SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended June 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________________ to ____________________
PENN VIRGINIA CORPORATION
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Virginia 23-1184320
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
100 MATSONFORD ROAD SUITE 200
RADNOR, PA 19807
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(610) 687-8900
- -----------------------------------------------------------------
(Registrant's telephone number, including area code)
- -----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ---
Number of shares of common stock of registrant
outstanding at August 7, 1997: 4,137,163
<PAGE>
<TABLE>
<CAPTION>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Three Months
Ended June 30,
--------------
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Revenues:
Timber $ 604 $ 196
Oil and condensate 164 238
Natural gas 4,284 4,341
Coal royalties 3,094 1,666
Natural gas royalties 342 422
Dividends 661 794
Other income 238 152
------- --------
Total revenues $ 9,387 $ 7,809
Expenses:
Operating expenses $ 908 $ 784
Exploration expenses 202 166
Taxes other than income 629 666
General and administrative 2,263 1,688
Depreciation, depletion, amortization 1,624 1,617
------- -------
Total expenses $ 5,626 $ 4,921
Operating Income $ 3,761 $ 2,888
Other (Income) Expense:
Interest expense $ 641 $ 329
Gain on sale of property (25) (5)
Other income (892) (1,102)
-------- --------
Income before income tax $ 4,037 $ 3,666
Income tax expense 892 1,129
------- -------
Net Income $ 3,145 $ 2,537
------- -------
Net Income per share, primary (Note 2) 0.37 0.30
------- -------
Weighted average shares outstanding 8,441 8,592
(in thousands) (Note 2)
<CAPTION>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
Six Months
Ended June 30,
--------------
1997 1996
-------- --------
(Unaudited)
<S> <C> <C>
Revenues:
Timber $ 810 $ 270
Oil and condensate 391 405
Natural gas 9,904 9,703
Coal royalties 5,739 3,385
Natural gas royalties 862 968
Dividends 1,323 1,411
Other income 599 537
------- --------
Total revenues $ 19,628 $ 16,679
Expenses:
Operating expenses $ 1,740 $ 1,510
Exploration expenses 340 247
Taxes other than income 1,320 1,313
General and administrative 3,877 3,383
Depreciation, depletion, amortization 3,127 3,243
-------- --------
Total expenses $ 10,404 $ 9,696
Operating Income $ 9,224 $ 6,983
Other (Income) Expense:
Interest expense $ 1,114 $ 603
Gain on sale of property (32) (22)
Other income (1,884) (1,911)
-------- --------
Income before income tax $ 10,026 8,313
Income tax expense 2,155 1,519
------- -------
Net Income $ 7,871 $ 6,794
------- -------
Net Income per share, primary (Note 2) 0.93 0.79
------- -------
Weighted average shares outstanding 8,489 8,592
(in thousands) (Note 2)
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
----------- ------------
1997 1996
---------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,412 $ 1,893
Accounts receivable 3,622 4,856
Current portion of long-term
notes receivable 1,239 1,512
Current deferred income taxes 776 776
Recoverable income taxes 199 871
Inventories 241 218
Prepaid expenses 246 210
------- --------
Total current assets 7,735 10,336
------- --------
Investments 111,074 97,368
Long-term notes receivable 4,863 5,720
Oil and gas properties; wells and
equipment, using the successful
efforts method of accounting 142,360 138,184
Other property, plant and equipment 42,196 33,218
Less: Accumulated depreciation, (59,218) (56,110)
depletion and amortization
--------- ---------
Total property, plant and equipment 125,338 115,292
------- ---------
Intangible assets, net of amortization 510 498
Other assets 295 300
Total assets $ 249,815 $ 229,514
--------- ---------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, December 31,
------------ ------------
1997 1996
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments on long-term debt $ 2,025 $ 2,025
Accounts payable 1,525 1,812
Accrued expenses 3,791 5,543
Deferred liabilities 279 279
Taxes on income 474 8
Total current liabilities 8,094 9,667
Other liabilities 5,318 5,366
Deferred income taxes 38,236 32,859
Long-term debt 32,816 21,233
Minority interest 170 178
Total liabilities 84,634 69,303
Commitments and contingencies - -
Shareholders' equity
Preferred stock of $100 par value-
authorized 100,000 shares;
none issued
Common stock of $6.25 par value-
authorized 16,000,000 shares,
issued 8,901,434 shares and
4,450,717 shares in 1997 and
1996, respectively (Note 2) 55,634 27,817
Other paid in capital (Note 2) 8,363 36,138
Retained earnings 47,391 43,240
------- -------
111,388 107,879
Less: 627,582 shares in 1997 and
109,477 in 1996 of common
stock held in treasury, at
cost (Note 2) 14,034 5,575
Pension liability 774 774
Unearned compensation - ESOP 1,750 1,850
Add: Net unrealized investment holding
gain 70,351 61,215
------- -------
Total shareholders' equity 165,181 160,211
------- -------
Total liabilities and shareholders'
equity $249,815 $229,514
-------- --------
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
(Dollars in thousands)
Three Months
Ended June 30,
------------------
1997 1996
-------- -------
(Unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net Income $ 3,145 $ 2,537
