-----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, JWIibNTCPWYUpWXQQ2LdyEVU7XDjnADqdrwse61vF9jq+nIIR8gikXgP0BbSEvIb 6ADwmCoXHu0j8lRUExrBWg== 0000077159-98-000118.txt : 19981116 0000077159-98-000118.hdr.sgml : 19981116 ACCESSION NUMBER: 0000077159-98-000118 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 001-13283 FILM NUMBER: 98746546 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 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, 1998 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 4, 1998: 8,964,767 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, ------------------- ------------------- 1998 1997 1998 1997 ------ ------ ------- ------- (Unaudited) (Unaudited) Revenues: Natural gas $4,715 $4,091 $14,373 $13,995 Oil and condensate 47 149 260 540 Natural gas royalties 442 341 1,195 1,203 Coal royalties 2,659 2,859 8,560 8,598 Timber 327 539 1,154 1,349 Dividends 662 662 1,985 1,985 Gain on sale of property 21 22 45 57 Other income 925 90 1,268 689 ------ ------ ------- ------- Total revenues $9,798 $8,753 $28,840 $28,416 Expenses: Operating expenses $ 953 $1,001 $ 2,870 $ 2,741 Exploration expenses 387 472 655 812 Taxes other than income 701 455 2,048 1,775 General and administrative 1,725 1,727 5,653 5,604 Loss on sale of property - - 5 3 Depreciation, depletion, amortization 1,697 1,534 5,248 4,661 ------ ------ ------- ------- Total expenses $5,463 $5,189 $16,479 $15,596 Operating Income $4,335 $3,564 $12,361 $12,820 Other (Income) Expense: Interest expense $ 488 $ 568 $ 1,487 $ 1,682 Gain on sale of securities - - (14) - Other income (610) (985) (2,080) (2,869) ------ ------ ------- ------- Income before income tax $4,457 $3,981 $12,968 $14,007 Income tax expense 1,015 892 2,708 3,047 ------ ------ ------- ------- Net Income $3,442 $3,089 $10,260 $10,960 ====== ====== ======= ======= Net Income per share, basic 0.41 0.37 1.24 1.32 ====== ====== ======= ======= Net Income per share, diluted 0.41 0.36 1.21 1.29 ====== ====== ======= ======= Weighted average shares outstanding (in thousands) 8,308 8,274 8,292 8,311 ====== ====== ======= ======= 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, 1998 1997 ------------- ------------ (Unaudited) ASSETS Current assets Cash and cash equivalents $ 1,821 $ 831 Accounts receivable 2,897 7,404 Current portion of long-term notes receivable 1,077 2,414 Current deferred income taxes 696 696 Inventories 282 233 Prepaid expenses 211 311 -------- -------- Total current assets 6,984 11,889 Investments 96,125 100,885 Long-term notes receivable 779 4,195 Oil and gas properties; wells and equipment, using the successful efforts method of accounting 159,040 148,487 Other property, plant and equipment 46,643 42,626 Less: Accumulated depreciation, (66,845) (61,677) depletion and amortization -------- -------- Total property, plant and equipment 138,838 129,436 -------- -------- Intangible assets, net of amortization 552 537 Other assets 257 288 -------- -------- Total assets $243,535 $247,230 ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements.
-2- PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current installments on long-term debt $ 25 $ 2,025 Accounts payable 1,434 1,828 Accrued expenses 3,398 6,029 Deferred income 83 279 -------- -------- Total current liabilities 4,940 10,161 Other liabilities 3,065 4,659 Deferred income taxes 36,789 36,640 Long-term debt 32,381 31,903 -------- -------- Total liabilities 77,175 83,363 Commitments and contingencies - - Minority interest 152 163 -------- -------- 152 163 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 8,921,866 shares and 8,901,434 shares in 1998 and 1997, respectively 55,887 55,634 Other paid-in capital 8,532 8,431 Retained earnings 56,475 51,813 -------- -------- 120,894 115,878 Less: 607,973 shares in 1998 and 627,108 in 1997 of common stock held in treasury, at cost 13,594 14,024 Pension liability 228 228 Unearned compensation - ESOP 1,500 1,650 Add: Net unrealized investment holding gain 60,636 63,728 -------- -------- Total shareholders' equity 166,208 163,704 -------- -------- Total liabilities and shareholders' equity $243,535 $247,230 ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements.
