<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----ACT OF 1934
COMMISSION FILE NUMBER 0-753
---------------------------
PENN VIRGINIA CORPORATION
ONE RADNOR CORPORATE CENTER, SUITE 200
100 MATSONFORD ROAD
RADNOR, PA 19087
INCORPORATED IN I.R.S EMPLOYER IDENTIFICATION NUMBER
VIRGINIA 23-1184320
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
TITLE OF EACH CLASS
COMMON STOCK, $6.25 PAR VALUE
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
------
Based on the closing price of March 7, 1997, the aggregate market value of
common stock held by nonaffiliated of the registrant was $185,908,230.
The number of common shares outstanding of the registrant was 4,131,294 as
of March 7, 1997.
-------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
<TABLE>
<CAPTION>
Part Into
Which Incorporated
------------------
<S> <C>
(1) Proxy Statement for Stockholder Meeting on May 6, 1997 Part III
</TABLE>
1
<PAGE> 2
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
PART I
1. Business
2. Properties
3. Legal
4. Submission of matters to a vote of security holders
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations
8. Financial Statements and Supplementary Data
9. Changes in and disagreements with accountants on accounting and financial
disclosure
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management
13. Certain Relationships and related Transactions
PART IV
14. Exhibits, Financial Schedules and Reports on Form 8-K
2
<PAGE> 3
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 the leasing of coal
mineral rights and the collection of related royalties; the exploration,
development and production of oil and natural gas and the collection of
royalties and overrides on various oil and gas properties.
The Company owns the mineral rights to approximately 358 million tons of
recoverable coal reserves located in Virginia, West Virginia and Kentucky. Its
coal reserves include both surface and underground mineable 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 Appalachian Basin. Its oil and gas operations are
concentrated in western Virginia, southern West Virginia and eastern Kentucky.
The Company had proved reserves of approximately 454,000 barrels of oil and
condensate and 175 billion cubic feet of natural gas at December 31, 1996.
GOALS AND STRATEGY
Penn Virginia's primary goal is to maximize its long-term, intrinsic value
per share. The Company believes growth in intrinsic value per share will
ultimately be reflected in the price of its stock.
Penn Virginia's coal and land strategy is to manage coal production from its
properties for the long-term by leasing its reserves to a diversified mix of
quality operators. Timber production is coordinated to facilitate coal mining
activities. An active coal and land asset acquisition program is underway.
Penn Virginia's long-term oil and gas strategy is to add to its base of
proved reserves and to increase shareholder value. This will be accomplished
through a combination of low-risk development drilling, moderate-risk
exploratory drilling and property acquisitions. The Company is targeting
acquisition candidates with significant development opportunities and/or the
potential to consolidate operations, reduce operating costs per unit of
production and accelerate cash flow.
Penn Virginia's investment strategy is to continue to prudently manage its
holdings to support the growth of the other business segments.
FINANCIAL INFORMATION
The Company operates in two primary business segments: (1) coal and land and
(2) oil and gas. Financial information concerning the Company's business
segments can be found in Note 13 (Segment Information) of the Notes to the
Consolidated Financial Statements of Penn Virginia Corporation which is
included in this report.
COAL AND LAND OPERATIONS
OVERVIEW
Penn Virginia owned approximately 123,000 acres of coal, timber and natural
gas bearing land in Virginia, West Virginia and Kentucky at December 31, 1996.
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, a minimum dollar royalty per ton or a percentage of the coal's
selling price.
3
<PAGE> 4
The Company's timber assets consist of various hardwoods, primarily red oak,
white oak, yellow poplar and black cherry. The Company owns approximately 209
million board feet of standing saw timber.
COAL PRODUCTION
Various operators mined 3.4 million tons of coal from Penn Virginia's
properties in 1996 and paid an average royalty rate of $2.07 per ton compared
with 4.1 million tons mined in 1995 at an average royalty rate of $2.21 per
ton.
WEST VIRGINIA
In July 1996, the Company purchased a coal and timber property in West
Virginia for approximately $8.0 million. The purchase included 15,000 acres
holding an estimated 17 million recoverable tons of relatively low sulfur, high
BTU coal reserves. Simultaneous with the acquisition the Company entered into
a long-term lease with the seller for the mining of the coal reserves. The
seller expects coal production to begin from the property in late 1997 or early
1998.
In January 1996, the Company entered into three lease agreements with an
operator covering approximately 60 million tons of its coal reserves in West
Virginia. The leases have a fifteen-year initial term with an option to renew
for an additional five-year term. The operator is obtaining operating permits
on the property and is expected to begin production in 1997.
During 1996, operators mined 1,094,000 tons of coal in West Virginia and
paid an average royalty rate of $2.20 per ton compared with 868,000 tons in
1995 and at an average royalty rate of $2.51 per ton.
VIRGINIA
In May 1996, the Company restructured a lease with Westmoreland Coal Company
in which the Company regained the lease rights to its Virginia reserves. The
Company has leased approximately 90 percent of the 115 million tons
relinquished in this transaction. Production from these reserves began in late
1996 and is expected to increase throughout 1997 as operators receive permits
and begin operations.
During 1996, operators mined 2,287,000 tons of coal in Virginia and paid an
average royalty rate of $2.01 per ton compared with 3,273,000 tons of coal in
1995 at an average royalty rate of $2.12 per ton.
In January 1997, the Company acquired a property in Virginia consisting of
6,500 acres with 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 on-going at an
annual rate of approximately 1.2 million tons.
In February 1997, Penn Virginia acquired approximately 7.5 million tons of
recoverable coal on approximately 4,700 acres in Virginia 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.
TIMBER PRODUCTION
The Company harvested and sold 4.0 million board feet for $183 per Mbf in
1996 compared with 3.2 million board feet for $158 per Mbf in 1995. In
conjunction with the purchase of additional coal reserves in West Virginia
described above, the Company acquired approximately 22 million board feet of
standing hardwood timber. This property generated sales of 0.5 million board
feet in 1996.
The Company's timber resources are managed on a sustained yield basis using
various regeneration and intermediate stand improvement techniques. The
sustained yield essentially allows for the harvest of an amount equal to the
annual growth of timber within the stand. Timber is sold in competitive bid
sales involving individual parcels and also on a contract basis, where Penn
Virginia pays independent contractors to harvest timber while the Company
directly markets the product.
4
<PAGE> 5
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, 1996, the Company
had approximately 178.2 Bcfe of proved reserves (175.4 Bcf of natural gas)
including 162.8 Bcfe of working interests and 15.4 Bcfe of royalty interests.
PRODUCTION
During 1996, 47,000 barrels of oil and condensate and 7.5 Bcf of natural
gas, net to the Company's interest, were produced compared with 58,000 barrels
and 7.2 Bcf in 1995. Prices received by the Company were $18.43 and $14.24 per
barrel and $2.84 and $1.85 per Mcf for oil and gas in 1996 and 1995,
respectively.
EXPLORATION AND DEVELOPMENT
The Company drilled 48.5 net wells in 1996 of which 38.3 were development and
10.2 were exploratory. A total of 1.1 net wells were dry holes. The successful
development wells added approximately 12.8 Bcfe of proved developed reserves.
The exploratory wells were drilled primarily on a 50,000 acre leasehold prospect
in southern West Virginia accumulated by the Company over the last five years.
The Company intends to drill fifteen additional wells on this prospect in 1997.
In 1997, the Company intends to drill 40 to 50 development wells and
approximately 15 to 20 exploratory wells.
CAPITAL EXPENDITURES
The 1997 oil and gas segment capital expenditure budget, including producing
property acquisitions, is approximately $16.2 million. The capital expenditures
are expected to be funded by a combination of internally generated cash flow
and additional debt.
<TABLE>
<CAPTION>
1997
Capital Expenditures Estimate 1996 1995
- ----------------------------------------------------------------------------
(in millions)
<S> <C> <C> <C>
Proved property acquisitions - 0.3 17.0
Unproved acquisitions 0.2 0.2 0.1
Development 12.8 7.3 5.4
Other 3.2 0.1 0.1
- ----------------------------------------------------------------------------
Oil and gas capital expenditures $16.2 $ 7.9 $22.6
</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.
Forty-five percent of the Company's natural gas is gathered by Consolidated
Natural Gas (CNG) and the Columbia Gas System (Columbia) in southern West
Virginia. The Federal Energy Regulatory Commission (FERC) is reviewing a rate
case submitted by CNG that would increase interruptible gathering rates from
14.4 cents to 15.4 cents per MMBtu effective February 1, 1997. Columbia has
also requested through FERC filings that its interruptible gathering rates be
increased from 15.49 cents to
5
<PAGE> 6
25.00 cents per MMBtu and its fuel retention charge be increased from 0.64
percent to 0.87 percent of volume throughput effective February 1, 1997. In
addition, Columbia is expected to transfer its gathering system assets to a
subsidiary Columbia Natural Resources (CNR) in 1997 at the same pending
gathering rates with a 1 percent maximum retainage fee. The action is currently
pending FERC approval.
Approximately sixty percent of the Company's natural gas production is
transported to market on Columbia transmission and gathering pipelines.
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 CNG to obtain additional 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 1996. In February 1996, the
Company sold approximately 5,525 MMBtu of natural gas per day, net to its
interest, to various customers through fixed-price contracts for delivery
during the period from April 1996 through March 1997. The Company entered into
short-term sales contracts in November 1996 for the delivery of approximately
5,100 MMBtu per day from December 1996 through March 1997. In December, the
Company sold approximately 2,550 MMBtu per day for the period February 1997
through December 1997. In January 1997 the Company sold approximately 8,500
MMBtu per day to various customers for delivery during the period from April
1997 to October 1997.
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. During 1996, the Company did not use any commodity derivative
contracts.
INVESTMENTS
The Company holds equity investments in Norfolk Southern Corporation,
Westmoreland Coal Company and Blue Diamond Coal Company. See Note 12
(Investments and Other Income) of the Notes to the Consolidated Financial
Statements for additional information.
