-----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, HOearLYnhti4jv0j5AOhtk6nGzDdZJ6xw4NjsJ6AAmohxamIHv4l7eyytXOCl4st YpsbjgDTobbZ93DogBTczQ== 0000077159-99-000064.txt : 19991115 0000077159-99-000064.hdr.sgml : 19991115 ACCESSION NUMBER: 0000077159-99-000064 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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: 99750081 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 UNITED STATES 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, 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 November 4, 1999: 8,921,864 PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME - Unaudited (in thousands, except per share amounts) Three Months Nine Months Ended September 30, Ended September 30, 1999 1998 1999 1998 Revenues: Natural gas $5,498 $4,715 $13,563 $14,373 Oil and condensate 128 47 293 260 Natural gas royalties 452 442 1,267 1,195 Coal royalties 4,283 2,629 12,257 7,742 Timber 737 327 1,347 1,154 Dividends 661 662 1,984 1,985 Gain on sale of property - 21 - 45 Other income 620 955 1,718 2,086 Total revenues 12,379 9,798 32,429 28,840 Expenses: Operating expenses 1,195 953 3,302 2,870 Exploration expenses 696 387 1,370 655 Taxes other than income 662 701 1,985 2,048 General and administrative 2,198 1,725 6,345 5,653 Loss on sale of property - - - 5 Depreciation, depletion, amortization 2,198 1,697 6,120 5,248 Total expenses 6,949 5,463 19,122 16,479 Operating Income 5,430 4,335 13,307 12,361 Other (Income) Expense: Interest expense 793 488 1,864 1,487 Gain on sale of securities - - - (14) Other income (351) (610) (1,072) (2,080) Income before income tax 4,988 4,457 12,515 12,968 Income tax expense 1,043 1,015 2,490 2,708 Net Income $3,945 $3,442 $10,025 $10,260 Net Income per share, basic $0.47 $0.41 $1.19 $1.24 Net Income per share, diluted $0.46 $0.41 $1.18 $1.21 Weighted average shares outstanding 8,423 8,308 8,401 8,292
The accompanying notes are an integral part of these condensed consolidated financial statements. PENN VIRGINIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) September 30, December 31, 1999 1998 (Unaudited) ASSETS Current assets Cash and cash equivalents $ - $ 225 Accounts receivable 6,141 5,682 Current portion of long-term notes receivable 391 364 Current deferred income taxes 577 577 Other 712 680 Total current assets 7,821 7,528 Investments 81,047 104,819 Long-term notes receivable 2,778 3,079 Oil and gas properties; wells and equipment, using the successful efforts method of accounting 178,398 157,558 Other property, plant and equipment 85,267 52,455 Less: Accumulated depreciation, (74,792) (68,745) depletion and amortization Total property, plant and equipment 188,873 141,268 Other assets 476 237 Total assets $280,995 $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) September 30, December 31, 1999 1998 (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Short-term debt $ 2,203 $ - Current installments on long-term debt 31 31 Accounts payable 507 1,397 Accrued expenses 4,304 5,039 Deferred income 461 576 Total current liabilities 7,506 7,043 Other liabilities 3,243 2,875 Deferred income taxes 31,471 38,787 Long-term debt 78,485 37,967 Total liabilities 120,705 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 and 8,921,866 shares issued in 1999 and 1998, respectively 55,762 55,762 Other paid-in capital 8,168 8,441 Retained earnings 58,276 53,924 Accumulated other comprehensive income 50,533 65,985 172,739 184,112 Less: 498,902 shares in 1999 and 555,050 in 1998 of common stock held in treasury, at cost 11,149 12,403 Unearned compensation - ESOP 1,300 1,450 Total shareholders' equity 160,290 170,259 Total liabilities and shareholders' equity $ 280,995 $ 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 Nine Months Ended September 30, Ended September 30, 1999 1998 1999 1998 Cash flow from operating activities: Net Income $ 3,945 $ 3,442 $ 10,025 $ 10,260 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion, and amortization 2,198 1,697 6,120 5,248 Gain on sale of securities - - - (14) Gain on sale of property, plant and equipment - (21) - (40) Deferred income taxes 767 797 1,004 1,814 Dry hole expense 481 60 601 47 Other (323) (594) (978) (1,560) Changes in operating assets and liabilities: Current assets (1,317) 419 (488) 4,559 Current liabilities 404 (835) (1,740) (3,024) Other assets (321) (33) (316) 4,195 Other liabilities (122) 55 369 (1,803) Net Cash provided by operating activities 5,712 4,987 14,597 19,682 Cash flows from investing activities: Proceeds from the sale of securities - - - 17 Proceeds from notes receivable 417 417 1,252 2,116 Proceeds from sale of fixed assets - 21 - 80 Capital expenditures (49,418) (8,258) (54,253) (14,666) Net Cash used in investing activities (49,001) (7,820) (53,001) (12,453) Cash flows from financing activities: Dividends paid (1,895) (1,868) (5,673) (5,597) Proceeds from debt borrowings 45,025 3,500 46,703 3,500 Repayment of debt (17) (25) (3,982) (5,075) Issuance of stock 63 248 1,131 933 Net Cash provided by (used in) financing activities 43,176 1,855 38,179 (6,239) Net increase (decrease) in cash and cash equivalents (113) (978) (225) 990 Cash and cash equivalents-beginning balance 113 2,799 225 831 Cash and cash equivalents-ending balance $ - $ 1,821 $ - $ 1,821 Supplemental disclosures of cash flow information: Cash paid to date for: Interest $ 842 $ 520 $ 1,907 $ 1,540 Income taxes - 300 1,600 1,000
The accompanying notes are an integral part of these condensed consolidated financial statements. PENN VIRGINIA CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 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 nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. (2) ACQUISITIONS In July 1999, the Company acquired certain oil and gas properties in southern Mississippi for $13.8 million, subject to certain post- closing adjustments. The acquisition was funded by borrowings from the Company's revolving credit facility (the "Revolver"). In September 1999, the Company successfully completed the purchase of fee mineral and lease rights for coal reserves and related assets in southern West Virginia. The $30.7 million acquisition was funded by borrowings from the Company's Revolver. (3) SECURITIES The cost, gross unrealized holding gains or losses and market value for available-for-sale securities at September 30, 1999 were as follows (in thousands): Gross Unrealized Market Cost Holding Gain Value Available-for-Sale: Norfolk Southern Corporation $ 2,839 $ 78,187 $ 81,026 Other - 21 21 $ 2,839 $ 78,208 $ 81,047
(4) 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) LONG-TERM DEBT In August 1999, the Company entered into an agreement with a group of major U.S. banks for a $120 million unsecured revolving credit facility with a final maturity of June 2003. The Revolver is governed by a borrowing base calculation, currently $110 million, and will be redetermined semi-annually. The Company has the option to elect interest at (i) LIBOR plus a Eurodollar margin ranging from 100 to 150 basis points, based on the percentage of the borrowing base outstanding or (ii) the greater of the prime rate or federal funds rate plus 50 basis points. The financial covenants require the Company to maintain certain levels of net worth, debt-to- capitalization and dividend limitation restrictions. The Company is currently in compliance with all of its covenants. (6) 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 September 30, 1999 and 1998. Three Months Ended Three Months Ended September 30, 1999 September 30, 1998 Income Shares Per Share Income Shares Per Share (Numerator)(Denominator) Amount (Numerator)(Denominator) Amount (in thousands, except per share amounts) Basic EPS: Net income $3,945 8,423 $0.47 $3,442 8,308 $0.41 Dilutive Securities: Stock options - 109 - 153 Diluted EPS: Net income $3,945 8,532 $0.46 $3,442 8,461 $0.41 Nine Months Ended Nine Months Ended September 30, 1999 September 30, 1998 Income Shares Per Share Income Shares Per Share (Numerator)(Denominator) Amount (Numerator)(Denominator) Amount (in thousands, except per share amounts) Basic EPS: Net income $10,025 8,401 $1.19 $10,260 8,292 $1.24 Dilutive Securities: Stock options - 89 - 217 Diluted EPS: Net income $10,025 8,490 $1.18 $10,260 8,509 $1.21
(7) 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 nine month periods ended September 30, 1999 and 1998, the components of comprehensive income are as follows: Three Months Nine Months Ended September 30, Ended September 30, 1999 1998 1999 1998 (in thousands) Net income $ 3,945 $ 3,442 $10,025 $10,260 Unrealized holding losses, net of tax of $6,513, $865, $8,320 and $1,660, respectively (12,093) (1,607) (15,452) (3,083) Reclassifaction adjustment, net of tax of $5 - - - (9) Comprehensive income (loss) $(8,148) $ 1,835 $(5,427) $7,168