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion, and amortization 1,624 1,617
Gain on sale of property, plant and equipment (25) (5)
Deferred income taxes - 55
Other (620) (1,094)
Decrease in current assets 756 457
Increase (Decrease) in current liabilities 253 525
(Increase) Decrease in other assets (29) 2
Increase (Decrease) in other liabilities (18) (1,086)
Decrease in minority interest (4) (3)
-------- ---------
Net Cash provided by
operating activities $ 5,082 $ 3,005
Cash flows from investing activities:
Proceeds from the sale of securities $ - $ -
Proceeds from notes 1,270 1,432
Proceeds from sale of fixed assets 43 5
Capital expenditures (3,331) (12,712)
-------- --------
Net Cash used in investing activities $(2,018) $(11,275)
Cash flows from financing activities:
Dividends paid $(1,862) $( 1,950)
Proceeds from long-term debt borrowings 2,500 19,125
Repayment of long-term debt principal (4,425) (3,875)
Purchase of treasury stock - -
Issuance of stock 328 329
-------- ---------
Net Cash provided by (used in)
financing activities $(3,459) $ 13,629
Net increase (decrease) in cash
and cash equivalents $ (395) $ 5,359
Cash and cash equivalents-beginning balance 1,806 4,267
-------- --------
Cash and cash equivalents-ending balance $ 1,411 9,626
------- --------
Supplemental disclosures of cash flow information:
Cash paid to date for:
Interest $ 765 $ 145
Income taxes 258 848
<CAPTION>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
(Dollars in thousands)
Six Months
Ended June 30,
-----------------
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net Income $7,871 $6,794
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion, and amortization 3,127 3,243
Gain on sale of property, plant and equipment (32) (22)
Deferred income taxes 457 (654)
Other (1,322) (1,611)
Decrease in current assets 1,176 967
Increase (Decrease) in current liabilities (899) 544
(Increase) Decrease in other assets (44) 3
Increase (Decrease) in other liabilities (48) (728)
Decrease in minority interest (8) (7)
-------- ---------
Net Cash provided by
operating activities $10,278 $8,529
Cash flows from investing activities:
Proceeds from the sale of securities $ 350 $ -
Proceeds from notes 2,500 2,780
Proceeds from sale of fixed assets 69 25
Capital expenditures (13,186) (12,785)
--------- --------
Net Cash used in investing activities $(10,267) (9,980)
Cash flows from financing activities:
Dividends paid $ (3,721) (3,868)
Proceeds from long-term debt borrowings 18,513 19,125
Repayment of long-term debt principal (6,967) (7,825)
Purchase of treasury stock (8,662) -
Issuance of stock 344 652
Net Cash provided by (used in)
financing activities $ (493) $ 8,084
--------- --------
Net increase (decrease) in cash
and cash equivalents $ (482) $ 6,633
Cash and cash equivalents-beginning balance $ 1,893 $ 2,993
--------- ---------
Cash and cash equivalents-ending balance $ 1,411 $ 9,626
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid to date for:
Interest $ 1,177 $ 268
Income taxes 456 1,681
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
<PAGE>
PENN VIRGINIA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1997
- ------------------------------------------------------------
(1) ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements
of Penn Virginia Corporation and its subsidiaries (the "Company")
have been prepared in accordance with generally accepted accounting principles
for interim financial reporting and SEC regulations.
These statements involve the use of estimates and judgments where
appropriate. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. These financial
statements should be read in conjunction with the Company's
consolidated financial statements and footnotes included in the
Company's December 31, 1996 annual report on Form 10-K. Operating
results for the six months ended June 30, 1997 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1997.
(2) STOCK SPLIT
On July 22, 1997, the Board of Directors declared a two-for-one
stock split on the Company's common stock effected in the form of a
stock dividend to holders of record on August 1, 1997. "Common stock
issued" and "Other paid in capital" as of June 30, 1997, have been
restated to reflect the stock split.
The number of common shares issued at June 30, 1997, after giving
effect to the split was 8,901,434 (4,450,717 common shares before
the split).
All share and per share data have been restated to reflect the
stock split.
(3) SECURITIES
<TABLE>
The cost, gross unrealized holding gains or losses and market
value for available-for-sale securities at June 30, 1997 were as
follows:
<CAPTION>
Gross Unrealized
Cost Holding Gain (loss)
------- -------------------
<S> <C> <C>
Available-for-Sale:
Norfolk Southern Corporation $2,839 $108,228
Blue Diamond Coal Company 3 4
------ --------
$2,842 $108,232
<CAPTION>
Market Market Value
Value per Share
-------- ------------
<S> <C> <C>
Available-for-Sale:
Norfolk Southern Corporation $111,067 $100.75
Blue Diamond Coal Company 7 25.375
--------
$111,074
</TABLE>
(4) ACQUISITIONS
In January 1997, the Company acquired a property in Virginia consisting
of 6,500 acres and the mining rights to an additional
13,100 acres. The property contains an estimated 10.5 million
recoverable tons of high quality metallurgical and steam coal.
