-----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, PdPPexfkGfBwKXmePxI2e8VfV/Qq/sQSvAp+ZnQmuf9LJFMnejRZY5Tt39LkKhIt GPvxIzyfH27OiLI7qrM3Ug== 0000077159-97-000034.txt : 19971117 0000077159-97-000034.hdr.sgml : 19971117 ACCESSION NUMBER: 0000077159-97-000034 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NYSE 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: SEC FILE NUMBER: 000-00753 FILM NUMBER: 97721770 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 9/30/97 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 September 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 November 5, 1997: 8,274,089 PENN VIRGINIA CORPORATION INDEX
PAGE PART I Financial Information: Item 1. Financial Statements Condensed Consolidated Statements of Income for the three and nine months ended September 30, 1997 and 1996 1 Condensed Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996 2 Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, 1997 and 1996 4 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
PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share amounts)
Three Months Nine Months Ended September 30, Ended September 30, --------------------- -------------------- 1997 1996 1997 1996 --------- -------- --------- --------- (Unaudited) (Unaudited) Revenues: Natural gas $ 4,091 $ 4,322 $ 13,995 $ 14,025 Oil and condensate 149 198 540 603 Natural gas royalties 341 429 1,203 1,397 Coal royalties 2,859 1,525 8,598 4,910 Timber 539 188 1,349 458 Dividends 662 721 1,985 2,132 Other income 90 128 689 665 ------- ------- -------- ------- Total revenues $ 8,731 $ 7,511 $ 28,359 $ 24,190 Expenses: Operating expenses $ 1,001 $ 819 $ 2,741 $ 2,329 Exploration expenses 472 210 812 457 Taxes other than income 455 592 1,775 1,905 General and administrative 1,727 1,882 5,604 5,265 Depreciation, depletion, Amortization 1,534 1,669 4,661 4,912 ------- ------- -------- -------- Total expenses $ 5,189 $ 5,172 $ 15,593 $ 14,868 Operating Income $ 3,542 $ 2,339 $ 2,766 $ 9,322 Other (Income) Expense: Interest expense $ 568 $ 491 $ 1,682 $ 1,094 Gain on sale of property (22) (2) (54) (24) Other income (985) (1,429) (2,869) (3,340) -------- ------- -------- -------- Income before income tax $ 3,981 $ 3,279 $ 14,007 $ 11,592 Income tax expense 892 583 3,047 2,102 ------- ------ ------- ------- Net Income $ 3,089 $ 2,696 $ 10,960 $ 9,490 ------- ------- -------- -------- Net Income per share, primary (Note 2) 0.36 0.31 1.29 1.10 ------- ------- ------- ------ Weighted average shares outstanding (in thousands) (Note 2) 8,274 8,682 8,311 8,620
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)
September 30, December 31, ------------- ------------ 1997 1996 ------------- ------------ (Unaudited) ASSETS Current assets Cash and cash equivalents $ 1,070 $ 1,893 Accounts receivable 3,551 4,856 Current portion of long-term notes receivable 1,238 1,512 Current deferred income taxes 776 776 Recoverable income taxes 871 Inventories 235 218 Prepaid expenses 126 210 -------- -------- Total current assets 6,996 10,336 -------- -------- Investments 113,831 97,368 Long-term notes receivable 4,578 5,720 Oil and gas properties; wells and equipment, using the successful efforts method of accounting 146,738 138,184 Other property, plant and equipment 42,198 33,218 Less: Accumulated depreciation, depletion and amortization (60,731) (56,110) --------- -------- Total property, plant and equipment 128,205 115,292 -------- -------- Intangible assets, net of amortization 508 498 Other assets 311 300 Total assets $ 254,429 $ 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)
September 30, December 31, ------------- ------------ 1997 1996 ------------- ------------ (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current installments on long-term debt $ 2,025 $ 2,025 Accounts payable 1,892 1,812 Accrued expenses 3,523 5,543 Deferred liabilities 279 279 Taxes on income 332 8 ------- ------- Total current liabilities 8,051 9,667 ------- ------- Other liabilities 5,272 5,366 Deferred income taxes 39,936 32,859 Long-term debt 32,709 21,233 ------- ------- Total liabilities 85,968 69,125 ------- ------- Commitments and contingencies - - Minority interest 166 178 ------- ------- 166 178 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) 8,396 36,138 Retained earnings 48,619 43,240 -------- -------- 