-----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, Fln4rtDFBTKgGiiSREoOI0jMbIADpA+ExyNZ+AENVUxVtFT4TwxzIT8Zs/yMfrBg GYWuqnjGYddWIPl9OspZQQ== 0000077159-99-000059.txt : 19990816 0000077159-99-000059.hdr.sgml : 19990816 ACCESSION NUMBER: 0000077159-99-000059 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 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: 99688867 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 June 30, 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 19087 (Address of principal executive offices) (Zip Code) (610) 687-8900 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares of common stock of registrant outstanding at August 6, 1999: 8,921,866 PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME - unaudited (in thousands, except share amounts) Three Months Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 Revenues: Natural gas $ 4,087 $ 4,667 $ 8,065 $ 9,658 Oil and condensate 110 96 165 213 Natural gas royalties 411 390 815 753 Coal royalties 4,242 2,582 7,974 5,113 Timber 361 618 610 827 Dividends 661 661 1,323 1,323 Gain on sale of property - 24 - 24 Other income 634 940 1,098 1,131 Total revenues 10,506 9,978 20,050 19,042 Expenses: Operating expenses 1,148 950 2,107 1,917 Exploration expenses 589 219 674 268 Taxes other than income 623 666 1,323 1,347 General and administrative 2,145 2,147 4,147 3,928 Loss on sale of property - 1 - 5 Depreciation, depletion, 1,959 1,729 3,922 3,551 amortization Total expenses 6,464 5,712 12,173 11,016 Operating Income 4,042 4,266 7,877 8,026 Other (Income) Expense: Interest expense 508 510 1,071 999 Gain on sale of securities - (14) - (14) Other income (356) (654) (721) (1,470) Income before income tax 3,890 4,424 7,527 8,511 Income tax expense 725 758 1,447 1,693 Net Income $ 3,165 $ 3,666 $ 6,080 $ 6,818 Net Income per share, basic 0.38 0.44 0.72 0.82 Net Income per share, diluted 0.37 0.43 0.72 0.80 Weighted average shares 8,410 8,291 8,391 8,285 outstanding The accompanying notes are an integral part of these condensed consolidated financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands) June 30, December 31, 1999 1998 (unaudited) ASSETS Current assets Cash and cash equivalents $ 113 $ 225 Accounts receivable 4,900 5,682 Current portion of long-term notes receivable 382 364 Current deferred income taxes 577 577 Other 635 680 Total current assets 6,607 7,528 Investments 99,653 104,819 Long-term notes receivable 2,878 3,079 Oil and gas properties; wells and equipment, using the successful efforts 160,447 157,558 methods of accounting Other property, plant and equipment 54,281 52,455 Less: Accumulated depreciation, (72,625) (68,745) depletion and amortization Total property, plant and equipment 142,103 141,268 Other assets 189 237 Total assets $251,430 $256,931 The accompanying notes are an integral part of these condensed consolidated financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands) June 30, December 31, 1999 1998 (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term debt $ 1,678 $ - Current installments on long-term debt 31 31 Accounts payable 691 1,397 Accrued expenses 3,992 5,039 Taxes on income 185 576 Total current liabilities 6,577 7,043 Other liabilities 3,366 2,875 Deferred income taxes 37,216 38,787 Long-term debt 34,002 37,967 Total liabilities 81,161 86,672 Commitments and contingencies - - Shareholders' equity Preferred stock of $100 par value- 100,000 shares authorized; none issued - - Common stock of $6.25 par value - 16,000,000 shares authorized; 8,921,866 shares issued 55,762 55,762 Other paid-in capital 8,154 8,441 Retained earnings 56,226 53,924 Accumulated other comprehensive income 62,626 65,985 182,768 184,112 Less: Treasury stock, at cost - 498,902 shares in 1999 and 555,050 in 1998 11,149 12,403 Unearned compensation - ESOP 1,350 1,450 Total shareholders' equity 170,269 170,259 Total liabilities and shareholders' equity $ 251,430 $256,931 The accompanying notes are an integral part of these condensed consolidated financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED CASH FLOW STATEMENTS-unaudited (in thousands) Three Months Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 Cash flow from operating activities: Net Income $ 3,165 $ 3,666 $ 6,080 $ 6,818 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, 1,959 1,729 3,922 3,551 and amortization Gain on sale of property, plant - (23) - (19) and equipment Deferred income taxes (106) 1,017 237 1,017 Dry hole expense 120 (13) 120 (13) Other (326) (615) (655) (965) Changes in operating assets and liabilities: Current assets (2,149) 1,236 829 4,140 