(8) 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 ate Oil and Gas Coal and Land and other Consolidated in thousands 0 For the nine months ended September 30, 1999 Revenues $ 15,716 $ 14,728 $ 1,985 $ 32,429 Operating income (loss) 3,285 11,385 (1,363) 13,307 For the nine months ended September 30, 1998 Revenues $ 16,053 $ 10,802 $ 1,985 $ 28,840 Operating income (loss) 4,751 8,148 (538) 12,361 Identifiable assets September 30, 1999 $115,563 $105,483 $ 59,949 $280,995 December 31, 1998 102,698 62,575 91,658 256,931 1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Penn Virginia operates two primary 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 Virginia, West Virginia, Kentucky and Mississippi. In July 1999, the Company acquired certain oil and gas properties in southern Mississippi for $13.8 million, subject to certain post- closing adjustments, and the purchase was funded by borrowings from the Company's Revolver. The acquired properties, which are 99 percent natural gas, hold 22 Bcfe of proved reserves and provide numerous drilling opportunities. The properties currently produce 2.6 MMcf of natural gas per day and are operated by Penn Virginia. This acquisition is representative of the Company's continuing effort to broaden and diversify its oil and gas operations. The coal and land segment includes Penn Virginia's mineral rights to coal reserves, timber assets and land assets in Virginia, West Virginia and Kentucky. In September 1999, the Company successfully completed the purchase of fee mineral and lease rights to approximately 90 million tons of high quality coal reserves located in southern West Virginia. Approximately 66 million tons are owned by Penn Virginia with the remainder subject to long-term leases. The $30.7 million acquisition was funded by borrowings from the Company's Revolver. Results of Operations - Third quarters of 1999 and 1998 compared. Penn Virginia reported 1999 third quarter earnings of $3.9 million, or $0.46 per share (diluted), compared with $3.4 million, or $0.41 per share (diluted), for the third quarter of 1998. On a consolidated basis, revenues increased $2.6 million in the third quarter of 1999 due to a $1.0 million increase in oil and gas segment revenues and a $1.6 million increase in the coal and land segment. Results of Operations - Nine months of 1999 and 1998 compared. Penn Virginia reported 1999 nine months earnings of $10.0 million, or $1.18 per share (diluted), compared with $10.3 million, or $1.21 per share (diluted), for the 1998 comparable period. On a consolidated basis, revenues increased $3.6 million as a result of a $3.9 million increase in the coal and land segment, offset by a $0.3 million decrease in the oil and gas segment. Selected operating and financial data by segment is presented below. Oil and Gas Segment Operating income for the oil and gas segment was $3.3 million for the nine months ended September 30, 1999, compared with $4.8 million for the same period in 1998. Operational and financial data for the Company's oil and gas segment for the three and nine months ended September 30, 1999 and 1998 is as follows: Operations Summary Three Months Nine Months Ended September 30, Ended September 30, 1999 1998 1999 1998 Production Natural gas (MMcf)-Working Interest 2,143 1,776 5,861 5,508 Natural gas (MMcf)-Royalty Interest 173 187 537 474 Oil and condensate (MBbls) 8 5 24 22 Production, MMcfe 2,364 1,993 6,542 6,114 Average Realized Prices Natural gas ($/Mcf)-Working Interest $ 2.57 $ 2.65 $ 2.31 $ 2.61 Natural gas ($/Mcf)-Royalty Interest 2.61 2.36 2.36 2.52 Oil and condensate ($/Bbl) 18.85 9.40 12.47 11.82 Average Costs (per Mcfe) Lease operating $ 0.47 $ 0.46 $ 0.47 $ 0.45 Exploration expenses 0.25 0.10 0.16 0.05 Taxes other than income 0.22 0.28 0.24 0.27 General and administrative 0.22 0.31 0.24 0.31 Depreciation, depletion, and amortization 0.79 0.77 0.79 0.77 Total costs $ 1.95 $ 1.92 $ 1.90 $ 1.85
Penn Virginia's price risk program permits the utilization of fixed- price contracts 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 contracts and/or 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 accounted for 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 85 percent 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 third quarter of 1999, the Company recognized a $276,000 loss on hedging activities compared with a $20,000 gain in the third quarter of 1998. For the first nine months of 1999, the Company recognized a loss of $211,000 on hedging activities compared with $377,000 in 1998. The following table shows the effect of hedging activities on the Company's working interest natural gas prices: Hedging Summary Three Months Nine Months Ended September 30, Ended September 30, 1999 1998 1999 1998 Natural gas prices ($/Mcf): Actual price received for production $ 2.70 $ 2.64 $ 2.35 $ 2.68 Effect of hedging activities (.13) .01 (.04) (.07) Average price $ 2.57 $ 2.65 $ 2.31 $ 2.61 Financial Summary Three Months Nine Months Ended September 30, Ended September 30, 1999 1998 1999 1998 (in thousands) Revenues: Natural gas sales $ 5,498 $ 4,715 $13,563 $14,373 Oil and gas royalties 452 442 1,267 1,195 Oil and condensate 128 47 293 260 Gain on the sale of property - 2 - 2 Other income 144 45 593 223 Total revenues 6,222 5,251 15,716 16,053 Expenses: Operating expenses 1,101 919 3,053 2,747 Exploration expenses 595 197 1,043 292 Taxes other than income 530 567 1,561 1,648 General and administrative 519 616 1,582 1,889 Loss on the sale of property - - - 4 Depreciation and depletion 1,863 1,523 5,192 4,722 Total expenses 4,608 3,822 12,431 11,302 Operating income $ 1,614 $ 1,429 $ 3,285 $ 4,751
