-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VwQ2h7TqPFjsTbEu+WHUfjzOw5VT5F/1hBt8w9QyE6upadhHydCnvvMauobRTx1p 6kXoeNL3a4pP32BtP7uZng== 0000033213-96-000006.txt : 19960429 0000033213-96-000006.hdr.sgml : 19960429 ACCESSION NUMBER: 0000033213-96-000006 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960426 SROS: NYSE SROS: PHLX FILER: COMPANY DATA: COMPANY CONFORMED NAME: EQUITABLE RESOURCES INC /PA/ CENTRAL INDEX KEY: 0000033213 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS TRANSMISSION & DISTRIBUTION [4923] IRS NUMBER: 250464690 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-03551 FILM NUMBER: 96551096 BUSINESS ADDRESS: STREET 1: 420 BLVD OF THE ALLIES CITY: PITTSBURGH STATE: PA ZIP: 15219 BUSINESS PHONE: 4122613000 MAIL ADDRESS: STREET 1: 420 BOULEVARD OF THE ALLIES CITY: PITTSBURGH STATE: PA ZIP: 15219 FORMER COMPANY: FORMER CONFORMED NAME: EQUITABLE GAS CO DATE OF NAME CHANGE: 19841120 10-K/A 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A No. 1 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 [ ] 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 or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 420 BOULEVARD OF THE ALLIES 15219 PITTSBURGH, PENNSYLVANIA (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (412) 261-3000 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED Common Stock, no par value New York Stock Exchange Philadelphia Stock Exchange 7 1/2% Debentures due July 1, 1999 New York Stock Exchange 9 1/2% Convertible Subordinated Debentures due 2006 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 periods 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of voting stock held by nonaffiliates of the registrant as of February 29, 1996: $1,002,415,784 The number of shares outstanding of the issuer's classes of common stock as of February 29, 1996: 35,018,892 DOCUMENTS INCORPORATED BY REFERENCE Part III, a portion of Item 10 and Items 11, 12, and 13 are incorporated by reference to the Proxy Statement for the Annual Meeting of Stockholders on May 23, 1996, to be filed with the Commission within 120 days after the close of the Company's fiscal year ended December 31, 1995. Index to Exhibits - Page 35 This report is an amendment to the Equitable Resources, Inc. ("Company") annual report on Form 10-K for the year ended December 31, 1995. The report is being amended to refile the Report of Independent Auditors which has been modified by adding a sentence referring to Financial Accounting Standards Board Statement No. 121. The following items to the Company's annual report on Form 10-K for the year ended December 31, 1995 are being filed herewith: Item 8 Financial Statements and Supplementary Data (including the revised Report of Independent Auditors). Item 14 Exhibits and Reports on Form 10-K (including a revised Consent of Independent Auditors). -------------------------------------- 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) By: /s/ Dan C. Eaton ---------------------------------- Dan C. Eaton Chief Financial Officer ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA PAGE REFERENCE Report of Independent Auditors 3 Statements of Consolidated Income for each of the three years in the period ended December 31, 1995 4 Statements of Consolidated Cash Flows for each of the three years in the period ended December 31, 1995 5 Consolidated Balance Sheets December 31, 1995 and 1994 6 & 7 Statements of Common Stockholders' Equity for each of the three years in the period ended December 31, 1995 8 Long-term Debt, December 31, 1995 and 1994 9 Notes to Consolidated Financial Statements 10 - 31 REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Equitable Resources, Inc. We have audited the accompanying consolidated balance sheets and statements of long-term debt of Equitable Resources, Inc., and Subsidiaries at December 31, 1995 and 1994, and the related consolidated statements of income, common stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Equitable Resources, Inc., and Subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As described in Note B to the consolidated financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets," in 1995. s/ Ernst & Young LLP ----------------------------- Ernst & Young LLP Pittsburgh, Pennsylvania February 13, 1996
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 1995 1994 1993 ------------------------------------------------ (Thousands Except Per Share Amounts) Operating Revenues $ 1,425,990 $ 1,397,280 $ 1,094,794 Cost of Energy Purchased 911,357 926,905 644,157 --------------- -------------- -------------- Net operating revenues 514,633 470,375 450,637 --------------- -------------- -------------- Operating Expenses: Operation 198,502 192,799 174,420 Maintenance 26,635 31,737 29,024 Depreciation and depletion 104,625 93,347 76,894 Impairment of assets 121,081 - - Taxes other than income 41,838 42,244 39,802 --------------- -------------- -------------- Total operating expenses 492,681 360,127 320,140 --------------- -------------- -------------- Operating Income 21,952 110,248 130,497 Other Income 387 3,163 1,706 Interest Charges 50,098 43,905 38,728 --------------- -------------- -------------- Income (Loss) Before Income Taxes (27,759) 69,506 93,475 Income Taxes (Benefits) (29,307) 8,777 20,020 ---------------- -------------- -------------- Net Income $ 1,548 $ 60,729 $ 73,455 =============== ============== ============== Average Common Shares Outstanding 34,793 34,509 32,359 =============== ============== ============== Earnings Per Share of Common Stock $ .04 $ 1.76 $ 2.27 =============== ============== ============== See notes to consolidated financial statements Pages 10 to 31, inclusive
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 1995 1994 1993 ----------- ---------- ---------- (Thousands) Cash Flows from Operating Activities: Net income $ 1,548 $ 60,729 $ 73,455 ---------- ---------- ---------- Adjustments to reconcile net income to net cash provided by operating activities: Impairment of assets 121,081 - - Depreciation and depletion 104,625 93,347 76,894 Deferred income taxes (benefits) (74,348) (5,059) 756 Other - net (767) 1,566 1,319 Changes in other assets and liabilities: Accounts receivable and unbilled revenues (74,275) 723 (22,352) Gas stored underground 5,179 2,958 (5,076) Material and supplies 154 (615) (709) Deferred purchased gas cost 14,730 (7,742) (14,024) Regulatory assets 1,810 (1,363) (18,657) Accounts payable 58,791 (20,414) 18,747 Accrued taxes (1,481) 4,230 1,024 Refunds due customers (6,252) 8,049 2,537 Deferred revenue 129,874 - - Other - net (867) (1,274) (4,588) ---------- ---------- ---------- Total adjustments 278,254 74,406 35,871 ---------- ---------- ---------- Net cash provided by operating activities 279,802 135,135 109,326 ---------- ---------- ---------- Cash Flows from Investing Activities: Capital expenditures (118,112) (146,174) (339,411) Proceeds from sale of property 24,610 1,195 1,270 ---------- ---------- ---------- Net cash used in investing activities (93,502) (144,979) (338,141) ---------- ---------- ---------- Cash Flows from Financing Activities: Issuance of common stock 2,756 1,791 112,412 Purchase of treasury stock (240) (395) (28) Dividends paid (41,098) (39,686) (35,279) Proceeds from issuance of long-term debt 17,836 43,083 31,702 Repayments and retirements of long-term debt (24,500) (1,971) (16,445) Increase (decrease) in short-term loans (134,300) 15,400 139,900 -------- ---------- ---------- Net cash provided (used) by financing activities (179,546) 18,222 232,262 -------- ---------- ---------- Net Increase in Cash and Cash Equivalents 6,754 8,378 3,447 Cash and Cash Equivalents at Beginning of Year 23,415 15,037 11,590 ---------- ---------- ---------- Cash and Cash Equivalents at End of Year $ 30,169 $ 23,415 $ 15,037 ========== ========== ========== Cash Paid During the Year for: Interest (net of amount capitalized) $ 46,359 $ 40,105 $ 34,592 ========== ========== ========== Income taxes $ 41,272 $ 13,098 $ 27,547 ========== ========== ========== See notes to consolidated financial statements Pages 10 to 31, inclusive
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1995 AND 1994 ASSETS 1995 1994 ------------------------------- (Thousands) Current Assets: Cash and cash equivalents $ 30,169 $ 23,415 Accounts receivable (less accumulated provision for doubtful accounts: 1995, $10,539; 1994, $10,890) 240,846 172,178 Unbilled revenues 31,752 25,794 Gas stored underground - current inventory 9,922 15,101 Material and supplies 12,577 12,876 Deferred purchased gas cost 10,160 24,890 Prepaid expenses and other 42,323 33,569 ------------- ------------- Total current assets 377,749 307,823 ------------- ------------- Property, Plant and Equipment: Exploration and production (successful efforts method) 869,329 983,328 Energy marketing 295,061 309,579 Natural gas distribution 568,272 552,789 Natural gas transmission 388,986 387,921 ------------- ------------- Total property, plant and equipment 2,121,648 2,233,617 Less accumulated depreciation and depletion 664,065 637,951 ------------- ------------- Net property, plant and equipment 1,457,583 1,595,666 ------------- ------------- Other Assets: Regulatory assets 85,241 88,387 Other 41,235 27,246 -------------- ------------- Total other assets 126,476 115,633 ------------- ------------- Total $ 1,961,808 $ 2,019,122 ============= ============= See notes to consolidated financial statements Pages 10 to 31, inclusive
