-----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, KrSWw0iM3PSaXiPcd+HI4QPfFLCS5CJG5eP3dn6MOyIO3lxyJWKxuW2DRCbXnVR+ CE3tPDtYHircwHpQswqSsA== 0000893220-96-000508.txt : 19960402 0000893220-96-000508.hdr.sgml : 19960402 ACCESSION NUMBER: 0000893220-96-000508 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENN VIRGINIA CORP CENTRAL INDEX KEY: 0000077159 STANDARD INDUSTRIAL CLASSIFICATION: MINERAL ROYALTY TRADERS [6795] IRS NUMBER: 231184320 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-00753 FILM NUMBER: 96542045 BUSINESS ADDRESS: STREET 1: 800 BELLEVUE STREET 2: 200 S BROAD ST CITY: PHILADELPHIA STATE: PA ZIP: 19102 BUSINESS PHONE: 2155456600 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-K405 1 PENN VIRGINIA CORPORATION FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-753 PENN VIRGINIA CORPORATION One Radnor Corporate Center, Suite 200 100 Matsonford Road Radnor, PA 19087 INCORPORATED IN I.R.S.EMPLOYER VIRGINIA IDENTIFICATION NO. 23-1184320
Securities registered pursuant to Section 12 (g) of the Act: Title of Each Class Common Stock, $6.25 Par Value Securities registered pursuant to section 12 (b) of the Act: None 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 ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X Based on the closing price of March 1, 1996, the aggregate market value of common stock held by nonaffiliates of the registrant was $117,172,100. The number of common shares outstanding of the registrant was 4,262,240 as of March 1, 1996. DOCUMENTS INCORPORATED BY REFERENCE:
Parts Into Which Incorporated ------------------ (1) Proxy Statement for Stockholder Meeting on May 7, 1996 ________________________________________________________________________________Part III
2 PART 1 ITEM 1 - BUSINESS GENERAL Penn Virginia Corporation ("Penn Virginia" or the "Company"), is a Virginia corporation founded in 1882. The Company is engaged in leasing of mineral rights and the collection of royalties; the exploration, development and production of oil and gas and the management of investments. The Company owns the mineral rights to approximately 254 million tons of recoverable coal reserves located in Virginia, West Virginia and Kentucky. Its coal reserves include both surface and underground seams. The reserves are generally high quality, low-sulfur bituminous coal and are leased to various operators. Penn Virginia explores for, develops and produces crude oil, condensate and natural gas in the Appalachia Basin. Its oil and gas operations are concentrated in western Virginia, southern West Virginia and eastern Kentucky. The Company had proved reserves of approximately 431,000 barrels of oil and condensate and 170 billion cubic feet of natural gas at December 31, 1995. During the last five years, the Company has increased proved reserves over 250 percent from 48.9 Bcfe at December 31, 1990 to 172.8 Bcfe at December 31, 1995. During the same period, Penn Virginia has invested $93.6 million for proved and unproved property acquisitions and for property development. The Company holds investments in energy-related public and private companies. GOALS AND STRATEGY Penn Virginia's primary goal is to maximize its long-term, intrinsic value on a per share basis. The Company believes growth in intrinsic value per share will ultimately be reflected in the price of its stock. To achieve its goal, the Company applies rigorous return on investment criteria to evaluate investment opportunities. The operational strategy of each business segment supports the overall corporate goal. The coal and land strategy is to maximize annual production from the Company's existing and new coal reserves by leasing the reserves to a mix of quality operators, to increase the value of its timber and land assets and to increase the coal royalty stream through the acquisition and leasing of Appalachia coal reserves. The long-term oil and gas strategy is to increase earnings, cash flow, production and proved reserves through a combination of low-risk development drilling, moderate-risk exploratory drilling and acquisitions of properties with significant development potential and/or the potential to consolidate operations, reduce operating costs per unit of production and accelerate cash flow. The investment strategy is to continue to support the growth of the other business segments through investments in public and private companies. FINANCIAL INFORMATION The Company operates in three business segments: (1) coal and land, (2) oil and gas, and (3) investments. Financial information concerning the Company's business segments can be found in Note 12 (Segment Information) of the Notes to the Consolidated Financial Statements of Penn Virginia Corporation which are part of this report. COAL AND LAND OPERATIONS OVERVIEW Penn Virginia owns approximately 106,000 fee acres of coal, timber and natural gas bearing land in Virginia, West Virginia and Kentucky. Coal is mined by several operators according to long-term lease agreements which generally require royalty payments to Penn Virginia based on a minimum annual payment or percentage of the coal's selling price. The Company's timber assets consist of various hardwoods, primarily red oak, white oak, yellow poplar and black cherry. The Company owns approximately 180 million board feet of standing saw timber. Generally, the harvest is limited to levels which enable the Company to maintain long-term sustainable development and production of its timber assets. 2 3 COAL PRODUCTION Various operators mined 4.1 million tons of coal from Penn Virginia's properties in 1995 and paid an average royalty rate of $2.20 per ton compared with 6.9 million tons in 1994 at an average royalty rate of $2.14 per ton. During 1995, the Company paid $3.0 million and other consideration to Westmoreland Coal Company to relinquish its rights to mine Penn Virginia's West Virginia coal reserves to exhaustion. Subsequently, leases were signed with other operators in 1995 and January 1996 for most of the West Virginia coal reserves. During 1995, operators mined 869,000 tons of coal in West Virginia and paid an average royalty rate of $2.50 per ton compared with 996,000 tons and $2.12 per ton in 1994. Westmoreland Coal has a lease covering most of the Company's Virginia coal reserves which gives it the right to mine those reserves to exhaustion. Westmoreland Coal suspended its Virginia mining operations on July 31, 1995. As a result, production from the Company's Virginia reserves decreased significantly to 3,273,000 tons in 1995 compared with 5,910,000 tons in 1994. The average royalty rate per ton was $2.13 compared with $2.15 in 1994. The Company is negotiating with Westmoreland Coal in an effort to restructure the lease to permit economic and timely development of the Virginia coal reserves. The Company believes coal production from its properties will continue to decline in 1996 due to the Westmoreland's suspension of operations on the Company's Virginia properties. The decline could be partially offset by production from the new leases for its existing reserves or the acquisition of additional coal reserves. TIMBER PRODUCTION The Company harvested and sold 3.2 million board feet for $158 per Mbf compared with 2.6 million board feet for $197 per Mbf in 1994. OIL AND GAS OVERVIEW Penn Virginia's oil and gas properties are concentrated in western Virginia, southern West Virginia and eastern Kentucky. At December 31, 1995, the Company had approximately 172.8 Bcfe of proved reserves (170.3 Bcf of natural gas) including 160.7 Bcfe of working interests and 12.1 Bcfe of royalty interests. PRODUCTION During 1995, 58,000 barrels of oil and condensate and 7.2 Bcf of natural gas, net to the Company's interest, were produced compared with 73,000 barrels and 6.3 Bcf in 1994. Prices received by the Company were $14.24 per barrel and $1.86 per Mcf compared with $14.18 and $2.22 in 1994. The Company completed the acquisition of 46.6 Bcf of proved natural gas reserves in February, 1995. The acquired properties included 58 net producing wells, all of which were operated by the Company. The properties include 34,500 acres of leaseholds which are contiguous to one of the Company's producing natural gas properties in southern West Virginia. Production from the acquired properties was 0.7 Bcf of natural gas for 1995. Production in 1995 was reduced by approximately 0.8 Bcf during August through November when the Columbia Gas pipeline elected to shut down and replace a portion of its natural gas pipeline used to transport a significant amount of the Company's working and royalty interest natural gas to market. EXPLORATION AND DEVELOPMENT The Company drilled 25.0 net wells in 1995 of which 23.0 were development and 2.0 were exploratory. At December 31, 1995, one development well and both exploratory wells were undergoing testing to determine if the wells were commercially productive. In February 1996, this development well was determined not to be commercially productive. The successful development wells added approximately 6.8 Bcfe of proved developed reserves. The two successful exploratory wells were drilled on a 46,000 acre leasehold prospect in southern West Virginia accumulated by the Company over the last four years. The Company intends to drill four exploratory wells on this prospect in 1996. The Company intends to drill 30 to 40 development wells in 1996. Most of the development drilling locations contain proved reserves based on the December 31, 1995 reserve report. Drilling of approximately 10 of the wells is contingent on obtaining additional pipeline transportation capacity to move the production to market. Approximately 8 to 12 exploratory wells are expected to be drilled in 1996. 3 4 CAPITAL EXPENDITURES The current oil and gas segment 1996 capital expenditure budget, before unbudgeted producing property acquisitions, is approximately $12 million. The budget is expected to be funded with a combination of internally generated cash flow and additional debt.
1996 Capital Expenditures Estimate 1995 1994 - ------------------------------------------------------------------------------------------------------------ (in millions) Development & exploratory drilling $11.0 $ 5.4 $11.0 Leasehold acquisitions 0.2 0.1 1.6 Other 0.2 0.1 - - ------------------------------------------------------------------------------------------------------------ 11.4 5.6 12.6 Proved property acquisitions 0.2 17.0 8.1 Oil and gas capital expenditures $11.6 $22.6 $20.7
Management continually reviews the Company's capital expenditure program and may increase, decrease or reallocate amounts based on industry conditions. TRANSPORTATION The Company transports its natural gas to market on various gathering, transmission and pipeline systems owned primarily by third parties. A portion of the Company's natural gas is gathered by Consolidated Natural Gas (CNG) and the Columbia Gas System (Columbia) in southern West Virginia. Recently, the Federal Energy Regulatory Commission (FERC) approved an increase in the CNG interruptible gathering rates from 6.8 cents to 14.4 cents per MMBtu effective January 1996. This rate increase will cost the Company approximately $0.2 million in 1996. The rate will increase to 15.4 cents per MMBtu on January 1, 1997. Penn Virginia has received notice from the FERC that Columbia has requested its interruptible gathering rates be increased from 3.62 cents to 15.49 cents per MMBtu. Although an increase has not yet been approved, the Company expects to pay higher gathering fees in the future. Approximately 75 percent of the Company's natural gas production is transported to market on the Columbia pipeline. Currently, the Company has limited pipeline transportation flexibility. Production can be adversely affected by major, long-term shutdowns of the Columbia pipeline for maintenance or replacement. The Company is negotiating with another major pipeline to obtain additional pipeline capacity and thereby increase pipeline transportation flexibility. MARKETING Penn Virginia sold its natural gas on the spot market or through short-term contracts to industrial and marketing companies in 1995. The Company entered into short-term sales contracts in November and December for the delivery of approximately 10,000 MMBtu of natural gas per day through March 1996. In February 1996, the Company sold approximately 6,500 MMBtu per day of its expected natural gas working interest production to various customers through fixed-price contracts for delivery during the period of April 1996 through March 1997. The natural gas will be supplied by production from the Company's proved developed reserves. The Company may use additional fixed price contracts and/or commodity derivative contracts to reduce the risk caused by fluctuations in the price of natural gas. INVESTMENTS Penn Virginia holds investments in energy-related public and private companies. The Company holds equity investments in Norfolk Southern Corporation, Westmoreland Coal Company, Westmoreland Resources, Inc. and Blue Diamond Coal Company. See Note 1 (Investments and Other Income) of the Notes to the Consolidated Financial Statements for additional information. The Company sold 100,000 shares of Norfolk Southern Corporation common stock during 1995 for $6.7 million. The proceeds were used, in part, to fund the acquisition and development of oil and gas properties. The estimated fair value of the Company's equity portfolio at December 31, 1995 was $96.6 million compared with $85.3 million at December 31, 1994 and $94.6 million at December 31, 1993. 4 5 RISKS ASSOCIATED WITH BUSINESS ACTIVITIES GENERAL GOVERNMENT REGULATION Penn Virginia's operating segments are subject to extensive rules and regulations promulgated by various federal, state and local government agencies. Failure to comply with such rules and regulations can result in substantial penalties. The regulatory burden increases the Company's cost of doing business and affects its profitability. Although the Company believes it is in material compliance with all rules, regulations and laws, there can be no assurance that new interpretations of existing rules, regulations and laws or the promulgation of new rules, regulations and laws will not adversely affect the Company's business and operations. ENVIRONMENTAL RISKS Penn Virginia's operating segments are subject to various environmental hazards. Several federal, state and local laws, regulations and rules govern the environmental aspects of the Company's business. Noncompliance with these laws, regulations and rules can result in substantial penalties or other liabilities. The Company does not believe that its environmental risks are materially different from those of comparable companies or that the cost of compliance will have a material adverse effect on profitability, capital expenditures or competitive position. There is no assurance that changes in or additions to laws, regulations or rules regarding the protection of the environment will not have such an impact. COMPETITION The energy industry is highly competitive. Many of the Company's competitors are large, well-established companies with substantially larger operating staffs, greater capital resources and established long-term strategic positions. ESTIMATES OF RESERVES AND FUTURE NET REVENUES Numerous uncertainties exist in estimating quantities of coal and oil and gas reserves and future net revenues therefrom. The estimates set forth in this report are based on various assumptions, which may ultimately prove to be inaccurate. COAL AND LAND OPERATING RISKS Penn Virginia's coal royalty stream is impacted by several factors that the Company generally cannot control. The number of tons mined annually is determined by an operator's mining efficiency, ability to market the coal and ability to arrange reliable transportation to the end-user. Coal emissions are regulated by various federal and state agencies which affect the quality and quantity of coal that can be burned economically. OIL AND GAS PRICES Penn Virginia's revenues, profitability and future rate of growth are highly dependent on the prevailing prices for oil and gas, which are affected by numerous factors that are generally beyond the Company's control. Crude oil prices are generally determined by global supply and demand. Natural gas prices are influenced by national and regional supply and demand. A substantial or extended decline in the prices of oil or gas could have a material adverse effect on the Company's revenues, profitability and cash flow and could, under certain circumstances, result in an impairment of the Company's oil and gas properties. EXPLORATORY DRILLING Both development and exploratory drilling involve risks. However, exploratory drilling involves greater risks of dry holes or failure to find commercial quantities of hydrocarbons. The Company anticipates the number of exploratory 5 6 prospects drilled in 1996 and future years will increase compared with previous years. Consequently, it is likely the Company will experience increased levels of exploration expense in 1996 and future years. INVESTMENTS The value of the Company's investment portfolio is subject to market price fluctuations, the ability to find a willing buyer for equity investments in private companies and the ability of companies to pay the interest and principal associated with the Company's portfolio of long-term notes. EMPLOYEES Penn Virginia had 58 employees at December 31, 1995. The Company considers its relations with its employees to be good. EXECUTIVE OFFICERS OF THE COMPANY Below is a list of executive officers of the Company including their ages and positions held. No family relationships exist among them. Each officer is elected annually by the Board of Directors and serves at the pleasure of the Board of Directors.
