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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
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<S> <C>
INCORPORATED IN I.R.S.EMPLOYER
VIRGINIA IDENTIFICATION NO.
23-1184320
</TABLE>
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:
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Parts Into
Which Incorporated
------------------
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(1) Proxy Statement for Stockholder Meeting on
May 7, 1996 ________________________________________________________________________________Part III
</TABLE>
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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.
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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.
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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.
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1996
Capital Expenditures Estimate 1995 1994
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(in millions)
<S> <C> <C> <C>
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
</TABLE>
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.
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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
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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.
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Office
NAME Age Office Held Since
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<S> <C> <C> <C>
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
</TABLE>
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.
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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.
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<CAPTION>
Years Ending December 31 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
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 $117 million. At December 31, 1995, the
Company had 364 gross (237 net) proved undeveloped drilling locations.
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<TABLE>
<CAPTION>
Natural
Oil and Natural Gas SEC PV10
Condensate Gas Equivalents Value
(Mbbls) (Bcf) (Bcfe) ($MM)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Developed 348 86 89 82
Undeveloped 83 84 84 35
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Total 431 170 173 $117
1994
Developed 371 78 80 58
Undeveloped 96 50 51 9
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Total 467 128 131 $67
1993
Developed 394 70 73 69
Undeveloped 111 47 47 18
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Total 505 117 120 $87
</TABLE>
The average prices used to determine proved reserves at December 31,
1995, 1994 and 1993 were ($/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.
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<CAPTION>
Gross Acreage Net Acreage
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(In thousands)
<S> <C> <C>
Developed 367 172
Undeveloped 135 94
- ----------------------------------------------------------------------------------------------
Total 502 266
</TABLE>
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.
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<TABLE>
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Years Ended December 31, 1995 1994 1993
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<S> <C> <C> <C>
Exploratory
Productive 2 - -
Dry - 4 -
- -------------------------------------------------------------------------------------------------
Total 2 4 0
Development
Productive 31 56 91
Dry 1 1 -
- -------------------------------------------------------------------------------------------------
Total 32 57 91
</TABLE>
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.
<TABLE>
<CAPTION>
Years Ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
Operated Wells Non-Operated Wells Total
-------------- ------------------ -----
Gross Net Gross Net Gross Net
<S> <C> <C> <C> <C> <C> <C>
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Oil 8 6 2 14 10
Gas 607 507 342 52 949 559
Total 615 515 348 54 963 569
</TABLE>
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.
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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.
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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.
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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
<PAGE> 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.
<TABLE>
<S> <C> <C>
/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)
</TABLE>
13
<PAGE> 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
<PAGE> 15
COMMON STOCK MARKET PRICES AND DIVIDENDS
High and low stock prices and dividends for the last two years were:
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------------------------------------
CASH Cash
SALES PRICE DIVIDENDS Sales Price Dividends
---------------------------------------------------------------------------------
Quarter Ended: HIGH LOW PAID High Low Paid
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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*
</TABLE>
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:
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
(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
<PAGE> 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
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------------------------
(millions of dollars except per share data)
<S> <C> <C> <C>
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
--------------------------------------
</TABLE>
16
<PAGE> 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
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------
(in millions except as noted)
<S> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------
(in millions except as noted)
<S> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------
(in millions except as noted)
<S> <C> <C> <C>
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
---------------------------------------
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
Capital Expenditures 1995 1994 1993
----------------------------------------
<S> <C> <C> <C>
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
----------------------------------------
</TABLE>
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
<PAGE> 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
<PAGE> 22
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994* 1993*
------------------------------------------
(in thousands except per share data)
<S> <C> <C> <C>
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
</TABLE>
* 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
<PAGE> 23
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1995 1994*
-----------------------------
(in thousands)
<S> <C> <C>
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
-----------------------------
</TABLE>
* 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
<PAGE> 24
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
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)
<S> <C> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
24
<PAGE> 25
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994* 1993*
--------------------------------------
(in thousands)
<S> <C> <C> <C>
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
</TABLE>
*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
<PAGE> 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
<PAGE> 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
<PAGE> 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:
<TABLE>
<CAPTION>
Gross
Unrealized
Amortized Holding Fair
December 31, 1995 Cost Gains (Losses) Value
------------------------------------------
(in thousands)
<S> <C> <C> <C>
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
</TABLE>
Maturities of securities classified as held-to-maturity are as follows:
<TABLE>
<CAPTION>
Amortized Cost and Fair Value
December 31, 1995 1994
-----------------------------
(in thousands)
<S> <C> <C>
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
</TABLE>
Related dividend income is as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993
------------------------------------------
(in thousands)
<S> <C> <C> <C>
Norfolk Southern Corporation $ 2,363 $ 2,309 $ 2,236
Westmoreland Resources, Inc. 440 400 144
------------------------------------------
$ 2,803 $ 2,709 $ 2,380
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
December 31, 1995 1994
--------------------------
(in thousands)
<S> <C> <C>
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
</TABLE>
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
<PAGE> 30
5. LONG-TERM DEBT
Long-term debt is summarized in the following table.