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS, DECEMBER 31, 1995 AND 1994 CAPITALIZATION AND LIABILITIES 1995 1994 ------------------------------- (Thousands) Current Liabilities: Long-term debt payable within one year $ - $ 24,500 Short-term loans 135,000 269,300 Accounts payable 182,185 123,394 Accrued taxes 18,107 19,588 Accrued interest 14,842 13,032 Refunds due customers 16,003 22,255 Customer credit balances 9,759 10,427 Other 13,383 16,399 ------------- ------------- Total current liabilities 389,279 498,895 ------------- ------------- Long-Term Debt 415,527 398,282 ------------- ------------- Deferred and Other Credits: Deferred income taxes 265,737 326,597 Deferred investment tax credits 20,991 22,082 Deferred revenue 129,874 - Other 25,321 23,264 ------------- ------------- Total deferred and other credits 441,923 371,943 ------------- ------------- Commitments and Contingencies - - ------------- ------------- Common Stockholders' Equity 715,079 750,002 ------------- ------------- Total $ 1,961,808 $ 2,019,122 ============= ============= See notes to consolidated financial statements Pages 10 to 31, inclusive
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES STATEMENTS OF COMMON STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 Common Stock (a) Foreign Common Shares No Retained Currency Stockholders' Outstanding Par Value Earnings Translation Equity ------------------------------------------------------------------- (Thousands) Balance, January 1, 1993 31,386 $ 95,300 $ 482,257 $ - $ 577,557 Net income for the year 1993 73,455 Dividends ($1.10 per share) (35,279) Foreign currency translation (581) Stock issued: New stock issuance 3,000 111,570 Conversion of 9 1/2% debentures 51 564 Restricted stock option plan 29 850 Cash paid in lieu of fractional shares (78) Treasury stock (1) (28) ------ --------- --------- -------- Balance, December 31, 1993 (b) 34,465 208,178 520,433 (581) 728,030 Net income for the year 1994 60,729 Dividends ($1.15 per share) (39,686) Foreign currency translation (923) Stock issued: Conversion of 9 1/2% debentures 31 345 Restricted stock option plan 8 313 Dividend reinvestment plan 47 1,504 Treasury stock (10) (310) ------ --------- --------- -------- Balance, December 31, 1994 (b) 34,541 210,030 541,476 (1,504) 750,002 Net income for the year 1995 1,548 Dividends ($1.18 per share) (41,098) Foreign currency translation 366 Adjustment for Independent Energy Corporation pooling of interests 233 26 110 Stock issued: Conversion of 9 1/2% debentures 146 1,611 Restricted stock option plan 43 1,232 Dividend reinvestment plan 52 1,524 Treasury stock (8) (242) ------ --------- --------- -------- Balance, December 31, 1995 (b)(c)(d) 35,007 $ 214,181 $ 502,036 $ (1,138) $715,079 ====== ========= ========= ======== ======== (a) Shares authorized: Common - 80,000,000 shares, Preferred - 3,000,000 shares. (b) Net of treasury stock: 1995 - 407,000 shares ($9,673,000); 1994 - 632,000 shares ($14,933,000); 1993 - 622,000 shares ($14,623,000). (c) A total of 2,618,000 shares of authorized but unissued common stock was reserved for the conversion of the 9 1/2% convertible subordinated debentures, for issuance under the key employee restricted stock option and stock appreciation rights incentive compensation plan, the long-term incentive plan, the non-employee directors' stock incentive plan, and for issuance under the Company's dividend reinvestment and stock purchase plan. (d) Retained earnings of $369,357,000 is available for dividends on, or purchase of, common stock pursuant to restrictions imposed by indentures securing long-term debt. See notes to consolidated financial statements Pages 10 to 31, inclusive
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES LONG-TERM DEBT DECEMBER 31, 1995 AND 1994 Annual Debt Maturities After Maturities One Year 1995 1994 1995 1994 (Thousands) 8 1/4% Debentures, due July 1, 1996 (a) $ - $ - $ 75,000 $ 75,000 7 1/2% Debentures, due July 1, 1999 ($75,000 principal amount, net of unamortized original issue discount) (b) - - 71,322 70,466 9 1/2% Convertible subordinated debentures, due January 15, 2006 - - 705 2,316 9.9% Debentures, due April 15, 2013 (c) - - 75,000 75,000 Medium-term notes: 7.2% to 9.0% Series A, due 1998 thru 2021 - - 100,000 100,000 5.1% to 7.6% Series B, due 2003 thru 2023 - 24,500 75,500 75,500 6.8% to 7.6% Series C, due 2007 thru 2018 - - 18,000 - ---------- ---------- ----------- ------------ Total $ - $ 24,500 $ 415,527 $ 398,282 ========== ========== =========== ============ (a) 8 1/4% Debentures will be retired with proceeds from issuance of new long-term debt. See Note J to the consolidated financial statements. (b) Not redeemable prior to maturity. (c) Annual sinking fund payments of $3,750,000 are required beginning in 1999. See notes to consolidated financial statements Pages 10 to 31, inclusive
EQUITABLE RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 A. Summary of Significant Accounting Policies (1) PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of Equitable Resources, Inc., and Subsidiaries (the "Company" or "Companies"). All subsidiaries are 100% owned. (2) PROPERTIES, DEPRECIATION AND DEPLETION: The cost of property additions, replacements and improvements capitalized includes labor, material and overhead. The cost of property retired, plus removal costs less salvage, is charged to accumulated depreciation. Depreciation for financial reporting purposes is provided on the straight-line method at composite rates based on estimated service lives, except for most gas and oil production properties as explained below. Depreciation rates are based on periodic studies. The Company uses the successful efforts method of accounting for exploration and production activities. Under this method, the cost of productive wells and development dry holes, as well as productive acreage, are capitalized and depleted on the unit-of-production method. (3) ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION: The Federal Energy Regulatory Commission (FERC) prescribes a formula to be used for computing overhead allowances for funds used during construction (AFC). AFC applicable to equity funds capitalized is included in other income and amounted to $1.0 million in 1995, $.9 million in 1994 and $1.0 million in 1993. AFC applicable to borrowed funds, as well as other interest capitalized for the nonregulated companies, is applied as a reduction of interest charges and amounted to $2.5 million in 1995, $2.1 million in 1994 and $1.8 million in 1993. (4) INVENTORIES: Inventories are stated at cost which is below market. Gas stored underground--current inventory is stated at cost under the average cost method. Material and supplies are stated generally at average cost. (5) INCOME TAXES: The Companies file a consolidated federal income tax return. The current provision for income taxes represents amounts paid or payable. Deferred income tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. Where deferred tax liabilities will be passed through to customers in regulated rates, the Companies establish a corresponding regulatory asset for the increase in future revenues that will result when the temporary differences reverse. Investment tax credits realized in prior years were deferred and are being amortized over the estimated service lives of the related properties where required by ratemaking rules. A. Summary of Significant Accounting Policies (Continued) (6) DEFERRED PURCHASED GAS COST: Where permitted by regulatory authority under purchased gas adjustment clauses or similar tariff provisions, the Company defers the difference between purchased gas cost, less refunds, and the billing of such cost and amortizes the deferral over subsequent periods in which billings either recover or repay such amounts. (7) REGULATORY ASSETS: Certain costs, which will be passed through to customers under ratemaking rules for regulated operations, are deferred by the Company as regulatory assets. The amounts deferred relate primarily to the accounting for income taxes. (8) DERIVATIVE FINANCIAL INSTRUMENTS: The Company uses exchange-traded natural gas and crude oil futures contracts and options and over-the-counter (OTC) natural gas and crude oil swap agreements and options to hedge exposures to energy price changes. Exchange-traded instruments are generally settled with off-setting positions but may be settled by delivery of commodities. OTC arrangements require settlement in cash. The margin accounts for exchange-traded futures contracts, which reflect daily settlements as market values change, are recorded in other current assets.Premiums on all options contracts are initially recorded in other current assets based on the amount exchanged. The Company sells options to reduce the overall cost of hedging. Unrealized losses on sold options are deferred to the extent of unamortized premiums. The fair values of swap agreements are generally recognized only when settled. Changes in market value of derivative financial instruments which qualify as hedges of firm commitments or anticipated transactions are deferred and recognized in net operating revenues when hedged transactions occur. Cash flows from derivatives accounted for as hedges are considered operating activities. The Company also uses exchange-traded natural gas futures contracts for speculative trading purposes. Realized and unrealized