SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the period ended June 30, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File Number 0-753
PENN VIRGINIA CORPORATION
________________________________________________________________
(Exact name of registrant as specified in its charter)
Virginia 23-1184320
_________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 MATSONFORD ROAD SUITE 200
RADNOR, PA 19807
_________________________________________________________________
(Address of principal executive offices) (Zip Code)
(610) 687-8900
_________________________________________________________________
(Registrant's telephone number, including area code)
_________________________________________________________________
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Number of shares of common stock of registrant
outstanding at August 6, 1998: 8,921,866
<PAGE>
<TABLE>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- -----------------
1998 1997 1998 1997
------ ------ ------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Natural gas $4,667 $4,284 $ 9,658 $ 9,904
Oil and condensate 96 164 213 391
Natural gas royalties 390 342 753 862
Coal royalties 3,332 3,094 5,901 5,739
Timber 618 604 827 810
Dividends 661 661 1,323 1,323
Gain on sale of property 24 25 24 35
Other income 190 238 343 599
------ ------ ------- -------
Total revenues $9,978 $9,412 $19,042 $19,663
Expenses:
Operating expenses $ 950 $ 908 $ 1,917 $ 1,740
Exploration expenses 219 202 268 340
Taxes other than income 666 629 1,347 1,320
General and administrative 2,147 2,263 3,928 3,877
Loss on sale of property 1 0 5 3
Depreciation, depletion,
amortization 1,729 1,624 3,551 3,127
------ ------ ------- -------
Total expenses $5,712 $5,626 $11,016 $10,407
Operating Income $4,266 $3,786 $ 8,026 $ 9,256
Other (Income) Expense:
Interest expense $ 510 $ 641 $ 999 $ 1,114
Gain on sale of securities (14) - (14) -
Other income (654) (892) (1,470) (1,884)
------- ------ ------- -------
Income before income tax $4,424 $4,037 $ 8,511 $10,026
Income tax expense 758 892 1,693 2,155
------ ------ ------- -------
Net Income $3,666 $3,145 $ 6,818 $ 7,871
====== ====== ======= =======
Net Income per share, basic 0.44 0.38 0.82 0.95
====== ====== ======= =======
Net Income per share, diluted 0.43 0.37 0.80 0.93
====== ====== ======= =======
Weighted average shares
outstanding 8,291 8,270 8,285 8,326
(in thousands)
<FN>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE> 1
<TABLE>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
June 30, December 31,
---------- ------------
1998 1997
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,799 $ 831
Accounts receivable 3,251 7,404
Current portion of long-term
notes receivable 1,076 2,414
Current deferred income taxes 696 696
Inventories 244 233
Prepaid expenses 313 311
-------- --------
Total current assets 8,379 11,889
-------- --------
Investments 98,598 100,885
Long-term notes receivable 588 4,195
Oil and gas properties; wells and
equipment, using the successful
efforts method of accounting 151,747 148,487
Other property, plant and equipment 45,737 42,626
Less: Accumulated depreciation,
depletion and amortization (65,170) (61,677)
-------- --------
Total property, plant and equipment 132,314 129,436
-------- --------
Intangible assets, net of amortization 555 537
Other assets 244 288
Total assets $240,678 $247,230
======== ========
<FN>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE> 2
<TABLE>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
June 30, December 31,
--------- ------------
1998 1997
--------- ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments on
long-term debt $ 25 $ 2,025
Accounts payable 1,608 1,828
Accrued expenses 4,060 6,029
Deferred liabilities 83 279
-------- -------
Total current liabilities 5,776 10,161
-------- -------
Other liabilities 3,006 4,659
Deferred income taxes 36,858 36,640
Long-term debt 28,888 31,903
------- -------
Total liabilities 74,528 83,363
------- -------
Commitments and contingencies - -
Minority interest 155 163
------- -------
155 163
Shareholders' equity
Preferred stock of $100 par value-
authorized 100,000 shares; none issued - -
Common stock of $6.25 par value-
authorized 16,000,000 shares, issued
8,921,866 shares and 8,901,434 shares
in 1998 and 1997, respectively 55,887 55,634
Other paid in capital 8,578 8,431
