-----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, U1eHfod2d4Q2LyCA+/f4t78HMqx13QYmV6lkLxjQz6agDG0Wpw6nHGMDO3VLT435 iDl4+Nc3fbnVvV7uGwv1vA== 0000077159-99-000055.txt : 19990513 0000077159-99-000055.hdr.sgml : 19990513 ACCESSION NUMBER: 0000077159-99-000055 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 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: 99618162 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 March 31, 1999 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 May 7, 1999: 8,385,104
PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME - Unaudited (in thousands, except share data) Three Months Ended March 31, -------------------- 1999 1998 ------ ------- Revenues: Oil and condensate $ 55 $ 117 Natural gas 3,978 4,991 Natural gas royalties 404 363 Coal royalties 3,732 2,531 Timber 249 209 Dividends 662 662 Other income 464 191 ------ ------ Total revenues 9,544 9,064 Expenses: Operating expenses 959 967 Exploration expenses 85 49 Taxes other than income 700 681 General and administrative 2,002 1,781 Loss on the sale of property - 4 Depreciation, depletion, amortization 1,963 1,822 ------ ------ Total expenses 5,709 5,304 Operating Income 3,835 3,760 Other (Income) Expense: Interest expense 563 489 Other income (365) (816) --------- --------- Income before income tax 3,637 4,087 Income tax expense 722 935 --------- -------- Net Income $ 2,915 $ 3,152 ========= ========= Net Income per share, basic 0.35 0.38 ========= ========= Net Income per share, diluted 0.35 0.37 ========= ========= Weighted average shares outstanding 8,371 8,278 The accompanying notes are an integral part of these condensed consolidated financial statements.
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PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands) March 31, December 31, 1999 1998 ---------- ------------ (Unaudited) ASSETS Current assets Cash and cash equivalents $ 490 $ 225 Accounts receivable 2,821 5,682 Current portion of long-term notes receivable 373 364 Current deferred income taxes 577 577 Other 562 680 -------- --------- Total current assets 4,823 7,528 -------- --------- Investments 87,251 104,819 Long-term notes receivable 2,978 3,079 Oil and gas properties; wells and equipment, using the successful efforts method of accounting 158,222 157,558 Other property, plant and equipment 53,445 52,455 Less: Accumulated depreciation, depletion and amortization (70,688) (68,745) -------- --------- Total property, plant and equipment 140,979 141,268 -------- --------- Other assets 212 237 -------- --------- Total assets $ 236,243 $ 256,931 ========= ========= The accompanying notes are an integral part of these condensed consolidated financial statements.
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PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands) March 31, December 31, 1999 1998 ---------- ----------- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current installments on long-term debt $ 31 $ 31 Accounts payable 271 1,397 Accrued expenses 3,509 5,039 Taxes on income 418 576 ------- ------- Total current liabilities 4,229 7,043 ------- ------- Other liabilities 3,457 2,875 Deferred income taxes 32,982 38,787 Long-term debt 35,408 37,967 ------- ------- Total liabilities 76,076 86,672 ------- ------- Commitments and contingencies Shareholders' equity Preferred stock of $100 par value- authorized 100,000 shares; none issued Common stock of $6.25 par value- authorized 16,000,000 shares, issued 8,921,866 shares in 1999 and 1998 55,762 55,762 Other paid in capital 8,362 8,441 Retained earnings 54,956 53,924 Accumulated other comprehensive income 54,565 65,985 ------- ------- 173,645 184,112 Less: 540,565 shares in 1999 and 555,050 in 1998 of common stock held in treasury, at cost 12,078 12,403 Unearned compensation - ESOP 1,400 1,450 ------- ------- Total shareholders' equity 160,167 170,259 ------- ------- Total liabilities and shareholders' equity $236,243 $256,931 ======== ======== The accompanying notes are an integral part of these condensed consolidated financial statements.