Production from the property is ongoing at an annual rate of
approximately 1.2 million tons. The purchase price of this property
was approximately $7.0 million.
In February 1997, Penn Virginia acquired approximately 7.5
million tons of recoverable coal on approximately 4,700 acres
adjacent to the Company's Kentucky properties. The coal is high
quality, low sulfur coal suitable for the steam market. Production
from the property is anticipated to begin in 1998. The purchase
price of this property was approximately $1.9 million.
(5) LEGAL
The Company is involved in various legal proceedings arising in
the ordinary course of business. While the ultimate results of these
cannot be predicted with certainty, Company management believes these
claims will not have a material effect on the Company's financial
position, liquidity or operations.
(6) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" which establishes new standards for computing and presenting
earnings per share. The provisions of the statement are effective for
fiscal years ending after December 15, 1997. If the provisions of SFAS
No. 128 had been adopted in the second quarter of 1997 and 1996, basic
and diluted earnings per share would not have been materially different
from primary and fully diluted earnings per share, respectively, as
calculated in accordance with Accounting Principles Board Opinion No. 15
"Earnings per Share."
(7) HEDGING ACTIVITIES
The Company is currently party to derivative financial instruments
to manage its exposure to gas price volatility. The derivative financial
instruments, which are placed with a major financial institution that the
Company believes is a minimum credit risk, take the form of swaps with
purchased options. These derivative financial instruments are designated
as hedges and realized gains and losses from the Company's price risk
management activities are recognized in gas revenues when the associated
production occurs.
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - SECOND QUARTERS OF 1997 AND 1996 COMPARED.
Penn Virginia reported 1997 second quarter earnings of $3.1 million
or $0.37 per share (adjusted for the effect of the two-for-one stock
split) compared with $2.5 million or $0.30 per share for the second
quarter of 1996. On a consolidated basis, revenues increased $0.6
million in the second quarter of 1996. This increase was a result of
increases in coal revenues of $1.5 million, increases in timber revenues of
$0.4 million offset by increases in general and administrative and interest
expenses. General and administrative expenses increased in the second quarter
of 1997 due to the exercise of stock options by former directors and
increases in salaries and related employee benefits. Interest expense
increased $0.4 million in the second quarter of 1997 as a result of
increased bank borrowings under the credit facility.
In the first quarter of 1997 the Company sold 750,000 of
Westmoreland Coal Company stock. The sale had no significant effect
on 1997 earnings as the Company had impaired its investment in
Westmoreland stock in 1996.
RESULTS OF OPERATIONS - SIX MONTHS OF 1997 AND 1996 COMPARED.
Penn Virginia reported 1997 six months earnings of $7.9 million or
$0.93 per share (adjusted for the effect of the two-for-one stock split)
compared with $6.8 million or $0.79 per share for the six months of 1996.
On a consolidated basis, revenues increased $2.9 million, primarily as a
result of production increases in the coal segment, enhanced timber
production and slight increases in natural gas production. Operating
expenses were up $0.2 million in the six months of 1997 compared with
1996. This increase is a result of increased gathering rates in the oil
and gas segment. General and administrative expenses increased $0.5
million due to the exercise of stock options by former directors and
increases in personnel costs. Interest expense increased $0.5 million
as a result of increases in bank borrowings under the credit facility
primarily due to the completion of two coal acquisitions and the
purchase of treasury stock. Income taxes increased $0.7 million due
to an increase in income before tax and a change in the annual
effective tax rate from approximately 18 percent in 1996 to 21 percent
in 1997.
In the second quarter of 1997 Penn Virginia sold 750,000 shares of
Westmoreland Coal Company stock. This sale had no significant effect on
1997 earnings as the Company had impaired its investment in
Westmoreland stock in 1996.
The Company operates in two business segments: coal and oil and
gas. The coal segment includes Penn Virginia's mineral rights to coal
reserves, its timber and land assets. 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. Selected operating and
financial data by segment is presented below.