gains and losses on these contracts are recorded in other income in the period in which the changes occur. (9) STOCK OPTIONS: The Company follows Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for stock options. No compensation expense is recognized on stock options because the exercise price equals the market price of the underlying stock on the date of grant. (10) USE OF ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. (11) CASH FLOWS: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. B. Impairment of Assets In 1995, the Company evaluated the carrying value of long-lived assets for impairment of value pursuant to the methodology prescribed in Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." Primarily as a result of the sustained decrease in gas and oil prices, the Company recognized a write-down in the carrying value of assets of $121.1 million which decreased net income by $74.2 million. The write-down includes $73.9 million for exploration and production properties, $21.2 million for intrastate transmission facilities included in the energy marketing segment, $20.8 million for information systems and other assets reflected in the natural gas distribution segment and $5.2 million for storage development projects and other assets reflected in the natural gas transmission segment. The fair value of the assets was determined based upon estimated future net cash flows or an evaluation of recoverability of amounts invested. C. Direct Billing Settlements Kentucky West Virginia Gas Company received FERC approval of settlement agreements with all customers for the direct billing to recover the higher Natural Gas Policy Act (NGPA) prices, which the FERC had denied on natural gas produced from exploration and production properties between 1978 and 1983. The portion of the settlement with Equitable Gas Division has been subject to Pennsylvania Public Utility Commission (PUC) review. The PUC approved Equitable Gas Company's collection of $18.8 million in September 1995 and $7.8 million in September 1994 and 1993 related to the direct billing settlement. The 1995 amount includes $11.0 million for accelerated collection of amounts that would have otherwise been subject to approval by the PUC, and recognized in income, in later years. As a result of the PUC approvals, net income for 1995 includes approximately $11.3 million and net income for 1994 and 1993 includes approximately $4.7 million related to the settlement. Approximately $18 million from the settlement remains to be recovered in future gas costs filings with the PUC over the next three years. In November 1995, Kentucky West Virginia Gas Company received $13.8 million from Columbia Gas Transmission Company (Columbia) as settlement, in Columbia's bankruptcy proceeding, of Kentucky West's claim for $19 million related to the direct billing settlements. Net income for 1995 includes $8.9 million related to the settlement. D. Columbia Gas Transmission Bankruptcy Settlement In addition to the direct billing settlement described above, the Company had various claims against Columbia for abrogation of contracts to purchase gas from the Company and collection of FERC Order 636 transition costs. In November 1995, the Company received $31.2 million in Columbia's bankruptcy settlement related to these items which increased net income for 1995 by $20.2 million. E. Income Taxes The following table summarizes the source and tax effects of temporary differences between financial reporting and tax bases of assets and liabilities: December 31, 1995 1994 (Thousands) Deferred tax liabilities (assets): Exploration and development costs expensed for income tax reporting........ $ 59,321 $ 141,479 Tax depreciation in excess of book depreciation ....................... 257,642 255,683 Regulatory temporary differences........... 33,815 37,319 Deferred purchased gas cost................ 1,308 6,397 Alternative minimum tax.................... (74,829) (82,925) Investment tax credit...................... (8,438) (9,306) Other...................................... (4,587) (17,606) --------- --------- Total (including amounts classified as current liabilities of $(1,505) for 1995 and $4,444 for 1994)................... $ 264,232 $ 331,041 ========= ========= As of December 31, 1995 and 1994, $76.1 million and $76.2 million, respectively, of the net deferred tax liabilities are related to rate-regulated operations and have been deferred as regulatory assets. Income tax expense (benefit) is summarized as follows: Years Ended December 31, 1995 1994 1993 (Thousands) Current: Federal........................ $ 36,681 $ 11,196 $ 15,577 State.......................... 8,360 2,640 3,687 Deferred: Federal........................ (56,953) (6,848) (2,758) State.......................... (17,395) 1,789 3,514 ------- -------- ------- Total........................ $(29,307) $ 8,777 $ 20,020 ======== ========= ======== E. Income Taxes (Continued) Provisions for income taxes are less than amounts computed at the federal statutory rate of 35% on pretax income. The reasons for the difference are summarized as follows: Years Ended December 31, 1995 1994 1993 (Thousands) Tax at statutory rate........... $ (9,716) $ 24,327 $ 32,716 State income taxes.............. (5,866) 3,069 4,332 Increase in federal income tax rate - - 5,070 Nonconventional fuels tax credit (13,114) (16,442) (20,600) Other........................... (611) (2,177) (1,498) -------- -------- -------- Income tax expense (benefit)... $(29,307) $ 8,777 $ 20,020 ======== ======== ======== Effective tax (benefit) rate.... (105.6)% 12.6% 21.4% ====== ==== ==== In August 1993, the Omnibus Budget Reconciliation Act of 1993 (Act) was signed into law. One of the provisions of the Act was to raise the maximum corporate income tax rate from 34% to 35%. The effect of this tax rate change increased deferred tax liabilities by approximately $11 million and increased regulatory assets by approximately $6 million. The consolidated federal income tax liability of the Companies has been settled through 1992. The Company has available $74.8 million of alternative minimum tax credit carryforward which has no expiration date. In addition, the Company has net operating loss carryforwards for federal income tax purposes of $11.0 million which begin to expire in 2006. The net operating loss carryforwards apply to Louisiana Intrastate Gas. Amortization of deferred investment tax credits amounted to $1.1 million for 1995 and 1994, and $1.4 million for 1993. F. Employee Pension Benefits The Companies have several trusteed retirement plans covering substantially all employees. The Companies' annual contributions to the plans are based on a 25-year funding level. Plans covering union members generally provide benefits of stated amounts for each year of service. Plans covering salaried employees use a benefit formula which is based upon employee compensation and years of service to determine benefits to be provided. Plan assets consist principally of equity and debt securities. F. Employee Pension Benefits (Continued) The following table sets forth the plans' funded status and amounts recognized in the Company's consolidated balance sheets: December 31, 1995 1994 (Thousands) Actuarial present value of benefit obligations: Vested benefit obligation.................. $ 127,758 $ 120,763 ========== ========== Accumulated benefit obligation............. $ 131,405 $ 123,877 ========== ========== Market value of plan assets................. $ 159,607 $ 143,121 Projected benefit obligation................ 146,078 134,111 ---------- ---------- Excess of plan assets over projected benefit obligation......................... 13,529 9,010 Unrecognized net asset...................... (2,208) (2,905) Unrecognized net gain....................... (20,194) (15,606) Unrecognized prior service cost............. 9,864 9,512 ---------- ---------- Prepaid pension cost recognized in the consolidated balance sheets............ $ 991 $ 11 ========== ========== At year-end the discount rate used in determining the actuarial present value of benefit obligations was 7 1/2% for 1995, 8 1/4% for 1994 and 7 1/4% for 1993. The assumed rate of increase in compensation levels was 4 1/2% for all three years. The Companies' pension cost, using a 9% average rate of return on plan assets, comprised the following: Years Ended December 31, 1995 1994 1993 (Thousands) Service cost benefits earned during the period.............. $ 3,452 $ 3,916 $ 2,806 Interest cost on projected benefit obligation..................... 11,165 10,752 10,472 Actual loss (return) on assets.. (34,054) 2,757 (17,224) Net amortization and deferral... 19,806 (14,680) 5,486 -------- -------- -------- Net periodic pension cost...... $ 369 $ 2,745 $ 1,540 ======== ======== ======== G. Other Postretirement Benefits In addition to providing pension benefits, the Companies provide certain health care and life insurance benefits for retired employees and their dependents. Substantially all employees are eligible for these benefits upon retirement from the Companies. The Company's transition obligation is being amortized through 2012. In determining the accumulated postretirement benefit obligation at December 31, 1995, the Company used a beginning inflation factor of 10% decreasing gradually to 4 3/4% after 14 years and a discount rate of 7 1/2%. At December 31, 1994, the beginning inflation factor was 10 1/2% decreasing gradually to 4 3/4% after 15 years and the discount rate was 8 1/4%. The following summarizes the status of the Company's accrued postretirement benefit costs (OPEBS): December 31, 1995 1994 (Thousands) Accumulated postretirement benefit obligation: Retired employees....................... $ 31,555 $ 21,269 Active employees: Fully eligible........................ 