-----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, TXEpqZYXXEm/W8BG6sfxfHxvSFwRTvb5YYi5QvR8Kk+HsjPBmWeBuHJBMBa+De4n chUtubJ+34F3FgLRGqaXFA== 0000077159-97-000013.txt : 19970815 0000077159-97-000013.hdr.sgml : 19970815 ACCESSION NUMBER: 0000077159-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENN VIRGINIA CORP CENTRAL INDEX KEY: 0000077159 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 231184320 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00753 FILM NUMBER: 97661872 BUSINESS ADDRESS: STREET 1: 100 MATSONFORD ROAD SUITE 200 STREET 2: ONE RADNOR CORPORATE CENTER CITY: RADNOR STATE: PA ZIP: 19087 BUSINESS PHONE: 6106878900 MAIL ADDRESS: STREET 1: 800 BELLEVUE 200 S BROAD ST CITY: PHILADELPHIA STATE: PA ZIP: 19102 FORMER COMPANY: FORMER CONFORMED NAME: VIRGINIA COAL & IRON CO DATE OF NAME CHANGE: 19670501 10-Q 1 10-Q 6/30/97 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 period ended June 30, 1997 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________________ to ____________________ PENN VIRGINIA CORPORATION - ----------------------------------------------------------------- (Exact name of registrant as specified in its charter) Virginia 23-1184320 - ------------------------------- -------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 MATSONFORD ROAD SUITE 200 RADNOR, PA 19807 - ----------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (610) 687-8900 - ----------------------------------------------------------------- (Registrant's telephone number, including area code) - ----------------------------------------------------------------- (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 ----- --- Number of shares of common stock of registrant outstanding at August 7, 1997: 4,137,163
PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts) Three Months Ended June 30, -------------- 1997 1996 -------- -------- (Unaudited) Revenues: Timber $ 604 $ 196 Oil and condensate 164 238 Natural gas 4,284 4,341 Coal royalties 3,094 1,666 Natural gas royalties 342 422 Dividends 661 794 Other income 238 152 ------- -------- Total revenues $ 9,387 $ 7,809 Expenses: Operating expenses $ 908 $ 784 Exploration expenses 202 166 Taxes other than income 629 666 General and administrative 2,263 1,688 Depreciation, depletion, amortization 1,624 1,617 ------- ------- Total expenses $ 5,626 $ 4,921 Operating Income $ 3,761 $ 2,888 Other (Income) Expense: Interest expense $ 641 $ 329 Gain on sale of property (25) (5) Other income (892) (1,102) -------- -------- Income before income tax $ 4,037 $ 3,666 Income tax expense 892 1,129 ------- ------- Net Income $ 3,145 $ 2,537 ------- ------- Net Income per share, primary (Note 2) 0.37 0.30 ------- ------- Weighted average shares outstanding 8,441 8,592 (in thousands) (Note 2) PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts) Six Months Ended June 30, -------------- 1997 1996 -------- -------- (Unaudited) Revenues: Timber $ 810 $ 270 Oil and condensate 391 405 Natural gas 9,904 9,703 Coal royalties 5,739 3,385 Natural gas royalties 862 968 Dividends 1,323 1,411 Other income 599 537 ------- -------- Total revenues $ 19,628 $ 16,679 Expenses: Operating expenses $ 1,740 $ 1,510 Exploration expenses 340 247 Taxes other than income 1,320 1,313 General and administrative 3,877 3,383 Depreciation, depletion, amortization 3,127 3,243 -------- -------- Total expenses $ 10,404 $ 9,696 Operating Income $ 9,224 $ 6,983 Other (Income) Expense: Interest expense $ 1,114 $ 603 Gain on sale of property (32) (22) Other income (1,884) (1,911) -------- -------- Income before income tax $ 10,026 8,313 Income tax expense 2,155 1,519 ------- ------- Net Income $ 7,871 $ 6,794 ------- ------- Net Income per share, primary (Note 2) 0.93 0.79 ------- ------- Weighted average shares outstanding 8,489 8,592 (in thousands) (Note 2)
The accompanying notes are an integral part of these condensed consolidated financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) June 30, December 31, ----------- ------------ 1997 1996 ---------- ----------- (Unaudited) ASSETS Current assets Cash and cash equivalents $ 1,412 $ 1,893 Accounts receivable 3,622 4,856 Current portion of long-term notes receivable 1,239 1,512 Current deferred income taxes 776 776 Recoverable income taxes 199 871 Inventories 241 218 Prepaid expenses 246 210 ------- -------- Total current assets 7,735 10,336 ------- -------- Investments 111,074 97,368 Long-term notes receivable 4,863 5,720 Oil and gas properties; wells and equipment, using the successful efforts method of accounting 142,360 138,184 Other property, plant and equipment 42,196 33,218 Less: Accumulated depreciation, (59,218) (56,110) depletion and amortization --------- --------- Total property, plant and equipment 125,338 115,292 ------- --------- Intangible assets, net of amortization 510 498 Other assets 295 300 Total assets $ 249,815 $ 229,514 --------- ---------