Office NAME Age Office Held Since - ---------------------------------------------------------------------------------------------------------------------- Lennox K. Black 66 Chairman and Chief Executive Officer 1992 A. James Dearlove 48 President and Chief Operating Officer 1994 Vincent Matthews, III 53 Senior Vice President 1992 Steven W. Tholen 45 Vice President and Chief Financial 1995 Officer Ann N. Horton 37 Controller 1995
Lennox K. Black - Mr. Black is the Chairman of the Board and Chief Executive Officer. He has been a director of Penn Virginia since 1983. Mr. Black also serves as Chairman of the Board for Teleflex, Inc. and as director of Quaker Chemical Company, Pep Boys and Westmoreland Coal Company. A. James Dearlove - Mr. Dearlove is the President and Chief Operating Officer. He has served in various capacities with the Company since 1977 including Vice President since 1986 and Senior Vice President since 1992. Mr. Dearlove was elected to the Company's Board of Directors effective February 6, 1996. He also serves as director of Westmoreland Resources, Inc., the Powell River Project and the National Council of Coal Lessors. Vincent Matthews, III - Mr. Matthews is a Senior Vice President. He also serves as President of the Company's oil and gas subsidiary. Mr. Matthews joined the Company in 1989. Previously, he served as Vice President and Region Manager of Union Pacific Resources. Mr. Matthews also serves as director of the Virginia Oil and Gas Association. Steven W. Tholen - Mr. Tholen is the Vice President and Chief Financial Officer. He joined the Company in 1995. Previously, he served in various capacities at Cabot Oil and Gas Corporation, most recently as Treasurer. Ann N. Horton - Ms. Horton is the Controller. She has served in various capacities with the Company since 1981, most recently as Vice-President, Finance and Administration at the Company's oil and gas subsidiary. DEFINITIONS OF CERTAIN TERMS The following terms have the meanings indicated below when used in this report. Bbl - means a standard barrel of 42 U.S. gallons Bcf - means one billion cubic feet Bcfe - means one billion cubic feet equivalent with one barrel of oil or condensate converted to six thousand cubic feet of natural gas based on the estimated relative energy content. 6 7 Gross - acre or well means an acre or well in which a working interest is owned Mbbl - means one thousand barrels Mbf - means one thousand board feet Mcf - means one thousand cubic feet MMBtu - means one million British thermal units MMcf - means one million cubic feet Net - acres or wells is determined by multiplying the gross acres or wells by the working interest in those gross acres or wells Proved Reserves- means those estimated quantities of crude oil, condensate and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known oil and gas reservoirs under existing economic and operating conditions. ITEM 2 - PROPERTIES COAL AND LAND Penn Virginia's coal reserves and timber assets are on 106,000 acres in Virginia and West Virginia. The coal reserves are in various surface and underground seams. Penn Virginia's recoverable coal reserves are estimated at 254 million tons as of December 31, 1995. Recoverable coal reserves means coal that is economically mineable using existing equipment and methods under federal and state laws now in effect. Reserve estimates are adjusted annually for production, unmineable areas and sales of coal in place. The majority of the Company's reserves are high in energy content, low in sulfur and suitable for either the steam or metallurgical markets. The amount of coal that a lessee can profitably mine at any given time is subject to several factors and may be substantially different from "recoverable reserves". Included among the factors that influence profitability are the existing market price, coal quality and operating costs. The Company's timber assets consist of various hardwoods, primarily red oak, white oak, yellow poplar, and black cherry. The Company owns approximately 180 million board feet of standing saw timber. OIL AND GAS PRODUCTION AND PRICING The following table sets forth production, sales prices and production costs with respect to the Company's properties for the years ended December 31, 1995, 1994 and 1993.
Years Ending December 31 1995 1994 1993 - ------------------------------------------------------------------------------------------------------ Production Oil and condensate (Mbbls) 58 73 83 Natural gas (MMcf) 7,161 6,295 5,327 Average sales price Oil and condensate ($/Bbl) $14.24 $14.18 $16.29 Natural gas ($/Mcf) $ 1.86 $ 2.22 $ 2.33 Average production cost per Mcfe $ 0.58 $ 0.66 $ 0.64
PROVED RESERVES Penn Virginia had proved reserves of 431,000 barrels of crude oil and condensate and 170 Bcf of natural gas at December 31, 1995. The present value of the estimated future cash flows before income tax discounted at 10 percent (SEC PV10 Value) estimated by the Company's independent engineers, Williamson Petroleum Consultants, Inc. was $117 million. At December 31, 1995, the Company had 364 gross (237 net) proved undeveloped drilling locations. 7 8
Natural Oil and Natural Gas SEC PV10 Condensate Gas Equivalents Value (Mbbls) (Bcf) (Bcfe) ($MM) - ------------------------------------------------------------------------------------------------------- 1995 Developed 348 86 89 82 Undeveloped 83 84 84 35 - ------------------------------------------------------------------------------------------------------- Total 431 170 173 $117 1994 Developed 371 78 80 58 Undeveloped 96 50 51 9 - ------------------------------------------------------------------------------------------------------- Total 467 128 131 $67 1993 Developed 394 70 73 69 Undeveloped 111 47 47 18 - ------------------------------------------------------------------------------------------------------- Total 505 117 120 $87
The average prices used to determine proved reserves at December 31, 1995, 1994 and 1993 were ($/Bbl) $16.02, $15.00 and $12.25 respectively for oil and condensate and ($/Mcf) $2.67, $2.09 and $2.65 respectively for natural gas. Since January 1, 1995, no oil or gas reserve information has been filed with, or included in any report to any U.S. authority or agency other than the SEC and the Energy Information Administration (EIA). The basis of reporting reserves to the EIA for the Company's reserves is identical to that set forth in the foregoing table. Proved reserves are the estimated quantities of natural gas and condensate that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are proved reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. The estimation of reserves requires substantial judgment on the part of petroleum engineers resulting in imprecise determinations, particularly with respect to recent discoveries. The accuracy of any reserve estimate depends on the quality of available data and engineering and geological interpretation and judgment. Results of drilling, testing, and production after the date of the estimate may result in revisions of the estimate. Accordingly, estimates of reserves are often materially different from the quantities of oil and condensate and natural gas that are ultimately recovered, and these estimates will change as future production and development information becomes available. The reserve data represent estimates only and should not be construed as being exact. ACREAGE The following table sets forth the Company's developed and undeveloped acreage at year end. The Company's acreage is concentrated in the Appalachia Basin, specifically western Virginia, southern West Virginia and eastern Kentucky.
Gross Acreage Net Acreage - ---------------------------------------------------------------------------------------------- (In thousands) Developed 367 172 Undeveloped 135 94 - ---------------------------------------------------------------------------------------------- Total 502 266
GROSS WELLS DRILLED The following table sets forth the gross number of exploratory and development wells drilled during the last three years. The number of wells drilled means the number of wells spud at any time during the respective year. Productive wells means either wells which are producing or which are capable of commercial production. At December 31, 1995, the Company had one development and two exploratory wells which were in the process of testing to determine if they are capable of commercial production. In February 1996, the development well was determined not to be commercially productive. 8 9
Years Ended December 31, 1995 1994 1993 - -------------------------------------------------------------------------------------------------- Exploratory Productive 2 - - Dry - 4 - - ------------------------------------------------------------------------------------------------- Total 2 4 0 Development Productive 31 56 91 Dry 1 1 - - ------------------------------------------------------------------------------------------------- Total 32 57 91
NET WELLS DRILLED The following table sets forth the number of net exploratory and development wells. Net wells equal the number of gross wells multiplied by Penn Virginia's working interest in each of the gross wells.
Years Ended December 31, 1995 1994 1993 - -------------------------------------------------------------------------------------------------- Exploratory Productive 2.0 - - Dry - 2.7 - - ------------------------------------------------------------------------------------------------- Total 2.0 2.7 0 Development Productive 21.5 27.4 50.0 Dry 1.0 0.4 - - ------------------------------------------------------------------------------------------------- Total 22.5 27.8 50.0
PRODUCTIVE WELLS The number of productive oil and gas wells in which Penn Virginia had an interest at December 31, 1995 is set forth below. Productive wells are producing wells or wells capable of production.