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PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED CASH FLOW STATEMENTS - Unaudited (in thousands) Three Months Ended March 31, -------------------- 1999 1998 ------ ------- Cash flow from operating activities: Net Income $ 2,915 $ 3,152 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization 1,963 1,822 (Gain), loss on sale of property - 4 Deferred income taxes 343 - Other (195) (562) Decrease in current assets 2,978 2,904 Decrease in current liabilities (2,815) (1,539) Increase in other assets 2 (44) Increase (decrease) in other liabilities 587 178 ------- ------- Net Cash provided by operating activities 5,778 5,915 ------- ------- Cash flows from investing activities: Payments received on long-term notes receivable 283 1,489 Proceeds from sale of fixed assets - 21 Capital expenditures (1,635) (820) ------- ------- Net Cash provided (used) by investing activities (1,352) 690 ------- ------- Cash flows from financing activities: Dividends paid (1,883) (1,862) Repayment of long-term debt principal (2,575) (2,825) Issuance of stock 297 72 ------- ------- Net Cash provided (used) by financing activities (4,161) (4,615) ------- ------- Net increase in cash and cash equivalents 265 1,990 Cash and cash equivalents-beginning of period 225 831 ------ ------ Cash and cash equivalents-end of period $ 490 $ 2,821 ======= ======= Supplemental disclosures of cash flow information: Cash paid to date for: Interest $ 585 $ 463 Income taxes 600 - The accompanying notes are an integral part of these condensed consolidated financial statements.
-4- PENN VIRGINIA CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 1999 (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, 1998 Annual Report on Form 10-K. Operating results for the three months ended March 31, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. Certain reclassifications have been made to conform to the current period's presentation. (2) SECURITIES The cost, gross unrealized holding gains or losses and market value for available-for-sale securities at March 31, 1999 were as follows:
Gross Unrealized Market Cost Holding Gain (loss) Value ------- ------------------- ------- Available-for-sale: Norfolk Southern Corporation $ 2,839 $84,389 $87,228 Other - 23 23 ------- ------- ------- $ 2,839 $84,412 $87,251
(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. -5- (4) EARNINGS PER SHARE 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 for the quarters ended March 31, 1999 and 1998.
March 31, 1999 -------------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ------------ ------------- --------- (in thousands, except per share amounts) Basic EPS: Income from continuing operations $ 2,915 8,371 $ 0.35 Dilutive Securities: Stock options - 77 Diluted EPS: -------- ----- ------- Income from continuing operations $ 2,915 8,448 $ 0.35 March 31, 1998 ----------------------------------------------- Income Shares Per Share (Numerator) (Denominator) Amount ------------ ------------- --------- (in thousands, except per share amounts) Basic EPS: Income from continuing operations $ 3,152 8,278 $ 0.38 Dilutive Securities: Stock options - 234 Diluted EPS: -------- ----- ------- Income from continuing operations $ 3,152 8,512 $ 0.37
(5) COMPREHENSIVE INCOME 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 month periods ended March 31, 1999 and 1998, the components of comprehensive income are as follows:
Three Months Ended March 31, --------------------- 1999 1998 -------- -------- Net income $ 2,915 $ 3,152 Unrealized holding gains (losses) on available-for-sale securities, net of tax of $(6,148) and $7,962 , respectively (11,420) 14,786 -------- -------- Comprehensive income (loss) $ (8,505) $ 17,938
-6- (6) SEGMENT INFORMATION In 1998, the Company adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related Information," which established standards for reporting and disclosing information about operating segments of an enterprise. The adoption of this statement did not change the operating segments the Company formerly disclosed under SFAS No. 14 "Financial Reporting of Segments of a Business Enterprise." Penn Virginia's operations are classified into two operating segments: Oil and Gas - crude oil and natural gas exploration, development and production. Coal and Land - the leasing of mineral rights and subsequent collection of royalties and the development and harvesting of timber.
