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 MARCH 31, 1998 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, 1998 Common stock, no par value 37,095,245 shares
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES INDEX Page No. PART I. FINANCIAL STATEMENTS: Statements of Consolidated Income for the Three Months Ended March 31, 1998 and 1997 1 Statements of Condensed Consolidated Cash Flows for the Three Months Ended March 31, 1998 and 1997 2 Consolidated Balance Sheets, March 31, 1998, and December 31, 1997 3 - 4 Notes to Consolidated Financial Statements 5 - 6 Information by Business Segment 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 - 15 PART II. OTHER INFORMATION 16 SIGNATURE 17
<TABLE> <CAPTION> EQUITABLE RESOURCES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) (Thousands except per share amounts) Three Months Ended March 31, 1998 1997 ------------------------------ RESTATED <S> <C> <C> Operating revenues $ 299,367 $ 312,481 Cost of sales 167,539 175,909 ----------- ----------- Net operating revenues 131,828 136,572 ----------- ----------- OPERATING EXPENSES: Operation 46,424 49,568 Maintenance 5,244 6,672 Depreciation, depletion and amortization 19,652 16,977 Taxes other than income 11,666 14,018 ----------- ----------- Total operating expenses 82,986 87,235 ----------- ----------- Operating income 48,842 49,337 Other income (76) 157 Interest charges 10,590 9,723 ----------- ----------- Income before income taxes 38,176 39,771 Income taxes 13,524 14,533 ----------- ----------- INCOME FROM CONTINUING OPERATIONS 24,652 25,238 Income (loss) from discontinued operations after taxes (4,604) 2,552 ----------- ----------- NET INCOME $ 20,048 $ 27,790 =========== =========== Average common shares outstanding 36,934 35,462 =========== =========== EARNINGS (LOSS) PER SHARE OF COMMON STOCK - BASIC/DILUTED Continuing operations $ 0.66 $ 0.71 Discontinued operations (0.12) 0.07 ----------- ----------- Net income $ 0.54 $ 0.78 =========== =========== DIVIDENDS PER SHARE OF COMMON STOCK $ 0.59 $ 0.59 =========== =========== The accompanying notes are an integral part of these condensed consolidated financial statements. </TABLE>
<TABLE> <CAPTION> EQUITABLE RESOURCES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) (Thousands) Three Months Ended March 31, 1998 1997 ------------------------------- RESTATED <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES $ 47,656 $ 58,095 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (25,656) (18,682) Proceeds from sale of property - 216 Net noncurrent assets held for sale (4,011) (1,150) ------------ ------------ Net cash used in investing activities (29,667) (19,616) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Retirement of long-term debt (5,000) - Increase (decrease) in short-term loans (28,790) 15,432 Dividends paid (21,878) (20,600) Proceeds from issuance of common stock 1,405 40 ------------ ------------ Net cash used in financing activities (54,263) (5,128) ------------ ------------ Net increase (decrease) in cash and cash equivalents (36,274) 33,351 Cash and cash equivalents at beginning of period 69,442 14,737 ------------ ------------ Cash and cash equivalents at end of period $ 33,168 $ 48,088 ============ ============ CASH PAID (RECEIVED) DURING THE PERIOD FOR: Interest (net of amount capitalized) $ 16,850 $ 12,679 ============ ============ Income taxes $ 1,509 $ (5,227) ============ ============ The accompanying notes are an integral part of these condensed consolidated financial statements. </TABLE>