Operated Wells Non-Operated Wells Total -------------- ------------------ ----- Gross Net Gross Net Gross Net - ---------------------------------------------------------------------------------------------------- Oil 8 6 2 14 10 Gas 607 507 342 52 949 559 Total 615 515 348 54 963 569
ITEM 3 - LEGAL PROCEEDINGS The Company is involved in various lawsuits and certain governmental proceedings arising in the ordinary course of business. Company management believes these claims will not have a material effect on the Company's financial position, liquidity or operations. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1995. 9 10 PART II ITEM 5 - MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Reference is hereby made to the section entitled "Common Stock Market Prices and Dividends" on page 15 of this report. ITEM 6 - SELECTED FINANCIAL DATA Reference is hereby made to the section entitled "Five Year Selected Financial Data" on page 40 of this report. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Reference is hereby made to the section entitled "Management's Discussion and Analysis of Financial Conditions and Results of Operations" appearing on pages 16 through 21 inclusive of this report. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is hereby made to pages 22 to 39 inclusive of this report. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 10 11 PART III ITEMS 10, 11, 12 AND 13 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY, EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Except for information concerning executive officers of the Company included as an unnumbered item in Part 1, in accordance with General Instruction G(3), reference is hereby made to the Company's definitive proxy statement to be filed within 120 days after the end of the fiscal year covered by this report. 11 12 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (a) Financial Statements 1. Financial Statements - The financial statements filed herewith are listed in the Index to Financial Statements on page 14 of this report. (b) Exhibits (3.1) Articles of incorporation of the Company (incorporated by reference to Exhibit 4 (a) to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 13, 1991 (Registration No. 33-40430)). (3.2) Bylaws of the Company. (4.1) Copies of various long-term debt instruments and agreements of the Company are not filed pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K, and the Company agrees to furnish copies of such debt instruments and agreements to the Commission upon request. (10.1) Penn Virginia Corporation and Affiliated Companies Employees' Stock Ownership Plan, as amended (incorporated by reference to Exhibit 19 to the Company's Annual Report on Form 10-K for the year ended December 31, 1986 (Commission File No. 0-753)). (10.2) Penn Virginia Corporation 1980 Incentive Stock Option Plan (incorporated by reference to Appendix 5 of the Prospectus comprising part of the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 13, 1982 (Registration No. 2-77500)). (10.3) Form of agreement to evidence stock options and stock appreciation rights granted under the Penn Virginia Corporation 1980 Incentive Stock Option Plan (incorporated by reference to Exhibit 15.1(b) to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 13, 1982 (Registration No. 2-77500)). (10.4) Amendment No. 1 to Penn Virginia Corporation 1980 Incentive Stock Option Plan (incorporated by reference to Exhibit 19.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1987 (Commission File No. 0-753)). (10.5) Penn Virginia Corporation and Affiliated Companies' Employees' Retirement/Savings Plan (incorporated by reference to Exhibit 18(b) to the Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on May 13, 1991 (Registration No. 33-40430)). (10.6) Penn Virginia Corporation 1992 Non-Qualified Stock Option Plan. (10.7) Form of Penn Virginia Corporation Non-Qualified Stock Option Agreement. (10.8) The Company has adopted a policy concerning severance benefits for certain senior officers of the Company. The description of such policy is incorporated herein by reference to the description of such policy contained in footnote 3 on page 6 of the Company's definitive Proxy Statement dated March 31, 1994. (10.9) Penn Virginia Corporation 1994 Stock Option Plan (incorporated by reference to Annex A of the Company's definitive Proxy Statement dated March 28, 1995.) (10.10) Penn Virginia Corporation 1995 Directors' Stock Option Plan (incorporated by reference to Annex B of the Company's definitive Proxy Statement dated March 28, 1995.) (10.11) Amendment and Restatement of Virginia Lease dated July 1, 1988 and Amendment and Restatement of Hampton Lease dated July 1, 1988, each as amended by the Lease Agreement dated May 6, 1992, between Penn Virginia Resources Corporation and Westmoreland Coal Company (incorporated by reference to Exhibit 19.3 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992 (Commission File No. 0-753)). (21) Subsidiaries of the Company. (23) Consent of KPMG Peat Marwick LLP. (c) Reports on Form 8-K: No reports on Form 8-K were filed during the fourth quarter of 1995. 12 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PENN VIRGINIA CORPORATION March 29, 1996 By: /S/ STEVEN W. THOLEN --------------------------------- (Steven W. Tholen, Vice President and Chief Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /S/ LENNOX K. BLACK Chairman of the Board, Director March 29, 1996 - --------------------- and Chief Executive Officer (Lennox K. Black) /S/ Director March 29, 1996 - ---------------------- (Eckhard Albrecht) /S/ JOHN D. CADIGAN Director March 29, 1996 - ---------------------- (John D. Cadigan) /S/ A. JAMES DEARLOVE Director March 29, 1996 - ----------------------- (A. James Dearlove) /S/ Director March 29, 1996 - ----------------------- (Hans Michael Gaul) /S/JOHN A. H. SHOBER Director March 29, 1996 - -------------------- (John A. H. Shober) /S/ FREDERICK C. WITSELL, JR. Director March 29, 1996 - ------------------------------- (Frederick C. Witsell, Jr.) /S/ MINTURN T. WRIGHT, III Director March 29, 1996 - ---------------------------- (Minturn T. Wright, III)
13 14 PENN VIRGINIA CORPORATION AND SUBSIDIARIES Index to Financial Statements The consolidated balance sheets of the Company and subsidiaries as of December 31, 1995 and December 31, 1994 and the consolidated statements of income, shareholders' equity and cash flows for each of the years in the three year period ended December 31, 1995, together with the summary of significant accounting policies and notes to consolidated financial statements and the report of KPMG Peat Marwick LLP, independent auditors are contained on pages 22 to 39 inclusive of this report. Schedules not included herein have been omitted because they are not applicable or the required information is presented in the financial statements or related notes. 14 15 COMMON STOCK MARKET PRICES AND DIVIDENDS High and low stock prices and dividends for the last two years were:
1995 1994 - ------------------------------------------------------------------------------------------------------------- CASH Cash SALES PRICE DIVIDENDS Sales Price Dividends --------------------------------------------------------------------------------- Quarter Ended: HIGH LOW PAID High Low Paid - ------------------------------------------------------------------------------------------------------------- March 31 $34 $30-5/8 $.45 $40-1/2 $31-1/2 $.45 June 30 $34-1/2 $27-1/2 $.45 $33-3/4 $31 $.45 September 30 $32-1/2 $27-3/4 $.45 $35 $30 $.45 December 31 $33 $31-1/2 $.45 $35 $30 $.65*
The Company's common stock is traded on NASDAQ (PVIR) *Includes a $.20 per share extra dividend SUMMARIZED QUARTERLY FINANCIAL DATA Quarterly financial data for 1995 and 1994 were as follows:
1995 1994 - ----------------------------------------------------------------------------------------------------------------------------- QUARTERS ENDED (e) Quarters Ended (e) -------------------------------------------------------------------------------------- (in thousands except per share data) MAR. 31 JUNE 30 SEPT. 30 DEC.31 Mar. 31 June 30 Sept. 30 Dec. 31 Revenues $7,848 $7,299 $5,728 $ 17,652(a) $ 8,698 $ 8,881 $ 8,455 $ 7,677 Operating income (loss) 2,835 2,550 416 1,543(b) 4,347 4,370 3,140 (1,145)(c) Net income $2,642 $5,349 $1,091 $ 1,002 $ 3,240 $ 3,277 $ 3,487 $ 3,497 (d) Net income per share $ 0.62 $ 1.25 $ 0.26 $ 0.23 $ 0.76 $ 0.76 $ 0.82 $ 0.81 Weighted average shares outstanding 4,276 4,274 4,265 4,262 4,280 4,280 4,280 4,280
(a) Includes the Columbia Gas settlement of $11.4 million. (b) Includes the impairment of oil and gas properties totaling $10.9 million. (c) Includes the impairment of oil and gas properties totaling $1.8 million. (d) Includes the reduction of prior year deferred income tax provision. (e) Certain amounts have been reclassified to conform to the current presentation. 15 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following review of operations and financial condition of Penn Virginia Corporation and subsidiaries should be read in conjunction with the Consolidated Financial Statements and Notes thereto. OVERVIEW Penn Virginia continued to position itself for future growth in 1995. The process of change that began three years ago has transformed the Company into a focused and more efficient Appalachia energy producer. During 1995, the Company completed several important steps including regaining control of its West Virginia coal reserves, supporting an acquisition of coal reserves in western Kentucky, completing the acquisition of $17.0 million of oil and gas properties and settling a long-term natural gas contract dispute. The Company regained control of its West Virginia coal reserves in February when Westmoreland Coal Company relinquished its lease in return for $3.0 million and other consideration. A portion of the relinquished reserves were leased to another operator who produced 0.8 million tons of coal in 1995. In September, the Company participated in the coal leasing arrangement of approximately 500,000 tons of coal in western Kentucky. The coal reserves are leased to an operator and are expected to be mined in 1996 and 1997. Although small, this transaction was an important first step involving coal outside the Company's traditional holdings in Virginia, West Virginia and eastern Kentucky. In February 1995, Penn Virginia acquired 46.6 Bcf of proved natural gas reserves for $17.0 million in cash. This acquisition included 58 net producing wells and a substantial number of potential drilling opportunities. The natural gas sales contract dispute with Columbia Gas was settled in the fourth quarter. Penn Virginia received $11.4 million net after payment of royalties and certain other costs. During 1996 the Company intends to continue to pursue its growth oriented strategy through exploitation of its existing assets and selective acquisitions of both coal and oil and gas reserves in the Appalachia Basin area. Negotiations on a series of new leases for a portion of the West Virginia reserves, completed in January 1996, are expected to increase production by 2 to 2.5 million tons annually within the next two to three years. The Company and Westmoreland Coal are negotiating in an effort to restructure the lease of the Company's coal reserves in Virginia to permit the economic and timely development of those reserves. RESULTS OF OPERATIONS CONSOLIDATED NET INCOME Penn Virginia's 1995 net income was $10.1 million compared with $13.5 million in 1994 and $10.3 million in 1993. Pretax income for 1995 includes $11.4 million for the settlement of a disputed natural gas sales contract, $6.4 million gain on the sale of 100,000 shares of Norfolk Southern Corporation common stock, a $10.9 million charge primarily related to the adoption of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and a $1.5 million loss related to the sale of nonstrategic oil and gas properties. Net income for 1994 includes the benefit of a $3.5 million adjustment related to prior years provision for deferred taxes and a pretax charge of $1.8 million for the impairment of oil and gas properties. Net income for 1993 includes a $5.7 million gain, net of taxes, on the disposal of the lime and limestone division and a pretax charge of $8.8 million for the write-down of the Company's equity investment in Westmoreland Coal Company. Selected Financial Data
1995 1994 1993 ------------------------------------------- (millions of dollars except per share data) Revenues $ 38.5 $ 33.7 $ 31.8 Operating costs and expenses 31.2 23.0 26.4 Operating income 7.3 10.7 5.4 Net income 10.1 13.5 10.3 Earnings per share $ 2.36 3.15 $ 2.40 --------------------------------------
16 17 COAL AND LAND The coal and land segment includes Penn Virginia's mineral rights to coal reserves, its timber assets and its land assets. Selected Financial and Operating Data
1995 1994 1993 -------------------------------------- (in millions except as noted) Revenues Timber and land sales $ 0.6 $ 0.6 $ 0.5 Coal royalties 9.1 14.8 14.2 Other - 0.1 0.1 Total Revenues $ 9.7 $ 15.5 $ 14.8 -------------------------------------- Expenses Operating expenses $ 0.1 $ 0.1 $ 0.1 Exploration and development 0.1 0.3 0.3 Taxes other than income 0.2 0.1 0.1 General and administrative 1.6 1.4 1.3 -------------------------------------- Cash Operating Expenses 2.0 1.9 1.8 Depreciation, depletion and amortization 0.2 0.2 0.2 -------------------------------------- Total Expenses $ 2.2 $ 2.1 $ 2.0 -------------------------------------- Operating Income $ 7.5 $ 13.4 $ 12.8 -------------------------------------- Production Royalty coal tons produced 4.1 6.9 6.8 Timber sales (millions of board feet) 3.2 2.6 2.4 Prices Royalty per ton of coal produced $ 2.20 $ 2.14 $ 2.09 Timber sales price per Mbf $ 158 $ 197 $ 197
Operating income for the coal and land segment was $7.5 million in 1995 compared with $13.4 million in 1994 and $12.8 million in 1993. The decrease in 1995 is mainly the result of Westmoreland Coal Company's suspension of their mining operations in Virginia on July 31, 1995. The suspension substantially reduced production of the Company's coal reserves. The Company earned coal royalty revenues of approximately $0.6 million per month in 1995 from the lease with Westmoreland Coal in Virginia prior to the suspension. Coal royalty revenues increased $0.6 million in 1994 compared with 1993 due to a slight increase in the number of tons produced which increased revenue $0.2 million and a five cent increase in the average royalty received per ton which increased revenues $0.4 million. As previously discussed, the Company signed a series of leases with an operator in January 1996 for a portion of its coal reserves in West Virginia. The leases have a 15-year term with a one-year option subject to the mutual agreement of Penn Virginia and the operator. The Company expects the operator to begin mining by early 1997 and produce up to 2.0 to 2.5 million tons annually within the next two to three years. The Company believes coal production from its properties will continue to decline in 1996 due to Westmoreland's suspension of mining operations on the Company's Virginia properties. The decline could be partially offset by production from new leases for its existing reserves or the acquisition of additional coal reserves. 17 18 OIL AND GAS 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. During 1995, the Company sold its natural gas properties in Pennsylvania and steam flood oil properties in Texas. Selected Financial and Operating Data
1995 1994 1993 -------------------------------------- (in millions except as noted) Revenues Oil and condensate $ 0.8 $ 1.0 $ 1.6 Natural gas sales 12.3 12.2 10.8 Royalty income 1.1 1.8 1.6 Natural gas contract settlement 11.4 - - Other 0.4 0.4 0.6 -------------------------------------- Total Revenues $ 26.0 $ 15.4 $ 14.6 -------------------------------------- Expenses Operating expenses $ 3.0 $ 3.3 $ 2.5 Exploration and development 0.4 1.4 0.9 Taxes other than income 1.3 1.2 1.3 General and administrative 3.1 2.9 2.6 -------------------------------------- Cash Operating Expenses 7.8 8.8 7.3 Depreciation, depletion and amortization 7.6 6.1 5.0 Impairment of properties 10.9 1.8 - -------------------------------------- Total Expenses $ 26.3 $ 16.7 $ 12.3 -------------------------------------- Operating Income (Loss) $ (0.3) $ (1.3) $ 2.3 -------------------------------------- Production Oil and condensate (MBbls) 58 73 83 Natural gas (Bcf) 6.6 5.5 4.7 Royalty natural gas (Bcf) 0.6 0.8 0.6 Prices Oil and condensate ($/Bbl) $ 14.24 $ 14.18 $ 16.29 Natural gas ($/Mcf) 1.85 2.23 2.30 Royalty natural gas ($/Mcf) 1.96 2.20 2.67