Retained earnings 54,904 51,813
-------- --------
119,369 115,878
Less: 618,874 shares in 1998 and 627,108
in 1997 of common stock held in
treasury, at cost 13,839 14,024
Pension liability 228 228
Unearned compensation - ESOP 1,550 1,650
Add: Net unrealized investment holding gain 62,243 63,728
------- -------
Total shareholders' equity 165,995 163,704
-------- --------
Total liabilities and shareholders' equity $240,678 $247,230
======== ========
<FN>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE> 3
<TABLE>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
(Dollars in thousands)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- -----------------
1998 1997 1998 1997
------- ------ ------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flow from operating
activities:
Net Income $ 3,666 $ 3,145 $ 6,818 $ 7,871
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Depreciation, depletion,
and amortization 1,729 1,624 3,551 3,127
Gain on sale of securities (14) - (14) -
Gain on sale of property,
plant and equipment (23) (25) (19) (32)
Deferred income taxes 1,017 - 1,017 457
Other (419) (620) (978) (1,322)
Decrease in current assets 1,236 756 4,140 1,176
Increase (Decrease) in current
liabilities (650) 253 (2,189) (899)
(Increase) Decrease in
other assets 4,272 (29) 4,228 (44)
Increase (Decrease) in other
liabilities (2,028) (18) (1,850) (48)
Decrease in minority interest (4) (4) (8) (8)
------- ------- ------- --------
Net Cash provided by
operating activities $ 8,782 $ 5,082 $14,696 $ 10,278
Cash flows from investing
activities:
Proceeds from the sale of
securities $ 17 $ - $ 17 $ 350
Proceeds from notes 209 1,270 1,698 2,500
Proceeds from sale of
fixed assets 38 43 59 69
Capital expenditures (5,588) (3,331) (6,408) (13,186)
------- --------- ------- --------
Net Cash used in
investing activities $(5,324) $(2,018) $(4,634) $(10,267)
Cash flows from financing
activities:
Dividends paid $(1,867) $(1,862) $(3,729) $ (3,721)
Proceeds from long-term
debt borrowings - 2,500 - 18,513
Repayment of long-term
debt principal (2,225) (4,425) (5,050) (6,967)
Purchase of treasury stock (50) - - (8,728)
Issuance of stock 663 328 685 410
------- ------- ------- --------
Net Cash provided by
(used in)financing
activities $(3,479) $(3,459) $(8,094) $ (493)
-------- -------- -------- ---------
Net increase (decrease) in
cash and cash equivalents $ (21) $ (395) $ 1,968 $ (482)
Cash and cash equivalents-
beginning balance 2,820 1,806 831 1,893
------- ------- ------- --------
Cash and cash equivalents-
ending balance $ 2,799 $ 1,411 $ 2,799 $ 1,411
======= ======= ======= =========
Supplemental disclosures of
cash flow information:
Cash paid to date for:
Interest $ 557 $ 765 $ 1,020 $ 1,177
Income taxes 700 258 700 456
<FN>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE> 4
PENN VIRGINIA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
- -----------------------------------------------------------------
(1) ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements
of Penn Virginia Corporation and its subsidiaries (the "Company")
have been prepared in accordance with generally accepted
accounting principles for interim financial reporting and SEC
regulations. These statements involve the use of estimates and
judgments where appropriate. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. These
financial statements should be read in conjunction with the
Company's consolidated financial statements and footnotes
included in the Company's December 31, 1997 annual report on Form
10-K. Operating results for the six months ended June 30, 1998
are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998.
(2) SECURITIES
The cost, gross unrealized holding gains or losses and
market value for available-for-sale securities at June 30, 1998
were as follows (in thousands):
<TABLE>
<CAPTION>
Gross Unrealized Market
Cost Holding Gain Value
------- ---------------- -------
<S> <C> <C> <C>
Available-for-Sale:
Norfolk Southern Corporation $2,839 $95,757 $98,596
Other 0 2 2
------ ------- -------
$2,839 $95,759 $98,598
</TABLE>
(3) 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.
(4) EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share" which establishes new standards for
computing and presenting earnings per share. The provisions of
the statement are effective for fiscal years ending after
December 15, 1997.