In September 1996, the Company sold its sixteen percent interest in
Westmoreland Resources, Inc., a joint venture which operates a Montana coal
mine, to Westmoreland Coal Company. Westmoreland Coal Company exercised an
option received in conjunction with the Virginia coal reserve lease
restructuring and coal reserve relinquishment. The Company received $3.0
million in cash.
Also, in September 1996, the Company contributed 400,000 shares of its
Westmoreland Coal Company common stock to the Penn Virginia Corporation
Benefits Trust Fund, which is a voluntary employee beneficiary association.
This fund provides part of the life and medical benefits coverage for eligible
retired employees of Penn Virginia.
In the fourth quarter of 1996, Penn Virginia sold 598,600 shares of its
Westmoreland Coal Company common stock to various purchasers. In December 1996,
Westmoreland Coal Company filed Chapter 11, therefore Penn Virginia wrote down
its investment in the remaining 755,811 shares held at year end. The sale of
this stock and subsequent write-down of the remaining 755,811 shares held at
year end resulted in a $3.3 million pretax charge to earnings.
The fair value of the Company's equity portfolio at December 31, 1996 was
$97.4 million compared with $96.6 million at December 31,1995.
RISKS ASSOCIATED WITH BUSINESS ACTIVITIES
GENERAL
GOVERNMENT REGULATIONS
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
6
<PAGE> 7
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 will not adversely
affect the Company's business and operations.
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 which the
Company generally cannot control. The number of tons mined annually is
determined by an operator's mining efficiency, ability to market 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 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 prospects drilled in 1997 and future years will increase compared
with previous years. Consequently, it is likely the Company will experience
increased levels of exploration expense in 1997 and future years.
INVESTMENTS
The value of the Company's investment portfolio is subject to market price
fluctuations and the ability to find a willing buyer for equity investments.
7
<PAGE> 8
EMPLOYEES
Penn Virginia had 60 employees at December 31, 1996. 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. Keith Horton and Ann Horton are husband and wife. No other
family relationships exist among the executive officers. Each officer is
elected annually by the Board of Directors and serves at the pleasure of the
Board of Directors.
<TABLE>
<CAPTION>
Office
NAME Age Office Held Since
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A. James Dearlove 49 President and Chief Executive Officer 1996
Steven W. Tholen 46 Vice President and Chief Financial Officer 1995
Ann N. Horton 38 Controller 1995
David R. Barker 41 Vice President 1996
Keith D. Horton 43 Vice President 1996
</TABLE>
A. James Dearlove - Mr. Dearlove is the President and Chief Executive
Officer. He has served in various capacities with the Company since 1977
including Vice President since 1986, Senior Vice President since 1992 and
President since 1994. Mr. Dearlove was elected to the Company's Board of
Directors effective February 6, 1996. He was appointed Chief Executive Officer
in May 1996. He also serves as director of the Powell River Project and the
National Council of Coal Lessors.
Steven W. Tholen - Mr. Tholen is a Vice President and the 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.
David R. Barker - Mr. Barker is a Vice President. He also serves as
President of the Company's oil and gas subsidiary. He joined the Company in
1996. Previously, he served as Senior Vice President with The Clinton Oil
Company and in various capacities with Mitchell Energy Corporation and Mobil
Exploration.
Keith D. Horton - Mr. Horton is a Vice President. He also serves as
President of the Company's coal subsidiary. He has served in various capacities
with the Company since 1981. Mr. Horton serves as Vice Chairman of the Central
Appalachian Section of the Society of Mining Engineers. He also serves as a
director of the Virginia Mining Association and the Powell River Project.
8
<PAGE> 9
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
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
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<PAGE> 10
ITEM 2 - PROPERTIES
COAL AND LAND
Penn Virginia's coal reserves and timber assets at December 31, 1996
were 123,000 acres in Virginia, West Virginia and Kentucky. The coal reserves
are in various surface and underground seams.
Penn Virginia's recoverable coal reserves are estimated at 358 million
tons as of December 31, 1996. Recoverable coal reserves mean 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 209 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,
1996, 1995, 1994.
<TABLE>
<CAPTION>
Year Ending December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Production
Oil and condensate (Mbbls) 47 58 73
Natural gas (MMcf) 7,483 7,161 6,295
Average sales price
Oil and condensate ($/Bbl) $ 18.43 $ 14.24 $ 14.18
Natural gas ($/Mcf) $ 2.84 $ 1.85 $ 2.22
Production cost
Operating cost per Mcfe $ 0.39 $ 0.40 $ 0.48
Production taxes per Mcfe $ 0.26 $ 0.18 $ 0.18
-----------------------------------------
Total production cost per Mcfe $ 0.65 $ 0.58 $ 0.66
</TABLE>
10
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PROVED RESERVES
Penn Virginia had proved reserves of 454,000 barrels of crude oil and
condensate and 175 Bcf of natural gas at December 31, 1996. The present value
of the estimated future cash flows before income tax discounted at 10 percent
(SEC PV10 Value) was $186 million. At December 31, 1996, the Company had 331
gross (206 net) proved undeveloped drilling locations.
<TABLE>
<CAPTION>
Natural
Oil and Natural Gas SEC PV10
Condensate Gas Equivalents Value
(Mbbls) (Bcf) (Bcfe) ($MM)
- -------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Developed 390 105 107 137
Undeveloped 64 70 71 49
- ------------------------------------------------------------
Total 454 175 178 $186
1995
Developed 348 86 89 82
Undeveloped 83 84 84 35
- ------------------------------------------------------------
Total 431 170 173 117
1994
Developed 371 78 80 58
Undeveloped 96 50 51 9
- ------------------------------------------------------------
Total 467 128 131 67
</TABLE>
The average prices used to determine proved reserves at December 31, 1996,
1995 and 1994 were ($/Bbl) $23.25, $16.02 and $15.00, respectively for oil and
condensate and ($/Mcf) $3.74, $2.67 and $2.09, respectively for natural gas.
Such prices were prices in effect as of year end 1996 and may not be
indicative of future sales prices received.
Since January 1, 1996, 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.
11
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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.
<TABLE>
<CAPTION>
Gross Acreage Net Acreage
- -----------------------------------------------------
(in thousands)
<S> <C> <C>
Developed 319 165
Undeveloped 119 75
- -----------------------------------------------------
Total 438 240
</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.
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Exploratory
Productive - 2 -
Dry 1 - 4
Under evaluation 13 - -
- ------------------------------------------------------------------------------
Total 14 2 4
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Development
Productive 50 31 56
Dry 1 1 1
- ------------------------------------------------------------------------------
Total 51 32 57
</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, 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Exploratory
Productive - 2.0 -
Dry 0.1 - 2.7
Under evaluation 10.1 - -
- ------------------------------------------------------------------------------
Total 10.2 2.0 2.7
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Development
Productive 37.3 21.5 27.4
Dry 1.0 1.0 0.4
- ------------------------------------------------------------------------------
Total 38.3 22.5 27.8
</TABLE>
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<PAGE> 13
PRODUCTIVE WELLS
The number of productive oil and gas wells in which Penn Virginia had an
interest at December 31, 1996 is set forth below. Productive wells are
producing wells or wells capable of commercial production.
<TABLE>
<CAPTION>
Operated Wells Non-Operated Wells Total
-------------- ------------------ -----
Gross Net Gross Net Gross Net
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Oil 8 6 7 2 15 8
Gas 645 551 360 54 1,005 605
- ---------------------------------------------------------------
Total 653 557 367 56 1,020 613
</TABLE>
ITEM 3 - LEGAL PROCEEDINGS
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.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
entire year of 1996.
PART II
ITEM 5 - MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
COMMON STOCK MARKET PRICES AND DIVIDENDS
High and low stock prices and dividends for the last two years were:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------------------------
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 $36-1/2 $32-1/4 $.45 $34 $30-5/8 $.45
June 30 $38-1/2 $32 $.45 $34-1/2 $27-1/2 $.45
September 30 $37-1/2 $34 $.45 $32-1/2 $27-3/4 $.45
December 31 $48-1/4 $35-3/8 $.45 $33 $31-1/2 $.45
</TABLE>
The Company's common stock is traded on NASDAQ under the symbol PVIR.
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ITEM 6 - SELECTED FINANCIAL DATA
FIVE YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994 1993 1992
--------------------------------------------------------------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Revenues $ 34,104 $ 38,528 $ 33,711 $ 31,810 $ 18,601
Operating income (loss) 13,194 7,345 10,712 5,433 (12,629)
Net income (loss) $ 13,040 $ 10,084 $ 13,501 $ 10,252 $ (17,088)
Per common share
Net income (loss) $ 3.00 $ 2.36 $ 3.15 $ 2.40 $ (2.42)
Cumulative effect of accounting change - - - - (0.60)
Dividends paid $ 1.80 $ 1.80 $ 2.00 $ 2.90 $ 1.90
Weighted average shares outstanding 4,347 4,269 4,280 4,280 4,278
Assets
Continuing operations $ 229,514 $ 206,001 $ 199,259 $ 214,259 $ 113,208
Discontinued operations, net - - - - 19,431
--------------------------------------------------------------
Total $ 229,514 $ 206,001 $ 199,259 $ 214,259 $ 132,639
Long-term debt $ 21,233 $ 12,700 $ 9,250 $ 16,575 $ 22,700
</TABLE>
SUMMARIZED QUARTERLY FINANCIAL DATA
Quarterly financial data for 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------------------------------------------
QUARTERS ENDED Quarters Ended
-----------------------------------------------------------------------------------------
(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 $ 8,870 $ 7,809 $ 7,511 $ 9,914 $ 7,848 $ 7,299 $ 5,728 $ 17,653 (a)
Operating
income (loss) 4,095 2,888 2,339 3,872 2,835 2,550 416 1,544 (b)
Net income $ 4,257 $ 2,537 $ 2,696 $ 3,550 $ 2,642 $ 5,349 $ 1,091 $ 1,002
Net income
per share (c) $ 1.00 $ 0.58 $ 0.62 $ 0.81 $ 0.62 $ 1.25 $ 0.26 $ 0.23
Weighted average
shares outstanding 4,265 4,296 4,341 4,371 4,276 4,274 4,265 4,262
</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) The sum of the quarters may not equal the total of the respective year's
net income per share due to changes in the weighted average shares
outstanding throughout the year.