<TABLE> <CAPTION> EQUITABLE RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, DECEMBER 31, ASSETS March 31, December 31, 1998 1997 ---------------------------------- (Thousands) ---------------------------------- RESTATED <S> <C> <C> CURRENT ASSETS: Cash and cash equivalents $ 33,168 $ 69,442 Accounts receivable 323,964 360,713 Unbilled revenues 21,133 25,935 Inventory 21,181 37,156 Deferred purchased gas cost 34,829 44,053 Derivative commodity instruments, at fair value 81,782 82,912 Prepaid expenses and other 69,467 64,523 ------------ -------------- Total current assets 585,524 684,734 ------------ -------------- PROPERTY, PLANT AND EQUIPMENT 1,878,647 1,862,412 Less accumulated depreciation and depletion 692,219 675,410 ------------ -------------- Net property, plant and equipment 1,186,428 1,187,002 ------------ -------------- NET ASSETS OF DISCONTINUED OPERATIONS 240,544 238,182 ------------ -------------- OTHER ASSETS 225,289 218,133 ------------ -------------- Total $2,237,785 $2,328,051 ============ ============== The accompanying notes are an integral part of these condensed consolidated financial statements. </TABLE>
<TABLE> <CAPTION> EQUITABLE RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, DECEMBER 31, LIABILITIES AND STOCKHOLDERS EQUITY March 31, December 31, 1997 1997 ---------------------------------- (Thousands) ---------------------------------- RESTATED <S> <C> <C> CURRENT LIABILITIES: Short-term loans $ 252,654 $ 286,444 Accounts payable 232,969 288,192 Derivative commodity instruments, at fair value 79,065 79,012 Other current liabilities 120,039 92,053 ------------ -------------- Total current liabilities 684,727 745,701 ------------ -------------- LONG-TERM DEBT 417,809 417,564 Deferred and other credits 308,333 341,266 Commitments and contingencies - - CAPITALIZATION: Common stockholders' equity: Common stock, no par value, authorized 80,000 shares; shares issued March 31,1998, 37,095; December 31, 1997, 36,929 275,105 269,878 Retained earnings 553,415 555,246 Treasury stock, shares at cost March 31, 1998, 56; December 31, 1997, 56 (1,551) (1,551) Accumulated other comprehensive income (53) (53) ------------ -------------- Total common stockholders' equity 826,916 823,520 ------------ -------------- Total $2,237,785 $2,328,051 ============ ============== The accompanying notes are an integral part of these condensed consolidated financial statements. </TABLE>
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. The accompanying financial statements should be read in conjunction with the Company's 1997 Annual Report and Form 10-K. B. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position as of March 31, 1998 and 1997, and the results of operations and cash flows for the three months then ended. All adjustments are of a normal, recurring nature unless otherwise indicated. C. The results of operations for the three month periods ended March 31, 1998 and 1997, are not indicative of results for a full year because of the seasonal nature of the Company's natural gas distribution operations. D. In April 1998 management adopted a formal plan to sell the Company's natural gas midstream operations. The operations include an integrated gas gathering, processing and storage system in Louisiana and a natural gas and electricity marketing business based in Houston. The condensed consolidated financial statements have been restated to classify these as discontinued operations, in accordance with generally accepted accounting principles. Management believes that the operations may be sold as early as the third quarter of 1998. Selected financial information for the midstream operations for the three months ended March 31 is shown below: (thousands) 1998 1997 ---- ---- Revenues 389,347 273,863 Operating income (loss) (5,444) 5,143 Proceeds from the sale of the midstream operations are expected to be adequate to exceed future estimated losses from operations and costs of disposal; therefore, no additional loss on disposal has been recognized in conjunction with the discontinued operations. Interest expense allocated to the income (losses) from discontinued operations was $1.8 million in the first quarter of 1998 and $1.6 million in the first quarter of 1997.