112,649 107,195 Less: 627,345 shares in 1997 and 109,477 in 1996 of common stock held in treasury, at cost (Note 2) 14,023 5,575 Pension liability 774 774 Unearned compensation - ESOP 1,700 1,850 Add: Net unrealized investment holding gain 72,143 61,215 ------- ------- Total shareholders' equity 168,295 160,211 Total liabilities and shareholders' equity $254,429 $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 September 30, -------------------- 1997 1996 --------- --------- (Unaudited) Cash flow from operating activities: Net Income $ 3,089 $ 2,696 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization 1,534 1,669 Gain on sale of property, plant and equipment (22) (3) Deferred income taxes 735 282 Other (473) (916) Decrease in current assets 1,067 656 Increase (Decrease) in current liabilities (714) 2,247 (Increase) Decrease in other assets (35) (132) Increase (Decrease) in other liabilities (46) (1,173) Decrease in minority interest (4) (5) -------- -------- Net Cash provided by operating activities $ 5,131 $ 5,321 -------- -------- Cash flows from investing activities: Proceeds from the sale of securities $ - $ 3,000 Proceeds from notes 1,018 591 Proceeds from sale of fixed assets 23 143 Capital expenditures (4,622) (12,353) --------- --------- Net Cash used in investing activities $ (3,581) $ (8,619) Cash flows from financing activities: Dividends paid $ (1,861) $ (1,957) Proceeds from long-term debt borrowings 1,800 3,679 Repayment of long-term debt principal (1,925) (3,575) Purchase of treasury stock (386) - Issuance of stock 481 - ---------- --------- Net Cash provided by (used in) financing activities $ (1,891) $ (1,853) ---------- --------- Net increase (decrease) in cash and cash equivalents $ (341) $ (5,151) Cash and cash equivalents-beginning balance 1,411 9,626 --------- ------- Cash and cash equivalents-ending balance $ 1,070 $ 4,475 --------- -------- Supplemental disclosures of cash flow information: Cash paid to date for: Interest $ 516 $ 337 Income taxes 100 598 Nine Months Ended September 30, 1997 1996 --------- --------- (Unaudited) Cash flow from operating activities: Net Income $ 10,960 $ 9,490 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization 4,661 4,912 Gain on sale of property, plant and equipment (54) (25) Deferred income taxes 1,192 (372) Other (1,795) (2,527) Decrease in current assets 2,243 1,623 Increase (Decrease) in current liabilities (1,613) 2,791 (Increase) Decrease in other assets (79) (129) Increase (Decrease) in other liabilities (94) (1,901) Decrease in minority interest (12) (12) -------- ------- Net Cash provided by operating activities $ 15,409 $13,850 -------- ------- Cash flows from investing activities: Proceeds from the sale of securities $ 350 $ 3,000 Proceeds from notes 3,518 3,371 Proceeds from sale of fixed assets 92 168 Capital expenditures (17,808) (25,138) --------- -------- Net Cash used in investing activities $ (13,848) $(18,599) Cash flows from financing activities: Dividends paid $ (5,582) $ (5,825) Proceeds from long-term debt borrowings 20,313 22,804 Repayment of long-term debt principal (8,892) (11,400) Purchase of treasury stock (8,728) - Issuance of stock 505 652 ---------- --------- Net Cash provided by (used in) financing activities $ (2,384) $ 6,231 ---------- --------- Net increase (decrease) in cash and cash equivalents $ (823) $ 1,482 Cash and cash equivalents-beginning balance 1,893 $ 2,993 --------- ------- Cash and cash equivalents-ending balance $ 1,070 $ 4,475 --------- -------- Supplemental disclosures of cash flow information: Cash paid to date for: Interest $ 1,693 $ 605 Income taxes 556 2,279
The accompanying notes are an integral part of these condensed consolidated financial statements. PENN VIRGINIA CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 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 nine months ended September 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. The number of common shares issued at September 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 September 30, 1997 were as follows (in thousands):
Gross Unrealized Market Cost Holding Gain Value ----- ---------------- ------ Available-for-Sale: Norfolk Southern Corporation $2,839 $110,984 $113,823 Blue Diamond Coal Company 3 5 8 ------ -------- -------- $2,842 $110,989 $113,831