-3- PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED CASH FLOW STATEMENTS (Dollars in thousands)
Three Months Ended September 30, ------------------------ 1998 1997 ---------- ----------- (Unaudited) Cash flow from operating activities: Net Income $ 3,442 $ 3,089 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization 1,697 1,534 Gain on sale of securities - - Gain on sale of property, plant and equipment (21) (22) Deferred income taxes 797 735 Minority interest in subsidiary (4) (4) Other (392) (473) Changes in operating assets and liabilities: Current assets 419 1,067 Current liabilities (835) (714) Other assets (33) (35) Other liabilities 59 (46) -------- -------- Net Cash provided by operating activities $ 5,129 $ 5,131 Cash flows from investing activities: Proceeds from the sale of securities $ - $ - Proceeds from notes 275 1,018 Proceeds from sale of fixed assets 21 23 Capital expenditures (8,258) (4,622) -------- -------- Net Cash used in investing activities $(7,962) $(3,581) Cash flows from financing activities: Dividends paid $(1,868) $(1,861) Proceeds from long-term debt borrowings 3,500 1,800 Repayment of long-term debt principal (25) (1,925) Purchase of treasury stock - - Issuance of stock 248 95 -------- -------- Net Cash provided by (used in) financing activities $ 1,855 $(1,891) Net increase (decrease) in cash and cash equivalents $ (978) $ (341) Cash and cash equivalents-beginning balance 2,799 1,411 -------- -------- Cash and cash equivalents-ending balance $ 1,821 $ 1,070 ======== ======== Supplemental disclosures of cash flow information: Cash paid to date for: Interest $ 520 $ 516 Income taxes 300 100 Nine Months Ended September 30, ------------------------ 1998 1997 ---------- ----------- (Unaudited) Cash flow from operating activities: Net Income $10,260 $10,960 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization 5,248 4,661 Gain on sale of securities (14) - Gain on sale of property, plant and equipment (40) (54) Deferred income taxes 1,814 1,192 Minority interest in subsidiary (12) (12) Other (1,370) (1,795) Changes in operating assets and liabilities: Current assets 4,559 2,243 Current liabilities (3,024) (1,613) Other assets 4,195 (79) Other liabilities (1,791) (94) -------- -------- Net Cash provided by operating activities $ 19,825 $ 15,409 Cash flows from investing activities: Proceeds from the sale of securities $ 17 $ 350 Proceeds from notes 1,973 3,518 Proceeds from sale of fixed assets 80 92 Capital expenditures (14,666) (17,808) -------- -------- Net Cash used in investing activities $(12,596) $(13,848) Cash flows from financing activities: Dividends paid $ (5,597) $ (5,582) Proceeds from long-term debt borrowings 3,500 20,313 Repayment of long-term debt principal (5,075) (8,892) Purchase of treasury stock - (8,728) Issuance of stock 933 505 --------- --------- Net Cash provided by (used in) financing activities $ (6,239) $ (2,384) Net increase (decrease) in cash and cash equivalents $ 990 $ (823) Cash and cash equivalents-beginning balance 831 1,893 -------- -------- Cash and cash equivalents-ending balance $ 1,821 $ 1,070 ======== ======== Supplemental disclosures of cash flow information: Cash paid to date for: Interest $ 1,540 $ 1,693 Income taxes 1,000 556 The accompanying notes are an integral part of these condensed consolidated financial statements.
-4- PENN VIRGINIA CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 1998 (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, 1997 annual report on Form 10-K. Operating results for the nine months ended September 30, 1998 are not necessarily indicative of the results that may be expected for the year ended December 31, 1998. (2) SECURITIES The cost, gross unrealized holding gains or losses and market value for available-for-sale securities at September 30, 1998 were as follows (in thousands):
Gross Unrealized Market Cost Holding Gain Value ------- ---------------- ------ Available-for-Sale: Norfolk Southern Corporation $2,839 $93,277 $96,116 Other - 9 9 ------ ------- ------- $2,839 $93,286 $96,125
(3) 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. (4) 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. The following is a reconciliation of the numerators and denominators used in the calculation of basic and diluted earnings per share ("EPS") for income from continuing operations at September 30, 1998 and 1997.