The oil and gas segment had an operating loss of $0.3 million in 1995 compared with an operating loss of $1.3 million in 1994 and operating income of $2.3 million in 1993. Revenues for 1995 were $10.6 million higher compared with 1994 primarily due to the $11.4 million natural gas sales contract settlement with Columbia Gas. The Company received $11.4 million from Columbia Gas after payment of royalties and certain other costs. Oil and gas royalty revenues were down $0.7 million in 1995 compared with 1994 due to lower production volume which decreased royalty revenue $0.5 million and lower natural gas prices which decreased revenue $0.2 million. The 1.1 Bcf increase in natural gas sales production in 1995 to 6.6 Bcf was almost completely offset by a decline in average prices of $0.38 per Mcf to $1.85 per Mcf. The decrease in operating loss is primarily due to the increased production offset, in part, by reduced natural gas prices. The Company completed the acquisition of oil and gas properties in southern West Virginia in February, 1995 for $17 million in cash. Company production from these properties in 1995 was 0.7 Bcf of natural gas. Cash operating expenses declined $1.0 million in 1995 compared with 1994 primarily as a result of lower exploration and development expenses primarily due to the absence of dry holes. Depreciation, depletion and amortization expense increased mainly as the result of increased production in 1995. Impairments increased to $10.9 million in 1995 compared with $1.8 million in 1994. The Company adopted SFAS 121 in December 1995 resulting in the $10.4 million impairment of a property purchased in 1982 subject to a high-priced, take-or-pay natural gas sales contract which was later abrogated by Columbia Gas. (Discussed above). The Company also impaired $0.5 million of unproved exploration properties located outside of its Appalachia Basin operating area. In 1994, the Company impaired its steam flood oil properties located in Texas. During 1995, the Company sold nonstrategic oil and gas properties in Pennsylvania and its steam flood oil properties in Texas resulting in a pretax loss on sale of $1.5 million. Revenues increased $0.8 million in 1994 compared with 1993. Oil and condensate revenued declined $0.6 million due to lower production volumes and lower prices. This decline was offset by a $1.4 million increase in natural gas sales revenues due to a 0.8 Bcf increase in production to 5.5 Bcf offset, in part, by a $0.07 per Mcf decline in sales prices to $2.23 per Mcf. 18 19 Cash operating expense increased $1.5 million in 1994 compared with 1993 due to the increased number of wells associated with increased production. Exploration and development expense increased $0.5 million in 1994 compared with 1993 mainly due to the increased number of dry holes drilled. Depreciation, depletion and amortization expense increased primarily as a result of higher production. INVESTMENTS The investments segment includes Penn Virginia's investments in energy-related public and private companies. Selected Financial and Operating Data
1995 1994 1993 --------------------------------------- (in millions except as noted) Revenues - dividends $ 2.8 $ 2.7 $ 2.4 Expenses - 0.1 8.8 --------------------------------------- Operating Income $ 2.8 $ 2.6 $ (6.4) Common shares owned at year-end (number of shares) Norfolk Southern Corporation 1,102,400 1,202,400 1,202,400 Westmoreland Coal Company 1,754,411 1,754,411 1,754,411 Westmoreland Resources, Inc. 1,600 1,600 1,600 Blue Diamond Coal Company 287 - - Estimated fair value at year-end ($MM) Norfolk Southern Corporation $ 87.5 $ 72.9 $ 84.8 Westmoreland Coal Company 4.6 7.9 5.3 Westmoreland Resources, Inc. 4.5 4.5 4.5 Blue Diamond Coal Company - - - --------------------------------------- $ 96.6 $ 85.3 $ 94.6 ---------------------------------------
The Company sold 100,000 shares of Norfolk Southern during 1995 earning a pretax gain on sale of $6.4 million. CORPORATE AND OTHER Corporate and other expenses include primarily unallocated corporate general and administrative expenses, taxes other than income and consolidated interest expenses and income taxes. Corporate and other expenses were $2.7 million in 1995 compared with $4.0 million in 1994 and $3.4 million in 1993. The decrease in 1995 compared with 1994 was primarily due to lower pension expense of $0.6 million and lower rent expense of $0.3 million. The increase in 1994 compared with 1993 is primarily due to an $0.6 million increase in pension expense. See Note 12 (Segment Information) of the Notes to the Consolidated Financial Statements for additional information. FINANCIAL CONDITION CASH FLOW FROM OPERATING ACTIVITIES Net cash provided from operating activities was $19.6 million in 1995 including 11.4 million from the settlement of a natural gas contract dispute compared with $15.6 million in 1994 and $16.7 million in 1993. The $4.0 increase in 1995 compared with 1994 primarily reflects the $11.4 million settlement of the natural gas contract dispute, offset in part by lower net income and a $2.7 million reduction in the change in operating assets and liabilities. The decrease of $1.1 million in 1994 compared with 1993 is primarily due to a $7.9 million difference in changes of operating assets and liabilities offset by, in part, by an increase in net income of $3.2 million and a decrease in deferred taxes of $3.4 million. CASH FLOW FROM INVESTING ACTIVITIES Cash used in investing activities was $13.9 million compared with $16.9 million in 1994 and $16.8 million from investing activities in 1993. The Company received $6.7 million from the sale of 100,000 shares of Norfolk Southern stock, $5.2 million from long-term notes receivable and $1.1 million from the sale of land and oil and gas properties in 1995. This compares with a cash inflow of $3.7 million from long-term notes and $0.3 million from the sale of assets in 1994 and $3.6 million from long-term notes and $28.7 million from the sale of the Company's lime and limestone division in 1993. Penn Virginia used $17.0 million to acquire oil and gas properties in southern West Virginia in 1995 compared with $8.1 million to acquire oil and gas properties in eastern Kentucky in 1994. Lease acquisition costs were $3.3 million in 1995 including $3.0 million paid to Westmoreland Coal Company to relinquish its lease of coal reserves in West Virginia compared with $1.8 million in 1994. Capital expenditures decreased to $5.8 million compared with $11.0 million in 1994 reflecting a smaller oil and gas drilling program in response to low 19 20 natural gas prices throughout most of 1995. The $0.8 million note purchase in 1995 was related to Penn Virginia's participation in an acquisition of coal reserves in western Kentucky. The $5.3 million increase in capital expenditures in 1994 compared with 1993 is due primarily to the $8.1 million acquisition in 1994 offset, in part, by a smaller oil and gas drilling program. CASH FLOW FROM FINANCING ACTIVITIES Net cash used by financing activities was $9.8 million compared with $15.6 million in 1994 and $13.8 million in 1993. The Company paid dividends of $7.7 million on its common stock compared with $8.5 million in 1994 and $12.3 million in 1993. During 1995 the Company purchased 17,300 shares of its common stock on the open market at a cost of $0.5 million. The Company reduced debt $1.9 million in 1995 compared with a debt reduction of $7.6 million in 1994 and $2.0 million in 1993. WORKING CAPITAL At December 31, 1995, Penn Virginia had working capital of $3.6 million. In addition, Penn Virginia had debt capacity of $11.3 million under a committed revolving credit facility with a group of major U.S. banks and $10.0 million available under an uncommitted line of credit with a major U.S. bank. 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. CAPITAL EXPENDITURES Capital and exploration expenditures for the Company are detailed below.
Capital Expenditures 1995 1994 1993 ---------------------------------------- Coal and Land Lease Acquisition $ 3.2 $ 0.2 $ - Other 0.3 - 0.3 ---------------------------------------- $ 3.5 $ 0.2 $ 0.3 Oil and Gas Development $ 5.4 $ 11.0 $ 14.8 Lease Acquisition 0.1 1.6 0.4 Other 0.1 - 0.1 ---------------------------------------- $ 5.6 $ 12.6 $ 15.3 ---------------------------------------- $ 9.1 $ 12.8 $ 15.6 Proved Property Acquisition Oil and Gas $ 17.0 $ 8.1 - ---------------------------------------- $ 26.1 $ 20.9 $ 15.6 Exploration Coal and Land $ 0.1 $ 0.3 $ 0.4 Oil and Gas 0.4 1.4 1.0 ---------------------------------------- $ 0.5 $ 1.7 1.4 Total Capital and Exploration Expenditures $ 26.6 $ 22.6 $ 17.0 ----------------------------------------
Capital expenditures for the coal and land business segment were $3.5 million in 1995 including $3.0 million paid to Westmoreland Coal Company for the relinquishment of their lease of coal reserves in West Virginia. Development drilling expenditures for the oil and gas segment were $5.4 million in 1995 compared with $11.0 million in 1994. This decrease reflects the curtailment of the drilling program in response to the low natural gas prices prevalent throughout most of 1995. The Company drilled 24.0 net successful development and exploratory wells and 1.0 net dry hole in 1995 compared with 27.4 net successful development wells, 0.4 net development dry holes and 2.7 exploratory dry holes in 1994. Lease acquisition costs were $0.1 million compared with $1.6 million in 1994. Most of the 1994 lease acquisition expenditures were used to acquire a significant leasehold acreage position in southern West Virginia. The oil and gas segment completed a 1995 proved property acquisition in southern West Virginia for $17.0 million and a 1994 proved property acquisition in eastern Kentucky for $8.1 million. Capital expenditures before lease and proved property acquisitions for 1996 are expected to be $13 to 18 million including $3 to 5 million for the coal and land segment and $10 to 13 million for oil and gas. The Company plans to drill approximately 30 to 40 development wells and 8 to 12 exploratory wells. Depending on the level of future natural gas prices, the Company intends to review and adjust capital and exploration expenditures planned for 1996 as industry conditions dictate. Management believes its cash flow from operations, portfolio of investments and sources of funding are sufficient to fund its 1996 planned capital expenditure program and expected agreement with Westmoreland to restructure the Virginia lease. 20 21 ENVIRONMENTAL MATTERS Penn Virginia's operating segments are subject to various environmental hazards. Several federal, state and local laws, regulations and rules govern the environmental aspects of the Company's business. Noncompliance with these laws, regulations and rules can result in substantial penalties or other liabilities. The Company does not believe that its environmental risks are materially different from those of comparable companies or that the cost of compliance will have a material adverse effect on profitability, capital expenditures or competitive position. There is no assurance that changes in or additions to laws, regulations or rules regarding the protection of the environment will not have such an impact. The Company believes it is materially in compliance with environmental laws, regulations and rules. As of December 31, 1995, the Company has provided for approximately $90,000 to complete the remediation of a previously owned site. In conjunction with the leasing of property to coal operators, all environmental and reclamation liabilities are the responsibility of the lessees. However, if the lessee is not financially capable of fulfilling those obligations, there is a possibility that the appropriate authorities would attempt to assign those liabilities to the land owner. The Company would vigorously contest such an assignment. 21 22 CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 1995 1994* 1993* ------------------------------------------ (in thousands except per share data) REVENUES Timber and land sales $ 555 $ 554 $ 500 Oil and condensate 824 1,044 1,553 Natural gas sales 12,263 12,260 10,809 Coal royalties 9,131 14,794 14,231 Natural gas royalties 1,073 1,752 1,605 Dividends 2,803 2,709 2,380 Natural gas contract settlements (Note 2) 11,406 - - Other 473 598 732 ------------------------------------------ 38,528 33,711 31,810 EXPENSES Operating expenses 3,094 3,382 2,585 Exploration and development 469 1,707 1,433 Taxes other than income 1,732 1,471 1,526 Write-down of investment in Westmoreland Coal Company - - 8,772 General and administrative 7,238 8,390 6,902 Impairment of properties 10,927 1,763 - Depreciation, depletion and amortization 7,723 6,286 5,159 ------------------------------------------ 31,183 22,999 26,377 OPERATING INCOME 7,345 10,712 5,433 Other (Income) Expense: Interest expense 1,964 1,598 1,858 Gain on sale of securities (6,391) - - (Gain) loss on the sale of property 1,490 (125) 11 Other (1,562) (1,639) (1,491) ------------------------------------------ Income from continuing operations before income taxes 11,844 10,878 5,055 Income tax expense (benefit) 1,760 (2,623) 537 ------------------------------------------ Income from continuing operations 10,084 13,501 4,518 Discontinued operations: Gain on disposal of lime and limestone division (net of income tax expense of $3,087) (Note 3) - - 5,734 ------------------------------------------ NET INCOME $ 10,084 $ 13,501 $ 10,252 ------------------------------------------ Income per common share Continuing operations $ 2.36 $ 3.15 $ 1.06 Discontinued operations - - 1.34 ------------------------------------------ Net income per share $ 2.36 $ 3.15 $ 2.40 ------------------------------------------ Weighted average shares outstanding 4,269 4,280 4,280
* Certain amounts have been reclassified to conform to the current year's presentation. See accompanying summary of significant accounting policies and notes to consolidated financial statements. 22 23 CONSOLIDATED BALANCE SHEETS
December 31, 1995 1994* ----------------------------- (in thousands) ASSETS Current assets Cash and cash equivalents $ 2,993 $ 7,039 Accounts receivable 3,924 3,286 Current portion of long-term notes receivable 4,321 3,646 Inventories 187 599 Current deferred income taxes 865 1,451 Other 604 1,895 ----------------------------- Total current assets 12,894 17,916 Investments (Note 1) 96,645 85,321 Long-term notes receivable 4,582 8,881 Property, plant and equipment (Note 4) 91,015 86,246 Other assets 865 895 ----------------------------- Total assets $ 206,001 $ 199,259 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current installments on long-term debt (Note 5) $ 2,000 $ 7,325 Accounts payable 2,094 4,409 Accrued expenses (Note 6) 4,670 3,783 Deferred income 188 220 Taxes on income 358 - ----------------------------- Total current liabilities 9,310 15,737 Other liabilities (Note 10) 7,594 8,367 Deferred income taxes 29,040 28,459 Long-term debt (Note 5) 12,700 9,250 ----------------------------- Total liabilities 58,644 61,813 Shareholders' equity Preferred stock of $100 par value - Authorized 100,000 shares; issued none - - Common stock of $6.25 par value - Authorized 8,000,000 shares; issued 4,437,517 shares 27,734 27,734 Other paid-in capital 34,959 34,793 Retained earnings 37,978 35,571 ----------------------------- 100,671 98,098 Add: Net unrealized holding gain - investments 54,614 47,083 Less: 175,277 shares in 1995 and 157,977 shares in 1994 of common stock held in treasury, at cost 7,928 7,435 Guaranteed debt to employee stock ownership plan - 300 ----------------------------- Total shareholders' equity 147,357 137,446 ----------------------------- Total liabilities and shareholders' equity $ 206,001 $ 199,259 -----------------------------