14
<PAGE> 15
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 completed several important steps in 1996 which are expected
to provide the basis for future growth in earnings and cash flow.
In January 1996, the Company signed a series of lease agreements on its coal
reserves in West Virginia covering approximately 60 million tons of coal.
In May 1996, the Company restructured a lease with Westmoreland Coal Company
("Westmoreland"), whereby Penn Virginia regained control of its Virginia coal
reserves previously leased to Westmoreland for approximately $10.7 million plus
other considerations. Westmoreland retained a lease of certain Virginia
reserves. During the course of 1996 and early 1997, approximately 90 percent of
the 115 million tons regained from this transaction were leased to new
operators.
In July 1996, Penn Virginia acquired a coal and timber property in West
Virginia for approximately $8.0 million. This acquisition included 15,000 acres
holding an estimated 17 million tons of high BTU coal reserves and 22 million
board feet of standing hardwood timber. This property has been leased to the
seller and production is expected to begin in late 1997 or early 1998.
During 1996, the Company continued to drill and develop its oil and gas
properties. Penn Virginia drilled 48.5 natural gas wells. The Company also
acquired over 16,000 acres of oil and gas leases or properties contiguous with
or near its current properties.
In August 1996, the Company entered into a $50.0 million senior unsecured
revolving credit facility with a group of banks. This facility will allow Penn
Virginia to continue its growth strategy into the future.
Continuing its growth strategy, the Company made two coal acquisitions in
early 1997.
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.
In February 1997, Penn Virginia acquired approximately 7.5 million tons of
recoverable coal reserves 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. First production from the property is
anticipated to begin in 1998.
RESULTS OF OPERATIONS
CONSOLIDATED NET INCOME
Penn Virginia's 1996 net income was $13.0 million compared with $10.1
million in 1995 and $13.5 million in 1994. Income from operations before income
taxes in 1996 includes a $3.3 million loss on the Company's investment in
Westmoreland Coal Company common stock.
Net income for 1995 includes $11.4 million for the settlement of the
abrogation of natural gas sales contracts by Columbia Gas, a $6.4 million gain
on the sale of 100,000 shares of Norfolk Southern Corporation common stock, a
$10.9 million charge on certain of the Company's proved oil and gas properties
related primarily 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" (SFAS 121) and a $1.5 million loss related
to the sale of nonstrategic oil and gas properties.
Net income for 1994 includes a pretax charge of $1.8 million for the
impairment of oil and gas properties and the benefit of a $3.5 million
adjustment related to the prior years' provision for deferred taxes.
15
<PAGE> 16
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------
(in millions except as noted)
<S> <C> <C> <C>
Revenues $ 34.1 $ 38.5 $ 33.7
Operating costs and expenses 20.9 31.2 23.0
Operating income 13.2 7.3 10.7
Net income 13.0 10.1 13.5
Earnings per share $ 3.00 $ 2.36 $ 3.15
</TABLE>
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>
1996 1995 1994
---------------------------
(in millions except as noted)
<S> <C> <C> <C>
REVENUES
Timber $ 0.8 $ 0.6 $ 0.6
Coal royalties 7.0 9.1 14.8
Other 0.4 - 0.1
---------------------------
TOTAL REVENUES $ 8.2 $ 9.7 $ 15.5
EXPENSES
Operating costs $ 0.1 $ 0.1 $ 0.1
Exploration expenses 0.4 0.1 0.3
Taxes other than income 0.3 0.2 0.1
General and administrative 1.5 1.6 1.4
---------------------------
Operating Expenses 2.3 2.0 1.9
Depreciation, depletion and amortization 0.2 0.2 0.2
---------------------------
TOTAL EXPENSES $ 2.5 $ 2.2 $ 2.1
---------------------------
OPERATING INCOME $ 5.7 $ 7.5 $ 13.4
---------------------------
Production
Royalty coal tons produced 3.4 4.1 6.9
Timber sales (millions of board feet) 4.0 3.2 2.6
Prices
Royalty per ton of coal produced $ 2.07 $ 2.20 $ 2.14
Timber sales price per Mbf $ 183 $ 158 $ 197
</TABLE>
Operating income for the coal and land segment was $5.7 million in 1996
compared with $7.5 million in 1995 and $13.4 million in 1994. The decrease in
1996 is mainly the result of Westmoreland Coal Company's suspension of its
mining operations in Virginia on July 31, 1995. The suspension substantially
reduced production of the Company's coal reserves. In May 1996, the Company
restructured a lease with Westmoreland Coal Company in which Penn Virginia
regained control of its Virginia coal
16
<PAGE> 17
reserves previously leased to Westmoreland. The Company has been successful in
leasing the reserves to new operators and limited production began in late 1996
and is expected to increase throughout the next two to three years.
Coal royalty revenues decreased from $14.8 million in 1994 to $9.1 million
in 1995 which was related to the cessation of mining on the Westmoreland Coal
Company Virginia lease.
The Company expects coal production from its properties to increase in 1997
due to the expected startup of production by operators on its West Virginia and
Virginia properties and production from the coal reserve acquisition completed
in January 1997.
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.
SELECTED FINANCIAL AND OPERATING DATA
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------
(in millions except as noted)
<S> <C> <C> <C>
REVENUES
Oil and condensate $ 0.9 $ 0.8 $ 1.0
Natural gas sales 19.3 12.3 12.2
Royalty income 1.8 1.1 1.8
Natural gas contract settlement 0.6 11.4 -
Other 0.5 0.4 0.4
--------------------------------
TOTAL REVENUES $ 23.1 $ 26.0 $ 15.4
EXPENSES
Operating expenses $ 3.1 $ 3.0 $ 3.3
Exploration expenses 0.4 0.4 1.4
Taxes other than income 2.0 1.3 1.2
General and administrative 2.7 3.1 2.9
--------------------------------
Operating Expenses 8.2 7.8 8.8
Depreciation, depletion and amortization 6.6 7.6 6.1
Impairment of properties - 10.9 1.8
--------------------------------
TOTAL EXPENSES $ 14.8 $ 26.3 $ 16.7
--------------------------------
OPERATING INCOME (LOSS) $ 8.3 $ (0.3) $ (1.3)
--------------------------------
Production
Oil and condensate (MBbls) 47 58 73
Natural gas (Bcf) 6.8 6.6 5.5
Royalty natural gas (Bcf) 0.7 0.6 0.8
Prices
Oil and condensate ($/Bbl) $ 18.43 $ 14.24 $ 14.18
Natural gas ($/Mcf) 2.84 1.85 2.22
Royalty natural gas ($/Mcf) 2.66 1.96 2.20
</TABLE>
The oil and gas segment had operating income of $8.3 million in 1996
compared with an operating loss of $0.3 million in 1995 and an operating loss
of $1.3 million in 1994. Revenues for 1996 were $2.9 million lower compared
with 1995 due to the $11.4 million received in 1995 on the natural gas
17
<PAGE> 18
sales contract settlement with Columbia Gas offset, in part, by increased
revenues from natural gas sales of $7.0 million in 1996 compared with 1995.
Natural gas prices were the primary factor for this increase. The Company
received an average of $2.84 per Mcf for its working interest natural gas in
1996 compared with an average of $1.85 per Mcf in 1995.
Operating expenses increased $0.4 million in 1996 compared with 1995.
Decreases in general and administrative expenses were offset by increases in
taxes other than income due to the increase in production taxes related to
sales revenue.
Depreciation, depletion and amortization expense decreased $1.0 million in
1996 compared with 1995. The depletion rates were affected by the write-down of
oil and gas properties as a result of the implementation of SFAS 121 in 1995.
The impairment resulted from a property purchased in 1981 subject to a
high-priced, take or pay natural gas sales contract which was later abrogated
by Columbia Gas.
Revenues increased $10.5 million in 1995 compared with 1994 due to the $11.4
million natural gas sales contract settlement with Columbia Gas.
Expenses increased $9.6 million in 1995 compared with 1994, primarily as a
result of the implementation of SFAS 121 in 1995.
INVESTMENTS
Penn Virginia's investments consist primarily of shares held in Norfolk
Southern Corporation.
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
(in millions except as noted)
<S> <C> <C> <C>
Revenues-dividends $ 2.8 $ 2.8 $ 2.7
Expenses - - 0.1
-----------------------------------------
Operating Income $ 2.8 $ 2.8 $ 2.6
-----------------------------------------
Number of common shares owned at year-end
Norfolk Southern Corporation 1,102,400 1,102,400 1,202,400
Westmoreland Coal Company 755,811 1,754,411 1,754,411
Westmoreland Resources, Inc. - 1,600 1,600
Blue Diamond Coal Company 287 287 -
-----------------------------------------
Fair value at year-end ($MM)
Norfolk Southern Corporation $ 97.0 $ 87.5 $ 72.9
Westmoreland Coal Company 0.4 4.6 7.9
Westmoreland Resources Inc. - 4.5 4.5
Blue Diamond Coal Company - - -
-----------------------------------------
$ 97.4 $ 96.6 $ 85.3
-----------------------------------------
</TABLE>
In the third quarter of 1996, the Company contributed 400,000 shares of its
Westmoreland Coal Company common stock to the Penn Virginia Corporation
Benefits Trust Fund, which is a voluntary employee beneficiary association.
This fund provides part of the life and medical benefits coverage for eligible
retired employees of Penn Virginia.
In the fourth quarter of 1996, the Company sold 598,600 shares of its
Westmoreland Coal Company common stock to various purchasers. In December 1996,
Westmoreland Coal Company filed for Chapter 11 bankruptcy, therefore Penn
Virginia wrote down its investment in the remaining 755,811 shares held at
year end.
18
<PAGE> 19
CAPITAL RESOURCES AND LIQUIDITY
CASH FLOW FROM OPERATING ACTIVITIES
Net cash provided from operating activities was $18.5 million in 1996
compared with $19.6 million in 1995 which included $11.4 million from the
settlement of a natural gas contract dispute, compared with $15.6 million in
1994.
The $4.0 million 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.