10,902 9,158 Other................................. 14,728 13,459 --------- --------- Total obligation .................... 57,185 43,886 Trust assets ............................. 2,632 - --------- --------- Obligation in excess of trust assets...... 54,553 43,886 Unrecognized net gain (loss) ............. (6,298) 5,160 Unrecognized transition obligation........ (39,195) (41,501) --------- --------- Accrued postretirement benefit cost $ 9,060 $7,545 ========= ========= The net periodic cost for postretirement health care and life insurance benefits includes the following: Years Ended December 31, 1995 1994 1993 (Thousands) Service cost.......................... $ 993 $ 1,049 $ 1,065 Interest cost......................... 4,200 3,423 3,936 Amortization of transition obligation. 2,306 2,305 2,306 --------- -------- --------- Periodic cost....................... $ 7,499 $ 6,777 $ 7,307 ========= ======== ========= As of December 31, 1995 and 1994, $4.0 million and $3.5 million, respectively, of the accrued OPEBS related to rate-regulated operations have been deferred as regulatory assets. Rate recovery has begun in several jurisdictions which require the Company to place agreed upon accrual amounts in trust when collected in rates until such time as they are applied to retiree benefits or returned to ratepayers. Trust assets consist principally of equity and debt securities. G. Other Postretirement Benefits (Continued) An increase of one percent in the assumed medical cost inflation rate would increase the accumulated postretirement benefit obligation by 5% and would increase the periodic cost by 4%. H. Common Stock (1) COMMON STOCK ISSUANCE On September 29, 1993, the Company issued 3 million shares of common stock at a price of $38.50 per share. Net proceeds after underwriters' commissions and other issuance costs were approximately $111.6 million. The proceeds were used to repay a portion of the short-term debt incurred to purchase the stock of Louisiana Intrastate Gas Company as described in Note Q. (2)LONG-TERM INCENTIVE PLAN The Equitable Resources, Inc. Long-Term Incentive Plan provides for the granting of shares of common stock to officers and key employees of the Company. These grants may be made in the form of stock options, restricted stock, stock appreciation rights and other types of stock-based or performance-based awards as determined by the Compensation Committee of the Board of Directors at the time of each grant. Stock awarded under the Plan, or purchased through the exercise of options, and the value of stock appreciation units, are restricted and subject to forfeiture should an optionee terminate employment prior to specified vesting dates. The maximum number of shares which could have been granted under the Plan during 1994 was 763,500 shares. In each subsequent year, an additional number of shares equal to 1% of the total outstanding shares as of the preceding December 31 will be available for grant. In no case may the number of shares granted under the Plan exceed 1,725,500 shares. No awards may be made under the Plan after May 27, 1999. In May 1994, 363,400 stock options were granted to purchase common stock at $33.81 per share, which was the mean of the high and the low trading prices of the common stock on the date of grant. These options expire five years from the date of grant. In July 1995, 739,000 stock options were granted to purchase common stock at $28.563 per share, which was the mean of the high and the low trading price on the date of grant. These options expire ten years from the date of grant but contain vesting provisions which are based upon Company performance. At December 31, 1995, 1,725,500 shares of common stock were reserved for issuance under the Plan. H. Common Stock (Continued) (3) KEY EMPLOYEE RESTRICTED STOCK OPTION PLAN The Equitable Resources, Inc., Key Employee Restricted Stock Option and Stock Appreciation Rights Incentive Compensation Plan is nonqualified and provided for the granting of restricted stock awards or options to purchase common stock of the Company at prices ranging from 75% to 100% of market value on the date of grant. Options expire five years from the date of grant. Stock awarded under the Plan or purchased through the exercise of options, and the value of certain stock appreciation units, are restricted and subject to risk of forfeiture should an optionee terminate employment prior to specified vesting dates. The following schedule summarizes the stock option activity: Years Ended December 31, 1995 1994 1993 Options outstanding January 1........... 241,818 253,068 139,725 Granted................................. - - 148,543 Exercised............................... (54,100) (7,650) (33,325) Canceled, forfeited, surrendered or expired............................. (43,593) (3,600) (1,875) -------- ------ -------- Options outstanding December 31......... 144,125 241,818 253,068 ======== ======= ======== Average price of options exercised during the year.............. $20.01 $22.48 $18.97 At December 31: Prices of options outstanding.......... $20.13 $18.81 $17.50 to to to $36.50 $36.50 $36.50 Average option price................... $31.57 $29.82 $29.69 Shares reserved for issuance .......... 610,226 663,699 671,349 No future grants may be made under the Plan which was replaced by the Long-Term Incentive Plan effective May 27, 1994 as described above. H. Common Stock (Continued) (4)NON-EMPLOYEE DIRECTORS' STOCK INCENTIVE PLAN The Equitable Resources, Inc. Non-Employee Directors' Stock Incentive Plan provides for the granting of up to 80,000 shares of common stock in the form of stock option grants and restricted stock awards to non-employee directors of the Company. Each Director received 450 shares of restricted stock on February 3, 1994. On June 1, 1994 and 1995, each director was granted an option for 500 shares of common stock at $34.625 and $29.875 per share, respectively. On the first business day of June, in each year from 1996 through 1998, each Director will be granted an option for 500 additional shares of common stock. The exercise price for each share is 100% of the mean of the high and the low trading prices of the common stock on the date of grant. Each option is exercisable upon the earlier of three years from the date of grant or a Director's retirement, disability or death. No option may be exercised more than five years after date of grant. At December 31, 1995, 76,400 shares of common stock were reserved for issuance under the Plan. (5)EMPLOYEE STOCK PURCHASE PLAN In October 1995, the Company implemented an Employee Stock Purchase Plan, subject to shareholder approval at the annual meeting to be held in May 1996. The Plan provides for employees to purchase shares of the Company's common stock at a 10 percent discount through payroll deductions. (6)DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN Pursuant to this Plan, stockholders may reinvest dividends and make limited additional cash investments to purchase shares of common stock. Shares issued through the Plan may be acquired on the open market or by issuance of previously unissued shares. At December 31, 1995, 141,714 shares of common stock were reserved for issuance under the Plan. (7)STOCK REPURCHASE PROGRAM In 1995, the Board of Directors of the Company authorized the repurchase of up to one million shares of outstanding common stock. Through December 31, 1995, no shares have been repurchased. I. Short-Term Loans Maximum lines of credit available to the Company were $500 million during 1995, $325 million during 1994 and $360 million during 1993. The Company is not required to maintain compensating bank balances. Commitment fees averaging one-tenth of one percent were paid to maintain credit availability. In January 1995, the Company established a five-year revolving Credit Agreement with a group of banks providing $500 million of available credit. The agreement requires a facility fee of one-tenth of one percent. At December 31, 1995, short-term loans consisted of $135.0 million of commercial paper at a weighted average annual interest rate of 5.68%; and at December 31, 1994, $256.0 million of commercial paper and $13.3 million of bank loans, at a weighted average annual interest rate of 5.94%. The maximum amount of outstanding short-term loans was $314.6 million in 1995, $269.3 million in 1994 and $339.0 million in 1993. The average daily total of short-term loans outstanding was approximately $214.2 million during 1995, $204.6 million during 1994 and $174.9 million during 1993; weighted average annual interest rates applicable thereto were 6.0% in 1995, 4.4% in 1994 and 3.3% in 1993. J. Long-Term Debt The Company filed a shelf registration with the Securities and Exchange Commission effective June 9, 1994 to issue $100 million of Medium-Term Notes--Series C to be used to retire short-term loans. As of December 31, 1995, $18 million of Series C Notes have been issued. The 9 1/2% Convertible Subordinated Debentures are convertible at any time into common stock at a conversion price of $11.06 per share. During 1995, 