Corporate Oil and Gas Coal and Land and Other Consolidated ----------- ------------- ---------- ------------ (in thousands) March 31, 1999 Revenues $ 4,576 $ 4,307 $ 661 $ 9,544 Operating income (loss) 869 3,265 (299) 3,835 Identifiable assets 96,242 70,449 69,552 236,243
Corporate Oil and Gas Coal and Land and Other Consolidated ----------- ------------- ---------- ------------ (in thousands) March 31, 1998 Revenues $ 5,543 $ 2,858 $ 663 $ 9,064 Operating income (loss) 1,750 2,093 (84) 3,760
Operating income is total revenue less operating expenses. Operating income does not include certain other income items, gain (loss) on sale of securities, unallocated general corporate expenses, interest expense and income taxes. Identifiable assets are those assets used in the Company's operations in each segment. Corporate assets are principally cash and marketable securities. -7- 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 and land. The oil and gas segment explores for, develops and produces crude oil and natural gas in western Virginia, southern West Virginia and eastern Kentucky. The Company also owns mineral rights to oil and gas reserves. The coal and land segment includes Penn Virginia's mineral rights to coal reserves, its timber assets and land assets. Selected operating and financial data by segment is presented below. Penn Virginia's Houston office is now staffed and the initial acquisition focus has been on properties in southern Louisiana, south Texas and Mississippi. In addition, the Company continues to evaluate Appalachian natural gas property acquisition opportunities. Results of Operations - First Quarters of 1999 and 1998 Compared Penn Virginia reported 1999 first quarter consolidated earnings of $2.9 million or $0.35 per share (diluted), compared with $3.2 million or $0.37 per share (diluted) for the first quarter of 1998. On a consolidated basis, revenues increased $0.5 million, primarily as a result of increased coal production by the Company's lessees, offset by price decreases in the oil and gas segment. Expenses on a consolidated basis were $0.4 million higher than the 1998 comparable period. The aforementioned Houston office was the primary reason for a $0.2 million increase in general and administrative expenses and a $0.1 increase in consolidated depreciation, depletion and amortization was primarily related to the coal and land segment. Interest expense for the first quarter of 1999 increased $0.1 million over the comparable 1998 period due to draws on the Company's Revolver for capital expenditures in the last half of 1998. Oil and Gas Segment Operating income for the oil and gas segment was $0.9 million for the first quarter of 1999, compared with $1.7 million for the first quarter of 1998. Operational and financial data for the Company's oil and gas segment for the first quarter of 1999 and 1998 is summarized as follows: Operations Summary
Three Months Ended March 31, ------------------- 1999 1998 ------ ------ Production Natural gas (MMcf)-Working Interest 1,851 1,913 Natural gas (MMcf)-Royalty Interest 188 140 Oil and condensate (MBbls) 7 9 Production, MMcfe 2,081 2,107 Average Realized Prices Natural gas ($/Mcf)- Working Interest $2.15 $ 2.61 Natural gas ($/Mcf)- Royalty Interest 2.15 2.59 Oil and condensate ($/Bbl) 7.86 13.00 Average Costs (per MMcfe) Lease operating $0.44 $ 0.45 Exploration expenses 0.01 0.02 Taxes other than on income 0.27 0.26 General and administrative 0.26 0.29 Depreciation, depletion and amortization 0.80 0.78
-8- All of the Company's first quarter 1999 working interest natural gas production was sold at market prices, compared with 50 percent of production in the comparable 1998 period. The remaining 50 percent of 1998 working interest natural gas production was sold under fixed-price term contracts. The Company has fixed-price term contracts totaling 6,300 Mcf per day which begin in April and June of 1999 and expire in August and October of 1999. 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 first quarter of 1999, the Company recognized a $0.2 million gain on hedging activities, compared with a $0.2 million loss in the first quarter of 1998. The following table shows the effect of hedging activities on the Company's working interest natural gas prices:
Hedging Summary --------------- Three Months Ended March 31, ------------------- 1999 1998 ------ ------ Natural gas prices ($/Mcf): Actual price received for production $2.04 $2.71 Effect of hedging activities 0.11 (0.10) Average price 2.15 2.61