The accompanying notes are an integral part of these condensed consolidated financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) June 30, December 31, ------------ ------------ 1997 1996 (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current installments on long-term debt $ 2,025 $ 2,025 Accounts payable 1,525 1,812 Accrued expenses 3,791 5,543 Deferred liabilities 279 279 Taxes on income 474 8 Total current liabilities 8,094 9,667 Other liabilities 5,318 5,366 Deferred income taxes 38,236 32,859 Long-term debt 32,816 21,233 Minority interest 170 178 Total liabilities 84,634 69,303 Commitments and contingencies - - Shareholders' equity Preferred stock of $100 par value- authorized 100,000 shares; none issued Common stock of $6.25 par value- authorized 16,000,000 shares, issued 8,901,434 shares and 4,450,717 shares in 1997 and 1996, respectively (Note 2) 55,634 27,817 Other paid in capital (Note 2) 8,363 36,138 Retained earnings 47,391 43,240 ------- ------- 111,388 107,879 Less: 627,582 shares in 1997 and 109,477 in 1996 of common stock held in treasury, at cost (Note 2) 14,034 5,575 Pension liability 774 774 Unearned compensation - ESOP 1,750 1,850 Add: Net unrealized investment holding gain 70,351 61,215 ------- ------- Total shareholders' equity 165,181 160,211 ------- ------- Total liabilities and shareholders' equity $249,815 $229,514 -------- --------
The accompanying notes are an integral part of these condensed consolidated financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED CASH FLOW STATEMENTS (Dollars in thousands) Three Months Ended June 30, ------------------ 1997 1996 -------- ------- (Unaudited) Cash flow from operating activities: Net Income $ 3,145 $ 2,537 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization 1,624 1,617 Gain on sale of property, plant and equipment (25) (5) Deferred income taxes - 55 Other (620) (1,094) Decrease in current assets 756 457 Increase (Decrease) in current liabilities 253 525 (Increase) Decrease in other assets (29) 2 Increase (Decrease) in other liabilities (18) (1,086) Decrease in minority interest (4) (3) -------- --------- Net Cash provided by operating activities $ 5,082 $ 3,005 Cash flows from investing activities: Proceeds from the sale of securities $ - $ - Proceeds from notes 1,270 1,432 Proceeds from sale of fixed assets 43 5 Capital expenditures (3,331) (12,712) -------- -------- Net Cash used in investing activities $(2,018) $(11,275) Cash flows from financing activities: Dividends paid $(1,862) $( 1,950) Proceeds from long-term debt borrowings 2,500 19,125 Repayment of long-term debt principal (4,425) (3,875) Purchase of treasury stock - - Issuance of stock 328 329 -------- --------- Net Cash provided by (used in) financing activities $(3,459) $ 13,629 Net increase (decrease) in cash and cash equivalents $ (395) $ 5,359 Cash and cash equivalents-beginning balance 1,806 4,267 -------- -------- Cash and cash equivalents-ending balance $ 1,411 9,626 ------- -------- Supplemental disclosures of cash flow information: Cash paid to date for: Interest $ 765 $ 145 Income taxes 258 848 PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED CASH FLOW STATEMENTS (Dollars in thousands) Six Months Ended June 30, ----------------- 1997 1996 --------- --------- (Unaudited) Cash flow from operating activities: Net Income $7,871 $6,794 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization 3,127 3,243 Gain on sale of property, plant and equipment (32) (22) Deferred income taxes 457 (654) Other (1,322) (1,611) Decrease in current assets 1,176 967 Increase (Decrease) in current liabilities (899) 544 (Increase) Decrease in other assets (44) 3 Increase (Decrease) in other liabilities (48) (728) Decrease in minority interest (8) (7) -------- --------- Net Cash provided by operating activities $10,278 $8,529 Cash flows from investing activities: Proceeds from the sale of securities $ 350 $ - Proceeds from notes 2,500 2,780 Proceeds from sale of fixed assets 69 25 Capital expenditures (13,186) (12,785) --------- -------- Net Cash used in investing activities $(10,267) (9,980) Cash flows from financing activities: Dividends paid $ (3,721) (3,868) Proceeds from long-term debt borrowings 18,513 19,125 Repayment of long-term debt principal (6,967) (7,825) Purchase of treasury stock (8,662) - Issuance of stock 344 652 Net Cash provided by (used in) financing activities $ (493) $ 8,084 --------- -------- Net increase (decrease) in cash and cash equivalents $ (482) $ 6,633 Cash and cash equivalents-beginning balance $ 1,893 $ 2,993 --------- --------- Cash and cash equivalents-ending balance $ 1,411 $ 9,626 --------- --------- Supplemental disclosures of cash flow information: Cash paid to date for: Interest $ 1,177 $ 268 Income taxes 456 1,681
The accompanying notes are an integral part of these condensed consolidated financial statements. PENN VIRGINIA CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1997 - ------------------------------------------------------------ (1) ACCOUNTING POLICIES The accompanying unaudited consolidated financial statements of Penn Virginia Corporation and its subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial reporting and SEC regulations. These statements involve the use of estimates and judgments where appropriate. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the Company's consolidated financial statements and footnotes included in the Company's December 31, 1996 annual report on Form 10-K. Operating results for the six months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ended December 31, 1997. (2) STOCK SPLIT On July 22, 1997, the Board of Directors declared a two-for-one stock split on the Company's common stock effected in the form of a stock dividend to holders of record on August 1, 1997. "Common stock issued" and "Other paid in capital" as of June 30, 1997, have been restated to reflect the stock split. The number of common shares issued at June 30, 1997, after giving effect to the split was 8,901,434 (4,450,717 common shares before the split). All share and per share data have been restated to reflect the stock split. (3) SECURITIES The cost, gross unrealized holding gains or losses and market value for available-for-sale securities at June 30, 1997 were as follows:
Gross Unrealized Cost Holding Gain (loss) ------- ------------------- Available-for-Sale: Norfolk Southern Corporation $2,839 $108,228 Blue Diamond Coal Company 3 4 ------ -------- $2,842 $108,232 Market Market Value Value per Share -------- ------------ Available-for-Sale: Norfolk Southern Corporation $111,067 $100.75 Blue Diamond Coal Company 7 25.375 -------- $111,074
(4) ACQUISITIONS In January 1997, the Company acquired a property in Virginia consisting of 6,500 acres and the mining rights to an additional 13,100 acres. The property contains an estimated 10.5 million recoverable tons of high quality metallurgical and steam coal. Production from the property is ongoing at an annual rate of approximately 1.2 million tons. The purchase price of this property was approximately $7.0 million. In February 1997, Penn Virginia acquired approximately 7.5 million tons of recoverable coal on approximately 4,700 acres adjacent to the Company's Kentucky properties. The coal is high quality, low sulfur coal suitable for the steam market. Production from the property is anticipated to begin in 1998. The purchase price of this property was approximately $1.9 million. (5) LEGAL The Company is involved in various legal proceedings arising in the ordinary course of business. While the ultimate results of these cannot be predicted with certainty, Company management believes these claims will not have a material effect on the Company's financial position, liquidity or operations. (6) EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" which establishes new standards for computing and presenting earnings per share. The provisions of the statement are effective for fiscal years ending after December 15, 1997. If the provisions of SFAS No. 128 had been adopted in the second quarter of 1997 and 1996, basic and diluted earnings per share would not have been materially different from primary and fully diluted earnings per share, respectively, as calculated in accordance with Accounting Principles Board Opinion No. 15 "Earnings per Share." (7) HEDGING ACTIVITIES The Company is currently party to derivative financial instruments to manage its exposure to gas price volatility. The derivative financial instruments, which are placed with a major financial institution that the Company believes is a minimum credit risk, take the form of swaps with purchased options. These derivative financial instruments are designated as hedges and realized gains and losses from the Company's price risk management activities are recognized in gas revenues when the associated production occurs. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - SECOND QUARTERS OF 1997 AND 1996 COMPARED. Penn Virginia reported 1997 second quarter earnings of $3.1 million or $0.37 per share (adjusted for the effect of the two-for-one stock split) compared with $2.5 million or $0.30 per share for the second quarter of 1996. On a consolidated basis, revenues increased $0.6 million in the second quarter of 1996. This increase was a result of increases in coal revenues of $1.5 million, increases in timber revenues of $0.4 million offset by increases in general and administrative and interest expenses. General and administrative expenses increased in the second quarter of 1997 due to the exercise of stock options by former directors and increases in salaries and related employee benefits. Interest expense increased $0.4 million in the second quarter of 1997 as a result of increased bank borrowings under the credit facility. In the first quarter of 1997 the Company sold 750,000 of Westmoreland Coal Company stock. The sale had no significant effect on 1997 earnings as the Company had impaired its investment in Westmoreland stock in 1996. RESULTS OF OPERATIONS - SIX MONTHS OF 1997 AND 1996 COMPARED. Penn Virginia reported 1997 six months earnings of $7.9 million or $0.93 per share (adjusted for the effect of the two-for-one stock split) compared with $6.8 million or $0.79 per share for the six months of 1996. On a consolidated basis, revenues increased $2.9 million, primarily as a result of production increases in the coal segment, enhanced timber production and slight increases in natural gas production. Operating expenses were up $0.2 million in the six months of 1997 compared with 1996. This increase is a result of increased gathering rates in the oil and gas segment. General and administrative expenses increased $0.5 million due to the exercise of stock options by former directors and increases in personnel costs. Interest expense increased $0.5 million as a result of increases in bank borrowings under the credit facility primarily due to the completion of two coal acquisitions and the purchase of treasury stock. Income taxes increased $0.7 million due to an increase in income before tax and a change in the annual effective tax rate from approximately 18 percent in 1996 to 21 percent in 1997. In the second quarter of 1997 Penn Virginia sold 750,000 shares of Westmoreland Coal Company stock. This sale had no significant effect on 1997 earnings as the Company had impaired its investment in Westmoreland stock in 1996. The Company operates in two business segments: coal and oil and gas. The coal segment includes Penn Virginia's mineral rights to coal reserves, its timber and land assets. The oil and gas segment explores for, develops and produces crude oil and natural gas in Western Virginia, southern West Virginia and Eastern Kentucky. The Company also owns mineral rights to oil and gas reserves. Selected operating and financial data by segment is presented below. OIL AND GAS Operating income for the oil and gas segment was $4.2 million for the second quarter year to date of 1997 compared with $4.5 million for the second quarter year to date of 1996. Operational and financial data for the Company's oil and gas segment for the 1997 and 1996 three and six months ended June 30 is summarized in the following tables:
Operations Summary ------------------ Three Months Ended June 30, --------------------- 1997 1996 --------- --------- Production Natural gas (MMcf)-Working Interest 1,760 1,614 Natural gas (MMcf)-Royalty Interest 148 181 Oil and condensate (MBbls) 10 13 Production, Mmcfe 1,968 1,873 Average Realized Prices Natural gas ($/Mcf)- Working Interest $ 2.43 $ 2.69 Natural gas ($/Mcf)- Royalty Interest 2.31 2.33 Oil and condensate ($/Bbl) 16.40 12.85 Average Costs (per MMcfe) Lease operating $ 0.41 $ 0.40 Exploration expenses 0.08 0.06 Taxes other than on income 0.29 0.28 General and administrative 0.37 0.34 Depreciation, depletion and amortization 0.74 0.84 Operations Summary ------------------ Six Months Ended June 30, ------------------ 1997 1996 -------- -------- Production Natural gas (MMcf)-Working Interest 3,495 3,311 Natural gas (MMcf)-Royalty Interest 294 347 Oil and condensate (MBbls) 21 23 Production, Mmcfe 3,915 3,796 Average Realized Prices Natural gas ($/Mcf)- Working Interest $ 2.83 $ 2.93 Natural gas ($/Mcf)- Royalty Interest 2.93 2.79 Oil and condensate ($/Bbl) 18.62 17.61 Average Costs (per MMcfe) Lease operating $ 0.41 $ 0.38 Exploration expenses 0.06 0.05 Taxes other than on income 0.31 0.28 General and administrative 0.35 0.32 Depreciation, depletion and amortization 0.72 0.83
Financial Summary ----------------- Three Months Ended June 30, ---------------- 1997 1996 ------- ------- (Dollars in thousands) (Unaudited) Revenues: Natural gas sales $ 4,284 $ 4,341 Oil and gas royalties 342 422 Oil and condensate 164 238 Other income 169 141 ------- ------- Total revenues $ 4,959 $ 5,142 ------- ------- Expenses: Operating expenses $ 805 $ 747 Exploration expenses 150 114 Taxes other than income 562 531 General and administrative 737 633 Depreciation and depletion 1,455 1,579 ------- ------- Total expenses 3,709 3,604 ------- ------- Operating Income $ 1,250 $ 1,538 ------- ------- Financial Summary ----------------- Six Months Ended June 30, --------------------- 1997 1996 -------- -------- (Dollars in thousands) (Unaudited) Revenues: Natural gas sales $ 9,904 $ 9,703 Oil and gas royalties 862 968 Oil and condensate 391 405 Other income 245 491 Total revenues $11,402 $11,568 Expenses: Operating expenses $ 1,592 $ 1,447 Exploration expenses 234 175 Taxes other than income 1,198 1,073 General and administrative 1,373 1,214 Depreciation and depletion 2,815 3,166 Total expenses 7,211 7,074 Operating Income $ 4,191 $ 4,494
RESULTS OF OPERATIONS - SECOND QUARTERS OF 1997 AND 1996 COMPARED. NATURAL GAS SALES. Natural gas sales were $4.3 million in the second quarter of 1997. This is virtually unchanged compared with the second quarter of 1996. The average price received by the Company for its working interest gas was $2.43 per thousand cubic feet (Mcf) compared with $2.69 per Mcf for the same period of 1996. Gas volumes were up approximately 9 percent in the second quarter of 1997 compared with the second quarter of 1996. OIL AND CONDENSATE SALES. Oil sales decreased $74,000 (31 percent) in the second quarter of 1997 compared with the same period of 1996. Prices per barrel were higher, averaging $16.40 per barrel (Bbl) for second quarter of 1997 compared with $12.85 per Bbl for 1996. As shown on the table above, production was down approximately 23 percent in the second quarter of 1997 compared with the second quarter of 1996. OIL AND GAS ROYALTIES. Oil and gas royalties decreased $80,000 (19 percent) in the second quarter of 1997 compared with the same period of 1996. This variance resulted from a decrease in gas volumes of 33 million cubic feet (MMcf) and a slight decrease in gas prices as shown in the operations summary above. OTHER INCOME. Other income increased $28,000 (20 percent) in the second quarter of 1997 compared with the same period of 1996. This increase is primarily a result of a gain recognized from the disposition of a compressor. OPERATING EXPENSES. Operating expenses for the second quarter of 1997 were $805,000 compared with $747,000 for the second quarter of 1996. This slight increase of 2 percent is largely a result of increased gathering rates on the Columbia and CNG natural gas systems offset by decreases in compressor rentals and repairs and maintenance. EXPLORATION EXPENSES. Exploration expenses increased $36,000 (32 percent) in the second quarter of 1997 compared with the same period of 1996. This increase is a result of additional geological evaluations being performed on certain properties. TAXES OTHER THAN INCOME. Taxes other than on income increased $31,000 (6 percent) in the second quarter of 1997 compared to the same period in 1996 as a result of slight increases in severance, ad valorem and business franchise taxes. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $104,000 (16 percent) in the second quarter of 1997 compared with the second quarter in 1996. The impact of salary increases and related employee benefits increases were the primary factors for this increase. DEPRECIATION AND DEPLETION. Depreciation and depletion expense decreased $124,000 (8 percent) from $1,579,000 in the second quarter of 1996 to $1,455,000 in the second quarter 1997. Increases in reserve estimates at December 31, 1996 have resulted in favorable declines in depletion rates in various fields. The rate decreased from $0.84 per MMcfe in the second quarter of 1996 to $0.74 per MMcfe in the second quarter of 1997. RESULTS OF OPERATIONS - SIX MONTHS OF 1997 AND 1996 COMPARED. NATURAL GAS SALES. Natural gas sales increased from $9,703,000 in the first half of 1996 to $9,904,000 in the first half of 1997. This slight increase of 2 percent is a result of an increase in volume offset by a decrease in price. The natural gas sales volumes for the first half of 1997 were 1,760 Mcf compared with 1,614 Mcf for the first half of 1996. The average price received by the Company for its working interest gas was $2.83 per Mcf compared with $2.93 per Mcf for the same period of 1996. OIL AND CONDENSATE SALES. Oil sales decreased slightly (3 percent) for the first half of 1997 compared with the first half of 1996. This slight decrease resulted from a reduction in volume of 2 MBbls offset by an increase in price per Bbl. The price per Bbl for the first half of 1997 was $18.62 compared with $17.60 per Bbl for the first half of 1996. OIL AND GAS ROYALTIES. Oil and gas royalties decreased $106,000 (11 percent) in the first six months of 1997 compared with the same period in 1996. This decrease resulted from a decline in volume of 53 MMcf offset by an increase in price from $2.79 per Mcf in the first half of 1996 compared with $2.93 per Mcf in the first half of 1997. OTHER INCOME. Other income decreased $246,000 (50 percent) in the first six months of 1997 compared with the same period in 1996. In the first half of 1996 financial results, the Company recognized an additional $189,000 related to the Company's natural gas contract claim settlement with Columbia Gas Transmission Company in 1995. OPERATING EXPENSES. Operating expenses for the first half of 1997 were $1,592,000, which is an increase of $145,000 (10 percent) compared with the first six months of 1996. This increase is largely a result of increased gathering rates on the Columbia and CNG natural gas systems. On an MMcfe basis operating expenses increased slightly from $0.38 cents in the first half of 1996 to $0.41 cents in the first half of 1997. EXPLORATION EXPENSES. Exploration expenses increased $59,000 (34 percent) for the first half of 1997 compared with the first half of 1996. This increase is a result of increased geological evaluations on certain properties. TAXES OTHER THAN INCOME. Taxes other than on income for the first six months of 1997 were $1,198,000 compared with $1,073,000 in the first six months of 1996. This 12 percent increase is a result of increased severance, ad valorem, and business franchise taxes. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $159,000 in the first six months of 1997 compared with the first six months of 1996. This 13 percent increase is primarily a result of salary and related employee benefits expense increases. Legal, auditing and training costs were also up over the comparable period in 1996. DEPRECIATION AND DEPLETION. Depreciation and depletion expense decreased $351,000 (11 percent) from $3,166,000 in the first six months of 1996 compared with $2,815,000 in the first six months of 1997. Increases in reserve estimates at December 31, 1996 have resulted in favorable declines in depletion rates in various fields. The rate decreased from $0.83 per MMcfe in the first half of 1996 to $0.72 per MMcfe in the first half of 1997. Operating income for the coal segment was $5.6 million for the six months of 1997 compared with $2.7 million for the six months of 1996. Operational and financial data for the Company's coal segment for the 1997 and 1996 second quarter and six months year to date summarized in the following tables:
Coal Operations Summary ------------------ Three Months Ended June 30, --------------- 1997 1996 ------- ------ Timber (Mbf) 2,672 1,073 Coal tons (000's) 1,465 816 Average Realized Prices Timber ($/Mbf) $ 211 $ 221 Coal royalties ($/ton) 2.11 2.04 Average Costs (per ton) Lease operating $ 0.07 $ 0.05 Exploration expenses 0.04 0.06 Taxes other than on income 0.03 0.14 General and administrative 0.27 0.40 Depreciation, depletion and amortization 0.10 0.04 Coal Operations Summary ------------------ Six Months Ended June 30, ----------------- 1997 1996 ------- ------ Timber (Mbf) 3,501 1,538 Coal tons (000's) 2,638 1,606 Average Realized Prices Timber ($/Mbf) $ 213 $ 160 Coal royalties ($/ton) 2.18 2.11 Average Costs (per ton) Lease operating $ 0.06 $ 0.04 Exploration expenses 0.04 0.04 Taxes other than on income 0.02 0.11 General and administrative 0.28 0.40 Depreciation, depletion and amortization 0.10 0.04