Results from discontinued operations were reported net of income tax expense (benefit) of $(2.3) million and $1.5 million in the three months ended March 31, 1998 and 1997, respectively. The net assets of discontinued operations are summarized as follows: March 31, 1998 December 31, 1997 ------------------------------------ (millions) Property, plant and equipment $ 322.9 $ 319.5 Less: Deferred tax liabilities 82.4 81.3 ------------ ------------ $ 240.5 $ 238.2 ============ ============ E. In April 1998 $125 million of 7.35% Trust Preferred Capital Securities were issued. The capital securities were issued through a subsidiary, Equitable Resources Capital Trust I, established for the purpose of issuing the capital securities and investing the proceeds in 7.35% Junior Subordinated Debentures issued by the Company. The capital securities have a mandatory redemption date of April 15, 2038; however, at the Company's option, the securities may be redeemed on or after April 23, 2003. Proceeds were used to reduce short-term debt outstanding. F. Comprehensive Income In June 1997 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 130 Reporting Comprehensive Income. Statement 130 established new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net income or shareholders' equity. Statement 130 requires foreign currency translation adjustments, which prior to adoption were reported separately in shareholders' equity, to be reported as other comprehensive income. Prior year financial statements have been reclassified to conform to the requirements of Statement 130. During the first quarter of 1998 and 1997, total comprehensive income (which includes net income) amounted to $20,048 and $28,114, respectively. G. Software Costs Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1) requires the capitalization of certain costs incurred in connection with developing or obtaining software for internal use. Qualifying software costs are capitalized and amortized over the estimated useful life of the software. The adoption of SOP 98-1 did not have a material impact on the Company's financial position or results of operations. H. Segment Disclosure Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS No. 131), establishes new standards for reporting information about operating segments in interim and annual financial statements. This statement is effective for 1998 year-end financial statements. Management does not anticipate that the adoption of this statement will have a significant effect on the Company's reported segments. I. At March 31, 1998, 8,977,000 shares of Common Stock were reserved as follows: 460,000 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 Nonemployee Directors' Stock Incentive Plan, 38,000 shares for issuance under the Company's Dividend Reinvestment and Stock Purchase Plan, and 6,677,000 shares for possible use in connection with future acquisitions.
<TABLE> <CAPTION> EQUITABLE RESOURCES, INC. AND SUBSIDIARIES INFORMATION BY BUSINESS SEGMENT Three Months Ended March 31, ------------------------------------------ 1998 1997 ------------------------------------------ (Thousands) ------------------------------------------ RESTATED <S> <C> <C> OPERATING REVENUES (CONTINUING OPERATIONS): Supply and logistics $ 44,542 $ 48,084 Utilities 158,670 194,096 Services 117,801 108,602 Sales between segments (21,646) (38,301) -------------- -------------- Total $299,367 $312,481 ============== ============== OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS: Supply and logistics $ 13,445 $ 11,030 Utilities 37,173 39,273 Services (1,776) (966) -------------- -------------- Total $ 48,842 $ 49,337 ============== ============== CAPITAL EXPENDITURES (CONTINUING OPERATIONS): Supply and logistics $ 17,207 $ 9,970 Utilities 8,013 8,383 Services 436 329 -------------- -------------- Total $ 25,656 $ 18,682 ============== ============== </TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW THREE MONTHS ENDED MARCH 31, 1998 VS. THREE MONTHS ENDED MARCH 31, 1997 Equitable's consolidated net income for the quarter ended March 31, 1998 was $20.0 million, or $0.54 per share, compared with net income of $27.8 million, or $0.78 per share, for the quarter ended March 31, 1997. In April 1998 the Company adopted a formal plan to sell it's natural gas midstream operations. The operations include an integrated gas gathering, processing and storage system in Louisiana and a natural gas and electricity marketing business based in Houston. The condensed consolidated financial statements have been restated to classify these as discontinued operations, in accordance with generally