Three Months Ended September 30, 1998 ------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ------ (In thousands except per share amounts) Basic EPS: Income from continuing operations $3,442 8,308 $0.41 Dilutive Securities: Stock options - 153 ------ ----- Diluted EPS: Income from continuing operations $3,442 8,461 $0.41 Three Months Ended September 30, 1997 ------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ------ (In thousands except per share amounts) Basic EPS: Income from continuing operations $3,089 8,274 $0.37 Dilutive Securities: Stock options - 224 ------ ----- Diluted EPS: Income from continuing operations $3,089 8,498 $0.36
-5-
Nine Months Ended September 30, 1998 ------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ------ (In thousands except per share amounts) Basic EPS: Income from continuing operations $10,260 8,292 $1.24 Dilutive Securities: Stock options - 217 ------ ----- Diluted EPS: Income from continuing operations $10,260 8,509 $1.21 Nine Months Ended September 30, 1997 ------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ----------- ------------- ------ (In thousands except per share amounts) Basic EPS: Income from continuing operations $10,960 8,311 $1.32 Dilutive Securities: Stock options - 172 ------ ----- Diluted EPS: Income from continuing operations $10,960 8,483 $1.29
(5) COMPREHENSIVE INCOME In the first quarter of 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income," which requires the display of comprehensive income and its components in the financial statements. Comprehensive income represents all changes in equity during the reporting period, including net income and charges directly to equity, which are excluded from net income. For the three and nine month periods ended September 30, 1998 and 1997, the components of comprehensive income are as follows:
Three Months Ended September 30, ----------------------- 1998 1997 --------- --------- Net income $ 3,442 $ 3,089 Unrealized holding gains (losses) on available for sale securities (1,607) 1,792 -------- ------- Comprehensive income $ 1,835 $ 4,881 Nine Months Ended September 30, ----------------------- 1998 1997 --------- --------- Net income $10,260 $10,960 Unrealized holding gains (losses) on available for sale securities (3,092) 10,928 -------- ------- Comprehensive income $ 7,168 $21,888
(6) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. Statement No. 133 is effective for fiscal years beginning after June 15, 1999. A company may also implement the Statement as of the beginning of any fiscal quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and thereafter). Statement No. 133 cannot be applied retroactively and must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997 (and, at the Company's election, before January 1, 1998.) The Company has not yet quantified the impacts of adopting Statement No. 133 on our financial statements and has not determined the timing of or method of our adoption of Statement No. 133. However, the Statement could increase volatility in earnings and other comprehensive income. (7) START-UP ACTIVITIES In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up Activities," which requires costs of start-up activities to be expensed as incurred. This statement is effective for financial statements beginning after December 15, 1998 and requires entities to expense currently capitalized costs related to start-up activities as a cumulative effect of a change in accounting principle upon adoption of this statement. The impact of this new standard is not expected to have a material impact on the Company's financial position or results of operations. -6- ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. Results of Operations - Third quarters of 1998 and 1997 Compared. Penn Virginia reported 1998 third quarter earnings of $3.4 million or $0.41 per share (diluted) compared with $3.1 million or $0.36 per share (diluted) for the third quarter of 1997. On a consolidated basis, revenues increased $1.0 million in the third quarter of 1998 due to a $0.6 million increase in oil and gas segment revenues and a $0.4 million increase in coal segment revenues. Results of Operations - Nine months of 1998 and 1997 Compared. Penn Virginia reported 1998 nine months earnings of $10.3 million or $1.21 per share (diluted) compared with $11.0 million or $1.29 per share (diluted) for the nine months of 1997. On a consolidated basis, revenues increased $0.4 million as a result of increases in coal segment revenues. Expenses on a consolidated basis were $0.9 million higher than the 1997 comparable period, which was primarily attributable to a $0.5 million increase in depletion and depreciation from the oil and gas segment. Selected operating and financial data by segment is presented below. Oil and Gas Operating income for the oil and gas segment was $4.8 million for the nine months ended September 30, 1998, compared with $5.2 million for the same period in 1997. Operational and financial data for the Company's oil and gas segment for the 1998 and 1997 three and nine months ended September 30 is summarized in the following tables: Operations Summary ------------------