(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 third 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 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 - Third quarters of 1997 and 1996 Compared. Penn Virginia reported 1997 third quarter earnings of $3.1 million or $0.36 per share compared with $2.7 million or $0.31 per share for the third quarter of 1996. On a consolidated basis, revenues increased $0.6 million in the third 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 third quarter of 1997 due to increases in salaries and related employee benefits, as well as fees paid to list the Company's shares of common stock for trading on the New York Stock Exchange. Interest expense increased $0.4 million in the third 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 shares of Westmoreland Coal Company (Westmoreland) stock. The sale had no significant effect on 1997 earnings as the Company impaired its investment in Westmoreland stock in 1996. Results of Operations - Nine Months of 1997 and 1996 Compared. Penn Virginia reported 1997 nine months earnings of $11.0 million or $1.29 per share compared with $9.5 million or $1.10 per share for the nine months of 1996. On a consolidated basis, revenues increased $4.2 million, primarily as a result of production increases in the coal segment and enhanced timber production. Operating expenses were up $0.4 million in the nine months of 1997 compared with 1996. This increase is a result of increased gathering rates in the oil and gas segment in addition to increased timber operating costs as the Company contracted timber harvesting in 1997. General and administrative expenses increased $0.3 million due to increases in personnel costs, as well as fees paid to list the Company's shares of common stock for trading on the New York Stock Exchange. Interest expense increased $0.7 million as a result of increased bank borrowings under the credit facility primarily due to the completion of two coal acquisitions and the purchase of treasury stock. Income taxes increased $0.9 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 22 percent in 1997. In the first quarter of 1997 Penn Virginia sold 750,000 shares of Westmoreland stock. This sale had no significant effect on 1997 earnings as the Company impaired its investment in Westmoreland stock in 1996. The Company operates in two business segments: oil and gas and coal. 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 coal segment includes Penn Virginia's mineral rights to coal reserves, its timber and land assets. 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 $5.2 million for the third quarter year to date of 1997 compared with $5.9 million for the third quarter year to date of 1996. Operational and financial data for the Company's oil and gas segment for the 1997 and 1996 three and nine months ended September 30 is summarized in the following tables:
Operations Summary ------------------------- Three Months Nine Months Ended Ended September 30, September 30, --------------- ------------- 1997 1996 1997 1996 ---- ---- ---- ---- Production Natural gas (MMcf)-Working Interest 1,654 1,669 5,149 4,980 Natural gas (MMcf)-Royalty Interest 139 168 433 515 Oil and condensate (MBbls) 9 12 30 35 Production, MMcfe 1,847 1,909 5,762 5,705 Average Realized Prices Natural gas ($/Mcf)- Working Interest $ 2.47 $ 2.59 $ 2.72 $ 2.82 Natural gas ($/Mcf)- Royalty Interest 2.45 2.55 2.78 2.71 Oil and condensate ($/Bbl) 16.56 16.50 18.00 17.23 Average Costs (per MMcfe) Lease operating $ 0.48 $ 0.41 $ .43 $ 0.39 Exploration expenses 0.19 0.04 0.10 0.04 Taxes other than on income 0.20 0.25 0.27 0.27 General and administrative 0.33 0.34 0.34 0.33 Depreciation, depletion and amortization 0.75 0.85 0.73 0.84 ----- ----- ----- ----- Total costs $ 1.95 $ 1.89 $ 1.87 $ 1.87
Approximately 40 percent of the Company's 1997 working interest natural gas production was sold at market prices, with the remaining 60 percent sold under fixed-price term contracts. The Company will, when circumstances warrant, hedge the price received for market-sensitive production through the use of swaps with purchased options. Gains and losses from hedging activities are included in natural gas revenues when the hedged production occurs. In the third quarter of 1997, the Company recognized a $57,000 loss on hedging activities. Year-to-date the Company has recognized losses of $0.2 million on hedging activities. The Company had no comparable hedging activities in 1996. The following table shows the effect of hedging activities on the Company's working interest natural gas prices:
Hedging Summary ------------------- Three Months Ended September 30, ------------------- 1997 1996 --------- --------- Natural gas prices ($/Mcf): Actual price received for production $ 2.50 $ - Effect of hedging activities (0.03) - ------- ----- Average price $ 2.47 $ - Nine Months Ended September 30, ------------------- 1997 1996 -------- -------- Natural gas prices ($/Mcf): Actual price received for production $ 2.76 $ - Effect of hedging activities (0.04) - ------- ----- Average price $ 2.72 $ -
Financial Summary ------------------- Three Months Ended September 30, ------------------- 1997 1996 -------- -------- (Dollars in thousands) Revenues: Natural gas sales $ 4,091 $ 4,322 Oil and gas royalties 341 429 Oil and condensate 149 198 Other income 54 113 -------- -------- Total revenues $ 4,635 $ 5,062 Expenses: Operating expenses $ 890 $ 785 Exploration expenses 350 78 Taxes other than income 371 473 General and administrative 610 653 Depreciation and depletion 1,383 1,617 -------- -------- Total expenses 3,604 3,606 -------- -------- Operating Income $ 1,031 $ 1,456 -------- -------- Nine Months Ended September 30, ------------------- 1997 1996 -------- -------- (Dollars in thousands) Revenues: Natural gas sales $ 13,995 $ 14,025 Oil and gas royalties 1,203 1,397 Oil and condensate 540 603 Other income 299 604 --------- ------- Total revenues $ 16,037 $ 16,629 --------- --------- Expenses: Operating expenses $ 2,482 $ 2,232 Exploration expenses 584 253 Taxes other than income 1,569 1,546 General and administrative 1,983 1,867 Depreciation and depletion 4,198 4,783 -------- -------- Total expenses 10,816 10,681 -------- -------- Operating Income $ 5,221 $ 5,948 -------- --------
Results of Operations - Third quarters of 1997 and 1996 Compared. Natural Gas. Natural gas sales were $4.1 million in the third quarter of 1997 compared with $4.3 million for the third quarter of 1996. The average price received by the Company for its working interest gas was $2.47 per thousand cubic feet (Mcf) compared with $2.59 per Mcf for the same period of 1996. Gas volumes were virtually unchanged in the third quarter of 1997 compared with the third quarter of 1996. Oil and Condensate. Oil sales decreased $49,000 (25 percent) in the third quarter of 1997 compared with the same period of 1996. Prices per barrel were higher, averaging $16.56 per barrel (Bbl) for third quarter of 1997 compared with $16.50 per Bbl for 1996. As shown on the table above, production was down approximately 25 percent in the third quarter of 1997 compared with the third quarter of 1996. Oil and Gas Royalties. Oil and gas royalties decreased $88,000 (21 percent) in the third quarter of 1997 compared with the same period of 1996. This variance resulted from a decrease in natural gas volumes of 29 million cubic feet (MMcf) and a decrease in the average realized gas prices as shown in the operations summary above. Other Income. Other income decreased $59,000 (52 percent) in the third quarter of 1997 compared with the same period of 1996. This decrease is a result of lower gathering and compression fees received by the Company due to decreases in production. Operating Expenses. Operating expenses for the third quarter of 1997 were $890,000 compared with $785,000 for the third quarter of 1996. This increase is largely a result of increased gathering rates on the Columbia and CNG natural gas systems partially offset by decreases in compressor rentals. Exploration Expenses. Exploration expenses increased $272,000 (349 percent) in the third quarter of 1997 compared with the same period of 1996. This increase is a result of two dry holes the Company drilled in 1997. Taxes other than Income. Taxes other than on income decreased $102,000 (22 percent) in the third quarter of 1997 compared to the same period in 1996. This decrease results from a decline in oil and gas revenues for the quarter compared with 1996. General and Administrative. General and administrative expenses decreased $43,000 (7 percent) in the third quarter of 1997 compared with the third quarter in 1996. Depreciation and