CASH FLOW FROM INVESTING ACTIVITIES
Penn Virginia used $18.7 million in the coal segment related to acquisitions
in 1996. Lease acquisition costs related to the reserve relinquishment by
Westmoreland Coal Company were $10.7 million. The Company purchased a coal
property in July 1996 for approximately $8.0 million. This compares with $3.3
million spent on coal lease acquisitions in 1995. Penn Virginia used $9.5
million to fund its oil and gas drilling program in 1996. This is an increase
in 1996 of $4.1 million compared with development costs in 1995 of $5.4
million. Penn Virginia used $0.3 million in 1996 to acquire oil and gas
properties compared with $17.0 million in 1995.
CASH FLOW FROM FINANCING ACTIVITIES
Net cash provided (used) by financing activities was $0.4 million compared
with ($9.8) million in 1995 and ($15.6) million in 1994.
WORKING CAPITAL
At December 31, 1996, Penn Virginia had working capital of $0.7 million. In
addition, Penn Virginia had debt capacity of $31.7 million under a committed
revolving credit facility with a group of major U.S. banks. 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.
19
<PAGE> 20
CAPITAL EXPENDITURES
Capital and exploration expenditures for the Company are detailed below.
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------
(in millions except as noted)
<S> <C> <C> <C>
Capital Expenditures
Coal and Land
Lease acquisition $ 19.0 $ 3.2 $ 0.2
Other 0.1 0.3 -
-----------------------------------------
$ 19.1 $ 3.5 $ 0.2
Oil and Gas
Development $ 7.3 $ 5.4 $ 11.0
Lease Acquisition 0.2 0.1 1.6
Exploration 2.2 - -
Other 0.1 0.1 -
-----------------------------------------
$ 9.8 $ 5.6 $ 12.6
-----------------------------------------
$ 28.9 $ 9.1 $ 12.8
Proved Property Acquisition
Oil and Gas $ 0.3 $ 17.0 $ 8.1
-----------------------------------------
$ 29.2 $ 26.1 $ 20.9
Exploration Expense
Coal and Land 0.4 0.1 0.3
Oil and Gas 0.4 0.4 1.4
-----------------------------------------
$ 0.8 $ 0.5 $ 1.7
Total Capital and
Exploration Expenditures $ 30.0 $ 26.6 $ 22.6
-----------------------------------------
</TABLE>
Capital expenditures for the coal and land business segment were $20.6
million in 1996. The expenditures include $10.7 million paid to Westmoreland
Coal Company for the relinquishment of coal reserves in Virginia and $8.0
million for the acquisition of additional coal reserves in West Virginia.
Development drilling expenditures for the oil and gas segment were $7.3
million in 1996 compared with $5.4 million in 1995. The Company drilled 37.3
successful development wells, 10.1 exploratory wells and 1.1 net dry holes in
1996 compared with 23.5 net successful development wells and 1.0 net dry hole in
1995. Unproved property lease acquisition costs were $0.2 million compared with
$0.1 million in 1995.
Capital expenditures before lease and proved property acquisitions for 1997
are expected to be $16 to $18 million including $0.2 million to $0.5 million
for the coal and land segment and $16 to $17 million for oil and gas. The
Company plans to drill approximately 40 to 50 development wells and 15 to 20
exploratory wells. Management continually reviews the Company's drilling
expenditures and may increase, decrease or reallocate amounts based on industry
conditions.
Management believes its cash flow from operations, portfolio of investments
and sources of debt financing are sufficient to fund its 1997 planned capital
expenditure program.
In early 1997, the Company acquired two coal properties for approximately
$8.9 million. The acquisition in January 1997 included approximately 10.5
million tons of recoverable coal on 6,500 acres with an additional 13,100 acres
available through leases for approximately $7.0 million.
In February 1997, the Company acquired an additional 7.5 million tons of
recoverable coal on approximately 4,700 acres for approximately $1.9 million.
CHANGE IN ACCOUNTING PRINCIPLES
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1, "Environmental Remediation Liabilities,"
which establishes new accounting and reporting
20
<PAGE> 21
standards for the recognition and disclosure of environmental remediation
liabilities. The provisions of the statement are effective for fiscal years
beginning after December 15, 1996. The impact of this new standard is not
expected to have a significant effect on the Company's financial position or
results of operations.
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, 1996, the Company has provided for approximately $50,000
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.
FORWARD-LOOKING STATEMENTS
Statements included in this report which are not historical facts (including
any statements concerning plans and objectives of management for future
operations or economic performance, or assumptions related thereto) are
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the Securities Act of
1933, as amended. In addition, Penn Virginia and its representatives may from
time to time make other oral or written statements which are also
forward-looking statements.
Such forward-looking statements include, among other things, statements
regarding development activities, capital expenditures, acquisitions and
dispositions, drilling and exploration programs, expected commencement dates of
coal mining or oil and gas production, projected quantities of future oil and
gas production by Penn Virginia, projected quantities of future coal production
by the Company's lessees producing coal from reserves leased from Penn
Virginia, costs and expenditures as well as projected demand or supply for coal
and oil and gas, which will affect sales levels, prices and royalties realized
by Penn Virginia.
These forward-looking statements are made based upon management's current
plans, expectations, estimates, assumptions and beliefs concerning future
events impacting Penn Virginia and therefore involve a number of risks and
uncertainties. Penn Virginia cautions that forward-looking statements are not
guarantees and that actual results could differ materially from those expressed
or implied in the forward-looking statements.
Important factors that could cause the actual results of operations or
financial condition of Penn Virginia to differ include, but are not necessarily
limited to: the cost of finding and successfully developing oil and gas
reserves; the cost of finding new coal reserves; the ability to acquire new oil
and gas and coal reserves on satisfactory terms; the price for which such
reserves can be sold; the volatility of commodity prices for oil and gas and
coal; the risks associated with having or not having price risk management
programs; Penn Virginia's ability to lease new and existing coal reserves; the
ability of Penn Virginia's lessees to produce sufficient quantities of
21
<PAGE> 22
coal on an economic basis from Penn Virginia's reserves; the ability of lessees
to obtain favorable contracts for coal produced from Penn Virginia reserves;
Penn Virginia's ability to obtain adequate pipeline transportation capacity for
its oil and gas production; competition among producers in the coal and oil and
gas industries generally and in the Appalachian Basin in particular; the extent
to which the amount and quality of actual production differs from estimated
recoverable coal reserves and proved oil and gas reserves; unanticipated
geological problems; availability of required materials and equipment; the
occurrence of unusual weather or operating conditions including force majeure
or events; the failure of equipment or processes to operate in accordance with
specifications or expectations; delays in anticipated start-up dates;
environmental risks affecting the drilling and producing of oil and gas wells
or the mining of coal reserves; the timing of receipt of necessary governmental
permits; labor relations and costs; accidents; changes in governmental
regulation or enforcement practices, especially with respect to environmental,
health and safety matters, including with respect to emissions levels
applicable to coal-burning power generators; risks and uncertainties relating
to general domestic and international economic (including inflation and
interest rates) and political conditions; the experience and financial
condition of lessees of coal reserves, joint venture partners and purchasers of
reserves in transactions financed by Penn Virginia, including their ability to
satisfy their royalty, environmental, reclamation and other obligations to Penn
Virginia and others; changes in financial market conditions; changes in the
market prices or value of the marketable securities owned by Penn Virginia,
including the price of Norfolk Southern common stock and other risk factors
detailed in Penn Virginia's Securities and Exchange commission filings. Many
of such factors are beyond Penn Virginia's ability to control or predict.
Readers are cautioned not to put undue reliance on forward-looking statements.
While Penn Virginia periodically reassesses material trends and
uncertainties affecting Penn Virginia's results of operations and financial
condition in connection with the preparation of Management's Discussion and
Analysis of Results of Operations and Financial Condition and certain other
sections contained in Penn Virginia's quarterly, annual or other reports filed
with the Securities and Exchange Commission, Penn Virginia does not intend to
publicly review or update any particular forward-looking statement, whether as
a result of new information, future events or otherwise.
22
<PAGE> 23
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 26, 1997 By: /s/ STEVEN W. THOLEN
--------------------------------------
(Steven W. Tholen, Vice President and
Chief Financial Officer)
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.
<TABLE>
<S> <C> <C>
/s/ LENNOX K. BLACK Chairman of the Board March 26, 1997
- ---------------------------------- and Director
(Lennox K. Black)
/s/ JOHN D. CADIGAN Director March 26, 1997
- ----------------------------------
(John D. Cadigan)
/s/ A. JAMES DEARLOVE Director and March 26, 1997
- ---------------------------------- Chief Executive Officer
(A. James Dearlove)
/s/ HANS-ALBERT OPPENBORN Director March 26, 1997
- ----------------------------------
(Hans-Albert Oppenborn)
/s/ JOHN A.H. SHOBER Director March 26, 1997
- ----------------------------------
(John A.H. Shober)
Director March 26, 1997
- ----------------------------------
(Johannes Teyssen)
/s/ FREDERICK C. WITSELL, JR. Director March 26, 1997
- ----------------------------------
(Frederick C. Witsell, Jr.)
/s/ MINTURN T. WRIGHT, III Director March 26, 1997
- ----------------------------------
(Minturn T. Wright, III)
</TABLE>
23
<PAGE> 24
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
Index to Financial Section
<TABLE>
<S> <C>
Reports of Independent Public Accountants 25
Management's Report on Financial Information 27
Financial Statements and Supplementary Data 28
</TABLE>
24
<PAGE> 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Penn Virginia Corporation:
We have audited the accompanying balance sheet of Penn Virginia Corporation
(a Virginia corporation) and subsidiaries as of December 31, 1996, and the
related consolidated statements of income, shareholders' equity and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit 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 misstatements. 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Penn Virginia Corporation
and subsidiaries as of December 31, 1996, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
-------------------------
Arthur Andersen LLP
Houston, Texas
February 11, 1997
25
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Penn Virginia Corporation
We have audited the balance sheet of Penn Virginia Corporation and
subsidiaries as of December 31, 1995, and the related consolidated statements of
income, shareholders' equity and cash flows for each of the years in the
two-year period then ended. 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 audit.