Current liabilities 671 (650) (2,144) (2,189) Other assets 3 4,272 5 4,228 Other liabilities (96) (2,032) 491 (1,858) Net Cash provided by operating activities $ 3,241 $ 8,573 $ 8,885 $14,696 Cash flows from investing activities: Proceeds from the sale of securities - 17 - 17 Proceeds from notes 418 418 835 1,698 Proceeds from sale of fixed assets - 38 - 59 Capital expenditures (3,200) (5,588) (4,835) (6,408) Net Cash used in investing activities (2,782) (5,115) (4,000) (4,634) Cash flows from financing activities: Dividends paid (1,895) (1,867) (3,778) (3,729) Proceeds from debt borrowings 1,678 - 1,678 - Repayment of debt principal (1,390) (2,225) (3,965) (5,050) Issuance of stock 771 613 1,068 685 Net Cash used in financing activities $ (836) $(3,479) $(4,997) $(8,094) Net increase (decrease) in cash and cash equivalents $ (377) $ (21) $ (112) $ 1,968 Cash and cash equivalents-beginning 490 2,820 225 831 Cash and cash equivalents-ending $ 113 $ 2,799 $ 113 $ 2,799 Supplemental disclosures of cash flow information: Interest paid $ 480 $ 557 $ 1,065 $ 1,020 Income taxes paid 1,000 700 1,600 700 The accompanying notes are an integral part of these condensed consolidated financial statements.
PENN VIRGINIA CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 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 six months ended June 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. (2) SECURITIES The cost, gross unrealized holding gains or losses and market value for available-for-sale securities at June 30, 1999 were as follows (in thousands): Gross Unrealized Market Cost Holding Gain Value Available-for-Sale: Norfolk Southern Corporation $ 2,839 $96,790 $99,629 Other - 24 24 $ 2,839 $96,814 $99,653
(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 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 June 30, 1999 and 1998. Three Months Ended Three Months Ended June 30, 1999 June 30, 1998 Income Shares Per Share Income Shares Per Share (Numerator)(Denominator) Amount (Numerator)(Denominator)Amount (in thousands except per share amounts) Basic EPS: Income from continuing operations $ 3,165 8,410 $0.38 $3,666 8,291 $0.44 Dilutive Securities: Stock options - 80 - 240 Diluted EPS: Income from continuing operations $ 3,165 8,490 $0.37 $3,666 8,531 $0.43
Six Months Ended Six Months Ended June 30, 1999 June 30, 1998 Income Shares Per Share Income Shares Per Share (Numerator)(Denominator) Amount (Numerator)(Denominator) Amount (in thousands except per share amounts) Basic EPS: Income from continuing operations $6,080 8,391 $0.72 $6,818 8,285 $0.82 Dilutive Securities: Stock options - 78 - 236 Diluted EPS: Income from continuing operations $6,080 8,469 $0.72 $ 6,818 8,521 $ 0.80
(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 and six month periods ended June 30, 1999 and 1998, the components of comprehensive income are as follows: Three Months Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 (in thousands) Net income $ 3,165 $3,666 $6,080 $6,818 Unrealized holding gains (losses), net of tax of $4,341, $(8,756), $(1,809), and $(795), respectively 8,061 (16,262) (3,359) (1,476) Reclassification adjustment, net of tax of $5 - (9) - (9) Comprehensive income (loss) $11,226 $(12,605) $ 2,721 $ 5,333
(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) For the six months ended June 30, 1999 Revenues $ 9,494 $9,233 $1,323 $20,050 Operating income (loss) 1,671 7,083 (877) 7,877 For the six months ended June 30, 1998 Revenues $10,803 $6,916 $1,323 $19,042 Operating income (loss) 3,322 5,126 (422) 8,026 Identifiable assets June 30, 1999 98,418 71,153 81,859 251,430 Dec. 31, 1998 102,698 63,424 90,809 256,931
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) SUBSEQUENT EVENTS On July 9, 1999, Penn Virginia purchased certain oil and gas properties located in Mississippi for $13.7 million, subject to certain post-closing adjustments. The acquisition was funded by borrowings from the Company's revolving credit facility ("Revolver'). On July 1, 1999, the Company entered into an agreement to acquire fee mineral and lease rights to coal reserves and related assets in southern West Virginia for $31 million. The Company intends to use borrowings from their Revolver to complete the transaction. 