Depletion. Depreciation and depletion expense decreased $234,000 (14 percent) from $1,617,000 in the third quarter of 1996 to $1,383,000 in the third quarter 1997. Increases in reserve estimates at December 31, 1996 have resulted in declines of depletion rates in various fields. The rate decreased from $0.85 per MMcfe in the third quarter of 1996 to $0.75 per MMcfe in the third quarter of 1997. Results of Operations - Nine Months of 1997 and 1996 Compared. Natural Gas Sales. Natural gas sales decreased from $14,025,000 in the first nine months of 1996 to $13,995,000 in the first nine months of 1997. This slight decrease of two percent is a result of an increase in volume offset by a decrease in pricing. The natural gas sales volumes for the first nine months of 1997 were 5,149 MMcf compared with 4,980 MMcf for the first nine months of 1996. The average price received by the Company for its working interest gas was $2.72 per Mcf compared with $2.82 per Mcf for the same period of 1996. Oil and Condensate Sales. Oil sales decreased $63,000 (10 percent) for the first nine months of 1997 compared with the first nine months of 1996. This decrease resulted from a reduction in volume of five MBbls offset by an increase in price per Bbl. The price per Bbl for the first nine months of 1997 was $18.00 compared with $17.23 per Bbl for the first nine months of 1996. Oil and Gas Royalties. Oil and gas royalties decreased $194,000 (32 percent) in the first nine months of 1997 compared with the same period in 1996. This decrease resulted from a decline in volume of 82 MMcf offset by an increase in price from $2.71 per Mcf in the first nine months of 1996 compared with $2.78 per Mcf in the first nine months of 1997. Other Income. Other income decreased $305,000 (51 percent) in the first nine months of 1997 compared with the same period in 1996. In the first nine months of 1996, 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 nine months of 1997 were $2,482,000, which is an increase of $250,000 (11 percent) compared with the first nine 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 from $0.39 cents in the first nine months of 1996 to $0.43 cents in the first nine months of 1997. Exploration Expenses. Exploration expenses increased $331,000 (131 percent) for the first nine months of 1997 compared with the first nine months of 1996. This increase is a result of two dry holes the Company drilled in 1997. Taxes other than Income. Taxes other than on income for the first nine months of 1997 were virtually unchanged. General and Administrative. General and administrative expenses increased $116,000 in the first nine months of 1997 compared with the first nine months of 1996. This 16 percent increase is primarily a result of salary and related employee benefits expense increases. Legal, audit and training costs were also up over the comparable period in 1996. Depreciation and Depletion. Depreciation and depletion expense decreased $585,000 (12 percent) from $4,783,000 in the first nine months of 1996 compared with $4,198,000 in the first nine months of 1997. Increases in reserve estimates at December 31, 1996 have resulted in declines of depletion rates in various fields. The rate decreased from $0.84 per MMcfe in the first nine months of 1996 to $0.73 per MMcfe in the first nine months of 1997. Coal Operating income for the coal segment was $8.2 million for the nine months of 1997 compared with $3.7 million for the nine months of 1996. Operational and financial data for the Company's coal segment for the 1997 and 1996 third quarter and nine months year to date is summarized in the following tables:
Operations Summary --------------------------- Three Months Nine Months Ended Ended September 30, September 30, ------------ ------------- 1997 1996 1997 1996 ------ ----- ----- ----- Production Coal tons (000's) 1,351 752 3,989 2,358 Timber (Mbf) 2,436 1,038 5,937 2,576 Average Realized Prices Coal royalties ($/ton) $ 2.12 $ 2.03 $ 2.16 $ 2.08 Timber ($/Mbf) 204 181 209 165 Average Costs (per ton) Lease operating $ 0.08 $ 0.04 $ 0.07 $ 0.04 Exploration expenses 0.09 0.18 0.06 0.09 Taxes other than on income 0.05 0.14 0.03 0.12 General and administrative 0.30 0.47 0.29 0.42 Depreciation, depletion and amortization 0.09 0.04 0.10 0.04 ------ ------ ------ ------ Total costs $ 0.61 $ 0.87 $ 0.55 $ 0.71