OIL AND GAS
Operating income for the oil and gas segment was $4.2 million for the
second quarter year to date of 1997 compared with $4.5 million for the
second quarter year to date of 1996. Operational and financial data
for the Company's oil and gas segment for the 1997 and 1996 three and
six months ended June 30 is summarized in the following tables:
<TABLE>
<CAPTION>
Operations Summary
------------------
Three Months
Ended June 30,
---------------------
1997 1996
--------- ---------
<C> <S> <S>
Production
Natural gas (MMcf)-Working Interest 1,760 1,614
Natural gas (MMcf)-Royalty Interest 148 181
Oil and condensate (MBbls) 10 13
Production, Mmcfe 1,968 1,873
Average Realized Prices
Natural gas ($/Mcf)- Working Interest $ 2.43 $ 2.69
Natural gas ($/Mcf)- Royalty Interest 2.31 2.33
Oil and condensate ($/Bbl) 16.40 12.85
Average Costs (per MMcfe)
Lease operating $ 0.41 $ 0.40
Exploration expenses 0.08 0.06
Taxes other than on income 0.29 0.28
General and administrative 0.37 0.34
Depreciation, depletion and amortization 0.74 0.84
<CAPTION>
Operations Summary
------------------
Six Months
Ended June 30,
------------------
1997 1996
-------- --------
<S> <C> <C>
Production
Natural gas (MMcf)-Working Interest 3,495 3,311
Natural gas (MMcf)-Royalty Interest 294 347
Oil and condensate (MBbls) 21 23
Production, Mmcfe 3,915 3,796
Average Realized Prices
Natural gas ($/Mcf)- Working Interest $ 2.83 $ 2.93
Natural gas ($/Mcf)- Royalty Interest 2.93 2.79
Oil and condensate ($/Bbl) 18.62 17.61
Average Costs (per MMcfe)
Lease operating $ 0.41 $ 0.38
Exploration expenses 0.06 0.05
Taxes other than on income 0.31 0.28
General and administrative 0.35 0.32
Depreciation, depletion and amortization 0.72 0.83
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Financial Summary
-----------------
Three Months
Ended June 30,
----------------
1997 1996
------- -------
(Dollars in thousands)
(Unaudited)
<S> <C> <C>
Revenues:
Natural gas sales $ 4,284 $ 4,341
Oil and gas royalties 342 422
Oil and condensate 164 238
Other income 169 141
------- -------
Total revenues $ 4,959 $ 5,142
------- -------
Expenses:
Operating expenses $ 805 $ 747
Exploration expenses 150 114
Taxes other than income 562 531
General and administrative 737 633
Depreciation and depletion 1,455 1,579
------- -------
Total expenses 3,709 3,604
------- -------
Operating Income $ 1,250 $ 1,538
------- -------
<CAPTION>
Financial Summary
-----------------
Six Months
Ended June 30,
---------------------
1997 1996
-------- --------
(Dollars in thousands)
(Unaudited)
<S> <C> <C>
Revenues:
Natural gas sales $ 9,904 $ 9,703
Oil and gas royalties 862 968
Oil and condensate 391 405
Other income 245 491
Total revenues $11,402 $11,568
Expenses:
Operating expenses $ 1,592 $ 1,447
Exploration expenses 234 175
Taxes other than income 1,198 1,073
General and administrative 1,373 1,214
Depreciation and depletion 2,815 3,166
Total expenses 7,211 7,074
Operating Income $ 4,191 $ 4,494
</TABLE>
RESULTS OF OPERATIONS - SECOND QUARTERS OF 1997 AND 1996 COMPARED.
NATURAL GAS SALES. Natural gas sales were $4.3 million in the second
quarter of 1997. This is virtually unchanged compared with the second
quarter of 1996. The average price received by the Company for its
working interest gas was $2.43 per thousand cubic feet (Mcf) compared
with $2.69 per Mcf for the same period of 1996. Gas volumes were up
approximately 9 percent in the second quarter of 1997 compared with
the second quarter of 1996.
OIL AND CONDENSATE SALES. Oil sales decreased $74,000 (31 percent) in
the second quarter of 1997 compared with the same period of 1996.
Prices per barrel were higher, averaging $16.40 per barrel (Bbl) for
second quarter of 1997 compared with $12.85 per Bbl for 1996. As shown
on the table above, production was down approximately 23 percent in the
second quarter of 1997 compared with the second quarter of 1996.
OIL AND GAS ROYALTIES. Oil and gas royalties decreased $80,000 (19
percent) in the second quarter of 1997 compared with the same period
of 1996. This variance resulted from a decrease in gas volumes of 33
million cubic feet (MMcf) and a slight decrease in gas prices as shown
in the operations summary above.
OTHER INCOME. Other income increased $28,000 (20 percent) in the second
quarter of 1997 compared with the same period of 1996. This increase is
primarily a result of a gain recognized from the disposition of a compressor.
OPERATING EXPENSES. Operating expenses for the second quarter of 1997 were
$805,000 compared with $747,000 for the second quarter of 1996. This slight
increase of 2 percent is largely a result of increased gathering rates on
the Columbia and CNG natural gas systems offset by decreases in compressor
rentals and repairs and maintenance.
EXPLORATION EXPENSES. Exploration expenses increased $36,000 (32
percent) in the second quarter of 1997 compared with the same period
of 1996. This increase is a result of additional geological evaluations
being performed on certain properties.
TAXES OTHER THAN INCOME. Taxes other than on income increased $31,000 (6
percent) in the second quarter of 1997 compared to the same period in
1996 as a result of slight increases in severance, ad valorem and
business franchise taxes.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $104,000 (16 percent) in the second quarter of 1997 compared
with the second quarter in 1996. The impact of salary increases and
related employee benefits increases were the primary factors for this
increase.