* Certain amounts have been reclassified to conform to the current year's presentation See accompanying summary of significant accounting policies and notes to consolidated financial statements. 23 24 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Year Ended December 31, 1995, 1994 and 1993 Guaranteed Net Debt To Unrealized Employees Other holding Stock Total Common Paid-in Retained gain- Treasury Ownership Stockholders' Stock Capital Earnings investments Stock Plan Equity - ------------------------------------------------------------------------------------------------------------------------------- (in thousands) Balance at December 31, 1992 $27,734 $ 35,856 $ 32,691 $ - $ (7,414) (1,500) $ 87,367 Net income - - 10,252 - - - 10,252 Dividends paid, $2.90 per share - - (12,340) - - - (12,340) Additional liability for pension plan - (1,171) - - - - (1,171) Unrealized holding gain adjustment - - - 53,090 - - 53,090 Special dividend paid on unallocated shares in employee stock ownership plan - - - - (21) - (21) Contribution to employee stock ownership plan - - - - - 600 600 - ------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1993 $27,734 $ 34,685 $ 30,603 $ 53,090 $ (7,435) $ (900) $137,777 Net income - - 13,501 - - - 13,501 Dividends paid, $2.00 per share - - (8,533) - - - (8,533) Reversal of additional liability for pension plan - 108 - - - - 108 Unrealized holding gain adjustment - - - (6,007) - - (6,007) Contribution to employee stock ownership plan - - - - - 600 600 - ------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 $27,734 $ 34,793 $ 35,571 $ 47,083 $(7,435) $ (300) $137,446 Net income - - 10,084 - - - 10,084 Dividends paid, $1.80 per share - - (7,677) - - - (7,677) Reversal of additional liability for Pension plan - 166 - - - - 166 Reversal of special dividend paid on unallocated shares in employee stock - - - - 21 - 21 Unrealized holding gain adjustment - - - 7,531 - - 7,531 Purchase of 17,300 shares of treasury stock - - - - (514) - (514) Contribution to employee stock ownership plan - - - - - 300 300 - ------------------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 $27,734 $ 34,959 $ 37,978 $ 54,614 $ (7,928) $ - $147,357 - -------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of significant accounting policies and notes to consolidated financial statements. 24 25 CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1995 1994* 1993* -------------------------------------- (in thousands) CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES Net income $ 10,084 $ 13,501 $ 10,252 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation, depletion and amortization 7,723 6,286 5,159 Impairment of properties 10,927 1,763 - Write-down of investment in Westmoreland Coal Company - - 8,772 Gain on the sale of securities (6,391) - - (Gain) loss on the sale of property, plant and equipment 1,490 (125) 11 Gain on disposal of lime and limestone division - - (8,821) Deferred income taxes (3,474) (3,128) 312 Dry hole expense (72) 1,049 - Other 915 529 (2,637) -------------------------------------- 21,202 19,875 13,048 Change in assets and liabilities: Accounts receivable (638) 594 (556) Inventories 412 (161) (54) Other current assets 1,877 (2,163) 97 Accounts payable and accrued expenses (2,855) (2,562) 3,356 Deferred income (32) 6 (15) Taxes on income 358 (587) 565 Other assets and liabilities and investments (687) 604 275 -------------------------------------- Net cash flows from operating activities $ 19,637 $ 15,606 $ 16,716 CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Proceeds from the sale of securities $ 6,656 $ - $ - Proceeds from the sale of investments and discontinued operations - - 28,714 Proceeds from the sale of property, plant and equipment 1,146 314 123 Payments received on long-term notes receivable 5,183 3,738 3,572 Producing properties acquired (17,021) (8,114) - Lease acquisitions (3,254) (1,771) (445) Capital expenditures (5,827) (11,045) (15,199) Note purchases (800) - - -------------------------------------- Net cash flows from (used in) investing activities $ (13,917) $ (16,878) $ 16,765 CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Dividends paid $ (7,677) $ (8,533) $ (12,340) Proceeds from long-term borrowings 20,400 - - Repayment of long-term borrowings (22,275) (7,625) (2,025) Purchases of treasury stock (514) - - Reduction in guaranteed debt of ESOP 300 600 600 -------------------------------------- Net cash flows used in financing activities (9,766) (15,558) (13,765) -------------------------------------- Net increase (decrease) in cash and cash equivalents (4,046) (16,830) 19,716 Cash and cash equivalents - beginning of year 7,039 23,869 4,153 -------------------------------------- Cash and cash equivalents - end of year $ 2,993 $ 7,039 $ 23,869 -------------------------------------- Supplemental disclosures: Cash paid during the year for: Interest $ 1,978 $ 1,673 $ 1,817 Income taxes $ 3,139 $ 3,496 $ 2,991
*Certain amounts have been reclassified to conform to the current year's presentation. See accompanying summary of significant accounting policies and notes to consolidated financial statements. 25 26 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS ACTIVITY Penn Virginia Corporation ("Penn Virginia" or the "Company") is an Appalachia energy company. The Company owns the mineral rights to approximately 254 million tons of recoverable coal reserves located in Virginia, West Virginia and Kentucky. The coal reserves are leased to various operators who mine and market the coal. Penn Virginia collects royalties based on the production and sale of reserves. Penn Virginia explores for, develops and produces crude oil, condensate and natural gas in western Virginia, southern West Virginia and eastern Kentucky. The Company had proved reserves of 431,000 barrels of oil and 170 billion cubic feet of natural gas at December 31, 1995. Penn Virginia holds investments in energy-related public and private companies. The fair value of these investments at December 31, 1995 was approximately $96.6 million. CONSOLIDATION The consolidated financial statements include the accounts of Penn Virginia Corporation and all wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. Certain amounts have been reclassified to conform to the current year's presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CASH EQUIVALENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. INVENTORIES Inventories consisting primarily of tubular goods and production equipment are valued at the lower of average cost or market. INVESTMENTS Investments consist of corporate debt and equity securities. The Company classifies its debt and equity securities in one of three categories; trading, available-for-sale, or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities in which the Company has the ability and intent to hold until maturity. All other securities not included in trading or held-to-maturity are classified as available-for- sale. Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders' equity until realized. A decline in the market value of any available-for-sale or held-to-maturity security below cost, that is deemed other than temporary, is charged to earnings resulting in the establishment of a new cost basis for the security. Premiums and discounts are amortized or accreted over the life of the related held-to-maturity security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned. Realized gains and losses for securities classified as available-for-sale and held-to-maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold. OIL AND GAS PROPERTIES The Company uses the successful efforts method of accounting for its oil and gas operations. Under this method of accounting, costs to acquire mineral interests in oil and gas properties, to drill and equip development wells including development dry holes, and to drill and equip exploratory wells that find proved reserves are capitalized. Capitalized costs of producing oil and gas fields are amortized using the unit-of-production method based on estimates of proved oil and gas reserves on a field-by- field basis. Estimated costs (net of salvage value) of plugging and abandoning oil and gas wells are charged to depreciation, depletion and amortization using the units-of-production method. The total estimated future plugging and abandoning costs amortized and 26 27 included in the depreciation, depletion and amortization expense as of December 31, 1995 was approximately $0.4 million. The costs of unproved leaseholds are capitalized pending the results of exploration efforts. Unproved leaseholds costs are amortized over the average holding period of five years. Unproved leasehold costs are assessed periodically, on a property-by-property basis, and a loss is recognized to the extent, if any, the cost of the property has been impaired. As unproved leaseholds are determined to be productive, the related costs are transferred to proved leaseholds. Effective December 29, 1995, The Company adopted Statement of Financial Accounting Standards No. 121 (SFAS 121), Accounting for the Impairment of Long-Lived assets and for Long-Lived Assets to be Disposed of. SFAS 121 requires an impairment loss be recognized when the carrying amount of an asset exceeds the sum of the undiscounted estimated future cash flows of the asset. Under SFAS 121, the Company reviewed the impairment of oil and gas properties and related assets on a depletable unit basis. For each depletable unit determined to be impaired, an impairment loss equal to the difference between the carrying value and the fair value of the depletable unit was recognized. Fair value, on a depletable unit basis, was estimated to be the present value of expected future net cash flows by applying future oil and gas prices available from various third parties and Company forecasts to estimated future production of proved oil and gas reserves over their economic lives. The Company recognized a noncash, pretax charge of $10.4 million in the fourth quarter as a result of adopting SFAS 121. The Company also impaired $0.5 million of unproved exploration properties outside of its Appalachia Basin operating area in 1995 and $1.8 million primarily for a Texas steam flood oil field in 1994. Exploratory costs including exploratory dry holes, annual delay rental and geological and geophysical costs are charged to expense when incurred. OTHER PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost and include expenditures for new facilities and for improvements which substantially increase the productive lives of existing plant and equipment. Maintenance and repair costs are expensed as incurred. Depreciation of plant and equipment is generally computed using the straight-line method over their estimated useful lives, varying from 3 years to 20 years. Coal in place is depleted at a rate based upon the cost of the mineral properties and estimated recoverable tonnage therein. When an asset is retired or sold, its cost and related accumulated depreciation are removed from the accounts. The difference between undepreciated cost and proceeds from disposition is recorded as gain or loss. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying value of financial instruments approximates fair value. The Company's financial instruments are accounts receivable, notes receivables, accounts payable and long-term debt. The Company does not have any off-balance sheet financial instruments or derivatives. OIL AND GAS REVENUES Oil and gas revenues generally are recorded using the sales method. The Company recognizes oil and gas revenues based on the amount of oil and gas sold to purchasers on its behalf. As of December 31, 1995, the Company did not have any material oil or gas imbalances. ROYALTIES Coal royalty income is recognized on the basis of tons sold and the corresponding revenue from those sales. All coal leases are based on an annual minimum payment due or a percentage of the gross sales price. Oil and natural gas royalties are recorded on the basis of volume sold. DIVIDEND INCOME Dividend income from investments is recognized as of the record date. INCOME TAX The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). SFAS 109 requires a company to recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in a company's financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement carrying amounts and tax bases of assets and liabilities using enacted tax rates. PER SHARE DATA Per share data are based on the weighted average number of shares outstanding during the year. Common share equivalents based on outstanding options, are excluded from the calculation since the dilutive effect is not material. 27 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. INVESTMENTS AND OTHER INCOME The amortized cost, gross unrealized holding gains (losses) and fair value for available-for-sale and held-to-maturity securities were as follows:
Gross Unrealized Amortized Holding Fair December 31, 1995 Cost Gains (Losses) Value ------------------------------------------ (in thousands) Available-for-sale Norfolk Southern Corporation $ 2,839 $ 84,664 $ 87,503 Westmoreland Coal Company 5,263 (658) 4,605 Westmoreland Resources, Inc. 4,530 - 4,530 Blue Diamond Coal Company 3 4 7 ------------------------------------------ $ 12,635 $ 84,010 $ 96,645 Held-to-maturity Notes Receivable $ 8,903 $ - $ 8,903 December 31, 1994 Available-for-sale Norfolk Southern Corporation $ 3,096 $ 69,800 $ 72,896 Westmoreland Coal Company 5,263 2,632 7,895 Westmoreland Resources, Inc. 4,530 - 4,530 ------------------------------------------ $ 12,889 $ 72,432 $ 85,321 Held-to-maturity Notes Receivable $ 12,527 $ - $ 12,527
Maturities of securities classified as held-to-maturity are as follows:
Amortized Cost and Fair Value December 31, 1995 1994 ----------------------------- (in thousands) Current $ 4,321 $ 3,646 Due after one year through five years 3,402 3,299 Due after five years through ten years 1,180 5,123 Due after ten years - 459 ------------------------- $ 8,903 $ 12,527
Related dividend income is as follows:
Year Ended December 31, 1995 1994 1993 ------------------------------------------ (in thousands) Norfolk Southern Corporation $ 2,363 $ 2,309 $ 2,236 Westmoreland Resources, Inc. 440 400 144 ------------------------------------------ $ 2,803 $ 2,709 $ 2,380
The Company owned 1,102,400 and 1,202,400 shares of Norfolk Southern Corporation stock at December 31, 1995 and 1994 respectively. The Company owns 1,754,411 shares of Westmoreland Coal Company's common stock. Interest income included in other income amounted to $945,000, $1,290,000 and $1,323,000 in 1995, 1994 and 1993, respectively. Included in 1995, 1994 and 1993 interest income was $759,000, $962,000 and $989,000 respectively, relating to notes receivable on the sale of coal in place in 1986. 28 29 2. NATURAL GAS CONTRACT SETTLEMENT The Company received $11.4 million, net of royalties and certain other costs, in the fourth quarter 1995 for its portion of the settlement with Columbia Gas related to the abrogation of various high-priced, take-or-pay natural gas sales contracts. The contracts related primarily to production from a portion of the Company's eastern Kentucky and western Virginia reserves. 3. DISCONTINUED OPERATIONS In December 1992, the Company adopted a formal plan to sell the lime and limestone segment of its business. In October 1993 the Company completed the sale of this segment. The assets of the lime and limestone segment sold consisted primarily of accounts receivable, inventories, and property, plant and equipment. The selling price was $28.7 million in cash and generated a gain of $5.7 million (net of income tax expense of $3.1 million). In 1992, the Company estimated a loss on disposal of the lime and limestone segment of $7.0 million (net of income tax benefit of $3.6 million). 4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment includes:
December 31, 1995 1994 -------------------------- (in thousands) Land $ 703 $ 704 Timber 188 188 Coal properties 9,169 5,595 Oil and gas properties 125,617 110,279 Other plant and equipment 4,710 3,485 -------------------------- 140,387 120,251 Less: Accumulated depreciation, depletion and amortization 49,372 34,005 -------------------------- Net property, plant and equipment $ 91,015 $ 86,246
In January 1995, Westmoreland Coal Company relinquished its lessee's rights to Penn Virginia's coal reserves located in West Virginia in exchange for $3.0 million in cash and other considerations. In February 1995, the Company acquired leases, wells, and equipment relating to certain natural gas properties located in southern West Virginia abutting existing properties. These assets were acquired for approximately $17.0 million in cash and include 58 net producing wells and approximately 34,600 acres of leaseholds. In May 1994, the Company acquired leases, wells and equipment relating to certain oil and gas properties located in eastern Kentucky. The assets were acquired for approximately $8.1 million in cash and include 66 net producing wells and approximately 12,400 net acres of leaseholds. 29 30 5. LONG-TERM DEBT Long-term debt is summarized in the following table.