Financial Summary ----------------- Three Months Ended March 31, ------------------- 1999 1998 ------ ------ (in thousands) (Unaudited) Revenues: Oil and condensate $ 55 $ 117 Natural gas 3,978 4,991 Natural gas royalties 404 363 Other income 139 72 ------ ------ Total revenues 4,576 5,543 ------ ------ Expenses: Operating expenses 907 939 Exploration expenses 24 37 Taxes other than income 563 556 General and administrative 539 606 Loss on the sale of property - 4 Depreciation and depletion 1,674 1,651 ------ ------ Total expenses 3,707 3,793 ------ ------ Operating Income $ 869 $1,750 ====== ======
-9- Oil and Condensate Sales. Oil sales decreased $62,000, or 53 percent, in the first quarter of 1999, compared with the same period of 1998. Prices per barrel were lower, averaging $7.86 per barrel (Bbl) for 1999 compared with $13.00 per Bbl for 1998. Also, oil volume was down 2 MBbls for first quarter of 1999 compared with 1998. Natural Gas. Natural gas sales decreased $1.0 million, or 20 percent, in the first quarter of 1999, compared with the same period of 1998. Natural gas prices were down approximately 18 percent in the first quarter of 1999 compared with the first quarter of 1998. The average price received by the Company for its working interest gas was $2.15 per thousand cubic feet (Mcf) compared with $2.61 per Mcf for the same period of 1998. Natural Gas Royalties. Oil and gas royalties increased $41,000, or 11 percent, in the first quarter of 1999, compared with the same period of 1998. The variance resulted from a 34 percent increase in volumes, offset by a decrease in pricing from $2.59 in the first quarter of 1998 to $2.15 in the first quarter of 1999. Operating Expenses. Operating expenses for the first quarter of 1999 were $907,000, which is a decrease of $32,000, or three percent, compared with the first quarter of 1998. On a MMcfe basis, operating expenses remained relatively constant at $0.44 in 1999 versus $0.45 in 1998. Exploration Expenses. Exploration expenses for the first quarter of 1999 remained relatively constant at $24,000, compared with $37,000 in the first quarter of 1998. Taxes other than on Income. Taxes other than on income increased $7,000, or one percent, in the first quarter of 1999, compared with the same period in 1998. On a MMcfe basis, taxes other than on income remained relatively constant at $0.27 cents in 1999 versus $0.26 cents in 1998. General and Administrative. General and administrative expenses decreased to $539,000, or $0.26 per MMcfe, in the first quarter of 1999 from $606,000, or $0.29 per MMcfe, in 1998. This decrease is a result of the fourth quarter 1998 restructuring. Depreciation and Depletion. Depreciation and depletion expense increased $23,000, or one percent, from $1,651,000 in the first quarter of 1998 to $1,674,000 in 1999. The rate increased from $0.78 per Mcfe in the first quarter of 1998 to $0.80 per Mcfe in the first quarter of 1999. The adjustments in reserve estimates at December 31, 1998 which were primarily related to year end commodity prices, caused a minor fluctuation in the 1999 depletion rate. -10- Coal and Land Segment Operating income for the coal and land segment was $3.3 million for the first quarter of 1999, compared with $2.1 million for the first quarter of 1998. Operational and financial data for the Company's coal segment for the 1999 and 1998 first quarter is summarized in the following tables:
Operations Summary - ------------------ Three Months Ended March 31, ------------------- 1999 1998 ------ ------ Production Timber (Mbf) 1,114 984 Coal tons (000's) 1,706 1,221 Average Realized Prices Timber ($/Mbf) $ 204 $ 191 Coal royalties ($/ton) 2.19 2.07 Average Costs (per ton) Lease operating $ 0.03 $ 0.03 Exploration expenses 0.03 0.01 Taxes other than on income 0.06 0.07 General and administrative 0.34 0.41 Depreciation, depletion and amortization 0.15 0.12 Financial Summary - ----------------- Three Months Ended March 31, ------------------- 1999 1998 ------ ------ (in thousands) (Unaudited) Revenues: Coal royalties $ 3,732 $ 2,531 Timber sales 249 209 Other income 327 119 Total revenues 4,308 2,859 Expenses: Operating expenses 52 28 Exploration expenses 44 11 Taxes other than income 105 86 General and administrative 582 498 Loss on the sale of property - 1 Depreciation and depletion 260 142 Total expenses 1,043 766 Operating Income $ 3,265 $ 2,093