Three Months Ended September 30, ----------------------- 1998 1997 --------- --------- Production Natural gas (MMcf)-Working Interest 1,776 1,654 Natural gas (MMcf)-Royalty Interest 187 139 Oil and condensate (MBbls) 5 9 Production, MMcfe 1,993 1,847 Average Realized Prices Natural gas ($/Mcf)- Working Interest $ 2.65 $ 2.47 Natural gas ($/Mcf)- Royalty Interest 2.36 2.45 Oil and condensate ($/Bbl) 9.40 16.56 Average Costs (per MMcfe) Lease operating $ 0.46 $ 0.48 Exploration expenses 0.10 0.19 Taxes other than income 0.28 0.20 General and administrative 0.31 0.33 Depreciation, depletion and amortization 0.77 0.75 ----- ----- Total costs $1.92 $1.95 Nine Months Ended September 30, ----------------------- 1998 1997 --------- --------- Production Natural gas (MMcf)-Working Interest 5,508 5,149 Natural gas (MMcf)-Royalty Interest 474 433 Oil and condensate (MBbls) 22 30 Production, MMcfe 6,114 5,762 Average Realized Prices Natural gas ($/Mcf)- Working Interest $ 2.61 $ 2.72 Natural gas ($/Mcf)- Royalty Interest 2.52 2.78 Oil and condensate ($/Bbl) 11.82 18.00 Average Costs (per MMcfe) Lease operating $ 0.45 $ 0.43 Exploration expenses 0.05 0.10 Taxes other than income 0.27 0.27 General and administrative 0.31 0.34 Depreciation, depletion and amortization 0.77 0.73 ----- ------ Total costs $1.85 $ 1.87
-7- Approximately half of the Company's 1998 working interest natural gas production was sold at market prices, with the remainder 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 1998, the Company recognized a $20,000 gain on hedging activities compared with a $119,000 loss in the third quarter of 1997. For the first nine months of 1998, the Company recognized a loss of $377,000 on hedging activities compared with $206,000 in 1997. The following table shows the effect of hedging activities on the Company's working interest natural gas prices: Hedging Summary ---------------
Three Months Ended September 30, ------------------------ 1998 1997 Natural gas prices ($/Mcf): Actual price received for production $ 2.64 $ 2.54 Effect of hedging activities .01 (0.07) ------ ------- Average price $ 2.65 $ 2.47 Nine Months Ended September 30, ------------------------ 1998 1997 Natural gas prices ($/Mcf): Actual price received for production $ 2.68 $ 2.76 Effect of hedging activities (0.07) (0.04) ------ ------- Average price $ 2.61 $ 2.72
Financial Summary -----------------
Three Months Ended September 30, --------------------- 1998 1997 ------- ------- (Dollars in thousands) Revenues: Natural gas sales $ 4,715 $ 4,091 Oil and gas royalties 442 341 Oil and condensate 47 149 Gain on the sale of property 2 - Other income 45 54 ------- ------- Total revenues $ 5,251 $ 4,635 ------- ------- Expenses: Operating expenses $ 919 $ 890 Exploration expenses 197 350 Taxes other than income 567 371 General and administrative 616 610 Loss on the sale of property - 2 Depreciation and depletion 1,523 1,383 ------- ------- Total expenses 3,822 3,606 ------- ------- Operating Income $ 1,429 $ 1,029 ======= ======= Nine Months Ended September 30, ------------------------ 1998 1997 ------ ------ (Dollars in thousands) Revenues: Natural gas sales $14,373 $13,995 Oil and gas royalties 1,195 1,203 Oil and condensate 260 540 Gain on the sale of property 2 16 Other income 223 299 ------- ------- Total revenues $16,053 $16,053 Expenses: Operating expenses $ 2,747 $ 2,482 Exploration expenses 292 584 Taxes other than income 1,648 1,569 General and administrative 1,889 1,983 Loss on the sale of property 4 3 Depreciation and depletion 4,722 4,198 ------- ------- Total expenses 11,302 10,819 ------- ------- Operating Income $ 4,751 $ 5,234 ======= =======