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 acquired certain oil and gas properties on July 9, 1999 for $13.7 million which are located in southern Mississippi. The coal and land segment includes Penn Virginia's mineral rights to coal reserves, its timber assets an land assets. In order to broaden and diversify its oil and gas operations, Penn Virginia's Houston, TX office continues to concentrate on property acquisitions located in Louisiana, Texas, Oklahoma and Mississippi. On July 9, 1999, the Company successfully completed the purchase certain oil and gas properties located in Mississippi for $13.7 million, subject to certain post-closing adjustments The acquisition was funded by borrowings from the Company's Revolver. The properties hold 22 billion Bcfe of proved reserves and are 99 percent natural gas. The properties will be operated by Penn Virginia and currently produce 2.6 Mmcf of natural gas per day. On July 1, 1999, the Company entered into an agreement to acquire fee mineral and lease rights to an aggregate of approximately 94 million tons of high quality coal reserves held in three separate properties located in southern West Virginia. Approximately 66 million tons will be owned by Penn Virginia with the remainder subject to long-term leases. The $31 million purchase is contingent upon, among other things, obtaining typical consents and is expected to close during the third quarter. Results of Operations - Second quarters of 1999 and 1998 Compared. Penn Virginia reported 1999 second quarter earnings of $3.2 million, or $0.37 per share (diluted), compared with $3.7 million, or $0.43 per share (diluted), for the third quarter of 1998. On a consolidated basis, revenues increased $0.5 million in the second quarter of 1999 primarily from increases in coal segment revenues, offset by a decline in natural gas prices. Results of Operations - Six months of 1999 and 1998 Compared. Penn Virginia reported 1999 six months earnings of $6.1 million, or $0.72 per share (diluted), compared with $6.8 million, or $0.80 per share (diluted), for the same period of 1998. On a consolidated basis, revenues increased $1.0 million, primarily from increases in coal segment revenues, offset by a decline in natural gas prices. Operating expenses on a consolidated basis were $1.2 million higher than the 1998 comparable period. Selected operating and financial data by segment is presented below. Oil and Gas Segment Operating income for the oil and gas segment was $1.7 million for the six months ended June 30, 1999, compared with $3.3 million for the same period in 1998. Operational and financial data for the Company's oil and gas segment for the 1999 and 1998 three and six months ended June 30 is summarized in the following tables: Operations Summary Three Months Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 Production Natural gas (MMcf)-Working Interest 1,867 1,819 3,718 3,732 Natural gas (MMcf)-Royalty Interest 176 147 364 287 Oil and condensate (MBbls) 9 8 16 17 Production, MMcfe 2,097 2,014 4,178 4,121 Average Realized Prices Natural gas ($/Mcf)- Working Interest $ 2.19 $ 2.57 $ 2.17 $ 2.59 Natural gas ($/Mcf)- Royalty Interest 2.34 2.65 2.24 2.62 Oil and condensate ($/Bbl) 12.59 12.00 10.55 12.53 Average Costs (per MMcfe) Lease operating $ 0.50 $ 0.44 $ 0.47 $ 0.44 Exploration expenses 0.20 0.03 0.11 0.02 Taxes other than income 0.22 0.26 0.25 0.26 General and administrative 0.25 0.33 0.25 0.31 Depreciation, depletion and amortization 0.79 0.77 0.79 0.78 Total costs $ 1.96 $ 1.83 $ 1.87 $ 1.81
Penn Virginia's price risk program permits the utilization of agreements and financial instruments (such as futures, forward and option contracts and swaps) to mitigate the price risks associated with fluctuations in natural gas prices as they relate to the company's anticipated production. These financial instruments are designated as hedges and accounted for on the accrual basis with gains and losses being recognized based on the type of contract and exposure being hedged. Realized gains and losses on natural gas financial instruments designated as hedges of anticipated transactions are treated as deferred charges or credits, as applicable, on the balance sheet until recognized. Net gains and losses on such financial instruments, including accrued gains or losses upon maturity or termination of the contract, are recognized in operating income. Approximately half of the Company's 1999 working interest natural gas production was sold at market prices, with the remainder sold under fixed-price term contracts. In the second quarter of 1999, the Company recognized a $0.2 million loss on hedging activities compared with a $0.2 million loss in the second quarter of 1998. For the first six months of 1999, the Company recognized a gain of $0.1 million on hedging activities compared with a $0.4 million loss in 1998. The following table shows the effect of hedging activities on the Company's working interest natural gas prices: Hedging Summary Three Months Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 Natural gas prices ($/Mcf): Actual price received for production $ 2.27 $ 2.68 $ 2.15 $ 2.70 Effect of hedging activities (0.08) (0.11) 0.02 (0.11) Average price $ 2.19 $ 2.57 $ 2.17 $ 2.59