accepted accounting principles. Management believes that the operations may be sold as early as the third quarter of 1998. Equitable's income from continuing operations for the three months ended March 31 1998, was $24.7 million, or $0.66 per share, compared to $25.2 million, or $0.71 per share for the three months ended March 31, 1997. Overall, the current period results were adversely impacted by weather in the Company's service territory that was 15 percent warmer than 1997 and 19 percent warmer than normal. The latest quarter's results were also affected by lower revenues from crude oil sales and lower margins on marketed natural gas. The negative impact of the weather was mitigated by a new retail rate design and base rate increase implemented by the Company's distribution division in the fourth quarter of 1997. Results for the current quarter also benefited from higher revenues from produced natural gas, due to an improved net hedge position and slightly higher sales volumes.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESULTS OF OPERATIONS SUPPLY AND LOGISTICS Supply and Logistics' continuing operations are comprised of the exploration and production of natural gas and crude oil and the processing and sale of natural gas liquids through operations focused in the offshore Louisiana Gulf Coast and Appalachian regions. <TABLE> <CAPTION> Three Months Ended March 31, SUPPLY AND LOGISTICS 1998 1997 - ------------------------------------------------------------------------------------ (Thousands) ------------------------------ RESTATED <S> <C> <C> CONTINUING OPERATIONS Operating Revenues Produced Natural Gas $ 32,169 $ 28,785 Produced Natural Gas Liquids 5,829 5,547 Crude Oil 4,166 7,488 Other 2,378 6,264 ----------- ----------- Total Revenues 44,542 48,084 Cost of Energy Purchased 3,794 4,056 ----------- ----------- Net Operating Revenues 40,748 44,028 Operating Expenses: Production 7,065 8,866 Exploration 1,309 1,693 Gas Processing 1,252 1,320 Other 6,421 11,000 Depreciation, Depletion and Amortization 11,256 10,119 ----------- ----------- Total Operating Expenses 27,303 32,998 ----------- ----------- Operating Income from Continuing Operations $ 13,445 $ 11,030 =========== =========== Sales Quantities: Produced Natural Gas (MMcf) 12,994 12,728 Crude Oil (MBls) 264 411 Natural Gas Liquids (thousands of gallons) 18,211 12,152 DISCONTINUED OPERATIONS Operating Revenues 389,347 273,863 Operating Income (loss) (5,444) 5,143 </TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THREE MONTHS ENDED MARCH 31, 1998 VS. THREE MONTHS ENDED MARCH 31, 1997 Net operating revenues for the three months ended March 31, 1998, decreased $3.3 million, due to the sale of the Company's Union Drilling division in the fourth quarter of 1997 ($3.3 million), and a decline in crude oil prices ($1.3 million) and volumes ($2.0 million). These factors were partially offset by increased revenues from a 0.3 billion cubic feet (Bcf) increase in natural gas production ($0.5 million) and a 10% increase in the net effective sales price ($2.8 million) due to improved overall hedged position. In addition, the revenues lost due to the sale of the Union Drilling division were more than offset by related operating expense declines of $3.7 million. The natural gas production increases for 1998 compared to 1997 result from a 0.4 Bcf increase in the Company's Appalachian region (4%), and a 1.7 Bcf increase in offshore Gulf production (108%), which together more than offset the 1.8 Bcf decrease due to the third quarter 1997 sale of the Company's western properties. The decline in crude oil production reflects the 1997 sale of the Company's western properties, which held the majority of the Company's oil reserves. The increase in natural gas liquids production is due to a full three months operations in the current year compared to 1997 when the Company's processing plant was idle for a month of scheduled maintenance. In addition to the $3.7 million operating expense savings in the first quarter of 1998 due to the sale of Union Drilling, the current quarter benefited from more than $4 million savings compared to the first quarter of 1997 due to the sale of the western properties. This decrease includes a $2 million reduction in production expenses, and $2 million reduction in G & A expenses. These savings are partially offset by a $1 million increase in production expenses in the Gulf due to increased activities and a $1.2 million increase in depreciation, depletion, and amortization expenses due to higher depletion rates associated with Gulf production compared to the rates for western production in 1997.