Results of Operations - Oil and Gas Segment. Revenues. Revenues increased $0.7 million, or 15 percent, to $5.3 million in the third quarter of 1998, compared with $4.6 million for the same period of 1997. This increase was primarily a result of a $0.6 million increase in natural gas sales. Despite a $0.3 million decline in oil and condensate, revenues for the first nine months of 1998 and 1997 remained constant at $16.1 million for both periods due to a $0.4 million increase in natural gas sales. Natural gas sales increased $624,000, or 15 percent, in the third quarter of 1998 due to a seven percent increase in natural gas volumes. Additionally, the average price received by the Company for its working interest gas in the third quarter of 1998 was $2.65 per thousand cubic feet (Mcf) compared with $2.47 per Mcf for the same period of 1997. Oil and condensate revenues decreased $102,000 and $280,000 for the three and nine months ended September 30, 1998 from $149,000 and $540,000 for the comparable periods in 1997. These decreases are attributable to a combination of production declines and lower average prices received. Volumes were reduced to five MBbls and 22 MBbls for the third quarter and first nine months of 1998 from nine MBbls and 30 MBbls in the comparable 1997 periods. Prices decreased $7.16, or 43 percent, for the third quarter of 1998 compared with the same period of 1997 and $6.18, or 34 percent, for the first nine months of 1998 compared with the same period of 1997. -8- Expenses. Expenses for the oil and gas segment increased to $3.8 million and $11.3 million for the three and nine months ended September 30, 1998, respectively, compared with $3.6 million and $10.8 million for the same periods in 1997. These fluctuations are primarily due to increases in taxes other than income and depreciation and depletion, offset by a decrease in exploration expenses. Lease operating expenses increased three percent to $919,000 in the third quarter of 1998 compared with $890,000 for the same period in 1997 due to an increase in natural gas production. On a Mcfe basis, lease operating expenses decreased to $0.46 cents in the third quarter of 1998 from $0.48 cents in 1997. For the first nine months of 1998, lease operating expenses increased to $2.7 million from $2.5 million for the comparable 1997 period. On a Mcfe basis, lease operating expenses increased to $0.45 cents for the first nine months of 1998 from $0.43 cents in 1997. This slight increase was due to higher repair and maintenance costs related to the spring floods and increases in compressor rentals in various fields. Exploration expenses decreased to $197,000 and $292,000 for the three and nine months ended September 30, 1998 from $350,000 and $584,000 for the same periods in 1997. These decreases related to the absence of dry hole costs and other preliminary field costs incurred by the Company in the 1997 periods. Taxes other than income increased 53 percent to $567,000 in the third quarter of 1998 compared with $371,000 in the same period of 1997. The difference is attributable to increased severance taxes generated by higher natural gas revenues and a significant ad valorem increase relating to the Company's West Virginia properties. For the nine months ended September 30, 1998, taxes other than income increased 5 percent, or $79,000, from the comparable 1997 amount. This increase was a result of the aforementioned severance tax and ad valorem tax increases, offset by a reduction in ad valorem taxes from the sale of certain reserves in late 1997. Depreciation and depletion increased to $1.5 million and $4.7 million for the third quarter and first nine months of 1998 from $1.4 million and $4.2 million for the same periods in 1997. The contributing factors are increased natural gas production and higher depletion rates in certain fields due to changes in reserve estimates at December 31, 1997. -9- Coal Operating income for the coal segment was $8.1 million for the nine months of 1998 and $8.2 million for the comparable period of 1997. The coal segment's operational and financial data for the 1998 and 1997 third quarter and nine month period is summarized in the following tables: Operations Summary ---------------------