1994 and 1993, $1,611,000, $345,000 and $564,000 of these debentures were converted into 145,635 shares, 31,187 shares and 50,983 shares of common stock, respectively. At December 31, 1995, 64,096 shares of common stock were reserved for conversions. Interest expense on long-term debt amounted to $36.5 million in 1995, $35.5 million in 1994 and $33.2 million in 1993. Aggregate maturities of long-term debt will be $75.0 million in 1996, none in 1997, $5.0 million in 1998, $78.8 million in 1999, and $3.8 million in 2000. The 1996 maturities will be retired with proceeds from issuance of long-term debt. K. Derivative Financial Instruments The Company is exposed to risk from fluctuations in energy prices in the normal course of business. The Company uses exchange-traded natural gas and crude oil futures contracts and options and over-the-counter (OTC) natural gas and crude oil swap agreements and options to hedge exposures to energy price changes, primarily relating to its gas marketing operations. The Company also trades in energy futures. Exchange-traded energy futures contracts are commitments to either purchase or sell a designated commodity, generally natural gas or crude oil, at a future date for a specified price. These instruments are generally settled with off-setting positions, but may be settled by delivery of commodities. OTC arrangements require settlement in cash. The exchange-traded contracts used by the Company cover one-month periods from one to eighteen months in the future. The OTC agreements cover one-month periods for up to five years in the future. Initial margin requirements are met in cash or other instruments, and changes in contract values are settled daily. Energy futures contracts have minimal credit risk because futures exchanges are the counterparties. The Company manages the credit risk of the other financial instruments by limiting dealings to those counterparties who meet the Company's criteria for credit and liquidity strength. The following table summarizes the outstanding derivative financial instruments: Notional Unrealized Quantity Deferred Purchase Sale Gain/(Loss) -------- ------ ------------ (Bcf Equivalent) ($ Millions) DECEMBER 31, 1995 Exchange traded Futures................. 4.8 1.9 $ .4 Options................. 18.2 11.4 (1.4) ------ ------ ------ Total................. 23.0 13.3 $ (1.0) ====== ====== ====== OTC Swaps................... 27.3 52.8 $ (.3) Options................. 13.5 21.1 1.0 ------ ------ ------ Total................. 40.8 73.9 $ .7 ====== ====== ====== DECEMBER 31, 1994 Exchange traded Futures................. 10.8 3.7 $ (1.5) Options................. .5 .4 .1 ------ ------ ------ Total................. 11.3 4.1 $ (1.4) ====== ====== ====== K. Derivative Financial Instruments (Continued) Deferred realized gains (losses) from hedging firm commitments and anticipated transactions were $(2.8) million and $(.5) million at December 31, 1995 and 1994, respectively. These amounts are included in other current assets and recognized in earnings when the future transactions occur. At December 31, 1995 and 1994, there were no outstanding energy futures contracts held for trading purposes. During 1995 and 1994, the average fair value of traded contracts was $(40,000) and $30,000, respectively. Trading activity resulted in a net loss of $1.9 million for 1995 and a net gain of $1.5 million for 1994. The value of these financial instruments is subject to fluctuations in market prices for natural gas. Exposure to this risk is managed by maintaining open positions within defined trading limits. L. Fair Value of Financial Instruments The carrying value of cash and cash equivalents as well as short-term loans approximates fair value due to the short maturity of the instruments. The estimated fair value of long-term debt, including the portion due within one year, at December 31, 1995 and 1994 would be $465.1 million and $430.2 million, respectively. The fair value was estimated based on the quoted market prices as well as the discounted values using a current discount rate reflective of the remaining maturity. The Company's 8 1/4% Debentures and 7 1/2% Debentures may not be redeemed prior to maturity. The 9.9% Debentures require payment of premiums for early redemption, exclusive of annual sinking fund requirements. The derivative financial instruments described in Note K are reflected in other current assets at fair value of $(3.3) million and $(1.5) million at December 31, 1995 and 1994, respectively. M. Concentrations of Credit Risk Revenues and related accounts receivable from exploration and production operations are generated primarily from the sale of produced natural gas to utility and industrial customers located mainly in the Appalachian area; the sale of produced oil to refinery customers in the Rocky Mountain and Appalachian areas; and the sale of produced natural gas liquids to a refinery customer in Kentucky. Energy marketing operating revenues and related accounts receivable are generated from the nationwide marketing of natural gas to brokers and large volume utility and industrial customers; and the sale of produced natural gas liquids and intrastate transportation of natural gas in Louisiana. M. Concentrations of Credit Risk (Continued) Natural gas distribution operating revenues and related accounts receivable are generated from state-regulated utility natural gas sales and transportation to more than 266,000 residential, commercial and industrial customers located in southwest Pennsylvania and parts of West Virginia and Kentucky. Under state regulations, the utility is required to provide continuous gas service to residential customers during the winter heating season. Natural gas transmission operating revenues and related accounts receivable are generated from FERC-regulated interstate pipeline transportation and storage service for the affiliated utility, Equitable Gas, as well as other utility and end-user customers located in nine mid-Atlantic and northeastern states. The Company is not aware of any significant credit risks which have not been recognized in provisions for doubtful accounts. N. Financial Information by Business Segment The Company reports it operations in four segments. Exploration and production activities comprise the exploration, development, production and sale of natural gas and oil, extraction and sale of natural gas liquids and contract drilling. Energy marketing activities comprise marketing of natural gas and electricity, extraction and sale of natural gas liquids, intrastate transportation, cogeneration development and central facility plant operations. Natural gas distribution activities comprise the operations of the Company's state-regulated local distribution company. Natural gas transmission activities comprise gas transportation, gathering, storage and marketing activities involving the Company's three FERC-regulated gas pipelines. N. Financial Information by Business Segment (Continued) The following table sets forth financial information for each of the business segments: Years Ended December 31, 1995 1994 1993 (Thousands) OPERATING REVENUES: Exploration and production......... $ 234,865 $ 195,795 $ 202,422 Energy marketing................... 889,303 890,778 599,624 Natural gas distribution........... 381,050 390,475 335,149 Natural gas transmission........... 118,861 116,769 188,882 Sales between segments............. (198,089) (196,537) (231,283) ---------- ---------- ---------- Total............................ $1,425,990 $1,397,280 $1,094,794 ========== ========== ========== OPERATING INCOME (LOSS): Exploration and production......... $ (13,823) $ 30,843 $ 42,453 Energy marketing................... (18,845) 4,089 11,700 Natural gas distribution........... 23,521 43,180 45,714 Natural gas transmission........... 31,099 32,136 30,630 ---------- ---------- ---------- Total............................ $ 21,952 $ 110,248 $ 130,497 ========== ========== ========== IDENTIFIABLE ASSETS: Exploration and production......... $ 596,478 $ 724,144 $ 699,322 Energy marketing................... 465,262 396,166 386,040 Natural gas distribution........... 685,912 690,068 660,889 Natural gas transmission........... 268,993 297,140 302,102 Eliminations....................... (54,837) (88,396) (101,446) ---------- ---------- ---------- Total............................ $1,961,808 $2,019,122 $1,946,907 ========== ========== ========== DEPRECIATION AND DEPLETION: Exploration and production......... $ 66,893 57,196 $ 47,645 Energy marketing................... 11,551 11,702 5,778 Natural gas distribution........... 16,442 15,196 14,624 Natural gas transmission........... 9,739 9,253 8,847 ---------- ---------- ---------- Total............................ $ 104,625 $ 93,347 $ 76,894 ========== ========== ========== CAPITAL EXPENDITURES: Exploration and production......... $ 44,786 $ 84,460 $ 101,203 Energy marketing................... 24,164 15,765 195,042 Natural gas distribution........... 42,195 32,712 26,077 Natural gas transmission........... 6,967 13,237 17,089 ---------- ---------- ---------- Total............................ $ 118,112 $ 146,174 $ 339,411 ========== ========== ========== O. Sale Of Property In October 1995, the Company sold most of its gas and oil properties in the northern Appalachian basin areas of New York, Pennsylvania and West Virginia. The properties comprised less than four percent of the exploration and production segment's total gas and oil production and reserves. The Company previously operated the majority of these properties with its working interest averaging approximately 25 percent. Proceeds from the sale were approximately $17.3 million. P. Deferred Revenue In November 1995, the Company sold an interest in certain Appalachian gas properties, the production from which qualifies for nonconventional fuels tax credit. The Company retained an interest in the properties that will increase based on performance. As such, the proceeds of $133.5 million were recorded as deferred revenues and will be recognized in income as financial targets are met. Q. Acquisitions In July 1995, the Company acquired all of the outstanding stock of Independent Energy Corporation (IEC) in exchange for 232,564 shares of the Company's common stock held in treasury. IEC is engaged in the development, construction, operation and ownership of private power and cogeneration projects. The acquisition is being accounted for as a pooling of interests. The effect on the Company's financial statements is not material. On June 30, 1993, the Company purchased the outstanding common stock of Louisiana Intrastate Gas Company (LIG) for $191 million. LIG owns a 1,900 mile intrastate pipeline system in Louisiana, four natural gas processing plants and is also engaged in gas marketing. The purchase was funded initially with short-term debt, a portion of which was repaid with the proceeds from the issuance of common stock as described in Note H to the consolidated financial statements. Under terms of the purchase agreement, the seller, and/or the previous owner of LIG, have indemnified the Company against any losses resulting from claims of liability under the gas purchase contracts and substantially all environmental liabilities attributable to operation of LIG prior to June 30, 1993. On July 8, 1993, the Company purchased all of the outstanding stock of Hershey Oil Corporation (Hershey) for approximately $18 million. Hershey's assets consist primarily of approximately 68 billion cubic feet of proved natural gas reserves and 17,000 net undeveloped acres in Alberta, Canada. The 1993 acquisitions were accounted for under the purchase method and are included in the energy marketing segment and exploration and production segment, respectively. Had the purchases occurred as of the beginning of 1993, unaudited proforma consolidated results for the Company would have been: revenues of $1,119 million; net income of $74.0 million; and earnings per share of $2.29. R. Commitments and Contingencies Rent expense was $9.9 million in 1995, $9.7 million in 1994 and $9.8 million in 1993. Long-term leases are principally for division operating headquarters and warehouse buildings and computer hardware and have renewal options ranging to 18 years from December 31, 1995. Future minimum rentals for all noncancelable long-term leases at December 31, 1995 are as follows: 1996, $5.6 million; 1997, $5.2 million; 1998, $3.9 million; 1999, $3.0 million; 2000, $2.2 million and $15.0 million thereafter for a total of $34.9 million. The Company has annual commitments of approximately $35 million for demand charges under existing long-term contracts with pipeline suppliers for periods extending up to 17 years at December 31, 1995, which relate to gas distribution operations. However, substantially all of these costs are recoverable in customer rates. The Company is subject to federal, state and local environmental laws and regulations. These laws and regulations, which are constantly changing, can require expenditures for remediation and may in certain instances result in assessment of fines. The Company has established procedures for on-going evaluation of its operations to identify potential environmental exposures and assure compliance with regulatory policies and procedures. The estimated costs associated with identified situations that require remedial action are accrued. However, certain of these costs are deferred as regulatory assets when recoverable through regulated rates. On-going expenditures for compliance with environmental laws and regulations, including investments in plant and facilities to meet environmental requirements, have not been material. Management believes that any such required expenditures will not be significantly different in either their nature or amount in the future and does not know of any environmental liabilities that will have a material effect on the Company's financial position or results of operations. S. Interim Financial Information (Unaudited) The following quarterly summary of operating results reflects variations due primarily to the seasonal nature of the Company's business: March June September December 31 30 30 31 (Thousands except per share amounts) 1995 Operating revenues $ 404,691 $ 316,534 $ 270,992 $ 433,773 Operating income (loss) 48,312 5,032 14,458 (45,850) Net income (loss) 27,754 (1,162) 1,684 (26,728) Earnings (loss) per share $.80 $(.03) $.05 $(.76) 1994 Operating revenues $ 439,538 $ 316,122 $ 297,712 $ 343,908 Operating income 60,979 10,054 12,847 26,368 Net income 36,359 6,057 2,381 15,932 Earnings per share $1.05 $.18 $.07 $.46 T. Natural Gas and Oil Producing Activities The supplementary information summarized below presents the results of natural gas and oil activities for the exploration and production segment in accordance with Statement of Financial Accounting Standards No. 69, "Disclosures About Oil and Gas Producing Activities." The information presented excludes data associated with natural gas reserves related to rate-regulated operations. These reserves (proved developed) are less than 5% of total Company proved reserves for the years presented. T. Natural Gas and Oil Producing Activities (Continued) (1)PRODUCTION COSTS The following table presents the costs incurred relating to natural gas and oil production activities: 1995 1994 1993 (Thousands) At December 31: Capitalized costs.............. $ 803,124 $ 909,443 $ 836,638 Accumulated depreciation and depletion................ 311,524 304,835 256,508 --------- --------- --------- Net capitalized costs........... $ 491,600 $ 604,608 $ 580,130 ========= ========= ========= Costs incurred : Property acquisition........... $ 222 $ 8,335 $ 29,345 Exploration.................... 14,844 22,783 13,928 Development.................... 31,802 60,690 62,336 (2) RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES The following table presents the results of operations related to natural gas and oil production, including the effect in 1995 of impairment of assets as described in Note B: 1995 1994 1993 (Thousands) Revenues: Affiliated..................... $ 20,619 $ 16,564 $ 15,467 Nonaffiliated ................. 114,247 136,029 140,380 Production costs................ 31,626 33,891 33,620 Exploration expenses............ 13,312 16,634 13,559 Depreciation and depletion...... 62,212 52,505 43,841 Impairment of assets............ 65,563 - - Income tax expense (benefit).... (27,992) 3,602 5,039 --------- --------- --------- Results of operations from producing activities (excluding corporate overhead) $ (9,855) $ 45,961 $ 59,788 ========== ========== ========== T. Natural Gas and Oil Producing Activities (Continued) (3) RESERVE INFORMATION (UNAUDITED) The information presented below represents estimates of proved gas and oil reserves prepared by Company engineers. Proved developed reserves represent only those reserves expected to be recovered from existing wells and support equipment. Proved undeveloped reserves represent proved reserves expected to be recovered from new wells after substantial development costs are incurred. Substantially all reserves are located in the United States. NATURAL GAS 1995 1994 1993 (Millions of Cubic Feet) Proved developed and undeveloped reserves: Beginning of year.................... 874,964 822,583 720,032 Revision of previous estimates....... 16,999 18,663 9,399 Purchase (sale) of natural gas in place - net (a) (31,729) 6,307 86,113 Extensions, discoveries and other additions 50,521 89,918 60,589 Production........................... (64,984) (62,507) (53,550) -------- -------- -------- End of year (b)...................... 845,771 874,964 822,583 ======== ======== ======== Proved developed reserves: Beginning of year.................... 771,635 759,282 665,194 End of year (c)...................... 739,249 771,635 759,282 (a) Includes purchases in Canada of 68,000 MMcf in 1993. (b) Includes proved reserves in Canada of 70,000 MMcf in 1995, 67,000 MMcf in 1994and 70,000 MMcf in 1993. (c) Includes proved developed reserves in Canada of 46,000 MMcf in 1995, 43,000 MMcf in 1994 and 46,000 MMcf in 1993. T. Natural Gas and Oil Producing Activities (Continued) OIL 1995 1994 1993 (Thousands of Barrels) Proved developed and undeveloped reserves: Beginning of year.................... 18,283 16,468 20,023 Revision of previous estimates....... (356) 2,601 (4,876) Purchase (sale) of oil in place - net (a) (1,071) (169) 418 Extensions, discoveries and other additions 3,278 1,369 3,015 Production........................... (1,933) (1,986) (2,112) ------- ------ ------ End of year (b)...................... 18,201 18,283 16,468 ======= ====== ====== Proved developed reserves: Beginning of year.................... 18,110 16,442 18,540 End of year (c)...................... 