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. <TABLE> <CAPTION> Three Months Ended March 31, UTILITIES 1998 1997 - -------------------------------------------------------------------------------------------- (Thousands) <S> <C> <C> OPERATING REVENUES Residential Gas Sales $104,801 $131,609 Commercial Gas Sales 10,650 16,776 Industrial and Utility Gas Sales 11,612 16,933 Marketed Gas Sales 4,556 6,218 Transportation Service 22,617 18,485 Storage Service 2,445 1,908 Other 1,989 2,167 ----------- ----------- Total Revenues 158,670 194,096 COST OF ENERGY PURCHASED 75,228 105,786 ----------- ----------- Net Operating Revenues 83,442 88,310 OPERATING EXPENSES: Operations and Maintenance 39,255 42,390 Depreciation, Depletion and Amortization 7,014 6,647 ----------- ----------- Total Operating Expenses 46,269 49,037 ----------- ----------- OPERATING INCOME $ 37,173 $ 39,273 =========== =========== SALES QUANTITIES (MMCF): Residential Gas Sales 10,670 12,896 Commercial Gas Sales 1,112 1,673 Industrial and Utility Gas Sales 4,618 5,431 Marketed Gas Sales 2,204 1,965 Transportation Deliveries 18,660 20,489 HEATING DEGREE DAYS 2,310 2,723 </TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) THREE MONTHS ENDED MARCH 31, 1998 VS. THREE MONTHS ENDED MARCH 31, 1997 Net operating revenues for the quarter ended March 31, 1998, decreased 5.5% to $83.4 million, primarily as a result of weather 15% warmer than last year in the Company's western Pennsylvania, area distribution operations. The effect of the weather on net operating revenues ($9 million) was substantially mitigated by the effect of the base rate increases for Pennsylvania residential and commercial customers and new rate design put in place by the Company in October 1997 ($5.1 million benefit). Approximately $1 million of the increase in transportation revenues compared to 1997 also results from a base rate increase in 1997, with the balance attributable to the movement of commercial and industrial customers from sales to transportation service with minimal impact on the Company's margins. The decrease in transportation volumes compared to 1997 occurred in the Company's interstate pipeline operations. Increases and decreases in pipeline volumes have little impact on operating results, as operating margins in these operations are derived from fixed capacity charges for pipeline availability. Marketed gas revenues declined 27% in the current period, as natural gas commodity price decreases of 35% offset volume increases of 12% compared to 1997. Taken together, these factors resulted in a $0.4 million decline in net operating revenues in 1998. Operating expenses in the current period reflect the benefit of a mild winter, as lower sales revenues are offset by savings in gross receipts tax ($1.7 million), uncollectible accounts and customer assistance programs ($1.0 million, combined).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SERVICES Services' operations are comprised of two business lines: (1) marketing of natural gas and (2) comprehensive energy services provided to industrial, commercial, institutional and governmental customers. Energy services includes the development, implementation, financing and management of energy and water efficiency programs through the use of performance-based contracting activities, the development and construction of cogeneration and independent power production facilities and central plant facilities management. Beginning in 1995, this business segment was built through internal development and a series of acquisitions of private energy performance and facilities management contractors. <TABLE> <CAPTION> Three Months Ended March 31, SERVICES 1998 1997 - ------------------------------------------------------------------------------------- (Thousands) <S> <C> <C> Operating Revenues Marketed Natural Gas $ 98,869 $105,719 Energy Service Contracting 18,932 2,883 ----------- ------------ Total Revenues 117,801 108,602 Cost of Energy Purchased 97,161 102,583 Energy Service Contract Costs 12,143 1,313 ----------- ------------ Net Operating Revenues 8,497 4,706 Operating Expenses: Other 8,892 5,462 Depreciation, Depletion and Amortization 1,381 210 ----------- ------------ Total Operating Expenses 10,273 5,672 ----------- ------------ Operating Income (Loss) $ (1,776) $ (966) =========== ============ Sales Quantities: Marketed Natural Gas (MMcf) 35,930 30,562 </TABLE> Net operating revenues increased 81% for the quarter ended March 31 1998, compared to the same period in 1997. This segment's energy management and performance contracting operations experienced substantial growth in revenues, due to the acquisition of NORESCO and internally generated growth, as operations have moved forward from contract awards to construction projects over the past 12 months. This segment's energy marketing business experienced a $1.4 million reduction in margin in the first quarter of 1998, as energy prices fell and competition increased for the more profitable commercial customers.