Three Months Ended September 30, --------------------- 1998 1997 ------- ------- Production Coal tons (000's) 1,288 1,351 Timber (Mbf) 1,669 2,436 Average Realized Prices Coal royalties ($/ton) $ 2.06 $ 2.12 Timber ($/Mbf) 177 204 Average Costs (per ton) Lease operating $ 0.03 $ 0.08 Exploration expenses 0.15 0.09 Taxes other than on income 0.09 0.05 General and administrative 0.29 0.30 Depreciation, depletion and amortization 0.11 0.09 ------ ------ Total costs $ 0.67 $ 0.61 Nine Months Ended September 30, --------------------- 1998 1997 ------- ------- Production Coal tons (000's) 3,855 3,989 Timber (Mbf) 5,776 5,937 Average Realized Prices Coal royalties ($/ton) $ 2.22 $ 2.16 Timber ($/Mbf) 183 209 Average Costs (per ton) Lease operating $ 0.03 $ 0.07 Exploration expenses 0.09 0.06 Taxes other than on income 0.08 0.03 General and administrative 0.37 0.29 Depreciation, depletion and amortization 0.11 0.10 ------ ------ Total costs $ 0.68 $ 0.55
Financial Summary -----------------------
Three Months Ended September 30, --------------------- 1998 1997 ------- ------- (Dollars in thousands) Revenues: Coal royalties $ 2,659 $ 2,859 Timber sales 327 539 Gain on sale of property 43 23 Other income 857 36 ------ ------ Total revenues 3,886 3,457 ------ ------ Expenses: Operating expenses $ 34 $ 112 Exploration expenses 190 121 Taxes other than income 114 61 General and administrative 382 400 Loss on sale of property - - Depreciation and depletion 144 123 ------ ------ Total expenses 864 817 ------ ------ Operating Income $ 3,022 $ 2,640 ======= ======= Nine Months Ended September 30, --------------------- 1998 1997 ------- ------- (Dollars in thousands) Revenues: Coal royalties $ 8,560 $ 8,598 Timber sales 1,154 1,349 Gain on sale of property 43 42 Other income 1,045 390 ------- ------ Total revenues 10,802 10,379 Expenses: Operating expenses $ 123 $ 260 Exploration expenses 359 227 Taxes other than income 319 123 General and administrative 1,415 1,141 Loss on sale of property 1 1 Depreciation and depletion 437 383 ------ ------ Total expenses 2,654 2,135 ------ ------ Operating Income $ 8,148 $ 8,244 ======= =======
Results of Operations - Coal Segment. Revenues. Revenues increased 11 percent to $3.9 million in the third quarter of 1998 and four percent to $10.8 million for the first nine months of 1998, as compared with $3.5 million and $10.4 million for the same periods in 1997. Coal royalties decreased $200,000, or seven percent, in the third quarter of 1998 and $38,000 for the first nine months of 1998, compared with the same periods in 1997. These decreases are primarily attributable to a slight decline in coal production related to conflicts incurred by three of the Company's lessees. The average realization per ton for the first nine months of 1998 increased to $2.22 from the comparable 1997 amount of $2.16. Timber sales decreased $212,000, or 39 percent, in the third quarter of 1998 and $195,000, or 14 percent, for the first nine months of 1998, compared with the same periods in 1997. Volume sold decreased from 2,436 thousand board feet (Mbf) in the third quarter of 1997 to 1,669 Mbf in -10- the third quarter of 1998 primarily due to timber harvested from the Company's Bull Creek property during the third quarter of 1997. Additionally, the average realized price declined from $204 Mbf and $209 Mbf for the three and nine months ended September 30, 1997, respectively, to $177 Mbf and $183 Mbf for the comparable periods in 1998. An alteration in the method of selling timber resulted in decreases in the average price per Mbf. In 1997, the Company contracted the harvesting of a portion of its timber and negotiated the sale of this timber directly with the purchaser. Throughout the majority of 1998, the Company has concentrated on selling its timber by parcels which allows substantial operating costs to be incurred by the purchaser; thus, reducing the price received, on a Mbf basis. Other income increased $821,000 in the third quarter of 1998 and $655,000 for the first nine months of 1998, as compared with the same periods in 1997. These increases were due to a $759,000 receipt for a power line relocation in September 1998. The Company, from time to time, receives restitution for circumstances that inhibit mining reserves in a certain location. Expenses. Expenses increased six percent to $864,000 in the third quarter of 1998 and 29 percent to $2.7 million for the first nine months of 1998, compared with $817,000 and $2.1 million for the same periods in 1997 primarily due to increases in taxes other than income and general and administrative expenses, offset by a decrease in operating expenses. Operating expenses decreased to $34,000 and $123,000 for the three and nine months ended September 30, 1998, from $112,000 and $260,000 for the same periods in 1997. These decreases are a result of the aforementioned change in the method of selling timber. Taxes other than income increased to $114,000 and $319,000 for the three and nine month periods ended September 30, 1998 from $61,000 and $123,000 for the comparable periods in 1997. These increases result from downward property tax adjustments recorded in 1997. General and administrative expenses decreased five percent to $382,000 in the third quarter of 1998 and increased 27 percent to $1.4 million for the first nine months of 1998, compared with $400,000 and $1.1 million for the same periods in 1997. While the third quarter remained constant, the first nine months of 1998 increased as a result of personnel additions related to the opening of a satellite office in Charleston, West Virginia during the last half of 1997. Furthermore, unexpected legal costs were incurred during the first half of 1998 to protect the Company's interests relating to a lease termination by a lessee and another lessee's bankruptcy. -11- Capital Resources and Liquidity. Net Cash Provided by Operating Activities. Funding for the Company's business activities has historically been provided by operating cash flows and bank borrowings. Net cash provided by operating activities was $19.8 million in the first nine months of 1998 compared with $15.4 million in the first nine months of 1997. The Company's consolidated cash balance increased from $0.8 million at the end of 1997 to $1.8 million at September 30, 1998 while consolidated borrowings decreased from $33.9 million to $32.4 million for the same periods, respectively. The Company, from time to time, uses various contracts to mitigate the volatility of price changes on commodities the Company produces and sells as well as to lock in prices to protect the economics related to certain capital projects. Currently, the Company has four fixed-price term agreements for a portion of its natural gas production. The Company has sold approximately 8,900 net Mcf per day at a weighted average price in excess of $2.80 per Mcf for the majority of 1998. These physical sales cover various periods with termination dates of October 1998 and December 1998. Additionally, the Company has 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 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 recovered the lease on its Bull Creek property from the lessee who is in bankruptcy proceedings. Subsequently, the Company re-entered into a lease agreement for a portion of the Bull Creek reserves. Anticipated production of Bull Creek reserves under this lease is expected to commence by the second quarter of 1999. Net Cash Used in Investing Activities. Net cash used in investing activities totaled $12.6 million and $13.8 million for the first nine months of 1998 and 1997, respectively. In the first nine months of 1998, capital expenditures totaled $14.7 million compared with $17.8 million in the first nine months of 1997. Acquisitions and oil and gas development activities were the primary uses of funds. The capital expenditures, including acquisitions, made by the Company for the first nine months of 1998 and 1997 are as follows:
Nine Months Ended September 30, -------------------------- 1998 1997 ------- -------- (in thousands) Oil and Gas Acquisitions $ 3,356 $ 253 Development 6,704 6,304 Exploration 412 2,171 Support equipment 172 98 Coal Acquisitions 3,123 8,954 Support equipment and facilities 887 21 Other 12 7 -------- -------- Total capital expenditures $ 14,666 $ 17,808
In the oil and gas segment, the Company had capital expenditures totaling $10.6 million in the first nine months of 1998. The Company has successfully completed several acquisitions, which included a $2.3 million acquisition in September 1998 of additional interests in various producing properties in West Virginia. Additionally, the Company drilled 49 gross (35.9 net) development wells and four gross (1.6 net) exploratory wells in the first nine months of 1998. The Company expects to drill approximately 50 net wells in 1998, with approximately 10 wells in exploratory areas. In the first nine months of 1998, the Company successfully completed a $2.9 million repurchase of coal reserves previously sold to an operator under an installment sale. The Company also holds an investment in Norfolk Southern common stock which had an unrealized holding gain of approximately $93.3 million at September 30, 1998. Net Cash Used in Financing Activities. Net cash used in financing activities totaled $6.2 million and $2.4 million for the first nine months of 1998 and 1997, respectively. Net cash used in financing activities was primarily used to