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 the results
of their operations and their cash flows for each of the years in the two-year
period then ended, 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."
/s/ KPMG PEAT MARWICK LLP
---------------------------
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
February 21, 1996
26
<PAGE> 27
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, Arthur Andersen 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 Arthur Andersen 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.
/s/ A. JAMES DEARLOVE /s/ STEVEN W. THOLEN
- --------------------------- -----------------------------
A. James Dearlove Steven W. Tholen
President and Vice President and
Chief Executive Officer Chief Financial Officer
27
<PAGE> 28
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
----------------------------------------------------------
(in thousands except per share data)
<S> <C> <C> <C>
REVENUES
Timber $ 810 $ 555 $ 554
Oil and condensate 866 824 1,044
Natural gas 19,347 12,263 12,260
Coal royalties 7,009 9,131 14,794
Natural gas royalties 1,776 1,073 1,752
Dividends 2,750 2,803 2,709
Natural gas contract settlement (Note 4) 611 11,406 -
Other 935 473 598
-------------- ----------- -------------
34,104 38,528 33,711
EXPENSES
Operating expenses 3,194 3,094 3,382
Exploration expenses 805 469 1,707
Taxes other than income 2,443 1,732 1,471
General and administrative 7,637 7,238 8,390
Impairment of oil and gas properties - 10,927 1,763
Depreciation, depletion and amortization 6,831 7,723 6,286
-------------- ----------- -------------
20,910 31,183 22,999
OPERATING INCOME 13,194 7,345 10,712
Other (Income) Expense:
Interest expense 1,389 1,964 1,598
Interest income (3,957) (759) (852)
Impairment of investment 1,917 - -
(Gain) loss on sale of securities 1,405 (6,391) -
(Gain) loss on the sale of property (18) 1,490 (125)
Other (1,633) (803) (787)
-------------- ----------- -------------
Income from operations before income taxes 14,091 11,844 10,878
Income tax expense (benefit) 1,051 1,760 (2,623)
-------------- ----------- -------------
NET INCOME $ 13,040 $ 10,084 $ 13,501
----------------------------------------------------------
Net income per share, primary $ 3.00 $ 2.36 $ 3.15
----------------------------------------------------------
Weighted average shares outstanding 4,347 4,269 4,280
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE> 29
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------------------
(in thousands)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,893 $ 2,993
Accounts receivable 4,856 3,924
Recoverable income taxes 871 375
Current portion of long-term notes receivable 1,512 4,321
Inventories 218 187
Current deferred income taxes 776 865
Other 210 229
-------------------------
Total current assets $10,336 12,894
Investments (Note 2) 97,368 96,645
Long-term notes receivable (Note 3) 5,720 4,582
Oil and gas properties; wells and equipment, using the successful
efforts method of accounting 138,184 127,836
Other property, plant and equipment 33,218 12,551
Less: Accumulated depreciation, depletion and amortization 56,110 49,372
-------------------------
Total property, plant and equipment (Note 5) 115,292 91,015
Other assets 798 865
-------------------------
Total assets $ 229,514 $ 206,001
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments on long-term debt (Note 6) $ 2,025 $ 2,000
Accounts payable 1,812 2,094
Accrued expenses 5,543 4,670
Deferred income 279 188
Taxes on income 8 358
-------------------------
Total current liabilities 9,667 9,310
Other liabilities (Note 11) 5,544 7,594
Deferred income taxes 32,859 29,040
Long-term debt (Note 6) 21,233 12,700
-------------------------
Total liabililites 69,303 58,644
Commitments and contingencies - -
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 4,450,717 shares
in 1996 and 4,437,517 shares in 1995 27,817 27,734
Other paid-in-capital 36,138 35,858
Retained earnings 43,240 37,978
-------------------------
107,195 101,570
Add: Net unrealized holding gain - investments 61,215 54,614
Less: 109,477 shares in 1996 and 175,277 shares in 1995
of common stock held in treasury, at cost 5,575 7,928
Unearned compensation - ESOP 1,850 -
Pension liability 774 899
-------------------------
Total shareholders' equity 160,211 147,357
Total liabilities and shareholders' equity $ 229,514 $ 206,001
-------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE> 30
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Other Holding
Common Paid-in Retained Gain- Treasury
Stock Capital Earnings investments Stock
-----------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 27,734 $ 34,685 $ 30,603 $ 53,090 $ (7,435)
Net income - - 13,501 - -
Dividends paid, $2.00 per share - - (8,533) - -
Reversal of additional liability
for pension plan - 108 - - -
Unrealized holding gain adjustment - - - (6,007) -
Contribution to ESOP - - - - -
-----------------------------------------------------------------------
Balance at December 31, 1994 $ 27,734 $ 34,793 $ 35,571 $ 47,083 $ (7,435)
Net income - - 10,084 - -
Dividends paid, $1.80 per share - - (7,677) - -
Additional pension plan liability 899
Reversal of additional liability for
pension plan - 166 - - -
Reversal of special dividend paid
on unallocated shares in
employee stock - - - - 21
Unrealized holding gain adjustment - - - 7,531 -
Purchase of 17,300 shares of
treasury stock - - - - (514)
Contribution to ESOP - - - - -
-----------------------------------------------------------------------
Balance at December 31, 1995 $ 27,734 $ 35,858 $ 37,978 $ 54,614 $ (7,928)
Net income - - 13,040 - -
Dividends paid, $1.80 per share - - (7,778) - -
Additional liability for pension plan - - - - -
Contribution to ESOP - - - - 2,661
Exercise of stock options 83 266 - - (308)
Unrealized holding gain adjustment - - - 6,601 -
Allocation of ESOP shares - 14 - - -
-----------------------------------------------------------------------
Balance at December 31, 1996 $ 27,817 $ 36,138 $ 43,240 $ 61,215 $ (5,575)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Guaranteed Unearned Total
Debt To Compensation Pension Stockholders'
ESOP ESOP Liability Equity
-------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ (900) $ - $ - $ 137,777
Net income - - - 13,501
Dividends paid, $2.00 per share - - - (8,533)
Reversal of additional liability
for pension plan - - - 108
Unrealized holding gain adjustment - - - (6,007)
Contribution to ESOP 600 - - 600
-------------------------------------------------------------
Balance at December 31, 1994 $ (300) $ - $ - $ 137,446
Net income - - - 10,084
Dividends paid, $1.80 per share - - - (7,677)
Additional pension plan liability (899) -
Reversal of additional liability for -
pension plan - - - 166
Reversal of special dividend paid
on unallocated shares in
employee stock - - - 21
Unrealized holding gain adjustment - - - 7,531
Purchase of 17,300 shares of
treasury stock - - - (514)
Contribution to ESOP 300 - - 300
-------------------------------------------------------------
Balance at December 31, 1995 $ - $ $ (899) $ 147,357
Net income - - - 13,040
Dividends paid, $1.80 per share - - - (7,778)
Additional liability for pension plan - - 125 125
Contribution to ESOP - (2,000) - 661
Exercise of stock options - - - 41
Unrealized holding gain adjustment - - - 6,601
Allocation of ESOP shares - 150 - 164
-------------------------------------------------------------
Balance at December 31, 1996 $ - $ (1,850) $ (774) $ 160,211
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE> 31
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
---------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net income $ 13,040 $ 10,084 $ 13,501
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation, depletion and amortization 6,831 7,723 6,286
Impairment of properties - 10,927 1,763
Impairment of investment 1,917 - -
(Gain) loss on the sale of securties 1,405 (6,391) -
(Gain) loss on the sale of property, plant and equipment (18) 1,490 (125)
Deferred income taxes (369) (3,474) (3,128)
Dry hole expense 16 (72) 1,049
Interest income (3,957) (759) (852)
Other 176 1,674 1,381
---------------------------------------------------
19,041 21,202 19,875
Changes in assets and liabilities:
Accounts receivable (932) (638) 594
Inventories (31) 412 (161)
Other current assets 2,188 1,877 (2,163)
Accounts payable and accrued expenses 591 (2,855) (2,562)
Deferred income (260) (32) 6
Taxes on income (350) 358 (587)
Other assets and liabilities and investments (1,765) (687) 604
---------------------------------------------------
Net cash flows from operating activities $ 18,482 $ 19,637 $ 15,606
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Proceeds from the sale of securities 3,448 6,656 -
Proceeds from the sale of property, plant and equipment 190 1,146 314
Payments received on long-term notes receivable 5,621 5,183 3,738
Producing properties acquired (250) (17,021) (8,114)
Lease acquisitions (19,204) (3,254) (1,771)
Capital expenditures (9,764) (5,827) (11,045)
Note purchases - (800) -
---------------------------------------------------
Net cash flows used in investing activities $ (19,959) $ (13,917) $ (16,878)
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Dividends paid (7,778) (7,677) (8,533)
Proceeds from long-term borrowings 24,128 20,400 -
Repayment of long-term borrowings (16,625) (22,275) (7,625)
Purchases of treasury stock - (514) -
Issuance of stock 652 - -
Reduction in guaranteed debt of ESOP - 300 600
---------------------------------------------------
Net cash flows from financing activities $ 377 $ (9,766) $ (15,558)
---------------------------------------------------
Net decrease in cash and cash equivalents (1,100) (4,046) (16,830)
Cash and cash equivalents - beginning of year 2,993 7,039 23,869
---------------------------------------------------
Cash and cash equivalents - end of year $ 1,893 $ 2,993 $ 7,039
---------------------------------------------------
Supplemental disclosures:
Cash paid during the year for:
Interest $ 1,449 $ 1,978 $ 1,673
Income taxes $ 2,468 $ 3,139 $ 3,496
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 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 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.
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. In the opinion of
management, all adjustments have been reflected that are necessary for a fair
presentation of the consolidated financial statements. 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 in the
consolidated 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 equity securities. The Company classifies its equity
securities as available-for-sale. Available-for-sale securities are recorded at
fair value based upon market quotations. 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
security below cost that is deemed other than temporary, is charged to earnings
in the period it occurs resulting in the establishment of a new cost basis for
the security. Dividend income is recognized when earned. Realized gains and
losses for securities classified as available-for-sale are included in earnings
and are derived using the specific identification method for determining the
cost of securities sold.