-11- Coal Royalties. Coal royalties increased $1.2 million, or 47 percent, in the first quarter of 1999 compared with the same period in 1998. Coal production generated by the Company's lessees increased by 485,000 tons, or 40 percent, to 1,706,000 tons in the first quarter of 1999, compared with 1,221,000 tons in 1998. Lessee production in the first quarter of 1998 was enhanced by additional production on new leases and the Company's $6.3 million of acquisitions in 1998. Lessee production in the first quarter of 1998 was hindered by the loss of a sales contract by one lessee and financial difficulties experienced by another lessee. Additionally, power outages and coal transportation delays due to a severe snowstorm adversely affected the first quarter 1998 production of several of the Company's lessees. Furthermore, the average realization per ton increased to $2.19 in the first quarter of 1999 from $2.07 in the 1998 comparable period. Timber Sales. Timber sales increased slightly to $249,000 in the first quarter of 1999 from $209,000 in the comparable 1998 period. Volume sold was 1,114 Mbf in the first quarter of 1999, compared with 984 Mbf in 1998. The average realized prices also increased from $191 per Mbf in the first quarter of 1998 to $204 per Mbf in the comparable period of 1999. Other Income. Other income increased $208,000, or 175 percent, in the first quarter of 1999, compared with the first quarter of 1998. The increase is largely due to the receipt of lost minimums received from the Company's lessees. Operating Expenses. Operating expenses increased from $28,000 in the first quarter of 1998 to $52,000 in the first quarter of 1999. The increase is a result of costs associated with the sale of timber on the Company's properties. Exploration Expenses. Exploration expenses increased $33,000 to $44,000 in the first quarter of 1999 from $11,000 in the 1998 comparable period. The increase is a result of the timing of the startup of the Company's 1998 coal core drilling program. Taxes other than Income. Taxes other than income increased $19,000, or 22 percent, from $86,000 in the first quarter of 1998 to $105,000 in the first quarter of 1999. On a per ton basis, taxes other than income remained relatively constant at $0.06 in 1999 versus $0.07 in 1998. General and Administrative. General and administrative expenses increased $84,000, or 17 percent, in the first quarter of 1999, compared with the same period of 1998. The variance is primarily related to an increase in legal fees incurred by the Company to pursue the potential recoverability of coal reserves. Depreciation and Depletion. Depreciation and depletion increased to $260,000, or $0.15 per ton, in the first quarter of 1999 from $142,000, or $0.12 per ton, in the 1998 comparable period. The depletion rate, on a per ton basis, increased due to the Company's 1998 acquisitions. -12- Capital Expenditures, Capital Resources and Liquidity Cash Flows from Operating Activities. Funding for the Company's activities has historically been provided by operating cash flows and bank borrowings. Net cash provided by operating activities was $5.8 million in the first quarter of 1999, compared with $5.9 million in the first quarter of 1998. The Company's cash balance increased to $0.5 million at March 31, 1999, compared with $0.2 million at December 31, 1998. Cash Flows from Investing Activities. During the first quarter of 1999, the Company used $1.4 million in investing activities. Capital expenditures totaled $1.6 million in the first quarter of 1999, compared with $0.8 million in the first quarter of 1998. The Company expended $0.9 million in 1999 to complete its unit train loadout in Virginia which became operational in March 1999. The loadout is a computerized state-of-the-art facility capable of blending coals, sampling coal quality, loading and weighing 90 to 108 railcars (a unit train) with 100 to 120 tons of coal each in four hours. Initial annualized throughput is expected to be 1.5 to 2.0 million tons. The facility has capacity of up to four million tons annually and currently serves two of the Company's lessees. Additionally, the Company incurred additional capital expenditures relating to the drilling and development of wells in the oil and gas segment in the first quarter of 1999. Of the 30 to 40 development wells scheduled for drilling in 1999, 2.5 net wells had been drilled by the end of the first quarter. Cash Flows from Financing Activities. Net cash used in investing activities totaled $4.2 in the first quarter of 1999, compared with $4.6 million in 1998. Penn Virginia paid $1.9 million of dividends in the first quarter of 1999 and also used $2.6 million as a repayment of long-term debt. The Company had additional debt capacity of $40.4 million at March 31, 1999 under a committed revolving credit facility (the "Revolver") with a group of major U.S. banks. The Revolver contains financial covenants requiring the Company to maintain certain levels of net worth, debt-to-capitalization and dividend limitation restrictions, among other requirements. The outstanding balance on the Revolver was $34.6 million at March 31, 1999 and $37.1 million at December 31, 1998. Management believes its portfolio of investments and sources of funding are sufficient to meet short- and long-term liquidity needs not funded by cash flows from operations. Other Issues Year 2000. Historically, most computer systems, including microprocessors embedded