December 31, 1995 1994 ----------------------- (in thousands) Revolving credit, variable rate of 6.9% at December 31, 1995 due in 1998 - 2000 $ 8,700 $ - Term loan, variable rate of 8.2% at December 31,1994 - 5,400 Term loan, variable rate of 5.5% at December 31, 1994 - 300 Senior notes, 9% due June 27, 1996 - 2,875 Senior notes, 8.83%, due May 10, 1998 6,000 8,000 ----------------------- 14,700 16,575 Less current maturities 2,000 7,325 ----------------------- Total Long-Term Debt $ 12,700 $ 9,250
REVOLVING CREDIT During 1995, the Company entered into an agreement with a group of major U.S. banks for a $20 million revolving credit facility (the "Revolver") with a final maturity of December 31, 2000. The Revolver is an unsecured credit facility that bears interest, at Penn Virginia's option, at a rate equal to (i) either one, two or three month LIBOR plus 1.0 percent per annum or (ii) the Prime Rate. The Company pays a commitment fee quarterly equal to 0.25 percent per annum on the average daily amount of unused debt capacity available under the Revolver. The Revolver contains various restrictive covenants customarily found in such facilities, including restrictions (i) prohibiting the merger of the Company with a third party except under certain limited conditions, (ii) limiting the sale, transfer or other disposition of assets except in the ordinary course of business to 20 percent of Tangible Net Worth, as defined in the Revolver, and (iii) prohibiting the declaration or payment of dividends or the purchase of its capital stock if the effect would cause the Company to violate any of the financial covenants found in the agreement. The financial covenants include the maintenance of Tangible Net Worth, Debt to Worth Ratio, Cash Flow Ratio, Interest Coverage Ratio and Working Capital. The revolver converts to a term loan on January 1, 1998 at which time the outstanding balance is due in twelve equal quarterly installments with the final installment due December 31, 2000. TERM LOANS The Company had two term loans outstanding at December 31, 1994 which were retired in 1995. Both term loans were unsecured. The interest rates were 8.2 percent and 5.5 percent respectively. They contained various restrictive covenants customarily found in such facilities. SENIOR NOTES In June 1986, the Company issued $10 million of its 10-year 9% Senior Notes to an institutional investor in a private placement offering. The 9% Senior Notes were fully paid in 1995. In May 1991, the Company issued $10 million of its 7-year 8.83% Senior Notes to an institutional investor in a private placement offering. The 8.83% Senior Notes require five equal principal payments beginning in 1994. The Company may prepay all or a portion of the indebtedness subject to a prepayment premium. The 8.83% Senior Notes contain conditions and restrictive provisions customarily found in such notes including among other things, (i) restrictions on indebtedness of the Company and its subsidiaries, (ii) restrictions on dividends and the retirement of stock and (iii) merger with a third party except under certain limited conditions. Aggregate installments of long-term debt maturing in the years 1996, 1997, and 1998 amount to $2,000,000, $2,000,000 and $2,000,000 respectively. 6. ACCRUED EXPENSES Accrued expenses are summarized in the following table.
December 31, 1995 1994 ------------------------ (in thousands) Pension $ 927 $ 780 Compensation 487 368 Accrued lease and relocation 493 800 Accrued oil and gas royalties 481 265 Taxes other than income 1,164 470 Other 1,118 1,100 ----------------------- $ 4,670 $ 3,783
30 31 7. INCOME TAXES The provision (benefit) for income taxes from continuing operations is comprised of the following:
Year ended December 31, 1995 1994 1993 --------------------------------------- (in thousands) Current income taxes Federal $ 3,602 $ 533 $ 2,418 State 523 756 829 --------------------------------------- Total current 4,125 1,289 3,247 Deferred income taxes Federal (2,336) (3,839) (2,970) State (29) (73) 260 --------------------------------------- Total deferred (2,365) (3,912) (2,710) --------------------------------------- Total income tax expense (benefit) $ 1,760 $ (2,623) $ 537
The difference between the reported income tax expense (benefit) and income tax expense (benefit) computed by multiplying income from continuing operations before income taxes by the federal statutory income tax rate is as follows:
Year Ended December 31, 1995 1994 1993 ------------------------------------- (in thousands) Computed at federal statutory tax rate $ 4,145 $ 3,807 $ 1,769 State income taxes, net of federal income tax effect 321 444 708 Dividends received deduction (687) (664) (583) Non-conventional fuel source credit (1,650) (1,750) (1,000) Adjustment to prior year provisions - (3,500) - Percentage depletion (270) (495) (357) Other (99) (465) - ------------------------------------- Total income tax expense (benefit) $ 1,760 $ (2,623) $ 537
The Company's federal income tax returns for the 1984 through 1986 tax years were examined by the Internal Revenue Service. As a result of the favorable settlement of various issues raised during the Internal Revenue Service examination, the Company recognized a $3.5 million adjustment to its prior year provision for deferred taxes in 1994. Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the net deferred tax liability relate to the following:
December 31, 1995 1994 ------------------------ (in thousands) Deferred tax liabilities Unrealized investment gain $ 29,404 $ 25,351 Oil and gas drilling and development costs 16,672 13,677 Other 1,710 1,441 ------------------------ Total deferred liabilities $ 47,786 $ 40,469 Deferred tax assets Investments due to reserves and the equity method of accounting $ (732) $ (745) Notes receivable from the sale of coal reserves (2,064) (821) Impairment reserve for oil and gas properties (4,069) - Other property, plant, and equipment, principally due to differences in depreciation and depletion (6,125) (4,105) Additional minimum pension liability adjustment (484) Accrued expenses (2,219) (3,796) Deferred income for financial reporting purposes (878) (1,049) Alternative minimum tax credit carryforwards (3,040) (2,945) State tax loss carryforwards (391) - ------------------------ (20,002) (13,461) Valuation allowance for state tax loss carryforwards 391 - ------------------------ Total deferred assets $ (19,611) $ (13,461) ------------------------ Net deferred income tax liability $ 28,175 $ 27,008
31 32 As of December 31, 1995, the Company had available for federal income tax purposes, alternative minimum tax credits of approximately $3.1 million which can be carried forward indefinitely as a credit against the regular tax liability. The Company has various state tax loss carryforwards of approximately $4.6 million at December 31, 1995 which expire in 2009. The tax benefit of these loss carryforwards has been offset by a valuation allowance. 8. PENSION PLANS The Company and its wholly-owned subsidiaries provided a noncontributory, defined benefit pension plan and early retirement programs (the "plans") for eligible employees. Benefits are based on the employee's average annual compensation and years of service. Pension expense amounted to $458,000, $971,000 and $703,000 in 1995, 1994 and 1993, respectively.
Year Ended December 31, 1995 1994 1993 -------------------------------------- (in thousands) Service cost $ 103 $ 108 $ 115 Interest cost on projected benefit obligations 886 821 852 Actual return on plan assets (1,605) 25 (551) Net amortization and deferral 1,073 (620) (98) Special termination benefits - 637 385 -------------------------------------- Pension expense $ 457 $ 971 $ 703
The following sets forth the funded status of the plans:
December 31, 1995 1994 ------------------------ (in thousands) Actuarial present value of benefit obligations: Vested benefits $ 11,924 $ 10,568 Nonvested benefits 77 57 ----------------------- Accumulated benefit obligations 12,001 10,625 Effect of assumed future compensation levels 452 298 ----------------------- Projected benefit obligation 12,453 10,923 Fair value of assets held in plan (7,761) (6,767) Unrecognized cumulative net (loss) (1,836) (1,381) Unrecognized prior service cost (297) (321) Unrecognized implementation pension asset (60) (65) Additional liability recognized 1,731 1,891 ----------------------- Unfunded accrued pension cost $ 4,230 $ 4,280 Unfunded accrued pension cost at beginning of year $ 4,280 4,535 Current year's pension expense 457 971 Additional liability recognized 158 (118) Current year's contributions (665) (1,076) Other - (32) ----------------------- Unfunded accrued pension cost at end of year $ 4,230 $ 4,280
A portion of the unfunded accrued pension cost is included in the caption "Other liabilities" on the Company's balance sheet. The weighted-average discount rate used to measure the projected benefit obligations is 7.25 percent in 1995 and 8.25 percent in 1994. The rate of increase in future compensation levels is 6 percent and the expected long-term rate of return on assets is 9.5 percent. Plan assets consist primarily of listed stocks, including $325,000 of the Company's stock, fixed income investments and cash equivalents. In February 1996, the Board of Directors of the Company approved freezing the defined benefit pension plan effective June 30, 1996. It is expected to result in reduced future annual net periodic pension expense and a gain in 1996. 32 33 9. OTHER POSTRETIREMENT BENEFITS The Company sponsors a defined benefit postretirement plan that covers employees hired prior to January 1, 1991 who retire from active service by meeting specific age and years of service requirements. The plan provides health care (medical benefits) for the retiree and his/her eligible dependents and life insurance benefits for the retiree. The health care coverage is noncontributory for retirees who retired prior to January 1, 1991 and is contributory for retirees who retired after December 31, 1990. Postretirement benefit expense for 1995 and 1994 include the following components:
Year Ended December 31, 1995 1994 -------------------------- (in thousands) Service cost $ 28 $ 30 Interest cost on accumulated postretirement benefit obligation 292 281 Actual return on plan assets (59) 1 Net amortization and deferral 11 (61) -------------------------- $ 272 $ 251
The following sets forth the funded status of the plan:
December 31, 1995 1994 ------------------------- (in thousands) Accumulated postretirement benefit obligation Retirees $ 3,551 $ 3,454 Fully eligible and other active plan participants 363 270 ------------------------- 3,914 3,724 Plan assets at fair value (1,513) (1,798) ------------------------- Accumulated postretirement benefit obligation in excess of plan assets 2,401 1,926 ------------------------- Unrecognized loss (538) (52) ------------------------- Unfunded accrued postretirement benefit cost $ 1,863 $ 1,874 Unfunded accrued postretirement benefit cost at beginning of year $ 1,874 $ 1,724 Current year's postretirement benefit expense 272 251 Current year's contributions (129) (101) Other (154) - ------------------------- Unfunded accrued postretirement benefit cost at end of year $ 1,863 $ 1,874
For measurement purposes, an annual rate of increase for medical benefits (trend rate) was assumed for employees who retired prior to 1991. These rates were assumed to be 9.5 percent and 10.0 percent for 1995 and 1994, respectively. The rates were assumed to decrease gradually to 5.5 percent by the year 2003 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. Increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995 by $211,000 and the aggregate of the service and interest cost components of postretirement expense for the year then ended by $14,000. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.25 percent in 1995 and 8.25 percent in 1994. The assumed long-term rate of return on plan assets after estimated taxes was 3 percent. At December 31, 1995, plan assets consist primarily of tax exempt securities. 10. OTHER LIABILITIES Other liabilities are summarized in the following table:
December 31, 1995 1994 -------------------------- (in thousands) Postretirement health care $ 1,523 $ 1,541 Deferred income 1,711 2,028 Pension 3,303 3,396 Other 1,057 1,402 -------------------------- $ 7,594 $ 8,367
33 34 11. STOCK OPTION AND STOCK OWNERSHIP PLANS STOCK OPTION PLANS On May 2, 1995, the 1994 Stock Option Plan (1994 Plan) and the 1995 Directors' Stock Option Plan (1995 Plan) were approved by the shareholders. The Company also has outstanding stock options under another stock option plan, the 1980 Incentive Stock Option Plan (1980 Plan) which has expired. Under these plans, incentive and nonqualified stock options may be granted to key employees and officers of the Company and nonqualified stock options may be granted to directors of the Company. Under the 1980 Plan, some options were granted with stock appreciation rights (SARs); however, none of the options outstanding at December 31, 1995 have SARs. Options granted under the 1980, 1994, and 1995 Plans may be exercised at any time after twelve months and prior to ten years following the grant, subject to special rules that apply in the event of death, retirement and/or termination of an optionee. The exercise price of all options granted under the Plans were at fair market value of the Company's stock on the date of grant. Of the 479,550 options that were granted under the Plans, 278,100 options have been exercised, forfeited or have expired. At December 31, 1995, options totaling_201,450 remain outstanding. The Company also awarded three different grants of nonqualified stock options to individual directors: two in 1992, one for 20,000 options and one for 10,000 options, and one in 1994 for 20,000 options. These options may be exercised any time after twelve months and prior to four years following the grant. At December 31, 1995, the 50,000 options from the individual grants remain outstanding. The following table summarizes information with respect to the common stock options awarded under the Plans and grants described above:
1995 1994 1993 -------------------------- -------------------------- -------------------------- Options EXercise Price Options Exercise Price Options Exercise Price - ----------------------------------------------------------------------------------------------------------------------------- Beginning of year 93,350 $31.25 - 57.00 84,050 $37.25 - 57.00 97,100 $35.50 - 57.00 Granted 196,500 $32.25 - 32.88 20,000 $31.25 - 31.25 - - Forfeited/Expired (38,400) $32.25 - 57.00 (10,700) $42.75 - 57.00 (13,050) $35.50 - 57.00 Exercised - - - - - - - ----------------------------------------------------------------------------------------------------------------------------- End of year 251,450 $31.25 - 57.00 93,350 $31.25 - 57.00 84,050 $37.25 - 57.00
The following table sets forth, as of December 31, 1995, the number of shares of common stock subject to all stock options then outstanding under grants made by the Company, the average exercise price per option, and the years in which such options expire:
Year of Expiration 1996 1997 1998 1999 2002 2004 2005 - ---------------------------------------------------------------------------------------------------------------------------- Number of shares 30,000 4,000 4,250 5,200 16,000 65,000 127,000 Average exercise price per option $39.08 $57.00 $46.66 $48.00 $42.75 $32.38 $32.25
During 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123 (SFAS 123), Accounting for Stock-Based Compensation which is effective for fiscal years beginning after December 15, 1995. Penn Virginia intends to continue to use the intrinsic value-based method of accounting for stock options and plans to present the required footnote disclosures of SFAS 123 in 1996. 1985 EMPLOYEE STOCK OWNERSHIP PLAN Effective June 1, 1985, the Company adopted a noncontributory Employee Stock Ownership Plan (ESOP) and Trust for the benefit of all nonunion employees. The Trust borrowed $6.0 million from a bank and $4.0 million of the proceeds of the loan were used to purchase treasury stock (81,633 shares at $49.00 per share). The remainder was used to purchase Penn Virginia shares on the open market. A total of 122,583 shares were purchased at an average cost of $48.95 (which includes the 81,633 shares). Under the loan agreement, the Company guaranteed the loan and was obligated to make annual contributions sufficient to enable the Trust to repay the loan, including interest. Principal was due in forty quarterly installments of $150,000 which began September 1985. The outstanding obligations of the Trust guaranteed by the Company were recorded in long-term debt and a like amount was recorded as a separate deduction from shareholders' equity in the consolidated balance sheet. Both the obligation and the deduction from shareholders' equity are reduced by the amount of any payment by the Trust of the loan and by the amount of any current accrual of contributions by the Company. The amount of interest incurred on the ESOP debt was $6,000, $25,000 and $39,000 in 1995, 1994 and 1993, respectively. Dividends on ESOP shares used for debt service amounted to $4,000, $27,000 and $70,000 in 1995, 1994 and 1993, respectively. At December 31,1995, the loan is retired and all 122,583 shares have been allocated to eligible employees. In February 1996, the Board approved a second stage to this ESOP. The ESOP will borrow $2 million from the Company bearing interest at the prevailing market rate and use the entire proceeds of the loan to purchase treasury stock. Under the terms of the ESOP, the Company will make annual contributions sufficient to enable the ESOP to repay the loan including interest over a 10-year period. 34 35 12. SEGMENT INFORMATION Penn Virginia's operations are classified into three business segments: Coal and Land - the leasing of mineral rights and subsequent collection of royalties and the development and harvesting of timber. Oil and Gas - crude oil and natural gas exploration, development and production. Investments - management of various public and private energy-related investments.