DEPRECIATION AND DEPLETION. Depreciation and depletion expense
decreased $124,000 (8 percent) from $1,579,000 in the second quarter of
1996 to $1,455,000 in the second quarter 1997. Increases in reserve
estimates at December 31, 1996 have resulted in favorable declines in
depletion rates in various fields. The rate decreased from $0.84 per
MMcfe in the second quarter of 1996 to $0.74 per MMcfe in the second
quarter of 1997.
<PAGE>
RESULTS OF OPERATIONS - SIX MONTHS OF 1997 AND 1996 COMPARED.
NATURAL GAS SALES. Natural gas sales increased from $9,703,000 in the
first half of 1996 to $9,904,000 in the first half of 1997. This slight
increase of 2 percent is a result of an increase in volume offset by a
decrease in price. The natural gas sales volumes for the first half of
1997 were 1,760 Mcf compared with 1,614 Mcf for the first half of 1996. The
average price received by the Company for its working interest gas was
$2.83 per Mcf compared with $2.93 per Mcf for the same period of 1996.
OIL AND CONDENSATE SALES. Oil sales decreased slightly (3 percent) for
the first half of 1997 compared with the first half of 1996. This slight
decrease resulted from a reduction in volume of 2 MBbls offset by an
increase in price per Bbl. The price per Bbl for the first half of 1997
was $18.62 compared with $17.60 per Bbl for the first half of 1996.
OIL AND GAS ROYALTIES. Oil and gas royalties decreased $106,000 (11
percent) in the first six months of 1997 compared with the same period
in 1996. This decrease resulted from a decline in volume of 53 MMcf
offset by an increase in price from $2.79 per Mcf in the first half of
1996 compared with $2.93 per Mcf in the first half of 1997.
OTHER INCOME. Other income decreased $246,000 (50 percent) in the
first six months of 1997 compared with the same period in 1996. In the
first half of 1996 financial results, the Company recognized an
additional $189,000 related to the Company's natural gas contract claim
settlement with Columbia Gas Transmission Company in 1995.
OPERATING EXPENSES. Operating expenses for the first half of 1997 were
$1,592,000, which is an increase of $145,000 (10 percent) compared with
the first six months of 1996. This increase is largely a result of
increased gathering rates on the Columbia and CNG natural gas systems. On an
MMcfe basis operating expenses increased slightly from $0.38 cents in
the first half of 1996 to $0.41 cents in the first half of 1997.
EXPLORATION EXPENSES. Exploration expenses increased $59,000 (34
percent) for the first half of 1997 compared with the first half of
1996. This increase is a result of increased geological evaluations on
certain properties.
TAXES OTHER THAN INCOME. Taxes other than on income for the first six
months of 1997 were $1,198,000 compared with $1,073,000 in the first
six months of 1996. This 12 percent increase is a result of increased
severance, ad valorem, and business franchise taxes.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $159,000 in the first six months of 1997 compared with the
first six months of 1996. This 13 percent increase is primarily a result
of salary and related employee benefits expense increases. Legal,
auditing and training costs were also up over the comparable period in
1996.
DEPRECIATION AND DEPLETION. Depreciation and depletion expense
decreased $351,000 (11 percent) from $3,166,000 in the first six months
of 1996 compared with $2,815,000 in the first six months of 1997.
Increases in reserve estimates at December 31, 1996 have resulted in
favorable declines in depletion rates in various fields. The rate
decreased from $0.83 per MMcfe in the first half of 1996 to $0.72 per
MMcfe in the first half of 1997.
<PAGE>
<TABLE>
Operating income for the coal segment was $5.6 million for the six
months of 1997 compared with $2.7 million for the six months of 1996.
Operational and financial data for the Company's coal segment for the
1997 and 1996 second quarter and six months year to date summarized
in the following tables:
<CAPTION>
Coal
Operations Summary
------------------
Three Months
Ended June 30,
---------------
1997 1996
------- ------
<C> <S> <S>
Timber (Mbf) 2,672 1,073
Coal tons (000's) 1,465 816
Average Realized Prices
Timber ($/Mbf) $ 211 $ 221
Coal royalties ($/ton) 2.11 2.04
Average Costs (per ton)
Lease operating $ 0.07 $ 0.05
Exploration expenses 0.04 0.06
Taxes other than on income 0.03 0.14
General and administrative 0.27 0.40
Depreciation, depletion and amortization 0.10 0.04
<CAPTION>
Coal
Operations Summary
------------------
Six Months
Ended June 30,
-----------------
1997 1996
------- ------
<C> <S> <S>
Timber (Mbf) 3,501 1,538
Coal tons (000's) 2,638 1,606
Average Realized Prices
Timber ($/Mbf) $ 213 $ 160
Coal royalties ($/ton) 2.18 2.11
Average Costs (per ton)
Lease operating $ 0.06 $ 0.04
Exploration expenses 0.04 0.04
Taxes other than on income 0.02 0.11
General and administrative 0.28 0.40
Depreciation, depletion and amortization 0.10 0.04
</TABLE>
<TABLE>
<CAPTION>
Financial Summary
-----------------
Three Months
Ended June 30,
----------------
1997 1996
------- -------
(Dollars in thousands)
(Unaudited)
<S> <C> <C>
Coal royalties $ 3,094 $ 1,666
Timber sales 604 196
Other income 70 10
------- -------
Total revenues 3,768 1,872
------- -------
Expenses:
Operating expenses $ 104 $ 39
Exploration expenses 52 52
Taxes other than income 51 112
General and administrative 396 328
Depreciation and depletion 142 32
------- -------
Total expenses 745 563
------- -------
Operating Income $ 3,023 $ 1,309
------- -------
<CAPTION>
Financial Summary
-----------------
Six Months
Ended June 30,
----------------
1997 1996
------- -------
(Dollars in thousands)
(Unaudited)
<S> <C> <C>
Coal royalties $ 5,739 $ 3,385
Timber sales 810 270
Other income 355 45
------- -------
Total revenues 6,904 3,700
------- -------
Expenses:
Operating expenses $ 148 $ 65
Exploration expenses 106 72
Taxes other than income 62 183
General and administrative 741 643
Depreciation and depletion 260 63
------- -------
Total expenses 1,319 1,025
------- -------
Operating Income $ 5,585 $ 2,674
------- -------
</TABLE>
RESULTS OF OPERATIONS - SECOND QUARTERS OF 1997 AND 1996 COMPARED.