Financial Summary ----------------- Three Months Ended June 30, ---------------- 1997 1996 ------- ------- (Dollars in thousands) (Unaudited) Coal royalties $ 3,094 $ 1,666 Timber sales 604 196 Other income 70 10 ------- ------- Total revenues 3,768 1,872 ------- ------- Expenses: Operating expenses $ 104 $ 39 Exploration expenses 52 52 Taxes other than income 51 112 General and administrative 396 328 Depreciation and depletion 142 32 ------- ------- Total expenses 745 563 ------- ------- Operating Income $ 3,023 $ 1,309 ------- ------- Financial Summary ----------------- Six Months Ended June 30, ---------------- 1997 1996 ------- ------- (Dollars in thousands) (Unaudited) Coal royalties $ 5,739 $ 3,385 Timber sales 810 270 Other income 355 45 ------- ------- Total revenues 6,904 3,700 ------- ------- Expenses: Operating expenses $ 148 $ 65 Exploration expenses 106 72 Taxes other than income 62 183 General and administrative 741 643 Depreciation and depletion 260 63 ------- ------- Total expenses 1,319 1,025 ------- ------- Operating Income $ 5,585 $ 2,674 ------- -------
RESULTS OF OPERATIONS - SECOND QUARTERS OF 1997 AND 1996 COMPARED. COAL ROYALTIES. Coal royalties increased $1,428,000 (86 percent) in the second quarter of 1997 compared with the same period in 1996. This increase is due to the gradual restoration of the Company's Virginia property to its former levels of production and the production increases realized from the Company's Buchanan property acquired in January, 1997. The average realization per ton increased from $2.04 in the second quarter of 1996 to $2.11 in the second quarter of 1997. TIMBER SALES. Timber sales increased $408,000 (208 percent) in the second quarter of 1997 compared with the second quarter of 1996. Volume sold increased from 1,073 million board feet (Mbf) in the second quarter of 1996 to 2,672 per Mbf in the second quarter of 1997. This increase was primarily due to timber harvested from the Company's Bull Creek property acquired in July 1996. OTHER INCOME. Other income increased $60,000 (600 percent) for the second quarter of 1997 compared with the second quarter of 1996. This increase was related to wheelage and rental income from the newly acquired properties. OPERATING EXPENSES. Operating expenses increased $65,000 (167 percent) from $39,000 in the second quarter of 1996 to $104,000 in the second quarter of 1997. This increase is a result of a change in the method of selling timber. The Company has contracted the harvesting of a portion of its timber and has negotiated the sale of this timber directly with the mill. This sales method has the effect of increasing both the price per Mbf and the operating costs. EXPLORATION EXPENSES. Exploration expenses were $52,000 for the second quarter of 1997, which is unchanged from the comparable time period in 1996. TAXES OTHER THAN INCOME. Taxes other than on income decreased $61,000 (54 percent) from $112,000 in the second quarter of 1996 to $51,000 in the second quarter of 1997. This decrease is a result of lower property taxes. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $68,000 (21 percent) from $328,000 in the second quarter of 1996 to $396,000 in the second quarter of 1997. This increase relates to salary and employee benefit increases. DEPRECIATION AND DEPLETION. Depreciation and depletion increased $110,000 (344 percent) from $32,000 in the second quarter of 1996 to $142,000 in the second quarter of 1997. This increase was due to the production of reserves relinquished by Westmoreland Coal Company and production from the Buchanan property acquired in January 1997. RESULTS OF OPERATIONS - SIX MONTHS OF 1997 AND 1996 COMPARED. COAL ROYALTIES. Coal royalties increased $2.3 million (70 percent) in the first six months of 1997 compared with the same period in 1996. This increase is primarily due to the gradual restoration of the Company's Virginia property to its former levels of production and production from the Company's Buchanan property acquired in January, 1997. The average realization per ton increased from $2.11 in the first half of 1996 to $2.18 in the first half of 1997. TIMBER SALES. Timber sales increased $540,000 (200 percent) in the first half of 1997 compared with the first half of 1996. Volume sold increased to 3,501 Mbf in the first six months of 1997 compared with 1,538 Mbf in the first six months of 1996. This 128 percent increase in volume is due primarily to timber harvested from the Company's Bull Creek property acquired in July, 1996. The average realized price per Mbf also increased from $160 per Mbf in the first half of 1996 to $213 per Mbf in the first half of 1997. OTHER INCOME. Other income increased $310,000 (689 percent) for the six months of 1997 compared with the six months of 1996. This increase is related to bonuses paid by new lessees to secure leases on the Company's Virginia coal properties. OPERATING EXPENSES. Operating expenses increased $83,000 (128 percent) for the six months of 1997 compared with the six months of 1996. This is related to a change in the Company's method of selling timber. The Company has contracted the harvesting of some of its timber and has negotiated the sale of timber products directly with the mill. This sales method has the effect of increasing both the price per Mbf and the operating costs. EXPLORATION EXPENSES. Exploration expenses increased $34,000 (47 percent) for the six months of 1997 compared with the six months of 1996. This increase resulted from an earlier start of the Company's coal core drilling program which began in the winter due to milder weather conditions. TAXES OTHER THAN INCOME. Taxes other than on income decreased $121,000 (66 percent) in the six months of 1997 compared with the six months of 1996. This decrease is a result of an overall decline in the amount of property taxes the Company