The following is a reconciliation of the numerators and
denominators used in the calculation of basic and diluted
earnings per share ("EPS") for income from continuing operations
at June 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1998
--------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
(In thousands except per share amounts)
<S> <C> <C> <C>
Basic EPS:
Income from
continuing operations $3,666 8,291 $0.44
Dilutive Securities:
Stock options - 240
------ ----- -----
Diluted EPS:
Income from
continuing operations $3,666 8,531 $0.43
<CAPTION>
Three Months Ended
June 30, 1997
--------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
(In thousands except per share amounts)
<S> <C> <C> <C>
Basic EPS:
Income from
continuing operations $3,145 8,270 $0.38
Dilutive Securities:
Stock options - 171
------ ----- -----
Diluted EPS:
Income from
continuing operations $3,145 8,441 $0.37
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998
--------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
(In thousands except per share amounts)
<S> <C> <C> <C>
Basic EPS:
Income from
continuing operations $6,818 8,285 $0.82
Dilutive Securities:
Stock options - 236
------ ----- -----
Diluted EPS:
Income from
continuing operations $6,818 8,521 $0.80
<CAPTION>
Six Months Ended
June 30, 1997
--------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ----------
(In thousands except per share amounts)
<S> <C> <C> <C>
Basic EPS:
Income from
continuing operations $7,871 8,326 $0.95
Dilutive Securities:
Stock options - 162
------ ----- -----
Diluted EPS:
Income from
continuing operations $7,871 8,488 $0.93
</TABLE>
(5) COMPREHENSIVE INCOME
In the first quarter of 1998, the Company adopted SFAS No.
130, "Reporting Comprehensive Income," which requires the display
of comprehensive income and its components in the financial
statements. Comprehensive income represents all changes in equity
during the reporting period, including net income and charges
directly to equity, which are excluded from net income. For the
six month periods ended June 30, 1998 and 1997, the components of
comprehensive income are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------- ----------------
1998 1997 1998 1997
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income $ 3,666 $ 3,145 $ 6,818 $ 7,871
Unrealized holding gains
(losses) on available for
sale securities (16,271) 11,107 (1,485) 9,136
------- ------- ------- -------
Comprehensive income $(12,605) $14,252 $ 5,333 $17,007
</TABLE>
(6) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities". The Statement establishes accounting
and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded
in other contracts) be recorded in the balance sheet as eithe
r an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge
accounting criteria are met. Special accounting for qualifying
hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and
requires that a company must formally document, designate, and
assess the effectiveness of transactions that receive hedge
accounting.
Statement No. 133 is effective for fiscal years beginning
after June 15, 1999. A company may also implement the Statement
as of the beginning of any fiscal quarter after issuance (that
is, fiscal quarters beginning June 16, 1998 and thereafter).
Statement No. 133 cannot be applied retroactively. Statement No.
133 must be applied to (a) derivative instruments and (b) certain
derivative instruments embedded in hybrid contracts that were
issued, acquired, or substantively modified after December 31,
1997 (and, at the Company's election, before January 1, 1998.)
The Comnpany has not yet quantified the impacts of adopting
Statement No. 133 on our financial statements and has not
determined the timing of or method of our adoption of Statement
No. 133. However, the Statement could increase volatility in earnings
and other comprehensive income.
(7) START-UP ACTIVITIES
In April 1998, the AICPA issued SOP 98-5, "Reporting on the
Costs of Start-Up Activities," which requires costs of start-up
activities to be expensed as incurred. This statement is
effective for financial statements beginning after December 15,
1998 and requires entities to expense currently capitalized costs
related to start-up activities as a cumulative effect of a change
in accounting principle upon adoption of this statement. The
impact of this new standard is not expected to have a material
impact on the Company's financial position or results of
operations.
<PAGE> 6
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Second quarters of 1998 and 1997
Compared.
Penn Virginia reported 1998 second quarter earnings of $3.7
million or $0.43 per share (diluted) compared with $3.1 million
or $0.37 per share (diluted) for the second quarter of 1997. On a
consolidated basis, revenue increased $0.6 million in the second
quarter of 1997. This increase was a result of an increase in
coal revenues of $0.2 million and natural gas sales of $0.4
million.
Results of Operations - Six months of 1998 and 1997 Compared.
Penn Virginia reported 1998 six months earnings of $6.8
million or $0.80 per share (diluted) compared with $7.9 million
or $0.93 per share (diluted) for the six months of 1997. On a
consolidated basis, revenues were lower $0.6 million primarily as
a result of lower prices received for natural gas and oil
compared with 1997. Expenses on a consolidated basis were higher
by $0.6 million compared with 1997. This increase was a result of
higher operating costs in the oil and gas segment, an increase in
general and administrative expense in the coal segment and an
overall increase in depletion and depreciation.