Coal and Land Oil and Gas Investments Corporate and Other Consolidated - ------------------------------------------------------------------------------------------------------------------------- (in thousands) December 31, 1995 Revenues $ 9,760 $ 25,965 $ 2,803 $ - $ 38,528 Operating income (loss) 7,578 (345) 2,788 (2,676) 7,345 Identifiable assets 19,604 87,837 96,649 1,911 206,001 Depreciation, depletion and amortization 136 7,550 - 37 7,723 Capital expenditures 3,466 22,597 - 39 26,102 December 31, 1994 Revenues $ 15,465 $ 15,428 $ 2,709 $ 109 $ 33,711 Operating income (loss) 13,374 (1,257) 2,641 (4,046) 10,712 Identifiable assets 24,344 85,041 86,379 3,495 199,259 Depreciation, depletion and amortization 174 6,071 - 41 6,286 Capital expenditures 239 20,683 - 8 20,930 December 31, 1993 Revenues $ 14,831 $ 14,578 $ 2,380 $ 21 $ 31,810 Operating income (loss) 12,842 2,333 (6,392) (3,350) 5,433 Identifiable assets 26,023 69,043 112,607 6,586 214,259 Depreciation, depletion and amortization 185 4,914 - 60 5,159 Capital expenditures 463 15,169 - 12 15,644
Activities in coal and land operations mainly involve the leasing of mineral rights and the collection of royalties. The oil and gas operations include exploration for the production of oil and gas. The operations of investments involve the management of investments. Operating income is total revenue less operating expenses. Operating income does not include certain other income items, gain (loss) on sale of assets, unallocated general corporate expenses, interest expense and income taxes. Identifiable assets are those assets that are used in the Company's operations in each segment. Corporate assets are principally cash and marketable securities. 13. COMMITMENTS AND CONTINGENCIES Under the terms of a sale/leaseback transaction completed in 1984, the Company guaranteed minimum rental payments of $499,000 per year through 1999 on noncancellable operating leases. The Company leases office space in three locations under noncancellable operating leases with rental payments of approximately $559,500 per year expiring in 1999 and 2000. In connection with the sale of the lime and limestone division, the Company guaranteed $240,000 in rental payments per year under an equipment operating lease. The lease and guarantee expire in July 1996. The Company is involved in various lawsuits arising in the ordinary course of business. Company management believes these claims will not have a material effect on the Company's financial position, liquidity or operations. The Company has entered into several contracts for the delivery and sale of natural gas in 1996 and 1997 at various prices. Penn Virginia is obligated to deliver 2,697,500 MMBtus in 1996 and 585,000 MMBtus in 1997. The natural gas will be supplied from expected production from the Company's proved developed reserves. 14. CONCENTRATION OF CREDIT RISK At December 31, 1995 the Company had notes receivable with face values of $38.3 million and unamortized discount of $29.4 million for a net carrying value of $8.9 million due from four purchasers of coal reserves and natural gas leases who are believed to be highly leveraged. The notes are secured by the assets purchased and are being repaid from the cash flow from the sale of coal or natural gas production. 35 36 15. SUBSEQUENT EVENTS The Company signed a series of leases with a coal operator for a portion of the Company's West Virginia reserves in January, 1996. The lease term is 15 years plus one five-year option subject to mutual agreement between Penn Virginia and the coal operator. The Company expects the operator to begin operations in late 1996 or early 1997 subject to receiving the necessary permits and completing certain other requirements. Penn Virginia expects up to 2.0 to 2.5 million tons of coal to be produced annually from the leases within the next two to three years. 16. SUPPLEMENTARY INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES (UNAUDITED) The following supplementary information regarding the oil and gas producing activities of Penn Virginia is presented in accordance with the requirements of the Securities and Exchange Commission (SEC) and the Statement of Financial Accounting Standards No. 69. The amounts shown include Penn Virginia's net working and royalty interests in all of its oil and gas operations. CAPITAL COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
Year Ended December 31, 1995 1994 1993 ---------------------------------------- (in thousands) Proved properties $ 45,934 $ 28,913 $ 24,475 Unproved properties 1,256 2,362 3,395 Wells, equipment and facilities 78,439 76,403 62,783 Support equipment and facilities 2,209 2,601 1,026 ---------------------------------------- $ 127,836 110,279 91,679 Accumulated depreciation, depletion and amortization 44,573 29,491 22,636 ---------------------------------------- Net capitalized costs $ 83,263 $ 80,788 $ 69,043
COSTS INCURRED IN CERTAIN OIL AND GAS ACTIVITIES
Year Ended December 31, 1995 1994 1993 ---------------------------------------- (in thousands) Property acquisition costs - Proved $ 17,021 $ 8,170 $ - Property acquisition costs - Unproved 151 1,544 445 Exploration costs 376 1,419 930 Development costs 5,426 10,969 14,724
RESULTS OF OPERATIONS FOR OIL AND GAS PRODUCING ACTIVITIES The following schedule includes results solely from the production and sale of oil and gas and includes revenues from a natural gas contract settlement and charges for property impairments. It excludes general and administrative expenses and gains or losses on property dispositions. The income tax expense is calculated by applying the statutory tax rates to the revenues after deducting costs, which include depletion allowances and giving effect to permanent differences and tax credits.
Year Ended December 31, 1995 1994 1993 ---------------------------------------- (in thousands) Revenues $ 14,159 $ 15,428 $ 14,578 Natural gas contract settlements 11,406 - - Production cost 4,366 4,452 3,730 Exploration costs 376 1,419 930 Depreciation, depletion and amortization 7,550 6,071 4,914 Impairment of properties 10,927 1,763 - ---------------------------------------- 2,346 1,723 5,080 Income tax expense 821 603 1,670 ---------------------------------------- Results of operations $ 1,525 $ 1,120 $ 3,410
36 37 OIL AND GAS RESERVES (UNAUDITED) The following schedule presents the estimated oil and gas reserves owned by Penn Virginia. This information includes Penn Virginia's royalty and working interest share of the reserves in western Virginia, southern West Virginia and eastern Kentucky. These reserves were estimated by Williamson Petroleum Consultants, Inc. of Houston, Texas. The Company considers the estimates to be reasonable, however, by their nature they are subject to upward and downward revisions as additional information regarding fields and technology becomes available. All reserves are located in the United States.
Oil and Natural Condensate Gas Proved Developed and Undeveloped Reserves: (MBbls) (MMcf) --------------------- December 31,1992 636 111,369 Revisions of previous estimates (79) (3,933) Extensions, discoveries and other additions 31 15,034 Production (83) (5,327) --------------------- December 31, 1993 505 117,143 Revisions of previous estimates 32 (16,650) Extensions, discoveries and other additions 3 12,980 Production (73) (6,295) Purchase of reserves - 20,754 --------------------- December 31,1994 467 127,932 Revisions of previous estimates 22 888 Extensions, discoveries and other additions - 3,511 Production (58) (7,161) Purchase of reserves - 46,556 Sale of reserves in place - (1,465) --------------------- December 31, 1995 431 170,261 Proved Developed Reserves: December 31, 1993 394 70,263 December 31, 1994 371 78,125 December 31, 1995 348 86,566
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS(UNAUDITED) The following schedule shows the estimates of future net cash flows from proved reserves prepared by independent consultants. These estimates are prepared based on the prices of oil and gas in effect at year end, with only price escalations guaranteed by existing contractual agreements over the life of the producing properties used. The average prices used by the Company for proved reserves at December 31, 1995, 1994 and 1993 were ($/Bbl) $16.02, $15.00 and $12.25 respectively for oil and condensate and ($/Mcf) $2.67, $2.09 and $2.65 respectively for natural gas. These estimated future cash flows are reduced by estimated future development and production costs based on year-end cost levels, assuming continuation of existing economic conditions. Cash flows are further reduced by estimated future income tax expense calculated by applying the current statutory income tax rate to the total pretax future cash flows, less the tax basis of the properties involved and the tax effects of any permanent differences and credits. Most of the Company's natural gas reserves are at spot prices and a change in gas prices will have an effect on the future net cash flows calculations. A sustained decline in prices may result in some impairment. The monetary amounts presented in the following information are computed using the Financial Accounting Standards Board's standardized assumptions and should not be construed as being management's estimate of the fair market value, replacement cost or any financial measure of the value of the reserves owned by the Company. These assumptions reflect stable conditions over a period of up to twenty years and therefore ignore possible changes in tax laws. Because of volatility of prices, reserve volumes and future net cash flows could change significantly. 37 38
December 31, 1995 1994 1993 ---------------------------------------- (in thousands) Future cash inflows $ 461,899 $ 274,323 $ 316,804 Future production costs 125,561 87,729 84,104 Future development costs 43,850 33,957 31,611 ---------------------------------------- 292,488 152,637 201,089 Future income tax expense 84,321 36,923 53,442 ---------------------------------------- Future net cash flows 208,167 115,714 147,647 10% annual discount for estimated timing of cash flows 119,933 59,634 83,580 ---------------------------------------- Standardized measure of discounted future net cash flows $ 88,234 $ 56,080 $ 64,067
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED)
Year Ended December 31, 1995 1994 1993 --------------------------------------- (in thousands) Sales of oil and gas, net of production costs $ (9,793) $ (10,976) $ (10,540) Net changes in prices and production costs 29,695 (26,667) (11,860) Extension, discoveries and additions, net of costs (234) 3,930 9,088 Development costs incurred during the period 5,426 14,701 14,724 Revisions of previous quantity estimates 857 (10,074) (5,235) Purchase of minerals-in-place 24,590 8,285 - Sale of minerals-in-place (1,525) - - Accretion of discount 6,686 8,726 8,440 Net change in income taxes (19,152) (4,466) 4,013 Other changes (4,396) 8,554 (2,480) --------------------------------------- Net increase (decrease) 32,154 (7,987) 6,150 Beginning of year 56,080 64,067 57,917 --------------------------------------- End of year $ 88,234 $ 56,080 $ 64,06
38 39 MANAGEMENT'S REPORT ON FINANCIAL INFORMATION Management of Penn Virginia Corporation is responsible for the preparation and integrity of the financial information included in this annual report. The financial statements have been prepared in accordance with generally accepted accounting principles which involve the use of estimates and judgments where appropriate. The corporation has a system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded against loss or unauthorized use and to produce the records necessary for the preparation of financial information. The system of internal control is supported by the selection and training of qualified personnel, the delegation of management authority and responsibility, and dissemination of policies and procedures. There are limits inherent in all systems of internal control based on the recognition that the costs of such systems should be related to the benefits to be derived. We believe the corporation's systems provide this appropriate balance. The corporation's independent public accountants, KPMG Peat Marwick LLP, have developed an understanding of our accounting and financial controls and have conducted such tests as they consider necessary to support their opinion on the financial statements. Their report contains an independent, informed judgment as to the corporation's reported results of operations and financial position. The Board of Directors pursues its oversight role for the financial statements through the Audit Committee, which consists solely of outside directors. The Audit Committee meets regularly with management, the internal auditor and KPMG Peat Marwick LLP, jointly and separately, to review management's process of implementation and maintenance of internal controls, and auditing and financial reporting matters. The independent and internal auditors have unrestricted access to the Audit Committee. Lennox K. Black Steven W. Tholen Chairman and Vice President and Chief Executive Officer Chief Financial Officer
INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders 1600 Market Street Penn Virginia Corporation Philadelphia, Pennsylvania 19103 February 21 , 1996
We have audited the accompanying consolidated balance sheets of Penn Virginia Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Penn Virginia Corporation and subsidiaries as of December 31, 1995 and 1994, and the results of their operation and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in the Summary of Significant Accounting Policies, in December 1995 the Company adopted the provisions of the Financial Accounting Standard Board's Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". KPMG PEAT MARWICK LLP KPMG PEAT MARWICK LLP 39 40 FIVE YEAR SELECTED FINANCIAL DATA