NOTES RECEIVABLE
At December 31, 1996, the Company had notes receivable of $7.2 million. The
notes receivable are recorded at cost, adjusted for the amortization of
discounts or accretion of premium. Discounts and premiums are amortized over
the life of the notes receivable using the effective interest rate method.
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
32
<PAGE> 33
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 expense using the units-of-production
method. Oil and gas reserve quantities represent estimates only and there are
numerous uncertainties inherent in the estimation process. Actual future
production may be materially different from amounts estimated and such
differences could materially affect future amortization of proved properties.
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. In addition, 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 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.
Prior to 1995, the Company assessed impairment for its proved properties by
comparing the aggregate carrying value of its proved properties with the
undiscounted future net cash flows from proved reserves, determined in
accordance with Securities and Exchange Commission regulations.
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, 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 entitlement 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, 1996, 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.
33
<PAGE> 34
INCOME TAX
The Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, ("SFAS 109") Accounting for Income Taxes. 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 is based on the weighted average number of shares outstanding
during the year. Options are considered to be common stock equivalents and, to
the extent appropriate, have been added to the weighted average common shares
outstanding.
2. INVESTMENTS AND OTHER INCOME. The cost, gross unrealized holding gains
(losses) and fair value of available-for-sale securities were as follows:
<TABLE>
<CAPTION>
Gross
Unrealized
Holding Fair
Cost Gains (Losses) Value
----------------------------------------
(in thousands)
<S> <C> <C> <C>
At December 31, 1996
Available for sale
Norfolk Southern Corporation $ 2,839 $ 94,172 $ 97,011
Westmoreland Coal Company 350 - 350
Blue Diamond Coal Company 3 4 7
-----------------------------------------
$ 3,192 $ 94,176 $ 97,368
At December 31, 1995
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
</TABLE>
Related dividend income is as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
--------------------------------
(in thousands)
<S> <C> <C> <C>
Norfolk Southern Corporation $ 2,470 $ 2,363 $ 2,309
Westmoreland Resources, Inc. 280 440 400
--------------------------------
$ 2,750 $ 2,803 $ 2,709
</TABLE>
The Company owned 1,102,400 shares of Norfolk Southern Corporation stock at
December 31, 1996 and 1995. The Company owned 755,811 and 1,754,411 shares of
Westmoreland Coal Company's common stock at December 31, 1996 and at December
31, 1995 respectively
In the fourth quarter of 1996, the Company sold 598,600 shares of its
Westmoreland Coal Company common stock to various purchasers. In December 1996,
Westmoreland Coal Company filed for Chapter 11 bankruptcy, therefore Penn
Virginia wrote down its investment in the remaining 755,811 shares held at year
end. In September 1996, the Company contributed 400,000 shares of its
Westmoreland Coal Company common stock to the Penn Virginia Corporation
Benefits Trust Fund, which is a voluntary
34
<PAGE> 35
employee beneficiary association. This fund provided part of the life and
medical benefits coverage for eligible retired employees of Penn Virginia.
3. NOTES RECEIVABLE
Current maturities of notes receivable are as follows:
<TABLE>
<CAPTION>
December 31, 1996 1995
----------------------
(in thousands)
<S> <C> <C>
Current $ 1,512 $ 4,321
Due after one year through five years 3,453 3,402
Due after five years through ten years 2,267 1,180
----------------------
$ 7,232 $ 8,903
</TABLE>
Interest income included in other income amount to $5.1 million, $0.9
million and $1.3 million in 1996, 1995 and 1994 respectively. Included in
1996, 1995 and 1994 interest income was $4.7 million, $0.8 million and $1.0
million respectively, relating to notes receivable on the sale of
coal-in-place.
4. NATURAL GAS CONTRACT SETTLEMENT
The Company recorded $0.6 million in 1996 and $11.4 million in 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.
5. PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment includes:
<TABLE>
<CAPTION>
December 31, 1996 1995
-------------------------
(in thousands)
<S> <C> <C>
Oil and gas properties $138,184 $127,836
Other property, plant and equipment:
Land 694 695
Timber 188 188
Coal properties 29,713 9,169
Other plant and equipment 2,623 2,499
-------------------------
171,402 140,387
Less: Accumulated depreciation,
depletion and amortization 56,110 49,372
-------------------------
Net property, plant and equipment $115,292 $ 91,015
</TABLE>
In May 1996, Westmoreland Coal Company relinquished its rights to an
estimated 115 million tons of Penn Virginia's coal reserves located in
Virginia for $10.7 million and other considerations.
In July 1996, the Company acquired a coal and timber property in West
Virginia for $8.0 million. This acquisition included 15,000 acres holding an
estimated 17 million tons of coal and 22 million board feet of timber.
During 1996, the Company drilled natural gas wells and made three producing
property acquisitions in the oil and gas segment. These capital expenditures
amounted to approximately $10.0 million.
35
<PAGE> 36
6. LONG-TERM DEBT
Long-term debt is summarized in the following table.
<TABLE>
<CAPTION>
December 31, 1996 1995
-----------------------
(in thousands)
<S> <C> <C>
Revolving credit, variable rate of 6.3%
at December 31, 1996 due in 2000 $ 18,304 $ 8,700
Senior notes, 8.83%, due May 10, 1998 4,000 6,000
Term loan 954 -
-----------------------
23,258 14,700
-----------------------
Less current maturities 2,025 2,000
-----------------------
Total long-term debt $ 21,233 $ 12,700
</TABLE>
Maturities of debt:
<TABLE>
<CAPTION>
December 31, 1996
-----------------
(in thousands)
<S> <C>
1997 $ 2,025
1998 2,029
1999 31
2000 18,338
2001 37
Thereafter 798
--------
Total $ 23,258
</TABLE>
REVOLVING CREDIT
During 1996, the Company entered into an agreement with a group of major
U.S. banks for a $50 million unsecured revolving credit facility (the
"Revolver") with a final maturity of 2000.
The Revolver bears interest at LIBOR plus a percentage based on the
borrowing utilized. The financial covenants require the Company to maintain
certain levels of net worth, debt to capitalization and dividend limitation
requirements among other restrictions. At December 31, 1996, the Company was in
compliance with all of its covenants.
SENIOR NOTES
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 the senior debt maturing in 1997 and 1998 amount
to $2,000,000 and $2,000,000, respectively.
36
<PAGE> 37
TERM LOAN
The Company had one unsecured term loan outstanding at December 31, 1996.
This note relates to an oil and gas acquisition in 1994. The note is
non-interest bearing and the maturity date is September 13, 2014; an imputed
interest rate of 7.75 percent is being used. The note balance is $954,000 at
December 31, 1996 and $496,000 was included in the 1995 balance in other
liabilities.
7. ACCRUED EXPENSES
Accrued expenses are summarized in the following table.
<TABLE>
<CAPTION>
December 31, 1996 1995
-------------------------
(in thousands)
<S> <C> <C>
Pension $ 527 $ 927
Compensation 317 487
Accrued lease 312 493
Accrued oil and gas royalties 541 481
Taxes other than income 731 1,164
Postretirement health care 523 340
Other 2,592 778
-------------------------
$ 5,543 $ 4,670
</TABLE>
8. INCOME TAXES
The provision (benefit) for income taxes from continuing operations is
comprised of the following:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
------------------------------------------
(in thousands)
<S> <C> <C> <C>
Current income taxes
Federal $ 1,013 $ 3,602 $ 533
State 542 523 756
------------------------------------------
Total current 1,555 4,125 1,289
Deferred income taxes
Federal (553) (2,336) (3,839)
State 49 (29) (73)
------------------------------------------
Total deferred (504) (2,365) (3,912)
------------------------------------------
Total income tax expense (benefit) $ 1,051 $ 1,760 $(2,623)
</TABLE>
37
<PAGE> 38
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, 1996 1995 1994
-------------------------------------
(in thousands)
<S> <C> <C> <C>
Computed at federal statutory tax rate $ 4,932 $ 4,145 $ 3,807
State income taxes, net of federal income tax effect 384 321 444
Dividends received deduction (674) (687) (664)
Non-conventional fuel source credit (1,769) (1,650) (1,750)
Adjustment to prior year provisions (1,244) - (3,500)
Percentage depletion - (270) (495)
Contribution to funded postretirement benefit plan (420) - -
Other (158) (99) (465)
-------------------------------------
Total income tax expense (benefit) $ 1,051 $ 1,760 $(2,623)
</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, 1996 1995
-----------------------
(in thousands)
<S> <C> <C>
Deferred tax liabilities
Unrealized investment gain $ 32,962 $ 29,404
Oil and gas drilling and development costs 14,030 12,603
Other 859 1,710
-----------------------
Total deferred liabilities $ 47,851 $ 43,717
Deferred tax assets
Investments due to reserves and the equity
method of accounting $ (1,051) $ (732)
Notes receivable from the sale of coal reserves (1,650) (2,064)
Reserve for accounts receivable (46) -
Other property, plant, and equipment, principally due
to differences in depreciation and depletion (4,784) (6,125)
Additional minimum pension liability adjustment (417) (484)
Accrued expenses (1,557) (2,219)
Deferred income for financial reporting purposes (808) (878)
Alternative minimum tax credit carryforwards (4,608) (3,040)
State tax loss carryforward (427) (391)
Postretirement benefit contribution carryforward (420) -
-----------------------
(15,768) (15,933)
Valuation allowance for state tax loss carryforwards - 391
-----------------------
Total deferred assets $(15,768) $(15,542)
-----------------------
Net deferred income tax liability $ 32,083 $ 28,175
</TABLE>
As of December 31, 1996, the Company had available for federal income tax
purposes, alternative minimum tax credits of approximately $4.6 million which
can be carried forward indefinitely as a credit against the regular tax
liability.
38
<PAGE> 39
The Company has various state tax loss carryforwards of approximately $5.2
million at December 31, 1996 which expire between the years 2009 and 2011.
The Company has a carryforward of excess contributions to a funded
postretirement benefit plan of approximately $1.2 million at December 31, 1996.
The excess contributions can be carried forward indefinitely.