The Company operates in two business segments: oil and gas
and coal. 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 coal segment includes
Penn Virginia's mineral rights to coal reserves, its timber and
land assets. The Company also owns mineral rights to oil and gas
reserves. Selected operating and financial data by segment is
presented below.
Oil and Gas
Operating income for the oil and gas segment was $3.3 million for
the six months of 1998 compared with $4.2 million for the six
months of 1997. Operational and financial data for the Company's
oil and gas segment for the 1998 and 1997 three and six months
ended June 30 is summarized in the following tables:
<PAGE> 7
<TABLE>
<CAPTION>
Operations Summary
-----------------------------
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Production
Natural gas (MMcf)-Working Interest 1,819 1,760 3,732 3,495
Natural gas (MMcf)-Royalty Interest 147 148 287 294
Oil and condensate (MBbls) 8 10 17 21
Production, MMcfe 2,014 1,968 4,121 3,915
Average Realized Prices
Natural gas ($/Mcf)-Working Interest $ 2.57 $ 2.43 $ 2.59 $ 2.83
Natural gas ($/Mcf)-Royalty Interest 2.65 2.31 2.62 2.93
Oil and condensate ($/Bbl) 12.00 16.40 12.53 18.62
Average Costs (per MMcfe)
Lease operating $ 0.44 $ 0.41 $ 0.44 $ 0.41
Exploration expenses 0.03 0.08 0.02 0.06
Taxes other than on income 0.26 0.29 0.26 0.31
General and administrative 0.33 0.37 0.31 0.35
Depreciation, depletion and
amortization 0.77 0.74 0.78 0.72
----- ----- ----- -----
Total costs $1.83 $1.89 $1.81 $1.85
</TABLE>
Approximately 50 percent of the Company's 1998 working interest
natural gas production was sold at market prices, with the
remaining 50 percent sold under fixed-price term contracts. The
Company will, when circumstances warrant, hedge the price
received for market-sensitive production through the use of swaps
with purchased options. Gains and losses from hedging activities
are included in natural gas revenues when the hedged production
occurs. In the second quarter of 1998, the Company recognized a
$0.2 million loss on hedging activities compared with a $0.1
million loss in the second quarter of 1997. Year-to-date the
Company has recognized losses of $0.4 million on hedging activities
compared with $0.1 million in 1997. The following table shows the
effect of hedging activities on the Company's working interest
natural gas prices:
<TABLE>
<CAPTION>
Hedging Summary
-----------------------------
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Natural gas prices ($/Mcf):
Actual price received for production $ 2.68 $ 2.48 $ 2.70 $ 2.86
Effect of hedging activities (0.11) (0.05) (0.11) (0.03)
------ ------ ------ ------
Average price $ 2.57 $ 2.43 $ 2.59 $ 2.83
</TABLE>
<TABLE>
<CAPTION>
Financial Summary
-----------------------------
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues:
Natural gas sales $4,667 $4,284 $ 9,658 $ 9,904
Oil and gas royalties 390 342 753 862
Oil and condensate 96 164 213 391
Other income 106 185 178 261
------ ------ ------- -------
Total revenues $5,259 $4,975 $10,802 $11,418
------ ------ ------- -------
Expenses:
Operating expenses $ 889 $ 805 $ 1,828 $ 1,592
Exploration expenses 58 150 95 234
Taxes other than income 525 562 1,081 1,198
General and administrative 667 737 1,273 1,373
Loss on the sale of property 4 1
Depreciation and depletion 1,548 1,455 3,199 2,815
------ ------ ------- -------
Total expenses 3,687 3,709 7,480 7,213
------ ------ ------- -------
Operating Income $1,572 $1,266 $ 3,322 $ 4,205
====== ====== ======= =======
</TABLE>
<PAGE> 8
Results of Operations - Second quarters of 1998 and 1997
Compared.
Natural Gas. Natural gas sales were $4.7 million in the second
quarter of 1998 compared with $4.3 million for the second quarter
of 1997. The average price received by the Company for its
working interest gas was $2.57 per thousand cubic feet (Mcf)
compared with $2.43 per Mcf for the same period of 1997. Natural
gas volumes were up approximately three percent in the second
quarter of 1998 compared with the second quarter of 1997.
Oil and Condensate. Oil sales decreased $68,000 (41 percent) in
the second quarter of 1998 compared with the same period of 1997.
Prices per barrel were lower, averaging $12.00 per barrel (Bbl)
for second quarter of 1998 compared with $16.40 per Bbl for 1997.