COAL ROYALTIES. Coal royalties increased $1,428,000 (86 percent) in the
second quarter of 1997 compared with the same period in 1996. This
increase is due to the gradual restoration of the Company's Virginia
property to its former levels of production and the production
increases realized from the Company's Buchanan property acquired in
January, 1997. The average realization per ton increased from $2.04 in
the second quarter of 1996 to $2.11 in the second quarter of 1997.
TIMBER SALES. Timber sales increased $408,000 (208 percent) in the
second quarter of 1997 compared with the second quarter of 1996. Volume
sold increased from 1,073 million board feet (Mbf) in the second quarter
of 1996 to 2,672 per Mbf in the second quarter of 1997. This increase was
primarily due to timber harvested from the Company's Bull Creek property
acquired in July 1996.
OTHER INCOME. Other income increased $60,000 (600 percent) for the
second quarter of 1997 compared with the second quarter of 1996. This
<PAGE>
increase was related to wheelage and rental income from the newly
acquired properties.
OPERATING EXPENSES. Operating expenses increased $65,000 (167 percent)
from $39,000 in the second quarter of 1996 to $104,000 in the second
quarter of 1997. This increase is a result of a change in the method of
selling timber. The Company has contracted the harvesting of a portion
of its timber and has negotiated the sale of this timber directly with
the mill. This sales method has the effect of increasing both the price
per Mbf and the operating costs.
EXPLORATION EXPENSES. Exploration expenses were $52,000 for the second
quarter of 1997, which is unchanged from the comparable time period in
1996.
TAXES OTHER THAN INCOME. Taxes other than on income decreased $61,000
(54 percent) from $112,000 in the second quarter of 1996 to $51,000 in
the second quarter of 1997. This decrease is a result of lower property
taxes.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $68,000 (21 percent) from $328,000 in the second quarter of
1996 to $396,000 in the second quarter of 1997. This increase relates
to salary and employee benefit increases.
DEPRECIATION AND DEPLETION. Depreciation and depletion increased
$110,000 (344 percent) from $32,000 in the second quarter of 1996 to
$142,000 in the second quarter of 1997. This increase was due to the
production of reserves relinquished by Westmoreland Coal Company and
production from the Buchanan property acquired in January 1997.
RESULTS OF OPERATIONS - SIX MONTHS OF 1997 AND 1996 COMPARED.
COAL ROYALTIES. Coal royalties increased $2.3 million (70 percent) in
the first six months of 1997 compared with the same period in 1996. This
increase is primarily due to the gradual restoration of the Company's
Virginia property to its former levels of production and production from
the Company's Buchanan property acquired in January, 1997. The average
realization per ton increased from $2.11 in the first half of 1996 to
$2.18 in the first half of 1997.
TIMBER SALES. Timber sales increased $540,000 (200 percent) in the first
half of 1997 compared with the first half of 1996. Volume sold increased
to 3,501 Mbf in the first six months of 1997 compared with 1,538 Mbf in
the first six months of 1996. This 128 percent increase in volume is due
primarily to timber harvested from the Company's Bull Creek property
acquired in July, 1996. The average realized price per Mbf also increased
from $160 per Mbf in the first half of 1996 to $213 per Mbf in the first
half of 1997.
OTHER INCOME. Other income increased $310,000 (689 percent) for the six
months of 1997 compared with the six months of 1996. This increase is
related to bonuses paid by new lessees to secure leases on the Company's
Virginia coal properties.
OPERATING EXPENSES. Operating expenses increased $83,000 (128 percent)
for the six months of 1997 compared with the six months of 1996. This is
related to a change in the Company's method of selling timber. The
Company has contracted the harvesting of some of its timber and has
negotiated the sale of timber products directly with the mill. This sales
method has the effect of increasing both the price per Mbf and the
operating costs.