<TABLE>
<CAPTION>
December 31, 1995 1994
-----------------------
(in thousands)
<S> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
December 31, 1995 1994
------------------------
(in thousands)
<S> <C> <C>
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
</TABLE>
30
<PAGE> 31
7. INCOME TAXES
The provision (benefit) for income taxes from continuing operations is
comprised of the following:
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
---------------------------------------
(in thousands)
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993
-------------------------------------
(in thousands)
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, 1995 1994
------------------------
(in thousands)
<S> <C> <C>
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
</TABLE>
31
<PAGE> 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.
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993
--------------------------------------
(in thousands)
<S> <C> <C> <C>
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
</TABLE>
The following sets forth the funded status of the plans:
<TABLE>
<CAPTION>
December 31, 1995 1994
------------------------
(in thousands)
<S> <C> <C>
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
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994
--------------------------
(in thousands)
<S> <C> <C>
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
</TABLE>
The following sets forth the funded status of the plan:
<TABLE>
<CAPTION>
December 31, 1995 1994
-------------------------
(in thousands)
<S> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, 1995 1994
--------------------------
(in thousands)
<S> <C> <C>
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
</TABLE>
33
<PAGE> 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:
<TABLE>
<CAPTION>
1995 1994 1993
-------------------------- -------------------------- --------------------------
Options EXercise Price Options Exercise Price Options Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Year of Expiration 1996 1997 1998 1999 2002 2004 2005
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
Coal and Land Oil and Gas Investments Corporate and Other Consolidated
- -------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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
<PAGE> 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
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993
----------------------------------------
(in thousands)
<S> <C> <C> <C>
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
</TABLE>
COSTS INCURRED IN CERTAIN OIL AND GAS ACTIVITIES
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993
----------------------------------------
(in thousands)
<S> <C> <C> <C>
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
</TABLE>
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.
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993
----------------------------------------
(in thousands)
<S> <C> <C> <C>
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
</TABLE>
36
<PAGE> 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.
<TABLE>
<CAPTION>
Oil and Natural
Condensate Gas
Proved Developed and Undeveloped Reserves: (MBbls) (MMcf)
---------------------
<S> <C> <C>
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
</TABLE>
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
<PAGE> 38
<TABLE>
<CAPTION>
December 31, 1995 1994 1993
----------------------------------------
(in thousands)
<S> <C> <C> <C>
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
</TABLE>
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993
---------------------------------------
(in thousands)
<S> <C> <C> <C>
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
</TABLE>
38
<PAGE> 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.
<TABLE>
<S> <C>
Lennox K. Black Steven W. Tholen
Chairman and Vice President and
Chief Executive Officer Chief Financial Officer
</TABLE>
INDEPENDENT AUDITORS' REPORT
<TABLE>
<S> <C>
The Board of Directors and Shareholders 1600 Market Street
Penn Virginia Corporation Philadelphia, Pennsylvania 19103
February 21 , 1996
</TABLE>
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
<PAGE> 40
FIVE YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993 1992 1991
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
40
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 1
EXHIBIT (21)
Subsidiaries of Registrant
<TABLE>
<CAPTION>
Percentage State of
(%) of Incorporation or
Name of Subsidiary Ownership Organization
------------------ --------- ----------------
<S> <C> <C>
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
</TABLE>
46
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,993
<SECURITIES> 0
<RECEIVABLES> 3,924
<ALLOWANCES> 0
<INVENTORY> 187
<CURRENT-ASSETS> 12,894
<PP&E> 140,387
<DEPRECIATION> 49,372
<TOTAL-ASSETS> 206,001
<CURRENT-LIABILITIES> 9,310
<BONDS> 0
<COMMON> 27,734
0
0
<OTHER-SE> 119,623
<TOTAL-LIABILITY-AND-EQUITY> 206,001
<SALES> 13,642
<TOTAL-REVENUES> 38,528
<CGS> 3,094
<TOTAL-COSTS> 3,094
<OTHER-EXPENSES> 28,089
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,964
<INCOME-PRETAX> 11,844
<INCOME-TAX> 1,760
<INCOME-CONTINUING> 10,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,084
<EPS-PRIMARY> 2.36
<EPS-DILUTED> 2.36
</TABLE>