As shown on the table above, production was down approximately 20
percent in the second quarter of 1998 compared with the second
quarter of 1997.
Oil and Gas Royalties. Oil and gas royalties increased $48,000
(14 percent) in the second quarter of 1998 compared with the same
period of 1997. This variance resulted from an increase in
natural gas prices from $2.31 per Mcf in the second quarter of
1997 to $2.65 in the second quarter of 1998 with production
remaining unchanged.
Other Income. Other income decreased $79,000 (43 percent) in the
second quarter of 1998 compared with the same period of 1997.
This decrease is a result of lower gathering and compression fees
received by the Company due to decreases in production.
Operating Expenses. Operating expenses for the second quarter of
1998 were $889,000 compared with $805,000 for the second quarter
of 1997. This increase is due to higher repairs and maintenance
costs related to the spring floods, increases in compressor
rentals in various fields and the timing of the well workover
program.
Exploration Expenses. Exploration expenses decreased $92,000 (61
percent) in the second quarter of 1998 compared with the same
period of 1997. This decrease is related to the absence of dry
hole costs and other preliminary field costs incurred by the
Company in 1997.
Taxes other than Income. Taxes other than on income decreased
$37,000 (7 percent) in the second quarter of 1998 compared to the
same period in 1997. This decrease is a result of lower ad
valorem taxes due in part to the sale of reserves in late 1997 of
a certain area in northern West Virginia.
General and Administrative. General and administrative expenses
decreased $70,000 (9 percent) in the second quarter of 1998
compared with the second quarter in 1997. This decrease is due to
the elimination of marketing fees charged on a portion of the
Company's natural gas sales.
Depreciation and Depletion. Depreciation and depletion expense
increased $93,000 (6 percent) from $1,455,000 in the second
quarter of 1997 to $1,548,000 in the second quarter 1998. Increased
natural gas production in 1998 over 1997 and changes in reserve
estimates in various fields at December 31, 1997 have resulted in
increases in depletion rates in those fields. The rate increased
from $0.74 per Mcfe in the second quarter of 1997 to $0.77 per Mcfe
in the second quarter of 1998.
Results of Operations - Six Months of 1998 and 1997 Compared.
Natural Gas Sales. Natural gas sales decreased from $9.9 million
in the first six months of 1998 to $9.7 million in the first six
months of 1998. This slight decrease of two percent is a result
of a decrease in pricing offset by an increase in volume. The
natural gas sales volumes for the first six months of 1998 were
3,732 MMcf compared with 3,495 MMcf for the first six months of
1997. The average price received by the Company for its working
interest gas was $2.59 per Mcf compared with $2.83 per Mcf for
the same period of 1997.
Oil and Condensate Sales. Oil sales decreased $178,000 (46
percent) for the first six months of 1998 compared with the first
six months of 1997. This decrease resulted from a reduction in
volume of four MBbls and a decrease in price per Bbl. The price
per Bbl for the first six months of 1998 was $12.53 compared with
$18.62 per Bbl for the first six months of 1997.
Oil and Gas Royalties. Oil and gas royalties decreased $109,000
(13 percent) in the first six months of 1998 compared with the
same period in 1997. This decrease resulted from a decline in
volume of 7 MMcf and a decrease in price from $2.93 per Mcf in
the first six months of 1997 compared with $2.62 per Mcf in the
first six months of 1998.
Other Income. Other income decreased $83,000 (37 percent) in
the first six months of 1998 compared with the same period in
1997. This decrease is a result of lower gathering and
compression fees received by the Company due to decreases in
production.
Operating Expenses. Operating expenses for the first six months
of 1998 were $1.8 million, which is an increase of $236,000 (15
percent) compared with the first six months of 1997. On an Mcfe
basis, operating expenses increased from $0.41 cents in the first
six months of 1997 to $0.44 cents in the first six months of
1998. This increase is due to higher repairs and maintenance
costs related to the spring floods, increases in compressor
rentals in various fields and the timing of the well workover
program.
Exploration Expenses. Exploration expenses decreased $139,000
(59 percent) for the first six months of 1998 compared with the
first six months of 1997. This decrease is a result of the
absence of dry hole costs and other preliminary field costs
incurred by the Company in 1998 compared with 1997.