EXPLORATION EXPENSES. Exploration expenses increased $34,000 (47 percent)
for the six months of 1997 compared with the six months of 1996. This
increase resulted from an earlier start of the Company's coal core drilling
program which began in the winter due to milder weather conditions.
TAXES OTHER THAN INCOME. Taxes other than on income decreased $121,000
(66 percent) in the six months of 1997 compared with the six months of
1996. This decrease is a result of an overall decline in the amount of
property taxes the Company recognizes.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased $98,000 (15 percent) in the six months of 1997 compared with
the six months of 1996. This increase is a result of personnel additions
and salary and related employee benefit expense increases. Legal costs
are also higher due to additional leasing on the property offset by a
decrease in consulting fees. On a unit basis however, general and
administrative expense declined from $0.40 per ton in the six months
of 1996 to $0.28 per ton in the six months of 1997.
DEPRECIATION AND DEPLETION. Depreciation and depletion increased
$197,000 (313 percent) in the six months of 1997 compared with the six
months of 1996. The depletion rate per ton increased from $0.04 to
$40.10. This increase was due to the production of reserves relinquished
by Westmoreland Coal Company and production from the Buchanan coal
property acquired in January 1997.
<PAGE>
CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY
CAPITAL EXPENDITURES.
In the first six months of 1997, capital expenditures totaled $13.2
million compared with $12.6 million in the six months of 1996. The
Company successfully completed two coal reserve acquisitions in the
second quarter of 1997. In January, a transaction was completed for a
property in Virginia. The Company acquired 10.5 million tons of high
quality metallurgical coal reserves which have been leased to an
operator and which are actively being mined and sold under contract by
the operator. The purchase price was approximately $7.0 million. In
February, the Company acquired 7.5 million tons of coal contiguous to
its existing Virginia reserves for approximately $1.9 million. The
reserves have been leased to an operator. The Company expects the
operator to begin production in 1998.
In the oil and gas segment the Company has had capital expenditures
totaling approximately $4.1 million in the first six months of 1997.
The Company has drilled 33 gross (26.4 net) wells in the first half of
the year. Of these, 17 gross (12.5 net) are on line and producing. The
Company expects to drill over 60 wells in 1997, with approximately 15 to
20 wells in exploratory areas.
CAPITAL RESOURCES AND LIQUIDITY.
Net cash provided by operating activities was $10.3 million in the six
months of 1997 compared with $8.5 million in the six months of 1996. The
Company's borrowings increased from $23.2 million at the end of 1996 to
$34.8 million at June 30, 1997. During the second quarter of 1997, the
Company renegotiated its $50.0 million senior unsecured revolving credit
facility with a group of banks. The facility was increased to $75 million.
This combination provided the Company with the cash necessary to complete
two coal acquisitions in January and February, pay a quarterly dividend of
$0.225 per share and also to acquire $8.7 million (210,308 shares) of the
Company's common stock. The Company purchased the 210,308 shares when
Interkohle Beteiligungsgesellschaft mbH (VEBA) sold its approximate twenty
percent holding of Penn Virginia's outstanding common stock. The VEBA shares
were broadly distributed to various financial institutions and mutual
funds. The Board of Directors and senior management also participated in
the purchase.
The Company has entered into three fixed-price term contracts with
respect to a portion of its natural gas production to limit exposure to
price fluctuations. Presently, the Company has sold approximately 13,000
net Mcf per day at a weighted average price in excess of $2.50 per Mcf.
These physical sales cover various periods from February 1997 to
December 1997. Additionally, the Company entered into a natural gas
derivative transaction in April. The financial instruments executed
provide a price floor to limit downside price risk and a market
participation price that allows the Company to receive the benefit of a
price upturn. The financial transaction is for 5,000 MMBtu per day with
a floor of approximately $2.10 per MMBtu and market re-opener at $2.48
per MMBtu with a term from May 1997 through October 1999.
SUBSEQUENT EVENTS.
On July 22, 1997 the Board of Directors declared a two-for-one stock
split. Shareholders of record on August 1, 1997 will be sent their
additional shares on or about August 15, 1997. At the same time the
Board authorized the Company to apply to list its common shares for
trading on the New York Stock Exchange. The Company's stock is expected
to be available for trading on the New York Stock Exchange before year
end. These two actions were taken to benefit the Company's shareholders
by facilitating a wider distribution of shares. The stock split is
expected to reduce the market price per share making the stock more
affordable for investors.
FORWARD-LOOKING STATEMENTS.
Statements included in this report which are not historical facts
(including any statements concerning plans and objectives of management
for future operations or economic performance, or assumptions related
thereto) are forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A o
f the Securities Act of 1933, as amended. In addition, Penn Virginia
and its representatives may from time to time make other oral or written
statements which are also forward-looking statements.