Financial Summary Three Months Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 (in thousands) Revenues: Natural gas sales $ 4,087 $ 4,667 $ 8,065 $ 9,658 Oil and gas royalties 411 390 815 753 Oil and condensate 110 96 165 213 Gain on the sale of property - 3 - 24 Other income 310 103 449 154 Total revenues $ 4,918 $ 5,259 $ 9,494 $10,802 Expenses: Operating expenses $ 1,045 $ 889 $ 1,952 $ 1,828 Exploration expenses 424 58 448 95 Taxes other than income 468 525 1,031 1,081 General and administrative 524 667 1,063 1,273 Loss on the sale of property - - - 4 Depreciation and depletion 1,655 1,548 3,329 3,199 Total expenses 4,116 3,687 7,823 7,480 Operating Income $ 802 $ 1,572 $ 1,671 $ 3,322
Results of Operations - Oil and Gas Segment Revenues. Revenues decreased $0.3 million, or six percent, to $4.9 million in the second quarter of 1999, compared with $5.3 million for the same period of 1998. This decrease was primarily a result of a $0.6 million decrease in natural gas sales. Revenues for the six months of 1999 decreased $1.3 million, or 12 percent, to $9.5 million from the comparable 1998 amount primarily due to the average price received for natural gas. Natural gas sales decreased $580,000, or 12 percent, in the second quarter of 1999 and $1.6 million, or 16 percent for the six months ended June 30, 1999, compared with 1998 amounts. Despite slight increases in natural gas volumes, the average price received for working interest natural gas declined 15 percent to $2.19 per thousand cubic feet (Mcf) in the second quarter and 16 percent to $2.17 per Mcf for the six months ended June 30, 1999, compared with 1998 amounts. Oil and condensate revenues increased $14,000 and decreased $48,000 for the three and six months ended June 30, 1999 from $96,000 and $213,000 for the comparable periods in 1998. These fluctuations are attributable to the volatility in average prices received. While volumes remained relatively constant, prices increased five percent to $12.59 in the second quarter of 1999 and decreased 16 percent to $10.55 for the six months ended June 30, 1999, compared with the respective 1998 amounts. Expenses. Expenses for the oil and gas segment increased to $4.1 million and $7.8 million for the three and six months ended June 30, 1999, respectively, compared with $3.7 million and $7.5 million for the same periods in 1998. These fluctuations are primarily due to increases in exploration expenses and depreciation and depletion, offset by a decrease in general and administrative expenses. Lease operating expenses increased $156,000 and $124,000 for the three and six months ended June 30, 1999 from $889,000 and $1.8 million for the same periods in 1998. On a Mcfe basis, lease operating expenses increased to $0.47 cents for the first six months of 1999 from $0.44 cents in 1998. The increase was due to several repair and maintenance projects performed in June 1999 and increases in compressor rentals in various fields. Exploration expenses increased to $424,000 and $448,000 for the three and six months ended June 30, 1999 from $58,000 and $95,000 for the same periods in 1998. These increases were related to dry hole costs and the purchase of additional seismic data. Taxes other than income decreased 11 percent to $468,000 in the second quarter of 1999, compared with $525,000 in the same period of 1998. For the six months ended June 30, 1998, taxes other than income decreased five percent, to $1,031,000, from the comparable 1998 amount. The decrease resulted from less excise taxes being paid due to the relocation of the Company's oil and gas offices. General and administrative expenses decreased 21 percent to $524,000 in the second quarter of 1999, compared with $667,000 in the same period of 1998. For the six months ended June 30, 1998, general and administrative expenses decreased 16 percent, to $1,063,000, from the comparable 1998 amount. The decrease relates to the December 1998 relocation of the offices for the oil and gas segment. Depreciation and depletion increased to $1.7 million and $3.3 million for the three and six months ended June 30, 1999, compared with $1.5 million and $3.2 million for the same periods in 1998. Depreciation and depletion, on a Mcf basis remained relatively constant at $0.79 for the six months ended June 30, 1999, compared with $0.78 for the same