Results of Operations - Oil and Gas Segment Revenues. Revenues increased $1.0 million, or 19 percent, to $6.2 million in the third quarter of 1999. This increase was primarily a result of a $0.8 million increase in natural gas sales. Revenues for the first nine months of 1999 decreased two percent to $15.7 million primarily due to a $0.8 million decrease in natural gas sales. Natural gas sales increased 17 percent to $5.5 million in the third quarter of 1999 and decreased six percent to $13.6 million for the first nine months of 1999, compared with $4.7 million and $14.4 million in the 1998 comparable periods. Natural gas volumes, on a Mcfe basis, increased 19 percent and seven percent for the three and nine months ended September 30, 1999, respectively. The variance for the three quarters ended 1999 is due to a 12 percent decline in the average price received by the Company for its working interest gas, offset by a seven percent increase in natural gas volumes. Oil and condensate revenues increased $81,000 and $33,000 for the three and nine months ended September 30, 1999 from $47,000 and $260,000 for the comparable periods in 1998. These increases are primarily attributable to increases in the average price received. Prices increased $9.45 per Bbl, or 101 percent, for the third quarter of 1999 compared with the same period of 1998 and $0.65 per Bbl, or five percent, for the first nine months of 1999 compared with the same period of 1998. Expenses. Expenses for the oil and gas segment increased to $4.6 million and $12.4 million for the three and nine months ended September 30, 1999, respectively, compared with $3.8 million and $11.3 million for the same periods in 1998. These fluctuations represent increases in operating expenses, exploration expenses and depreciation and depletion, offset by a decrease in general and administrative expenses. Lease operating expenses increased 22 percent to $1.1 million in the third quarter of 1999 compared with $0.9 million for the same period in 1998 due to an increase in natural gas production. On a Mcfe basis, lease operating expenses remained relatively constant at $0.47 in the third quarter of 1999 compared with $0.46 in 1998. For the first nine months of 1999, lease operating expenses increased to $3.0 million from $2.7 million for the comparable 1998 period. On a Mcfe basis, lease operating expenses increased to $0.47 for the first nine months of 1999 from $0.45 in 1998. This slight increase was due to several repair and maintenance projects and increases in compressor rentals in various fields. Exploration expenses increased to $595,000 and $1.0 million for the three and nine months ended September 30, 1999 from $197,000 and $292,000 for the same periods in 1998. These increases are attributable to increased dry hole costs related to the Company's drilling program and the purchase of additional seismic data. Taxes other than income decreased $37,000 and $87,000 for the three and nine months ended September 30, 1999, from $567,000 and $1.6 million for the 1998 comparable periods. The decrease primarily resulted from less taxes being paid due to the relocation of the offices of the oil and gas segment. Depreciation and depletion increased to $1.9 million and $5.2 million for the third quarter and first nine months of 1999 from $1.5 million and $4.7 million for the same periods in 1998. Depreciation and depletion, on a Mcfe basis, remained relatively constant at $0.79 for the three and nine months ended September 30, 1999, compared with $0.77 for the same periods in 1998. Coal and Land Segment Operating income for the coal and land segment was $11.4 million for the first nine months of 1999 and $8.2 million for the comparable period of 1998. The coal and land segment's operational and financial data for the three and nine months ended September 30, 1999 and 1998 is as follows: Operations Summary Three Months Nine Months Ended September 30, Ended September 30, 1999 1998 1999 1998 Production Coal tons (000's) 2,116 1,288 5,865 3,855 Timber (Mbf) 3,631 1,669 6,322 5,776 Average Realized Prices Coal royalties ($/ton) $ 2.02 $ 2.04 $ 2.09 $ 2.01 Timber ($/Mbf) 193 177 202 183 Average Costs (per ton) Lease operating $ 0.04 $ 0.03 $ 0.04 $ 0.03 Exploration expenses 0.04 0.15 0.03 0.09 Taxes