9. 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 $527,000,
$457,000 and $971,000 in 1996, 1995 and 1994, respectively.
Benefits accrued by the Company's employees under the defined benefit plan
were frozen effective June 30, 1996. In connection with the freezing of such
benefits the Company recognized a charge of $228,000. The Company believes the
freezing of the defined benefit plan may result in reduced future annual net
periodic pension expense.
Net periodic pension costs for the years 1996, 1995 and 1994 consist of the
following components:
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
------------------------------
(in thousands)
<S> <C> <C> <C>
Service cost $ 129 $ 103 $ 108
Interest cost on projected benefit obligations 843 886 821
Actual return on plan assets (973) (1,605) 25
Net amortization and deferral 300 1,073 (620)
Special termination benefits 228 - 637
------------------------------
Pension expense $ 527 $ 457 $ 971
</TABLE>
The following sets forth the funded status of the plans:
<TABLE>
<CAPTION>
December 31, 1996 1995
--------------------------
(in thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 11,657 $ 11,924
Nonvested benefits 95 77
--------------------------
Accumulated benefit obligations 11,752 12,001
Effect of assumed future compensation levels - 452
--------------------------
Projected benefit obligation 11,752 12,453
Fair value of assets held in plan (8,179) (7,761)
Unrecognized cumulative net loss (1,191) (1,836)
Unrecognized prior service cost (73) (297)
Unrecognized implementation pension asset (37) (60)
Additional liability recognized 1,301 1,731
--------------------------
Unfunded accrued pension cost $ 3,573 $ 4,230
Unfunded accrued pension cost at beginning of year $ 4,230 $ 4,280
Current year's pension expense 527 457
Additional liability recognized (430) 158
Current year's contributions $ (754) $ (665)
--------------------------
Unfunded accrued pension cost at end of year $ 3,573 $ 4,230
</TABLE>
The weighted-average discount rate used to measure the projected benefit
obligations is 7.25 percent. The long-term rate of return on assets is
9.50 percent.
39
<PAGE> 40
10. 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. The
plan provides medical benefits for the retirees and dependents and life
insurance for the retirees. The medical coverage is noncontributory for
retirees who retired prior to January 1, 1991 and may be contributory for
retirees who retire after December 31, 1990.
Postretirement benefit expense for 1996 and 1995 includes the following
components:
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995
-------------------------
(in thousands)
<S> <C> <C>
Service cost $ 32 $ 28
Interest cost on accumulated postretirement
benefit obligation 281 292
Actual return on plan assets 769 (59)
Net amortization and deferral (820) 11
-------------------------
$ 262 $ 272
</TABLE>
The following sets forth the funded status of the plan:
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995
---------------------------
(in thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees $ 3,684 $ 3,551
Fully eligible and other active plan participants 399 363
---------------------------
4,083 3,914
Plan assets at fair value (1,620) (1,513)
---------------------------
Accumulated postretirement benefit obligation
in excess of plan assets 2,463 2,401
Unrecognized loss (1,577) (538)
---------------------------
Unfunded accrued postretirement benefit cost $ 886 $ 1,863
Unfunded accrued postretirement benefit cost
at beginning of year $ 1,863 $ 1,874
Current year's postretirement benefit expense 262 272
Current year's contributions (1,239) (129)
Other 0 (154)
---------------------------
Unfunded accrued postretirement benefit cost
at end of year $ 886 $ 1,863
</TABLE>
For measurement purposes, the following rates were assumed: medical
trend of 9.5 percent reducing to 5.5 percent by 2004, 7.25 percent discount
rate and a 3.0 percent net return on assets.
40
<PAGE> 41
11. OTHER LIABILITIES
The oil and gas segment had operating income of $8.3 million in 1996
compared with an operating loss of $0.3 million in 1995 and Other liabilities
are summarized in the following table:
<TABLE>
<CAPTION>
December 31, 1996 1995
------------------
(in thousands)
<S> <C> <C>
Postretirement health care $ 363 $ 1,523
Deferred income 1,586 1,711
Pension 3,046 3,303
Other 549 1,057
------------------
$5,544 $ 7,594
</TABLE>
12. 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, 1996 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 is at
fair market value of the Company's stock on the date of the grant. Of the
686,750 options that were granted under the Plans, 308,800 options have been
exercised, forfeited or have expired. At December 31, 1996, options totaling
377,950 remain outstanding.
The Company also awarded three different grants of nonqualified stock
options to individual directors. Two grants which were made in 1992, one for
20,000 options and one for 10,000 options, expired in 1996. A third grant was
made in 1994 for 20,000 options. These options may be exercised any time after
twelve months and prior to ten years following the date of the grant. At
December 31, 1996, the 20,000 options from the individual grants remain
outstanding.
40
<PAGE> 42
The following table summarizes information with respect to the common stock
options awarded under the Plans and grants described above:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------------------------------------------------
SHARES Shares Shares
UNDER WEIGHTED AVG. Under Weighted Avg. Under Weighted Avg
OPTIONS EXERCISE PRICE Options Exercise Price Options Exercise Price
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
Beginning of year 251,450 $ 34.73 93,350 $ 40.69 84,050 $ 43.79
Granted-Options 207,200 $ 33.48 196,500 $ 32.46 20,000 $ 31.25
Exercised-Options 20,000 $ 32.57 - $ - - $ -
Cancelled 40,700 $ 40.17 38,400 $ 37.61 10,700 $ 47.39
Outstanding,
End of year 397,950 $ 33.63 251,450 $ 34.73 93,350 $ 40.69
Weighted average of fair
value of options granted
during the year $ 10.05 $ 9.76
</TABLE>
The following table summarizes certain information regarding stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------------------------------------------
Range of Number Weighted Avg. Weighted Avg. Number Weighted Avg
Exercise Outstanding Remaining Exercise Exercisable Exercise
Price at 12/31/96 Contractual Life Price at 12/31/96 Price
- ------------ ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 31 to $ 35 379,000 8.6 $ 32.93 172,000 $ 32.26
$ 42 to $ 48 13,700 2.8 $ 44.74 13,700 $ 44.74
$ 52 to $ 57 5,250 1.0 $ 55.42 5,250 $ 55.42
</TABLE>
The Company applies the intrinsic value method for reporting compensation
expense pursuant to Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees" to its stock-based compensation plans. Accordingly,
no compensation expense has been recognized for awards granted under these
plans. Had compensation expense for the Company's stock-based compensation
plans been determined in accordance with the fair value method pursuant to SFAS
No. 123 "Accounting for Stock-Based Compensation", the Company's proforma net
income and earnings per share for the years ended December 31, 1996 and 1995,
would have been as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
Net Income (in thousands) $ 12,032 $ 9,464
Earnings per share $ 2.77 $ 2.22
</TABLE>
The fair value of the options granted during 1995 and 1996 is estimated on
the date of grant using the Black-Scholes option-pricing model with the
following assumptions: a) dividend yield of 5.27 percent-5.45 percent b)
expected volatility of 40.21 percent-41.17 percent, c) risk-free interest rate
of 5.70 percent-7.64 percent and d)expected life of 10 years.
The effects of applying SFAS No. 123 in this proforma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995.
42
<PAGE> 43
EMPLOYEE STOCK OWNERSHIP PLAN
In February 1996, the Board of Directors extended the Employees' Stock
Ownership Plan ("ESOP"). The ESOP borrowed $2.0 million from the Company and
used the proceeds to purchase treasury stock. Under the terms of the ESOP, the
Company will make annual contributions over a 10-year period.
13. SEGMENT INFORMATION
Penn Virginia's operations are classified into two 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.
<TABLE>
<CAPTION>
Corporate
Coal & Land Oil & Gas and Other Consolidated
-----------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1996
Revenues $ 8,235 $ 23,119 $ 2,750 $ 34,104
Operating income (loss) 5,731 8,337 (874) 13,194
Identifiable assets 38,696 90,657 100,161 229,514
Depreciation, depletion
and amortization 196 6,576 59 6,831
Capital expenditures 19,076 10,081 61 29,218
</TABLE>
<TABLE>
<CAPTION>
Corporate
Coal & Land Oil & Gas and other Consolidated
-----------------------------------------------
(in thousands)
<S> <C> <C> <C>
December 31, 1995
Revenues $ 9,760 $ 25,965 $ 2,803 $ 38,528
Operating income (loss) 7,578 (345) 112 7,345
Identifiable assets 19,604 87,837 98,560 206,001
Depreciation, depletion
and amortization 136 7,550 37 7,723
Capital expenditures 3,466 22,597 39 26,102
</TABLE>
<TABLE>
<CAPTION>
Corporate
Coal & Land Oil & Gas and Other Consolidated
--------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
December 31, 1994
Revenues $ 15,465 $ 15,428 $ 2,818 $ 33,711
Operating income (loss) 13,374 (1,257) (1,405) 10,712
Identifiable assets 24,344 85,041 89,874 199,259
Depreciation, depletion
and amortization 174 6,071 41 6,286
Capital expenditures 239 20,683 8 20,930
</TABLE>
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 used in the Company's operations in
each segment. Corporate assets are principally cash and marketable securities.
43
<PAGE> 44
14. COMMITMENTS AND CONTINGENCIES
RENTAL COMMITMENTS
Minimum rental commitments under all non-cancelable operating leases,
primarily real estate, in effect at December 31, 1996 were:
<TABLE>
<CAPTION>
Year ending December 31,
- --------------------------------------
<S> <C>
1997 $ 831,215
1998 739,567
1999 579,364
2000 52,600
2001 and thereafter -
- --------------------------------------
Total minimum payments $2,202,746
</TABLE>
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.
15. CONCENTRATION OF CREDIT RISK
At December 31, 1996 the Company had notes receivable with face values of
$33.4 million and unamortized discount of $26.2 million for a net carrying
value of $7.2 million due from three purchasers of coal reserves. The notes are
secured by the assets purchased and are being repaid from the cash flow from
the sale of production.
16. SUBSEQUENT EVENTS
In early 1997, the Company sold an additional 750,000 shares of
Westmoreland Coal Company common stock. Penn Virginia has 5,811 shares
remaining as a result of the sale.
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.
17. 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.