Such forward-looking statements include, among other things,
statements regarding development activities, capital expenditures,
acquisitions and dispositions, drilling and exploration programs,
expected commencement dates of coal mining or oil and gas production,
projected quantities of future oil and gas production by Penn
Virginia, projected quantities of future coal production by the
Company's lessees producing coal from reserves leased from Penn
Virginia, costs and expenditures as well as projected demand or supply
for coal and oil and gas, which will affect sales levels, prices and
royalties realized by Penn Virginia.
These forward-looking statements are made based upon management's
current plans, expectations, estimates, assumptions and beliefs
concerning future events impacting Penn Virginia and therefore involve
a number of risks and uncertainties. Penn Virginia cautions that
forward-looking statements are not guarantees and that actual results
could differ materially from those expressed or implied in the forward-
looking statements.
Important factors that could cause the actual results of operations
or financial condition of Penn Virginia to differ include, but are not
necessarily limited to: the cost of finding and successfully developing
oil and gas reserves; the cost of finding new coal reserves; the ability
to acquire new oil and gas and coal reserves on satisfactory terms; the
price for which such reserves can be sold; the volatility of commodity
prices for oil and gas and coal; the risks associated with having or not
having price risk management programs; Penn Virginia's ability to lease
new and existing coal reserves; the ability of Penn Virginia's lessees
to produce sufficient quantities of coal on an economic basis from Penn
Virginia's reserves; the ability of lessees to obtain favorable
contracts for coal produced from Penn Virginia reserves; Penn Virginia's
ability to obtain adequate pipeline transportation capacity for its oil
and gas production; competition among producers in the coal and oil and
gas industries generally and in the Appalachian Basin in particular; the
extent to which the amount and quality of actual production differs from
estimated recoverable coal reserves and proved oil and gas reserves;
unanticipated geological problems; availability of required materials and
equipment; the occurrence of unusual weather or operating conditions
including force majeure or events; the failure of equipment or processes
to operate in accordance with specifications
<PAGE>
or expectations; delays in anticipated start-up dates; environmental
risks affecting the drilling and producing of oil and gas wells or the
mining of coal reserves; the timing of receipt of necessary governmental
permits; labor relations and costs; accidents; changes in governmental
regulation or enforcement practices, especially with respect to
environmental, health and safety matters, including with respect to
emissions levels applicable to coal-burning power generators; risks and
uncertainties relating to general domestic and international economic
(including inflation and interest rates) and political conditions; the
experience and financial condition of lessees of coal reserves, joint
venture partners and purchasers of reserves in transactions financed by
Penn Virginia, including their ability to satisfy their royalty,
environmental, reclamation and other obligations to Penn Virginia and
others; changes in financial market conditions; changes in the market
prices or value of the marketable securities owned by Penn Virginia,
including the price of Norfolk Southern common stock and other risk
factors detailed in Penn Virginia's Securities and Exchange commission
filings. Many of such factors are beyond Penn Virginia's ability to
control or predict. Readers are cautioned not to put undue reliance on
forward-looking statements.
While Penn Virginia periodically reassesses material trends and
uncertainties affecting Penn Virginia's results of operations and
financial condition in connection with the preparation of Management's
Discussion and Analysis of Results of Operations and Financial
Condition and certain other sections contained in Penn Virginia's
quarterly, annual or other reports filed with the Securities and
Exchange Commission, Penn Virginia does not intend to publicly review
or update any particular forward-looking statement, whether as a result
of new information, future events or otherwise.
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule, filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended
June 30, 1997
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PENN VIRGINIA CORPORATION
Date: August 14, 1997 By: /s/ Steven W. Tholen
-------------------- ----------------------------------
Steven Tholen, Vice President, CFO
Principal Financial Officer
Date: August 14, 1997 By: /s/ Ann Horton
----------------- ----------------------------
Ann Horton, Controller
<PAGE>
PENN VIRGINIA CORPORATION
INDEX
_________________________________________________________________
PAGE
PART I Financial Information:
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the three 1
and six months ended June 30, 1997 and 1996
Condensed Consolidated Balance Sheets as of June 30, 1997 and 2
December 31, 1996
Condensed Consolidated Statements of Cash Flows for the three 4
and six months ended June 30, 1997 and 1996
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K 13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,412
<SECURITIES> 0
<RECEIVABLES> 4,861
<ALLOWANCES> 0
<INVENTORY> 241
<CURRENT-ASSETS> 7,735
<PP&E> 184,556
<DEPRECIATION> 59,218
<TOTAL-ASSETS> 249,815
<CURRENT-LIABILITIES> 8,094
<BONDS> 0
0
0
<COMMON> 27,817
<OTHER-SE> 137,364
<TOTAL-LIABILITY-AND-EQUITY> 249,815
<SALES> 11,085
<TOTAL-REVENUES> 19,628
<CGS> 1,740
<TOTAL-COSTS> 1,740
<OTHER-EXPENSES> 8,664
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,114
<INCOME-PRETAX> 10,026
<INCOME-TAX> 2,155
<INCOME-CONTINUING> 7,871
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,871
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0.93
</TABLE>