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) SERVICES (CONTINUED) Operating expenses for this group increased $4.6 million, primarily in the energy management and performance contracting businesses, due to the acquisition of NORESCO ($2.0 million), and the start-up of the energy marketing operations of Equitable Energy, a new unregulated retail marketing group in the Company's southwestern Pennsylvania distribution area ($0.5 million). Depreciation, depletion, and amortization also increased due to $0.8 million amortization of goodwill associated with NORESCO. CAPITAL RESOURCES AND LIQUIDITY CASH FLOWS Cash required for operations is impacted primarily by the seasonal nature of ERI's natural gas distribution operations and the volatility of oil and gas commodity prices. Short-term loans used to support working capital requirements during the summer months are repaid as gas is sold during the heating season. The Company's performance contracting business requires substantial initial working capital investments which are recovered in revenues as the related energy savings are realized or when the contract is assigned. Cash flows from operating activities totaled $48 million in the three months ended March 31, 1998, compared to $58 million in the 1997 period. Cash flows from operations decreased in 1998 primarily as a result of decreased earnings. ERI's financial objectives require ongoing capital expenditures for growth projects in continuing operations of the Supply & Logistics and segments, as well as replacements, improvements and additions to plant assets in the Utilities segments. Such capital expenditures during the 1998 quarter were approximately $26 million, including $12 million for new exploration and production projects in the Gulf of Mexico. In addition, ongoing capital projects in the Company's discontinued operations accounted for an additional $4 million use of cash in 1998. A total of $168.7 million has been authorized for the 1998 capital expenditure program. The Company expects to finance its authorized 1998 capital expenditure program with cash generated from operations and with short-term loans. In the first quarter of 1998, financing activities used $54 million of cash, as a result of net repayments of $29 million in short-term loans and $5 million of long-term debt and dividends paid of $21 million. The dividends paid in both years represent $0.295 per share, at the current annual rate of $1.18 per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) CAPITAL RESOURCES AND LIQUIDITY (CONTINUED) CAPITAL RESOURCES ERI 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. Interest rates on these short-term loans averaged 5.6% during the first quarter of 1998. ERI maintains a revolving credit agreement with a group of banks providing $500 million of available credit. Adequate credit is expected to continue to be available in the future. In April 1998 $125 million of 7.35% Trust Preferred Capital Securities were issued. The capital securities were issued through a subsidiary, Equitable Resources Capital Trust I, established for the purpose of issuing the capital securities and investing the proceeds in 7.35% Junior Subordinated Debentures issued by the Company. The capital securities have a mandatory redemption date of April 15, 2038; however, at the Company's option, the securities may be redeemed on or after April 23, 2003. Proceeds were used to reduce short-term debt outstanding INFORMATION REGARDING FORWARD LOOKING STATEMENTS Disclosures in this report may include forward-looking statements related to such matters as anticipated financial performance, business prospects, capital projects, new products and operational matters. 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 gas and oil, changes in interest rates, the timing and extent of the Company's success in acquiring gas and oil properties and in discovering, developing and producing reserves, delays in obtaining necessary governmental approvals and the impact of competitive factors on profit margins in various markets in which the Company competes.
PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Equitable Resources, Inc. By-Laws as Amended through March 19, 1998. (b) Reports on Form 8-K during the quarter ended March 31, 1998: Form 8-K dated March 3, 1998, announcing earnings for the fourth quarter and year ended December 31, 1997. Form 8-K dated March 20, 1998, announcing Board of Directors' approval for management to develop a plan to sell its natural gas midstream operations located in Louisiana and Texas.
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/ Jeffrey C. Swoveland Jeffrey C. Swoveland Vice President - Finance and Treasurer and Interim Chief Financial Officer Date: May 15, 1998