recognizes. GENERAL AND ADMINISTRATIVE. General and administrative expenses increased $98,000 (15 percent) in the six months of 1997 compared with the six months of 1996. This increase is a result of personnel additions and salary and related employee benefit expense increases. Legal costs are also higher due to additional leasing on the property offset by a decrease in consulting fees. On a unit basis however, general and administrative expense declined from $0.40 per ton in the six months of 1996 to $0.28 per ton in the six months of 1997. DEPRECIATION AND DEPLETION. Depreciation and depletion increased $197,000 (313 percent) in the six months of 1997 compared with the six months of 1996. The depletion rate per ton increased from $0.04 to $40.10. This increase was due to the production of reserves relinquished by Westmoreland Coal Company and production from the Buchanan coal property acquired in January 1997. CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY CAPITAL EXPENDITURES. In the first six months of 1997, capital expenditures totaled $13.2 million compared with $12.6 million in the six months of 1996. The Company successfully completed two coal reserve acquisitions in the second quarter of 1997. In January, a transaction was completed for a property in Virginia. The Company acquired 10.5 million tons of high quality metallurgical coal reserves which have been leased to an operator and which are actively being mined and sold under contract by the operator. The purchase price was approximately $7.0 million. In February, the Company acquired 7.5 million tons of coal contiguous to its existing Virginia reserves for approximately $1.9 million. The reserves have been leased to an operator. The Company expects the operator to begin production in 1998. In the oil and gas segment the Company has had capital expenditures totaling approximately $4.1 million in the first six months of 1997. The Company has drilled 33 gross (26.4 net) wells in the first half of the year. Of these, 17 gross (12.5 net) are on line and producing. The Company expects to drill over 60 wells in 1997, with approximately 15 to 20 wells in exploratory areas. CAPITAL RESOURCES AND LIQUIDITY. Net cash provided by operating activities was $10.3 million in the six months of 1997 compared with $8.5 million in the six months of 1996. The Company's borrowings increased from $23.2 million at the end of 1996 to $34.8 million at June 30, 1997. During the second quarter of 1997, the Company renegotiated its $50.0 million senior unsecured revolving credit facility with a group of banks. The facility was increased to $75 million. This combination provided the Company with the cash necessary to complete two coal acquisitions in January and February, pay a quarterly dividend of $0.225 per share and also to acquire $8.7 million (210,308 shares) of the Company's common stock. The Company purchased the 210,308 shares when Interkohle Beteiligungsgesellschaft mbH (VEBA) sold its approximate twenty percent holding of Penn Virginia's outstanding common stock. The VEBA shares were broadly distributed to various financial institutions and mutual funds. The Board of Directors and senior management also participated in the purchase. The Company has entered into three fixed-price term contracts with respect to a portion of its natural gas production to limit exposure to price fluctuations. Presently, the Company has sold approximately 13,000 net Mcf per day at a weighted average price in excess of $2.50 per Mcf. These physical sales cover various periods from February 1997 to December 1997. Additionally, the Company entered into a natural gas derivative transaction in April. The financial instruments executed provide a price floor to limit downside price risk and a market participation price that allows the Company to receive the benefit of a price upturn. The financial transaction is for 5,000 MMBtu per day with a floor of approximately $2.10 per MMBtu and market re-opener at $2.48 per MMBtu with a term from May 1997 through October 1999. SUBSEQUENT EVENTS. On July 22, 1997 the Board of Directors declared a two-for-one stock split. Shareholders of record on August 1, 1997 will be sent their additional shares on or about August 15, 1997. At the same time the Board authorized the Company to apply to list its common shares for trading on the New York Stock Exchange. The Company's stock is expected to be available for trading on the New York Stock Exchange before year end. These two actions were taken to benefit the Company's shareholders by facilitating a wider distribution of shares. The stock split is expected to reduce the market price per share making the stock more affordable for investors. FORWARD-LOOKING STATEMENTS. Statements included in this report which are not historical facts (including any statements concerning plans and objectives of management for future operations or economic performance, or assumptions related thereto) are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A o f the Securities Act of 1933, as amended. In addition, Penn Virginia and its representatives may from time to time make other oral or written statements which are also forward-looking statements. Such forward-looking statements include, among other things, statements regarding development activities, capital expenditures, acquisitions and dispositions, drilling and exploration programs, expected commencement dates of coal mining or oil and gas production, projected