fund the payment of $5.6 million in dividends in 1998. The Company has a $75 million unsecured revolving credit facility (the "Revolver") with a final maturity of August 2000. The Revolver contains financial covenants requiring the Company to maintain certain levels of net worth, debt-to-capitalization and dividend limitation requirements among other restrictions. The outstanding balance on the Revolver was $31.5 million at September 30, 1998 and $31.0 million at December 31, 1997. -12- Other Issues Information Systems for the Year 2000 The Company is investigating the extent to which its currently installed information technology and non-information technology systems, and those of third parties with whom the Company conducts business, will be affected by what is commonly known as the "Year 2000" problem. The Company has reviewed its Year 2000 issues and expects to complete its modifications by July 1999. Additionally, the Company in the process of receiving written assurances from the majority of its providers as to their progress in addressing Year 2000 issues. The Company estimates that costs incident to Year 2000 compliance will not exceed $100,000, of which, less than $1,000 has been incurred through September 30, 1999. Based on information known at this time, the Company does not believe that Year 2000 compliance will have a material adverse effect on the its financial condition, operations or cash flows. No assurance can be given, however, that all of the Company's systems or those of third parties with whom the Company conducts business will be Year 2000 compliant, that compliance costs will not exceed expected amounts or that the impact of any failure by the Company or any such third party to achieve Year 2000 compliance will not have a material adverse effect on the Company. Once the effects of Year 2000 have been fully assessed, the Company intends to develop and complete a contingency plan by September 1999 in order to address significant risks and uncertainties. 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. -13- PART II Other information Item 5. Shareholder Proposals Any shareholder who, in accordance with and subject to the provisions of the proxy rules of the Securities and Exchange commission, wishes to submit a proposal for inclusion in the Company's proxy statement for its 1999 Annual meeting of Shareholders must deliver such proposal in writing to the Company's Secretary at the Company's principal executive offices at One Radnor Corporate Center, Suite 200, 100 Matsonford Road, Radnor, Pennsylvania 19087, not later than November 27, 1998. Pursuant to new amendments to Rule 14a-4(c) of the Securities Exchange Act of 1934, as amended, and the Company's By-laws, if a shareholder who intends to present a proposal at the 1999 Annual Meeting of Shareholders does not notify the Company of such proposal on or prior to the earlier of 90 days prior to the date of the 1999 Annual Meeting or February 3,1999, then management proxies will be permitted to use their discretionary authority to vote on the proposal when the proposal is raised at the 1999 Annual Meeting of Shareholders, even though there is no discussion of the proposal in the 1999 proxy statement. 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, 1998. -14- 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 13, 1998 By: /s/ Steven W. Tholen ----------------- -------------------------------- Steven W. Tholen, Vice President and Chief Financial Officer Date: November 13, 1998 By: /s/ Ann N. Horton ----------------- -------------------------------- Ann N. Horton, Controller and Principal Accounting Officer PENN VIRGINIA CORPORATION INDEX
PAGE PART I Financial Information: Item 1. Financial Statements Condensed Consolidated Statements of Income for 1 the three and six months ended June 30, 1998 and 1997 Condensed Consolidated Balance Sheets as of 2 June 30, 1998 and December 31, 1997 Condensed Consolidated Statements of Cash Flows 4 for the three and six months ended June 30, 1998 and 1997 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of 7 Financial Condition and Results of Operations PART II Other Information Item 5. Shareholder Proposals 14 Item 6. Exhibits and Reports on Form 8-K 14
EX-27 2 ART. 5 FDS FOR 3RD QTR 10-Q
5 1000 9-MOS DEC-31-1998 SEP-30-1998 1,821 0 2,897 0 282 6,984 205,683 66,845 243,535 5,776 0 0 0 55,887 110,321 243,535 25,542 28,840 2,870 2,870 13,609 0 1,487 12,968 2,708 10,260 0 0 0 10,260 1.24 1.21 -----END PRIVACY-ENHANCED MESSAGE-----