<PAGE> 9
Taxes other than Income. Taxes other than on income decreased
$117,000 (10 percent) for the first six months of 1998 compared
with 1997. This decrease is a result of lower ad valorem taxes
due in part to the sale of reserves in late 1997 of a certain
area in northern West Virginia as well as a reduction in business
franchise taxes.
General and Administrative. General and administrative expenses
decreased $100,000 in the first six months of 1998 compared with
the first six months of 1997. This decrease is related to the
elimination of marketing fees charged on a portion of the
Company's natural gas sales.
Depreciation and Depletion. Depreciation and depletion expense
increased $384,000 (14 percent) from $2,815,000 in the first six
months of 1997 compared with $3,199,000 in the first six months
of 1998. The rate increased from $0.72 per Mcfe in the first six
months of 1997 to $0.78 per Mcfe in the first six months of 1998.
Increased natural gas production in 1998 over 1997 and changes in
reserve estimates in various fields at December 31, 1997 have
resulted in increases in depletion rates in those fields.
<PAGE> 10
Coal
Operating income for the coal segment was $5.1 million for the
six months of 1998 compared with $5.6 million for the six months
of 1997. Operational and financial data for the Company's coal
segment for the 1998 and 1997 second quarter and six months year
to date is summarized in the following tables:
<TABLE>
<CAPTION>
Operations Summary
-----------------------------
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Production
Coal tons (000's) 1,583 1,809 2,567 2,638
Timber (Mbf) 3,123 2,672 4,107 3,501
Average Realized Prices
Coal royalties ($/ton) $ 2.11 $ 1.71 $ 2.30 $ 2.18
Timber ($/Mbf) 172 180 186 213
Average Costs (per ton)
Lease operating $ 0.04 $ 0.06 $ 0.03 $ 0.06
Exploration expenses 0.10 0.03 0.07 0.04
Taxes other than on income 0.08 0.03 0.08 0.02
General and administrative 0.34 0.22 0.40 0.28
Depreciation, depletion and
amortization 0.10 0.08 0.11 0.10
------ ------ ------ ------
Total costs $ 0.66 $ 0.42 $ 0.69 $ 0.50
</TABLE>
<TABLE>
<CAPTION>
Financial Summary
-----------------------------
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Revenues:
Coal royalties $3,332 $3,094 $5,901 $5,739
Timber sales 618 604 827 810
Gain on sale of property - 10 - 19
Other income 107 69 188 354
------ ------ ------ ------
Total revenues 4,057 3,777 6,916 6,922
------ ------ ------ ------
Expenses:
Operating expenses $ 61 $ 104 $ 89 $ 148
Exploration expenses 158 52 169 106
Taxes other than income 119 51 205 62
General and administrative 535 396 1,033 741
Loss on sale of property - - 1 1
Depreciation and depletion 151 142 293 260
------ ------ ------ ------
Total expenses 1,024 745 1,790 1,318
------ ------ ------ ------
Operating Income $3,033 $3,032 $5,126 $5,604
====== ====== ====== ======
</TABLE>
Results of Operations - Second quarters of 1998 and 1997
Compared.
Coal Royalties. Coal royalties increased $238,000 (8 percent) in
the second quarter of 1998 compared with the same period in 1997.
This increase was primarily due to the recognition of previously
deferred revenue associated with the cancellation of certain
leases. The average realization per ton increased from $1.71 in
the second quarter of 1997 to $2.11 in the second quarter of
1998.
Timber. Timber sales increased $14,000 (2 percent) in the second
quarter of 1998 compared with the second quarter of 1997. Volume
sold increased from 2,672 thousand board feet (Mbf) in the second
quarter of 1997 to 3,123 Mbf in the second quarter of 1998. This
increase was related to the timing of the Company's parcel timber
sales and timber harvested in advance of expected mining
operations.
<PAGE> 11
Other Income. Other income increased $38,000 (55 percent) for
the second quarter of 1998 compared with the second quarter of
1997. This increase was related to wheelage income from the
Company's properties.
Operating Expenses. Operating expenses decreased $43,000 (41
percent) from $104,000 in the second quarter of 1997 to $61,000
in the second quarter of 1998. This decrease is a result of a
change in the method of selling timber. In the prior year the
Company contracted the harvesting of a portion of its timber and
negotiated the sale of this timber directly with the mill. In the
second quarter of 1998 the Company has had more parcel timber
sales instead of the sales method used in the prior year. The
Company sales method has the effect of increasing the operating
costs.