16,834 18,110 16,442 (a) Includes purchases in Canada of 68,000 barrels in 1993. (b) Includes proved reserves in Canada of 91,000 barrels in 1995, 75,000 barrels in 1994 and 65,000 barrels in 1993. (c) Includes proved developed reserves in Canada of 64,000 barrels in 1995, 50,000 barrels in 1994 and 39,000 barrels in 1993. T. Natural Gas and Oil Producing Activities (Continued) (4) STANDARD MEASURE OF DISCOUNTED FUTURE CASH FLOW (UNAUDITED) Management cautions that the standard measure of discounted future cash flows should not be viewed as an indication of the fair market value of gas and oil producing properties, nor of the future cash flows expected to be generated therefrom. The information presented does not give recognition to future changes in estimated reserves, selling prices or costs and has been discounted at an arbitrary rate of 10%. Estimated future net cash flows from natural gas and oil reserves based on selling prices and costs at year-end price levels are as follows: 1995 1994 1993 (Thousands) Future cash inflows................. $ 2,279,509 $ 1,983,757 $ 2,140,151 Future production costs............. (635,540) (562,841) (598,707) Future development costs............ (51,081) (46,985) (24,579) Future income tax expenses.......... (539,106) (361,486) (434,362) ------------ ----------- ----------- Future net cash flow................ 1,053,782 1,012,445 1,082,503 10% annual discount for estimated timing of cash flows.............. (535,921) (471,778) (515,023) ------------ ----------- ----------- Standardized measure of discounted future net cash flows (a)......... $ 517,861 $ 540,667 $ 567,480 ============ =========== =========== (a) Includes $11,293,000 in 1995, $10,043,000 in 1994 and $31,267,000 in 1993 related to Canada. Summary of changes in the standardized measure of discounted future net cash flows: 1995 1994 1993 (Thousands) Sales and transfers of gas and oil produced - net............ $ (103,240) $ (118,702) $ (122,227) Net changes in prices, production and development costs............. 54,806 (135,742) (80,256) Extensions, discoveries, and improved recovery, less related costs 65,603 74,900 90,035 Development costs incurred.......... 18,620 16,037 18,482 Purchase (sale) of minerals in place - net (22,990) 9,627 62,843 Revisions of previous quantity estimates 5,278 19,189 (14,910) Accretion of discount............... 64,875 72,058 69,284 Net change in income taxes.......... (97,808) 45,012 (8,584) Other .............................. (7,950) (9,192) 4,491 ------------ ----------- ----------- Net increase (decrease)............. (22,806) (26,813) 19,158 Beginning of year................... 540,667 567,480 548,322 ------------ ----------- ----------- End of year......................... $ 517,861 $ 540,667 $ 567,480 ============ =========== =========== PART IV ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K (a) 1. Financial statements The financial statements listed in the accompanying index to financial statements (see below) are filed as part of this annual report. 2. Financial Statement Schedule The financial statement schedule listed in the accompanying index to financial statements and financial schedule (see below) is filed as part of this annual report. 3. Exhibits The exhibits listed on the accompanying index to exhibits (pages 35 through 38) are filed as part of this annual report. (b) Reports on Form 8-K filed during the quarter ended December 31, 1995. None (c) Each management contract and compensatory arrangement in which any director or any named executive officer participates has been marked with an asterisk (*) in the Index to Exhibits. EQUITABLE RESOURCES, INC. INDEX TO FINANCIAL STATEMENTS COVERED BY REPORT OF INDEPENDENT AUDITORS (ITEM 14 (A)) 1. The following consolidated financial statements of Equitable Resources, Inc. and Subsidiaries are included in Item 8: PAGE REFERENCE Statements of Consolidated Income for each of the three years in the period ended December 31, 1995 4 Statements of Consolidated Cash Flows for each of the three years in the period ended December 31, 1995 5 Consolidated Balance Sheets December 31, 1995 and 1994 6 & 7 Statements of Common Stockholders' Equity for each of the three years in the period ended December 31, 1995 8 Long-term Debt, December 31, 1995 and 1994 9 Notes to Consolidated Financial Statements 10 thru 31 2. Schedule for the Years Ended December 31, 1995, 1994 and 1993 included in Part IV: II - Valuation and Qualifying Accounts and Reserves 34 All other schedules are omitted since the subject matter thereof is either not present or is not present in amounts sufficient to require submission of the schedules. EQUITABLE RESOURCES, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR THE THREE YEARS ENDED DECEMBER 31, 1995 Column A Column B Column C Column D Column E - ------------------------------------------------------------------------------- Balance At Additions Charged Balance Beginning To Costs At End Description Of Period and Expenses Deductions Of Period - ------------------------------------------------------------------------------- (Thousands) 1995 Accumulated Provision for Doubtful Accounts $ 10,890 $ 10,810 $11,161(A) $ 10,539 1994 Accumulated Provision for Doubtful Accounts $ 10,106 $ 10,010 $ 9,226(A) $ 10,890 1993 Accumulated Provision for Doubtful Accounts $ 9,503 $ 9,352 $ 8,749(A) $ 10,106 Note: (A) Customer accounts written off, less recoveries. INDEX TO EXHIBITS EXHIBITS DESCRIPTION METHOD OF FILING - -------------- -------------------------------- =============================== 3.01 Restated Articles of Filed as Exhibit 3.01 to Form Incorporation of the Company 10-K for the year ended dated May 21, 1993 (effective December 31, 1993 May 27, 1993) - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== 3.02 By-Laws of the Company Filed as Exhibit 3.02 to form (amended through December 16, 10-K for the year ended 1994) December 31, 1994 - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== 4.01 (a) Indenture dated as of April 1, Filed as Exhibit 4.01 1983 between the Company and (Revised) to Post-Effective Pittsburgh National Bank Amendment No. 1 to relating to Debt Securities Registration Statement (Registration No. 2-80575) - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== 4.01 (b) Instrument appointing Bankers Filed as Exhibit 4.01 (b) to Trust Company as successor Form 10-K for the year ended trustee to Pittsburgh National December 31, 1993 Bank - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== 4.01 (c) Resolution adopted June 26, Filed as Exhibit 4.01 (c) to 1986 by the Finance Committee Form 10-K for the year ended of the Board of Directors of December 31, 1993 the Company establishing the term of the $75,000,000 of debentures, 8 1/4% Series due July 1, 1996 - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== 4.01 (d) Resolutions adopted June 22, Filed as Exhibit 4.01 (d) to 1987 by the Finance Committee Form 10-K for the year ended of the Board of Directors of December 31, 1993 the Company establishing the terms of the 75,000 units (debentures with warrants) issued July 1, 1987 - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== 4.01 (e) Resolution adopted April 6, Filed as Exhibit 4.01 (e) to 1988 by the Ad Hoc Finance Form 10-K for the year ended Committee of the Board of December 31, 1993 Directors of the Company establishing the terms and provisions of the 9.9% Debentures issued April 14, 1988 - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== 4.01 (f) Supplemental indenture dated Filed as Exhibit 4.3 to Form March 15, 1991 with Bankers S-3 (Registration Statement Trust Company eliminating 33-39505) filed August 21, limitations on liens and 1991 additional funded debt - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== 4.01 (g) Resolution adopted August 19, Filed as Exhibit 4.05 to Form 1991 by the Ad Hoc Finance 10-K for the year ended Committee of the Board of December 31, 1991 Directors of the Company Addenda Nos. 1 thru 27, establishing the terms and provisions of the Series A Medium-Term Notes - -------------- -------------------------------- =============================== 4.01 (h) Resolutions adopted July 6, Filed as Exhibit 4.05 to Form 1992 and February 19, 1993 by 10-K for the year ended the Ad Hoc Finance Committee December 31, 1992 of the Board of Directors of the Company and Addenda Nos. 1 thru 8, establishing the terms and provisions of the Series B Medium-Term Notes - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== 4.01 (i) Resolution adopted July 14, Filed as Exhibit 4.01 (i) to 1994 by the Ad Hoc Finance Form 10-K for the year ended Committee of the Board of December 31, 1995 Directors of the Company and Addenda Nos. 1 and 2, establishing the terms and provisions of the Series C Medium-Term Notes - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.01 Equitable Resources, Inc. Key Filed as Exhibit 10.01 to Employee Restricted Stock Form 10-K for the year ended Option and Stock Appreciation December 31, 1994 Rights Incentive Compensation Plan (as amended through March 17, 1989) - -------------- -------------------------------- =============================== * 10.02 Employment Agreement dated as Filed as Exhibit 10.02 to Form of March 18, 1988 and restated 10-K for the year ended as of March 15, 1996, with December 31, 1995 Frederick H. Abrew - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.03 Employment Agreement dated as Filed as Exhibit 10.03 to Form of March 18, 1988 and restated 10-K for the year