other than on income 0.05 0.09 0.05 0.08 General and administrative 0.29 0.29 0.31 0.37 Depreciation, depletion, and amortization 0.14 0.11 0.14 0.11 Total costs $ 0.56 $ 0.67 $ 0.57 $ 0.68 Financial Summary Three Months Nine Months Ended September 30, Ended September 30, 1999 1998 1999 1998 (in thousands) Revenues: Coal royalties $ 4,283 $ 2,629 $12,257 $ 7,742 Timber sales 737 327 1,347 1,154 Gain on sale of property - 43 - 43 Other income 475 887 1,124 1,863 Total revenues 5,495 3,886 14,728 10,802 Expenses: Operating expenses 94 34 249 123 Exploration expenses 89 190 154 359 Taxes other than income 102 114 316 319 General and administrative 614 382 1,797 1,415 Loss on sale of property - - - 1 Depreciation and depletion 294 144 827 437 Total expenses 1,193 864 3,343 2,654 Operating income $ 4,302 $ 3,022 $11,385 $ 8,148
Results of Operations - Coal and Land Segment Revenues. Revenues increased 41 percent to $5.5 million in the third quarter of 1999 and 36 percent to $14.7 million for the first nine months of 1999 compared with $3.9 million and $10.8 million for the same periods in 1998. Coal royalties increased $1.7 million to $4.3 million in the third quarter of 1999 and $4.5 million to $12.3 million for the first nine months of 1998 compared with the same periods in 1998. These increases are attributable to increased production from existing lessees, start-up operations for some lessees, acquisitions in the last half of 1998 and completion of the unit train loadout. Production from lessees during a portion 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 nine months of 1999 increased to $2.09 from the comparable 1998 amount of $2.01. Timber sales increased $410,000, or 125 percent, in the third quarter of 1999 and $193,000, or 17 percent, for the first nine months of 1999 compared with the same periods in 1998. Volume sold increased from 1,699 thousand board feet (Mbf) in the third quarter of 1998 to 3,631 Mbf in the third quarter of 1999 primarily due to timber harvested from the West Virginia properties during the third quarter of 1999. Additionally, the average realized price increased from $177 Mbf and $183 Mbf for the three and nine months ended September 30, 1998, respectively, to $193 Mbf and $202 Mbf for the comparable periods in 1999. Other income decreased $412,000 in the third quarter of 1999 and $739,000 for the first nine months of 1999 compared with the same periods in 1998. These decreases 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 39 percent to $1.2 million in the third quarter of 1999 and 22 percent to $3.3 million for the first nine months of 1999 compared with $864,000 and $2.7 million for the same periods in 1998 primarily due to increases in general and administrative expenses and depreciation and depletion. Operating expenses increased to $94,000 and $249,000 for the three and nine months ended September 30, 1999, from $34,000 and $123,000 for the same periods in 1998. These increases are a result of timber expenses associated with increased sales and operating expenses arising from the April 1999 addition of the Company's unit train loadout facility. Taxes other than income remained constant at $102,000 and $316,000 for the three and nine month periods ended September 30, 1999 compared with $114,000 and $319,000 for the comparable periods in 1998. General and administrative expenses increased to $614,000 in the third quarter of 1999 and $1.8 million for the first nine months of 1999 compared with $382,000 and $1.4 million for the same periods in 1998. The majority of the variance is related to an increase in current year legal fees incurred by the Company to pursue the potential recoverability of coal reserves and a bad debt recovery in the third quarter of 1998. Depreciation and depletion increased to $294,000 and $827,000 for the three and nine months ended September 30, 1999 from $144,000 and $437,000 for the 1998 comparable periods. Depreciation and depletion, on a per ton basis, was $0.14 for the three and nine month periods ended September 30, 1999 compared with $0.11 for both periods in 1998. The depletion rate, on a per ton basis, increased due to the 1999 completion of the unit train loadout 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 $14.6 million in the first nine months of 1999 compared with $19.7 million in the first nine months of 1998. Net Cash Used in Investing Activities. Net cash used in investing activities totaled $53.0 million and $12.5 million for the first nine months of 1999 and 1998, respectively. In the first nine months of 1999, capital expenditures totaled $54.3 million compared with $14.7 million in the first nine months of 1998. 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 1999 and 1998 are as follows: Nine Months Ended September 30, 1999 1998 (in thousands) Oil and Gas Segment Acquisitions $14,066 $ 3,356 Development 6,266 6,704 Exploration 953 412 Support equipment 156 172 Coal and Land Segment Acquisitions 30,698 3,123 Support equipment and facilities 2,070 887 Other 44 12 Total capital expenditures $54,253 $14,666