period in 1998. Coal and Land Segment Operating income for the coal segment was $7.1 million for the six months of 1999 and $5.1 million for the comparable period of 1998. The coal segment's operational and financial data for the 1999 and 1998 second quarter and six month period is summarized in the following tables: Operations Summary Three Months Nine Months Ended June 30, Ended June 30, 1999 1998 1999 1998 Production Coal tons (000's) 2,043 1,346 3,749 2,567 Timber (Mbf) 1,577 3,123 2,691 4,107 Average Realized Prices Coal royalties ($/ton) $ 2.08 $ 1.92 $ 2.13 $ 1.99 Timber ($/Mbf) 220 172 213 186 Average Costs (per ton) Lease operating $ 0.05 $ 0.04 $ 0.04 $ 0.03 Exploration expenses 0.01 0.12 0.02 0.07 Taxes other than on income 0.06 0.09 0.06 0.08 General and administrative 0.29 0.40 0.32 0.40 Depreciation, depletion and amortization 0.13 0.11 0.14 0.11 Total costs $ 0.54 $ 0.76 $ 0.58 $ 0.69
Financial Summary Three Months Six Months Ended June 30, Ended June 30, 1999 1998 1999 1998 (in thousands) Revenues: Coal royalties $ 4,242 $ 2,582 $ 7,974 $ 5,113 Timber sales 361 618 610 827 Other income 322 857 649 976 Total revenues 4,925 4,057 9,233 6,916 Expenses: Operating expenses $ 103 $ 61 $ 155 $ 89 Exploration expenses 21 158 65 169 Taxes other than income 109 119 214 205 General and administrative 601 535 1,183 1,033 Loss on sale of property - - - 1 Depreciation and depletion 273 151 533 293 Total expenses 1,107 1,024 2,150 1,790 Operating Income $ 3,818 $ 3,033 $ 7,083 $ 5,126
Results of Operations - Coal and Land Segment Revenues. Revenues increased 21 percent to $4.9 million in the second quarter of 1999 and 33 percent to $9.2 million for the first six months of 1999, compared with $4.1 million and $6.9 million for the same periods in 1998. Coal royalties increased $1.7 million to $4.2 million in the second quarter of 1999 and $2.9 million to $8.0 million for the first six months of 1999, as compared with the same periods in 1998. These increases are attributable to increased production from existing lessees, start-up operations for some lessees, production on the Company's Coal River Properties which was recovered from a lessee who was in bankruptcy proceedings in 1998, acquisitions in the last half of 1998 and completion of the unit train loadout. Production from lessees during the first half of 1998 was hindered by the loss of a sales contract by one lessee, financial difficulties by another lessee and coal transportation delays due to adverse weather conditions. Additionally, the average realization per ton for the first six months of 1999 increased to $2.13 from the comparable 1998 amount of $1.99. Timber sales decreased $257,000 to $361,000 in the second quarter of 1999 and $217,000 to $610,000 for the first six months of 1999, compared with the same periods in 1998. This decrease was primarily related to the timing of the Company's parcel timber sales. Other income decreased $535,000 in the second quarter of 1999 and $327,000 for the first six months of 1999, as compared with the same periods in 1998. These decreases were due to $750,000 recouped in June 1998 by the Company due to lessees not meeting minimum production requirements, offset by revenues received in 1999 by the Company's unit train loadout facility. Expenses. Expenses increased eight percent to $1.1 million in the second quarter of 1999 and 20 percent to $2.2 million for the first six months of 1999, compared with $1.0 million and $1.8 million for the same periods in 1998 primarily due to increases in general and administrative expenses and depreciation and depletion. General and administrative expenses increased 12 percent to $601,000 in the second quarter of 1999 and increased 15 percent to $1,183,000 for the first six months of 1999, compared with $535,000 and $1,033,000 for the same periods in 1998. The majority of the variance is related to an increase in legal fees incurred by the Company to pursue the potential recoverability of coal reserves. Depreciation and depletion increased to $273,000 and $533,000 for the three and six month periods ended June 30, 1999 from $151,000 and $293,000 for the comparable periods in 1998. Depreciation and depletion, on a per ton basis, was $0.13 and $0.14 for the three and six months periods ended June 30, 1999, compared with $0.11 for the both periods in 1998. The depletion rate, on a per ton basis, increased due to the 1999 completion of the unit train loadout facility and the Company's 1998 acquisitions. 