quantities of future oil and gas production by Penn Virginia, projected quantities of future coal production by the Company's lessees producing coal from reserves leased from Penn Virginia, costs and expenditures as well as projected demand or supply for coal and oil and gas, which will affect sales levels, prices and royalties realized by Penn Virginia. These forward-looking statements are made based upon management's current plans, expectations, estimates, assumptions and beliefs concerning future events impacting Penn Virginia and therefore involve a number of risks and uncertainties. Penn Virginia cautions that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward- looking statements. Important factors that could cause the actual results of operations or financial condition of Penn Virginia to differ include, but are not necessarily limited to: the cost of finding and successfully developing oil and gas reserves; the cost of finding new coal reserves; the ability to acquire new oil and gas and coal reserves on satisfactory terms; the price for which such reserves can be sold; the volatility of commodity prices for oil and gas and coal; the risks associated with having or not having price risk management programs; Penn Virginia's ability to lease new and existing coal reserves; the ability of Penn Virginia's lessees to produce sufficient quantities of coal on an economic basis from Penn Virginia's reserves; the ability of lessees to obtain favorable contracts for coal produced from Penn Virginia reserves; Penn Virginia's ability to obtain adequate pipeline transportation capacity for its oil and gas production; competition among producers in the coal and oil and gas industries generally and in the Appalachian Basin in particular; the extent to which the amount and quality of actual production differs from estimated recoverable coal reserves and proved oil and gas reserves; unanticipated geological problems; availability of required materials and equipment; the occurrence of unusual weather or operating conditions including force majeure or events; the failure of equipment or processes to operate in accordance with specifications or expectations; delays in anticipated start-up dates; environmental risks affecting the drilling and producing of oil and gas wells or the mining of coal reserves; the timing of receipt of necessary governmental permits; labor relations and costs; accidents; changes in governmental regulation or enforcement practices, especially with respect to environmental, health and safety matters, including with respect to emissions levels applicable to coal-burning power generators; risks and uncertainties relating to general domestic and international economic (including inflation and interest rates) and political conditions; the experience and financial condition of lessees of coal reserves, joint venture partners and purchasers of reserves in transactions financed by Penn Virginia, including their ability to satisfy their royalty, environmental, reclamation and other obligations to Penn Virginia and others; changes in financial market conditions; changes in the market prices or value of the marketable securities owned by Penn Virginia, including the price of Norfolk Southern common stock and other risk factors detailed in Penn Virginia's Securities and Exchange commission filings. Many of such factors are beyond Penn Virginia's ability to control or predict. Readers are cautioned not to put undue reliance on forward-looking statements. While Penn Virginia periodically reassesses material trends and uncertainties affecting Penn Virginia's results of operations and financial condition in connection with the preparation of Management's Discussion and Analysis of Results of Operations and Financial Condition and certain other sections contained in Penn Virginia's quarterly, annual or other reports filed with the Securities and Exchange Commission, Penn Virginia does not intend to publicly review or update any particular forward-looking statement, whether as a result of new information, future events or otherwise. PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27) Financial Data Schedule, filed herewith. (b) Reports on Form 8-K No reports on Form 8-K were filed for the quarter ended June 30, 1997 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PENN VIRGINIA CORPORATION Date: August 14, 1997 By:__________________________________ -------------------- Steven Tholen, Vice President, CFO Principal Financial Officer Date: August 14, 1997 By:__________________________________ ------------------ Ann Horton, Controller PENN VIRGINIA CORPORATION INDEX _________________________________________________________________ PAGE PART I Financial Information: Item 1. Financial Statements Condensed Consolidated Statements of Income for the three 1 and six months ended June 30, 1997 and 1996 Condensed Consolidated Balance Sheets as of June 30, 1997 and 2 December 31, 1996 Condensed Consolidated Statements of Cash Flows for the three 4 and six months ended June 30, 1997 and 1996 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 PART II Other Information Item 6. Exhibits and Reports on Form 8-K 13 EX-27 2 ART. 5 FDS FOR 3RD QUARTER 10-Q
5 1000 6-MOS DEC-31-1997 JUN-30-1997 1,412 0 4,861 0 241 7,735 184,556 59,218 249,815 8,094 0 0 0 27,817 137,364 249,815 11,085 19,628 1,740 1,740 8,664 0 1,114 10,026 2,155 7,871 0 0 0 7,871 0.93 0.93
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