In the oil and gas segment, the Company had capital expenditures totaling $21.4 million in the first nine months of 1999. In July 1999, the Company successfully completed the acquisition of producing properties in Mississippi which accounted for $13.8 million. Additionally, the Company drilled 51 gross (31.5 net) development wells and 14 gross (9.1 net) exploratory wells in the first nine months of 1999. The Company expects to drill approximately 50 net wells in 1999 with approximately 10 wells in exploratory areas. In September 1999, the Company successfully completed a $30.7 million acquisition of fee mineral and lease rights to approximately 90 million tons of high quality coal reserves located in West Virginia. Approximately 66 million tons are owned by Penn Virginia with the remainder subject to long-term leases. The Company also holds an investment in Norfolk Southern common stock which had an unrealized holding gain of approximately $78.2 million at September 30, 1999. Net Cash Used in Financing Activities. Net cash provided (used) by financing activities totaled $38.2 million and $(6.2) million for the first nine months of 1999 and 1998, respectively. Net borrowings totaled $42.7 for the first nine months of 1999 and were used to fund $44.8 million in acquisitions. The Company has also expended $5.7 million in dividends in 1999. The Company has a $120 million unsecured revolving credit facility (the "Revolver") with a final maturity of June 2003. 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 $80.7 million at September 30, 1999 and $38.0 million at December 31, 1998. Management believes its portfolio of investments and sources of funding are sufficient to meet any liquidity needs not funded 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 has investigated 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 has implemented 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. Evaluation and testing have been completed and the Company has replaced all necessary items. 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 November 1999. Based on information known at this time, the Company believes it is Year 2000 compliant, excluding the effects of third parties, 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 $50,000 has been incurred through September 30, 1999. The Company is currently completing a Year 2000 contingency plan. The Company believes a more comprehensive and effective contingency plan is being developed since more significant concerns are evaluated and risk has been more 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" 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 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 2000 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 26, 1999. 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 2000 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 2000 Annual Meeting or February 2, 2000, then management proxies will be permitted to use their discretionary authority to vote on the proposal when the proposal is raised at the 2000 Annual Meeting of Shareholders, even though there is no discussion of the proposal in the 2000 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 One report on Form 8-K was filed during the quarter. The report involved an acquisition on September 24, 1999 and was filed under "Item 5. Other Events" on October 8, 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: November 12, 1999 By: /s/ Steven W. Tholen Steven W. Tholen, Vice President and Chief Financial Officer Date: November 12, 1999 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 the three 1 and nine months ended September 30, 1999 and 1998 Condensed Consolidated Balance Sheets as of September 30, 1999 and 2 December 31, 1998 Condensed Consolidated Statements of Cash Flows for the three 4 and nine months ended September 30, 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 5. Shareholder Proposals 17 Item 6. Exhibits and Reports on Form 8-K 17 Article 5 of Regulation S-X EX-27 2 ART. 5 FDS FOR 3RDQUARTER 10-Q
5 1000 9-MOS DEC-31-1999 SEP-30-1999 0 0 6,141 0 0 7,821 263,665 74,792 280,995 7,506 0 0 0 55,762 104,528 280,995 28,727 32,429 3,302 3,302 15,820 0 1,864 12,515 2,490 10,025 0 0 0 10,025 1.19 1.18
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