44
<PAGE> 45
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
----------------------------------------
(in thousands)
<S> <C> <C> <C>
Proved properties $ 46,744 $ 45,934 $ 28,913
Unproved properties 1,267 1,256 2,362
Wells, equipment and facilities 87,832 78,437 76,403
Support equipment and facilities 2,341 2,209 2,601
----------------------------------------
$ 138,184 $ 127,836 $ 110,279
Accumulated depreciation, depletion and amortization 51,086 44,573 29,491
----------------------------------------
Net capitalized costs $ 87,098 $ 83,263 $ 80,788
</TABLE>
COSTS INCURRED IN CERTAIN OIL AND GAS ACTIVITIES
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
----------------------------------------
(in thousands)
<S> <C> <C> <C>
Proved Property acquisition costs $ 250 $ 17,021 $ 8,170
Unproved Property acquisition costs 189 151 1,544
Exploration costs 2,604 376 1,419
Development costs 7,305 5,426 10,969
----------------------------------------
Total Costs Incurred $ 10,348 $ 22,974 $ 22,102
</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, 1996 1995 1994
----------------------------------------
(in thousands)
<S> <C> <C> <C>
Revenues $ 21,989 $ 14,159 $ 15,428
Natural gas contract settlement 611 11,406 -
Production costs 5,113 4,366 4,452
Exploration costs 402 376 1,419
Depreciation, depletion and amortization 6,576 7,550 6,071
Impairment of properties - 10,927 1,763
----------------------------------------
10,509 2,346 1,723
Income tax expense 981 821 603
----------------------------------------
Results of operations $ 9,528 $ 1,525 $ 1,120
</TABLE>
OIL AND GAS RESERVES
The following schedule presents the estimated oil and gas reserves owned by
Penn Virginia. This information includes Penn Virginia's royalty and net
working interest share of the reserves in western Virginia, southern West
Virginia and eastern Kentucky. Net proved oil and gas reserves as of December
31, 1996, were estimated by the Company's engineers and were reviewed by
Williamson Petroleum Consultants, Inc.(Williamson) of Houston, Texas. Net
proved oil and gas reserves as of December 31, 1995 and 1994 were estimated by
Williamson.
There are many uncertainties inherent in estimating proved reserve
quantities, and projecting future production rates and the timing of future
development expenditures. In addition, reserve estimates of new
45
<PAGE> 46
discoveries are more imprecise than those of properties with a production
history. Accordingly, these estimates are subject to change as additional
information becomes available. All reserves are located in the United States.
Proved oil and gas reserves are the 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 reservoirs
under existing economic and operating conditions at the end of the respective
years. Proved developed oil and gas reserves are those reserves expected to be
recovered through existing equipment and operating methods.
Net quantities of proved reserves and proved developed reserves during the
periods indicated are set forth in the tables below:
<TABLE>
<CAPTION>
Oil and Natural
Proved Developed and Condensate Gas
Undeveloped Reserves: (MBbls) (MMcf)
------------------------
<S> <C> <C>
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
REVISIONS OF PREVIOUS ESTIMATES 70 7,861
EXTENSIONS, DISCOVERIES AND OTHER ADDITIONS - 4,579
PRODUCTION (47) (7,483)
PURCHASE OF RESERVES - 230
------------------------
DECEMBER 31, 1996 454 175,448
PROVED DEVELOPED RESERVES:
December 31, 1994 371 78,125
December 31, 1995 348 86,566
DECEMBER 31, 1996 390 105,113
</TABLE>
The following table sets forth the standardized measure of the discounted
future net cash flows attributable to the Company's proved oil and gas
reserves. Future cash inflows were computed by applying year-end prices of oil
and gas to the estimated future production of proved oil and gas reserves. Gas
prices were escalated only where existing contracts contained fixed and
determinable escalation clauses. Contractually provided gas prices in excess of
estimated market clearing prices were used in computing the future cash inflows
only if the Company expects to continue to receive higher prices under legally
enforceable contract terms. Future prices actually received may differ from
the estimates in the standardized measure.
Future production and development costs represent the estimated future
expenditures (based on current costs) to be incurred in developing and
producing the proved reserves, assuming continuation of existing economic
conditions. Future income tax expenses were computed by applying statutory
income tax rates to the difference between pre-tax net cash flows relating to
the Company's proved oil and gas reserves and the tax basis of proved oil and
gas properties. In addition , the effects of statutory depletion in excess of
tax basis, available net operating loss carryforwards and investment tax credit
carryforwards were used in computing future income tax expense. The resulting
annual net cash inflows were then discounted using a 10 percent annual rate.
46
<PAGE> 47
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
---------------------------------------
(in thousands)
<S> <C> <C> <C>
Future cash inflows $666,658 $461,899 $274,323
Future production costs 163,477 125,561 87,729
Future development costs 38,639 43,850 33,957
---------------------------------------
464,542 292,488 152,637
Future income tax expense 100,285 84,321 36,923
---------------------------------------
Future net cash flows 364,257 208,167 115,714
10% annual discount for estimated timing of cash flows 210,966 119,933 59,634
---------------------------------------
Standardized measure of discounted future net cash flows $153,291 $ 88,234 $ 56,080
</TABLE>
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
------------------------------------------
(in thousands)
<S> <C> <C> <C>
Sales of oil and gas, net of production costs $ (16,876) $ (9,793) $(10,976)
Net changes in prices and production costs 59,168 29,695 (26,667)
Extension, discoveries and additions, net of costs 3,932 (234) 3,930
Development costs incurred during the period 5,456 5,426 14,701
Revisions of previous quantity estimates 9,412 857 (10,074)
Purchase of minerals-in-place 275 24,590 8,285
Sale of minerals-in-place - (1,525) -
Accretion of discount 11,719 6,686 8,726
Net change in income taxes (4,150) (19,152) (4,466)
Other changes (3,879) (4,396) 8,554
------------------------------------------
Net increase (decrease) 65,057 32,154 (7,987)
Beginning of year 88,234 56,080 64,067
------------------------------------------
End of year $ 153,291 $ 88,234 $ 56,080
</TABLE>
Natural gas prices have declined significantly since December 31, 1996.
Accordingly, the discounted future net cash flows would be reduced if the
standardized measure was calculated in the first quarter of 1997.
47
<PAGE> 48
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Penn Virginia engaged Arthur Andersen LLP as independent public accountants
for the Company following the dismissal of KPMG Peat Marwick LLP in August,
1996. The Audit Committee of the Board of Directors approved the change in
independent public accountants.
KPMG Peat Marwick LLP's report on the financial statements of the Company
for the year ended December 31, 1995, contained no adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty,
audit scope, or accounting principles, or as to any other matter. During the
year ended December 31, 1995, and the subsequent interim period preceding the
dismissal, there were no disagreements with KPMG Peat Marwick LLP on any matter
of accounting principles or practices, financial statement disclosure, or
accounting scope or procedure, which disagreements if not resolved to the
satisfaction of KPMG Peat Marwick LLP would have caused it to make reference
thereto in its report on the financial statements of the Company for such
year. Additionally, no "reportable events" (as such term is defined under the
applicable rules and regulations of the Securities and Exchange Commission)
occurred during the year ended December 31, 1995, or the subsequent interim
periods preceding KPMG Peat Marwick LLP's dismissal.
46.01
<PAGE> 49
PART III
ITEMS 10, 11, 12 AND 13 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY,
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.
48
<PAGE> 50
PART IV
ITEM 14 - EXHIBITS 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 24 of this
report.
(b) Exhibits
(3.1) Amended and restated 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) Amended bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1995 (Commission File No. 0-753)).
(4.1) Credit Agreement dated August 21, 1996 between Penn Virginia
Corporation and Texas Commerce Bank National Association, as
Agent (incorporated by reference to Exhibit 4 to the Company's
quarterly report on Form 10-Q for the quarter ended September 30,
1996 (Commission File No. 0-753)).
(4.2) Copies of various other 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 Statements 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) 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 the Company's
definitive Proxy Statement dated March 31, 1997.
(10.7) Penn Virginia Corporation 1994 Stock Option Plan ( incorporated
by reference to Annex A of the Company's definitive Proxy
Statement dated March 28, 1995 (Commission File No. 0-753)).
(10.8) 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 (Commission File No.
0-753)).
49
<PAGE> 51
(16) Letter re: Change in Certifying Accountant (incorporated by
reference to Exhibit 16.1 to Amendment No. 1 to the Company's
Current Report on Form 8-K/A filed on September 6, 1996
(Commission File No. 0-753)).
(21) Subsidiaries of the Company.
(23.1) Consent of KPMG Peat Marwick LLP
(23.2) Consent of Arthur Andersen LLP
(c) Reports on Form 8-K:
Registrant did not file a Current Report on Form 8-K during the
fiscal quarter ended December 31, 1996
50
<PAGE> 1
EXHIBIT 21
PENN VIRGINIA CORPORATION
SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
NAME PERCENTAGES STATE
---- ----------- -----
<S> <C> <C>
Penn Virginia Resources Corporation 100% Virginia
Penn Virginia Coal Company 100% Virginia
Penn Virginia Equities Corporation 100% Delaware
Penn Virginia Oil & Gas Corporation 100% Virginia
</TABLE>
50
<PAGE> 1
EXHIBIT 23.1
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 sheet of Penn Virginia Corporation and subsidiaries as of
December 31, 1995 and the related consolidated statements of income,
shareholders' equity and cash flows for each of the years in the two-year
period then ended which report appears in the December 31, 1996 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.
/s/ KPMG PEAT MARWICK LLP
--------------------------
KPMG PEAT MARWICK LLP
Philadelphia, Pennsylvania
March 26, 1997
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 11, 1997, included in the Annual Report of Penn
Virginia Corporation on Form 10-K for the year ended December 31, 1996, into
Penn Virginia Corporation's previously filed Registration Statements Nos.
2-67355, 2-77500, 33-40430, 33-59647 and 33-59651 on Form S-8.
/s/ ARTHUR ANDERSEN LLP
--------------------------
ARTHUR ANDERSEN LLP
Houston, Texas
March 27, 1997
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
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0
0
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