Financial Summary -------------------------------- Three Months Nine Months Ended Ended September 30, September 30, --------------- --------------- 1997 1996 1997 1996 ------- ------- ------- ------- (Dollars in thousands) Revenues: Coal royalties $ 2,859 $ 1,525 $ 8,598 $ 4,910 Timber sales 539 188 1,349 458 Other income 35 16 390 61 ------- ------- ------- ------- Total revenues 3,433 1,729 10,337 5,429 ------- ------- ------- ------- Expenses: Operating expenses $ 112 $ 32 $ 260 $ 97 Exploration expenses 121 132 227 204 Taxes other than income 61 103 123 286 General and administrative 400 357 1,141 1,000 Depreciation and depletion 123 31 383 94 ------- ------- ------- ------- Total expenses 817 655 2,134 1,681 ------- ------- ------- ------- Operating Income $ 2,616 $ 1,074 $ 8,203 $ 3,748 ------- ------- ------- -------
Results of Operations - Third quarters of 1997 and 1996 Compared. Coal Royalties. Coal royalties increased $1,334,000 (87 percent) in the third 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 third quarter of 1996 to $2.12 in the third quarter of 1997. Timber. Timber sales increased $351,000 (187 percent) in the third quarter of 1997 compared with the third quarter of 1996. Volume sold increased from 1,038 thousand board feet (Mbf) in the third quarter of 1996 to 2,436 per Mbf in the third quarter of 1997. This increase was primarily due to timber harvested from the Company's Bull Creek property acquired in July 1996 and timber harvested in advance of expected mining operations. Other Income. Other income increased $19,000 (119 percent) for the third quarter of 1997 compared with the third quarter of 1996. This increase was related to wheelage and rental income from the newly acquired properties. Operating Expenses. Operating expenses increased $80,000 (250 percent) from $32,000 in the third quarter of 1996 to $112,000 in the third 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 $121,000 for the third quarter of 1997, which is a decrease of eight percent from the comparable 1996 time period. This decrease in the third quarter is a result of timing related to Company's core drilling program. Taxes other than Income. Taxes other than on income decreased $42,000 (41 percent) from $103,000 in the third quarter of 1996 to $61,000 in the third quarter of 1997. This decrease is a result of an overall decline in the amount of property and franchise taxes the Company recognizes. General and Administrative. General and administrative expenses increased $43,000 (12 percent) from $357,000 in the third quarter of 1996 to $400,000 in the third quarter of 1997. This increase relates to salary and employee benefit increases and an increase in legal fees. Depreciation and Depletion. Depreciation and depletion increased $92,000 (297 percent) from $31,000 in the third quarter of 1996 to $123,000 in the third quarter of 1997. This increase was due to the production of reserves relinquished by Westmoreland and production from the Buchanan property acquired in January 1997. Results of Operations - Nine Months of 1997 and 1996 Compared. Coal Royalties. Coal royalties increased $3.7 million (75 percent) in the first nine 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 $2.08 in the first nine months of 1996 to $2.16 in the first nine months of 1997. Timber. Timber sales increased $891,000 (195 percent) in the first nine months of 1997 compared with the first nine months of 1996. Volume sold increased to 5,937 Mbf in the first nine months of 1997 compared with 2,576 Mbf in the first nine months of 1996. This 130 percent increase in volume is due primarily to timber harvested from the Company's Bull Creek property acquired in July 1996 and timber harvested in advance of expected mining operations. The average realized price per Mbf also increased from $165 per Mbf in the first nine months of 1996 to $209 per Mbf in the first nine months of 1997. Other Income. Other income increased $329,000 (539 percent) for the first nine months of 1997 compared with the first nine 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 $163,000 (168 percent) for the first nine months of 1997 compared with first nine 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 $23,000 (11 percent) for the first nine months of 1997 compared with the first nine 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 $163,000 (57 percent) in the first nine months of 1997 compared with the first nine months of 1996. This decrease is a result of an overall decline in the amount of property and franchise taxes the Company recognizes. General and Administrative. General and administrative expenses increased $141,000 (14 percent) in the first nine months of 1997 compared with the first nine 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 $0.42 per ton in the nine months of 1996 to $0.29 per ton in the nine months of 1997. Depreciation and Depletion. Depreciation and depletion increased $289,000 (307 percent) in the first nine months of 1997 compared with the first nine months of 1996. The depletion rate per ton increased from $0.04 to $0.10. This increase was due to the production of reserves relinquished by Westmoreland and production from the Buchanan coal property acquired in January 1997. Capital Expenditures, Capital Resources and Liquidity Capital Expenditures. In the first nine months of 1997, capital expenditures totaled $13.2 million compared with $12.6 million in the first nine months of 1996. The Company successfully completed two coal reserve acquisitions in 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 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, with production by the operator expected to begin in 1998. In the oil and gas segment the Company has had capital expenditures totaling approximately $8.8 million in the first nine months of 1997. The Company has drilled 33 gross (26.4 net) wells in the first nine months 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 first nine months of 1997 compared with $8.5 million in the first nine months of 1996. The Company's borrowings increased from $23.2 million at the end of 1996 to $34.8 million at September 30, 1997. During the third quarter of 1997, the Company renegotiated its $50 million senior unsecured revolving credit facility with a group of banks, increasing the borrowing base from $50 million to $75 million (Item 6). This combination enabled the Company to complete two coal acquisitions in January and February, pay a quarterly dividend of $0.225 per share 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 six fixed-price term agreements with respect to a portion of its natural gas production to limit exposure to price fluctuations. Presently, the Company has sold approximately 9,000 net Mcf per day at a weighted average price in excess of $2.80 per Mcf. These physical sales cover various periods from October 1997 to December 1998. Additionally, the Company entered into two natural gas derivative transactions. 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. One 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. The second transaction is also for 5,000 MMBtu per day with a floor of approximately $2.10 per MMBtu and market re-opener at $2.35 per MMBtu with a term from November 1997 through October 1999. The Company also holds an investment in Norfolk Southern common stock. At September 30, 1997, the Company had an unrealized holding gain of approximately $111.0 million. The Company experienced a set back in the development of its Bull Creek property which was acquired in July of 1996, when the construction and mining company that leased the reserves filed for Chapter 11 bankruptcy protection in the third quarter. Although no mining had begun on the property, it was scheduled to start in early 1998 with an expected annual production of approximately one million tons. The Company anticipates that a new operator will take over operations, but the timing of the transition in uncertain. 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 of 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 September 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: November 14, 1997 By: /s/ Steven W. Tholen ------------------------------- Steven W. Tholen, Vice President, Chief Financial Officer Date: November 14, 1997 By: /s/ Ann N. Horton ------------------------------- Ann N. Horton, Controller EX-27 2 ART. 5 FDS FOR THIRD QUARTER 10-Q
5 1000 9-MOS DEC-31-1997 SEP-30-1997 1,070 0 3,551 0 235 6,996 188,936 60,731 254,429 8,051 0 0 0 55,634 112,661 254,429 15,884 28,359 2,741 2,741 12,852 0 1,682 14,007 3,047 10,960 0 0 0 10,960 1.29 1.29
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