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 $8.9 million in the first six months of 1999 compared with $14.7 million in the first six months of 1998. The Company's consolidated cash balance decreased from $0.2 million at the end of 1998 to $0.1 million at June 30, 1999 while consolidated borrowings decreased from $38.0 million to $35.7 million for the same periods, respectively. Net Cash Used in Investing Activities. Net cash used in investing activities totaled $4.0 million and $4.6 million for the first six months of 1999 and 1998, respectively. In the first six months of 1999, capital expenditures totaled $4.8 million compared with $6.4 million in the first six months of 1998. Oil and gas development activities and support equipment and facilities for the coal segment were the primary uses of funds. The capital expenditures, including acquisitions, made by the Company for the first six months of 1999 and 1998 are as follows: Six Months Ended June 30, 1999 1998 (in thousands) Oil and Gas Acquisitions $ 192 $ 333 Development 2,487 2,607 Exploration 288 245 Support equipment 42 97 Coal and Land Acquisitions 344 2,963 Support equipment and facilities 1,447 140 Other 35 23 Total capital expenditures $ 4,835 $ 6,408
In the oil and gas segment, the Company had capital expenditures totaling $3.0 million in the first six months of 1999. The Company drilled 20 gross (19.0 net) development wells and one gross (0.5 net) exploratory well in the first six months of 1999. The Company expects to drill approximately 40 net wells in 1999, with approximately 10 wells in exploratory areas. In the coal and land segment, capital expenditures totaled $1.8 million. The Company has expended $1.4 million in 1999 on its unit train loadout 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. The facility has capacity of up to four million tons annually and currently serves two of the Company's lessees. The Company also holds an investment in Norfolk Southern common stock which had a gross unrealized holding gain of $96.8 million at June 30, 1999. Net Cash Used in Financing Activities. Net cash used in financing activities totaled $5.0 million and $8.1 million for the first six months of 1999 and 1998, respectively. Net cash used in financing activities was primarily used to fund the payment of $3.8 million in dividends in 1998. Penn Virginia has a $75 million unsecured revolving credit facility (the "Revolver") with a final maturity of August 2000. Currently, the Company is in the process of increasing the Revolver from $75 million to $120 million and extending the maturity to June 30, 2003. The availability for borrowings under the Revolver is governed by a semiannual borrowing base calculation. The Revolver bears interest at LIBOR or the base rate at the option of the Company plus a percentage based on the percentage of the borrowing base outstanding. The outstanding balance on the Revolver was $33.2 million at June 30, 1999 and $37.1 million at December 31, 1998. 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 September 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 September 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 $25,000 has been incurred through June 30, 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 November 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 ("FASB") 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. In June 1999, the FASB issued SFAS No. 137 which deferred the effective date of SFAS No. 133 for all fiscal quarters of all fiscal years beginning after June 15, 2000. Under present conditions, the company 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. Such forward-looking statements include, among other things, statements regarding development activities, capital expenditures, acquisitions and dispositions, drilling and exploration programs, expected commencement dates of coal mining or oil and gas production, projected quantities of future oil and gas production by Penn Virginia, projected quantities of future coal production by the Company's lessees producing coal from reserves leased from Penn Virginia, costs and expenditures as well as projected demand or supply for coal and oil and gas, which will affect sales levels, prices and royalties realized by Penn Virginia. These forward-looking statements are made based upon management's current plans, expectations, estimates, assumptions and beliefs concerning future events impacting Penn Virginia and therefore involve a number of risks and uncertainties. Penn Virginia cautions that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. Important factors that could cause the actual results of operations or financial condition of Penn Virginia to differ include, but are not