gas price fluctuations. The company aims to provide price protection for a majority of its expected production for several years out and also engages in basis swaps. The effectiveness of these hedging strategies is monitored and managed by the Corporate Risk Committee.