into field equipment and other machinery, utilized software that recognized a calendar year by its last two digits. Beginning in the year 2000, these systems will require modification to recognize a calendar year by four digits. Accordingly, the Company continues to investigate the extent to which its currently installed information technology and non-information technology systems will be affected by what is commonly known as the "Year 2000" problem and is implementing a plan to take reasonable steps to prevent its mission critical functions from being impaired by the Year 2000 problem. The phrase "computer equipment and software" includes what is commonly considered technology systems, including accounting, data processing, telephones and other systems. Non-information technology systems include alarm systems, metering devices, monitors for field operation and other systems. The Company is utilizing resources to test, reprogram, modify and/or replace both systems, as necessary. Evaluation, testing and replacement should be completed by July 1999. The Company has also been inquiring and has received verbal or written assurances from the vast majority of its providers as to their progress in addressing Year 2000 issues and that such providers expect to be year 2000 compliant in all material respects. The Company expects to complete communications with remaining providers by July 1999. Based on information known at this time, the Company expects to be Year 2000 compliant in all material respects in a timely manner and does not believe that Year 2000 compliance will have a material adverse effect on the Company. The total costs for the Year 2000 compliance review, evaluation, assessment and remediation efforts are not expected to be in excess of $100,000. Of this amount, less than $10,000 has been incurred through March 31, 1999. The Company is in the initial stages of developing a Year 2000 contingency plan. The Company believes a more comprehensive and effective contingency plan will be developed once potential concerns are evaluated and risk has been fully assessed. The contingency plan, which is to be completed by October 1999, will place the majority of its emphasis on primary concerns that would inhibit operations or record keeping. The costs of Year 2000 compliance and the dates on which the Company plans to complete modifications and replacements are based on management's best estimates, which were derived utilizing numerous assumptions of future events including the continued availability of certain resources, third party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Accounting for Derivative Instruments and Hedging Activities. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, (collectively referred to as derivatives) and for hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to changes in the fair value of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. SFAS No. 133 is effective as of the beginning of fiscal years beginning after June 15, 1999 with earlier application allowed as of the beginning of any quarter beginning after issuance. Penn Virginia intends to adopt SFAS No. 133 in 2000 and, under present conditions, does not expect adoption to have a significant impact on the Company's financial position, results of operations or liquidity. 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. -14- 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. -15- PART II Other information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27) Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed for the quarter ended March 31, 1999 -16- 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: May 14, 1999 By: /s/ Steven W. Tholen ------------ ------------------------- Steven W. Tholen Vice President and Chief Financial Officer Date: May 14, 1999 By: /s/ Ann N. Horton ------------ ------------------------------ Ann N. Horton Controller and Principal Accounting Officer -17- PENN VIRGINIA CORPORATION INDEX
PAGE ---- PART I Financial Information: - ------ Item 1. Financial Statements Condensed Consolidated Statements of Income for the Three 1 Months Ended March 31, 1999 and 1998 Condensed Consolidated Balance Sheets as of March 31, 1999 and 2 December 31, 1998 Condensed Consolidated Statements of Cash Flows for the Three 4 Months Ended March 31, 1999 and 1998 Notes to Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition 8 and Results of Operations PART II Other Information - ------- Item 6. Exhibits and Reports on Form 8-K 16
EX-27 2 ART. 5 FDS FOR 1ST QUARTER 10-Q
5 1,000 3-MOS DEC-31-1999 MAR-31-1999 490 0 2,821 0 0 4,823 211,667 70,688 236,243 4,229 0 0 0 55,762 104,405 236,243 8,418 9,544 959 959 2,748 0 563 3,637 722 2,915 0 0 0 2,915 0.35 0.35
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