necessarily limited to: the cost of finding and successfully developing oil and gas reserves; the cost of finding new coal reserves; the ability to acquire new oil and gas and coal reserves on satisfactory terms; the price for which such reserves can be sold; the volatility of commodity prices for oil and gas and coal; the risks associated with having or not having price risk management programs; Penn Virginia's ability to lease new and existing coal reserves; the ability of Penn Virginia's lessees to produce sufficient quantities of coal on an economic basis from Penn Virginia's reserves; the ability of lessees to obtain favorable contracts for coal produced from Penn Virginia reserves; Penn Virginia's ability to obtain adequate pipeline transportation capacity for its oil and gas production; competition among producers in the coal and oil and gas industries generally and in the Appalachian Basin in particular; the extent to which the amount and quality of actual production differs from estimated recoverable coal reserves and proved oil and gas reserves; unanticipated geological problems; availability of required materials and equipment; the occurrence of unusual weather or operating conditions including force majeure or events; the failure of equipment or processes to operate in accordance with specifications or expectations; delays in anticipated start-up dates; environmental risks affecting the drilling and producing of oil and gas wells or the mining of coal reserves; the timing of receipt of necessary governmental permits; labor relations and costs; accidents; changes in governmental regulation or enforcement practices, especially with respect to environmental, health and safety matters, including with respect to emissions levels applicable to coal-burning power generators; risks and uncertainties relating to general domestic and international economic (including inflation and interest rates) and political conditions; the experience and financial condition of lessees of coal reserves, joint venture partners and purchasers of reserves in transactions financed by Penn Virginia, including their ability to satisfy their royalty, environmental, reclamation and other obligations to Penn Virginia and others; changes in financial market conditions; changes in the market prices or value of the marketable securities owned by Penn Virginia, including the price of Norfolk Southern common stock and other risk factors detailed in Penn Virginia's Securities and Exchange commission filings. Many of such factors are beyond Penn Virginia's ability to control or predict. Readers are cautioned not to put undue reliance on forward-looking statements. While Penn Virginia periodically reassesses material trends and uncertainties affecting Penn Virginia's results of operations and financial condition in connection with the preparation of Management's Discussion and Analysis of Results of Operations and Financial Condition and certain other sections contained in Penn Virginia's quarterly, annual or other reports filed with the Securities and Exchange Commission, Penn Virginia does not intend to publicly review or update any particular forward-looking statement, whether as a result of new information, future events or otherwise. PART II Other information Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits (27) Financial Data Schedule, filed herewith. (b) Reports on Form 8-K No reports on Form 8-K were filed for the quarter ended June 30, 1999. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PENN VIRGINIA CORPORATION Date: August 13, 1999 By: /s/ Steven W. Tholen Steven W. Tholen, Vice President and Chief Financial Officer Date: August 13, 1999 By: /s/ Forrest W. McNair Forrest W. McNair, Financial Reporting Manager PENN VIRGINIA CORPORATION INDEX PAGE PART I Financial Information: Item 1. Financial Statements Condensed Consolidated Statements of Income for the three 2 and six months ended June 30, 1999 and 1998 Condensed Consolidated Balance Sheets as of June 30, 1999 and 3 December 31, 1998 Condensed Consolidated Statements of Cash Flows for the three 5 and six months ended June 30, 1999 and 1998 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition 9 and Results of Operations PART II Other Information Item 6. Exhibits and Reports on Form 8-K 20 Article 5 of Regulation S-X EX-27 2 ART. 5 FDS FOR 2NDQUARTER 10-Q
5 1000 3-MOS DEC-31-1999 JUN-30-1999 113 0 4,900 0 0 6,607 214,728 72,625 251,430 6,577 0 0 0 55,762 114,507 251,430 17,629 20,050 2,107 2,107 10,066 0 1,071 7,527 1,447 6,080 0 0 0 6,080 0.72 0.72
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