ended as of March 15, 1996, with December 31, 1995 Augustine A. Mazzei, Jr. - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.04 (a) Agreement dated December 15, Filed as Exhibit 10.04 (a) to 1989 with Barbara B. Sullivan Form 10-K for the year ended for deferred payment of 1990 December 31, 1994 director fees - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.04 (b) Agreement dated December 21, Filed as Exhibit 10.04 (b) 1990 with Barbara B. Sullivan to Form 10-K for the year for deferred payment of 1991 ended December 31, 1995 director fees - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.04 (c) Agreement dated December 13, Filed as Exhibit 10.16 to 1991 with Barbara B. Sullivan Form 10-K for the year ended for deferred payment of 1992 December 31, 1991 director fees - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.04 (d) Agreement dated December 16, Filed as Exhibit 10.04 (e) to 1994 with Barbara B. Sullivan Form 10-K for the year ended for deferred payment of 1995 December 31, 1994 director fees - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.04 (e) Agreement dated December 15, Filed as Exhibit 10.04 (e) to 1995 with Barbara B. Sullivan Form 10-K for the year ended for deferred payment of 1996 December 31, 1995 director fees - -------------- -------------------------------- =============================== * 10.05 Supplemental Executive Filed as Exhibit 10.05 to Form Retirement Plan (as amended 10-K for the year ended and restated through October December 31, 1995 20, 1995) - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.06 Retirement Program for the Filed as Exhibit 10.06 to Board of Directors of Form 10-K for the year ended Equitable Resources, Inc. (as December 31, 1994 amended through August 1, 1989) - -------------- -------------------------------- =============================== * 10.07 Supplemental Pension Plan (as Filed as Exhibit 10.07 to amended and restated through Form 10-K for the year ended December 16, 1994) December 31, 1994 - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.08 Policy to Grant Supplemental Filed as Exhibit 10.08 to Deferred Compensation Benefits Form 10-K for the year ended in Selected Instances to a December 31, 1994 Select Group of Management or Highly Compensated Employees (as amended and restated through August 1, 1989) - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.09 Equitable Resources, Inc. and Filed as Exhibit 10.22 to Subsidiaries Short-Term Form 10-K for the year ended Incentive Compensation Plan as December 31, 1992 amended February 17, 1993 - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.10 (a) Agreement dated December 31, Filed as Exhibit 10.10 (a) to 1987 with Malcolm M. Prine for Form 10-K for the year ended deferred payment of 1988 December 31, 1993 director fees - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.10 (b) Agreement dated December 30, Filed as Exhibit 10.10 (b) to 1988 with Malcolm M. Prine for Form 10-K for the year ended deferred payment of 1989 December 31, 1993 director fees - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== 10.11 Trust Agreement with Filed as Exhibit 10.12 to Pittsburgh National Bank to Form 10-K for the year ended act as Trustee for December 31, 1994 Supplemental Pension Plan, Supplemental Deferred Compensation Benefits, Retirement Program for Board of Directors, and Supplemental Executive Retirement Plan - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.12 Equitable Resources, Inc. Filed as Exhibit 10.13 to Non-Employee Directors' Stock Form 10-K for the year ended Incentive Plan December 31, 1994 - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.13 Equitable Resources, Inc. Filed as Exhibit 10.14 to Long-Term Incentive Plan Form 10-K for the year ended December 31, 1994 - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.14 (a) Agreement dated December 31, Filed as Exhibit 10.15 to 1994 with Donald I. Moritz for Form 10-K for the year ended consulting services December 31, 1994 - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.14 (b) Letter agreement dated Filed as Exhibit 10.14 (b) to December 15, 1995 amending Form 10-K for the year ended agreement with Donald I. December 31, 1995 Moritz for consulting services - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.15 Change in Control Agreement Filed as Exhibit 10.15 to Form executed with certain key 10-K for the year ended employees December 31, 1995 - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== * 10.16 Equitable Resources, Inc. and Filed as Exhibit 10.16 to Form Subsidiaries Deferred 10-K for the year ended Compensation Plan December 31, 1995 - -------------- -------------------------------- =============================== 11.01 Statement re Computation of Filed as Exhibit 11.01 to Form Earnings Per Share 10-K for the year ended December 31, 1995 - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== 21 Schedule of Subsidiaries Filed as Exhibit 21 to Form 10-K for the year ended December 31, 1995 - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== 23.01 Consent of Independent Auditors Filed herewith as Exhibit 23.01 - -------------- -------------------------------- =============================== 99.01 (a) Equitable Resources, Inc. Filed as Exhibit 99.01 (a) to Employees Savings Plan Form Form 10-K for the year 11-K Annual Report for the ended December 31, 1995 year ended October 31, 1995 - -------------- -------------------------------- =============================== - -------------- -------------------------------- =============================== 99.01 (b) Equitable Resources, Inc. Filed as Exhibit 99.01 (a) to Employees Savings Plan Form Form 10-K for the year ended 11-K Annual Report for the December 31, 1995 period ended December 31, 1995 - -------------- -------------------------------- =============================== 99.02 Equitable Resources, Inc. Filed as Exhibit 99.02 to Form Employees Stock Purchase Plan 10-K for the year ended Form 11-K Annual Report December 31, 1995 - -------------- -------------------------------- =============================== The Company agrees to furnish to the Commission, upon request, copies of instruments with respect to long-term debt which have not previously been filed. EX-23 2 Exhibit 23.01 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference of our report dated February 13, 1996, with respect to the consolidated financial statements and schedule of Equitable Resources, Inc. included in this Annual Report on Form 10-K and Form 10-K/A No. 1 for the year ended December 31, 1995 ("the 1995 Equitable Annual Report") in the Prospectus part of the following Registration Statements: Registration Statement No. 33-52151 on Form S-8 pertaining to the 1994 Equitable Resources, Inc. Long-Term Incentive Plan; Registration Statement No. 33-52137 on Form S-8 pertaining to the 1994 Equitable Resources, Inc. Non-Employee Directors' Stock Incentive Plan; Registration Statement on Form S-8 filed on March 22, 1996, pertaining to the Equitable Resources, Inc. Employee Stock Purchase Plan; Post-Effective Amendment No. 2 to Registration Statement No. 2-69010 on Form S-8 pertaining to the Equitable Resources, Inc. Key Employee Restricted Stock Option and Stock Appreciation Rights Incentive Compensation Plan; Post-Effective Amendment No. 1 to Registration Statement No. 33-00252 on Form S-8 pertaining to the Equitable Resources, Inc. Employee Savings Plan; Post-Effective Amendment No. 1 to Registration Statement No. 33-10508 on Form S-8 pertaining to the Equitable Resources, Inc. Key Employee Restricted Stock Option and Stock Appreciation Rights Incentive Compensation Plan; Registration Statement No. 33-53703 on Form S-3 pertaining to the registration of $100,000,000 Medium Term Notes, Series C of Equitable Resources, Inc. We also consent to the incorporation by reference of our report dated March 8, 1996 with respect to the financial statements and schedules of the Equitable Resources, Inc. Employee Savings Plan included in the Annual Report (Form 11-K) for the year ended October 31, 1995, included in Exhibit 99.01(a) to the 1995 Equitable Annual Report into Post-Effective Amendment No. 1 to Registration Statement No. 33-00252 on Form S-8 pertaining to the Equitable Resources, Inc. Employee Savings Plan. We also consent to the incorporation by reference of our report dated March 8, 1996 with respect to the financial statements and schedules of the Equitable Resources, Inc. Employee Savings Plan included in the Transition Period Report (Form 11-K) for the two-month period ended December 31, 1995, included in Exhibit 99.01(b) to the 1995 Equitable Annual Report into Post-Effective Amendment No. 1 to Registration Statement No. 33-00252 on Form S-8 pertaining to the Equitable Resources, Inc. Employee Savings Plan. We also consent to the incorporation by reference of our report dated March 8, 1996 with respect to the financial statements of the Equitable Resources, Inc. Employee Stock Purchase Plan included in the Annual Report (Form 11-K) for the three-month period ended December 31, 1995, included in Exhibit 99.02 to the 1995 Equitable Annual Report into the Registration Statement on Form S-8 filed on March 22, 1996, pertaining to the Equitable Resources, Inc. Employee Stock Purchase Plan. By /s/ Ernst & Young LLP ----------------------------------- Ernst & Young LLP Pittsburgh, Pennsylvania April 26, 1996 -----END PRIVACY-ENHANCED MESSAGE-----