Year Ended December 31, 1995 1994 1993 1992 1991 ---------------------------------------------------------------------------- Revenues $ 38,528 $ 33,711 $ 31,810 $ 18,601 $ 20,062 Operating income (loss) 7,345 10,712 5,433 (12,629) 1,599 Net income (loss) $ 10,084 $ 13,501 $ 10,252 $ (17,088) $ 1,245 Per common share Net income (loss) $ 2.36 $ 3.15 $ 2.40 $ (2.42) $ .18 Dividends paid $ 1.80 $ 2.00 $ 2.90 $ 1.90 $ 1.90 Weighted average shares outstanding 4,269 4,280 4,280 4,278 4,289 Assets Continuing operations $ 206,001 $ 199,259 $ 214,259 $ 113,208 $ 138,983 Discontinued operations, net - - - 19,431 31,172 ---------------------------------------------------------------------------- Total $ 206,001 $ 199,259 $ 214,259 $ 132,639 $ 170,155 Long -term debt $ 12,700 $ 9,250 $ 16,575 $ 22,700 $ 19,892
40 41 BYLAWS PENN VIRGINIA CORPORATION AS AMENDED FEBRUARY 6, 1996 ARTICLE I SHAREHOLDERS SECTION 1. MEETINGS. (a) Annual Meeting. Unless otherwise fixed by the board of directors the annual meeting of shareholders for the election of directors and for other business shall be held on the first Tuesday of May in each year or, if that day is a legal holiday, on the first subsequent business day. (b) Special Meetings. Special meetings of the shareholders may be called at any time by the chief executive officer, or a majority of the board of directors, or the holders of at least one-fifth of the shares of stock of the Company outstanding and entitled to vote. (c) Place. Meetings of the shareholders shall be held at such place in Philadelphia, Pennsylvania or elsewhere, as may be fixed by the board of directors in the notice of meeting. SECTION 2. NOTICE. Written notice of the time and place of all meetings of shareholders and of the purpose of each special meeting of shareholders shall be given to each shareholder entitled to vote thereat at least ten days before the date of the meeting, unless a greater period of notice is required by law in a particular case. SECTION 3. VOTING. (a) Voting Rights. Except as otherwise provided herein, or in the Articles of Incorporation, or by law, every shareholder shall have the right at every shareholders' meeting to one vote for every share standing in his name on the books of the Company which is entitled to vote at such meeting. Every shareholder may vote either in person or by proxy. (b) Election of Directors. At each annual meeting the shareholders shall elect eight directors who shall constitute the entire Board. SECTION 4. QUORUM. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of stock of the Company entitled to vote at a meeting shall constitute a quorum. If a quorum is not present, no business shall be transacted except to adjourn to a future time. ARTICLE II DIRECTORS SECTION 1. TERM OF OFFICE. Each director elected at an annual meeting of the shareholders shall hold office until the next annual meeting, unless properly removed or disqualified, and until such further time as his successor is elected and has qualified. 41 42 BYLAWS PENN VIRGINIA CORPORTAION AS AMENDED FEBRUARY 6, 1996 SECTION 2. POWERS. The business of the Company shall be managed by the board of directors which shall have all powers conferred by law and these bylaws. The board of directors shall elect, remove or suspend officers, determine their duties and compensations, and require security in such amounts as it may deem proper. SECTION 3. MEETINGS. (a) Regular Meetings. Regular meetings shall be held at such times as the board shall designate by resolution. Notice of regular meetings need not be given. (b) Special Meetings. Special meetings of the board may be called at any time by the chief executive officer and shall be called by him upon the written request of one-third of the directors. Written notice of the time, place and the general nature of the business to be transacted at each special meeting shall be given to each director at least three days before such meeting. (c) Place. Meetings of the board of directors shall be held at such place as the board may designate or as may be designated in the notice calling the meeting. SECTION 4. QUORUM. A majority of the number of directors in office immediately before the meeting begins shall constitute a quorum for the transaction of business at any meeting and, except as provided in Article VII, the acts of a majority of the directors present at any meeting at which a quorum is present shall be the acts of the board of directors. SECTION 5. VACANCIES. Vacancies in the board of directors (including one resulting from an increase by not more than two) shall be filled by vote of a majority of the remaining members of the board though less than a quorum. Such election shall be for the balance of the unexpired term or until a successor is duly elected by the shareholders and has qualified. ARTICLE III BOARD COMMITTEES SECTION 1. EXECUTIVE COMMITTEE. The board of directors by resolution of a majority of the number of directors then in office may designate three or more directors to constitute an executive committee, which, to the extent provided in such resolution, shall have and may exercise all the authority of the board of directors except to approve an amendment of the Company's articles of incorporation or a plan of merger or consolidation. If an executive committee is so designated it will elect one of its members to be its chairman. SECTION 2. COMPENSATION AND BENEFITS COMMITTEE. The board of directors by resolution of a majority of the number of directors then in office may designate three or more outside directors to constitute a compensation and benefits committee, which shall have such power and authority as may be provided in such resolution. 42 43 BYLAWS PENN VIRGINIA CORPORTION AS AMENDED FEBRUARY 6, 1996 SECTION 3. OTHER COMMITTEES. The board of directors by resolution of a majority of the number of directors then in office may create or disband other committees, as deemed to be proper. ARTICLE IV OFFICERS SECTION 1. ELECTION. At its first meeting after each annual meeting of the shareholders, the board of directors shall elect a president, treasurer and secretary, and such other officers as it deems advisable. Any two or more offices may be held by the same person except the offices of president and secretary. SECTION 2. CHAIRMAN AND PRESIDENT. (a) Chairman. The chairman shall preside at all meetings of the board and of the shareholders. If so designated by the board of directors, the chairman shall be the chief executive officer. (b) President. The president shall be either the chief executive officer or the chief operating officer of the Company, as designated by the board of directors. The president shall have such duties as the board of directors and the chairman of the Company shall prescribe. SECTION 3. OTHER OFFICERS. The duties of the other officers shall be those usually related to their offices, except as otherwise prescribed by resolution of the board of directors. SECTION 4. GENERAL. In the absence of the chairman and president, the person who has served longest as vice president or any other officer designated by the board shall exercise the powers and perform the duties of the chief executive officer or chief operating officer or both. The chief executive officer or any officer or employee authorized by him may appoint, remove or suspend agents or employees of the Company and may determine their duties and compensation. ARTICLE V INDEMNIFICATION SECTION 1. RIGHT TO INDEMNIFICATION. The Company shall indemnify any person who was or is a party or threatened to be a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, and whether formal or informal, and whether or not by or in the right of the corporation, by reason of the fact that he is or was a director or officer of the Company (or a predecessor corporation adsorbed in a merger or other transaction), or, while a director or officer of the Company or such predecessor, is or was serving at the request of the Company or such predecessor as a director, officer, partner, trustee, administrator, employee or agent of another corporation, partnership, joint venture, trust, employee benefit 43 44 BYLAWS PENN VIRGINIA CORPORATION AS AMENDED FEBRUARY 6, 1996 plan or other enterprise, for expenses (including attorney's fees), judgments, fines, penalties, including any excise tax assessed with respect to an employee benefit plan, and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding, to the extent that (a) such person is not otherwise indemnified, (b) such person has not improperly received a personal benefit and (c) the liability did not result from such person's gross negligence or willful misconduct. SECTION 2. ADVANCE OF EXPENSES. Expenses incurred by a director or officer of the Company in defending a civil or criminal action, suit or proceeding shall be paid by the Company in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Company. SECTION 3. PROCEDURE FOR DETERMINING PERMISSIBILITY. The procedure for determining the permissibility of indemnification (including the advance of expenses) shall be that set forth in Section 13.1-701.B of the Virginia Corporation Law, provided that, if there has been a change in control of the Company between the time of the action or failure to act giving rise to the claim for indemnification and such claim, then at the option of the person seeking indemnification, the permissibility of indemnification shall be determined by special legal counsel selected jointly by the Company and the person seeking indemnification. The reasonable expenses of any director or officer in prosecuting a successful claim for indemnification, and the fees and expenses of any special legal counsel engaged to determine permissibility of indemnification, shall be borne by the Company. SECTION 4. CONTRACTUAL OBLIGATION; INURING OF BENEFIT. The obligations of the Company to indemnify a person under this Article V, including the obligation to advance expenses, shall be considered contractual obligations of the Company to such person, subject only to the determination of permissibility as set forth in the preceding Section, and no modification or repeal of any provision of this Article V shall affect, to the detriment of such person, the obligations of the Company in connection with a claim based on any act or failure to act occurring before such modification or repeal. The obligations of the Company to indemnify a person such modification or repeal. The obligations of the Company to indemnify a person under this Article V, including the obligation to advance expenses, shall inure to the benefit of the heirs, executors and administrators of such person. SECTION 5. INSURANCE AND OTHER INDEMNIFICATION. The board of directors of the Company shall have the power but shall not be obliged to (a) purchase and maintain, at the Company expense, insurance on behalf of the Company and its director, officers, employees and agents against liabilities asserted against any of them, including the Company's obligations to indemnify and advance expenses, to the extent that power to do so is not prohibited by applicable law, and (b) give other indemnification to the extent not prohibited by applicable law. ARTICLE VI CERTIFICATES OF STOCK SECTION 1. SHARE CERTIFICATES. Every shareholder of record shall be entitled to a share certificate representing the shares held by him. Every share 44 45 BYLAWS PENN VIRGINIA CORPORATION AS AMENDED FEBRUARY 6, 1996 certificate shall bear the corporate seal and the signature of the president or a vice president and the secretary or an assistant secretary or treasurer of the Company. SECTION 2. TRANSFERS. Shares of stock of the Company shall be transferable on the books of the Company only by the registered holder or by duly authorized attorney. A transfer shall be made only upon surrender of the share certificate. ARTICLE VII AMENDMENTS These bylaws may be changed at any regular or special meeting of the board of directors by the vote of a majority of the number of directors in office immediately before the meeting or at any annual or special meeting of shareholders by the vote of the holders of a majority of the outstanding stock entitled to vote. Notice of any such meeting of shareholders shall set forth the proposed change or a summary thereof. 45 EX-21 2 PENN VIRGINIA CORPORATION SUBSIDIARIES 1 EXHIBIT (21) Subsidiaries of Registrant
Percentage State of (%) of Incorporation or Name of Subsidiary Ownership Organization ------------------ --------- ---------------- Penn Virginia Equities Corporation 100.00 Delaware Penn Virginia Resources Corporation 100.00 Virginia Penn Virginia Oil and Gas Corporation 100.00 Virginia Penn Virginia Coal Company 100.00 Virginia
46 EX-23 3 CONSENT OF INDEPENDENT AUDITORS 1 KPMG Peat Marwick LLP Certified Public Accountants 1600 Market Street Philadelphia, PA 19103 EXHIBIT (23) CONSENT OF INDEPENDENT AUDITORS The Board of Directors Penn Virginia Corporation: We consent to incorporation by reference in the Registration Statements Nos: 2-67355, 2-77500 and 33-40430, 33-59647, and 33-59651 on Form S-8 of Penn Virginia Corporation of our report dated February 21, 1996, relating to the consolidated balance sheets of Penn Virginia Corporation and subsidiaries as of December 31, 1995 and 1994 and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995 which report appears in the December 31, 1995 annual report on Form 10-K of Penn Virginia Corporation. Our reports refer to a change in 1995 in the method of accounting for the impairment of long-lived assets and for long-lived assets to be disposed of and a change in 1993 in the method of accounting for certain investments in debt and equity securities and a change in 1992 in the method of accounting for postretirement benefits other than pensions. KPMG PEAT MARWICK LLP KPMG PEAT MARWICK LLP March 29, 1996 47 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1995 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1995 DEC-31-1995 2,993 0 3,924 0 187 12,894 140,387 49,372 206,001 9,310 0 27,734 0 0 119,623 206,001 13,642 38,528 3,094 3,094 28,089 0 1,964 11,844 1,760 10,084 0 0 0 10,084 2.36 2.36
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