Exploration Expenses. Exploration expenses were $158,000 for the
second quarter of 1998, which is an increase of 204 percent from
the comparable 1997 time period. This increase in the second
quarter is due to costs incurred for maintaining a mine on a
terminated lease and the timing of the Company's core drilling
program.
Taxes other than Income. Taxes other than on income increased
$68,000 (133 percent) from $51,000 in the second quarter of 1997
to $119,000 in the second quarter of 1998. This increase is a
result of adjustments that the Company had recorded in 1997
related to property taxes compared with an actual number for
1998.
General and Administrative. General and administrative expenses
increased $139,000 (35 percent) from $396,000 in the second
quarter of 1997 to $535,000 in the second quarter of 1998. This
increase relates to salary and employee benefit increases
associated with the opening of a satellite office in Charleston,
West Virginia and an increase in legal fees. Legal fees increased
due to the bankruptcy of one of the Company's lessees and the
termination of the lease of another lessee due to the loss of a
sales contract.
Depreciation and Depletion. Depreciation and depletion increased
$9,000 (6 percent) from $142,000 in the second quarter of 1997
to $151,000 in the second quarter of 1998. This increase was due
to the production of reserves from the Company's Wise properties.
Results of Operations - Six Months of 1998 and 1997 Compared.
Coal Royalties. Coal royalties increased $162,000 (3 percent) in
the first six months of 1998 compared with the same period in
1997. The average realization per ton increased from $2.18 in the
first six months of 1997 to $2.30 in the first six months of
1998. This increase was primarily due to the recognition of
previously deferred revenue associated with the cancellation of
certain leases.
Timber. Timber sales increased $17,000 (2 percent) in the first
six months of 1998 compared with the first six months of 1997.
Volume sold increased to 4,107 Mbf in the first six months of
1998 compared with 3,501 Mbf in the first six months of 1997.
This increase was related to the timing of the Company's parcel
timber sales and timber harvested in advance of expected mining.
The average realized price per Mbf declined from $213 Mbf in the
first six months of 1997 to $186 per Mbf in the first six months
of 1998.
Other Income. Other income decreased $166,000 (47percent) for
the first six months of 1998 compared with the first six months
of 1997. This decrease is a result of a decline in bonuses paid
by new lessees to secure leases on the Company's Virginia coal
properties. In 1997 the Company was actively leasing several coal
properties for mining.
Operating Expenses. Operating expenses decreased $59,000 (40
percent) for the first six months of 1998 compared with first six
months of 1997. The decrease was a result of the method of
selling timber in the first six months of 1998 compared with
1997. In the prior year the Company contracted the harvesting of
a portion of its timber and negotiated the sale of this timber
directly with the mill. The Company has had more parcel timber
sales this year instead of selling the timber directly to the
mill.
Exploration Expenses. Exploration expenses increased $63,000 (59
percent) for the first six months of 1998 compared with the first
six months of 1997. This increase is due to costs incurred to
maintain a mine on a terminated lease.
Taxes other than Income. Taxes other than on income increased
$143,000 (231 percent) in the first six months of 1998 compared
with the first six months of 1997. This increase is a result of
adjustments the Company recorded in 1997 on property taxes.
General and Administrative. General and administrative expenses
increased $292,000 (39 percent) in the first six months of 1998
compared with the first six months of 1997. This increase is a
result of personnel additions and salary and related employee
benefit expense increases related to the opening of a satellite
office in Charleston, West Virginia. Legal costs are also higher
due to legal proceedings related to the bankruptcy of one of the
Company's lessees and the termination of the lease of another
lessee due to the loss of a sales contract.
Depreciation and Depletion. Depreciation and depletion increased
$33,000 (13 percent) in the first six months of 1998 compared
with the first six months of 1997. The depletion rate per ton
increased from $0.10 to $0.11. This increase was due to the
production of reserves from the Company's Wise properties.
<PAGE> 12
Capital Expenditures, Capital Resources and Liquidity
Capital Expenditures.
In the first six months of 1998, capital expenditures totaled
$6.2 million compared with $13.2 million in the first six months
of 1997. In the first six months of 1997 the Company successfully
completed two coal reserve acquisitions. In January 1997, a
transaction was completed for a property in Virginia. The Company
acquired 10.5 million tons of high quality metallurgical coal
reserves which have been leased to an operator and are actively
being mined and sold under contract by the operator. The purchase
price was approximately $7.0 million. In February 1997, the
Company acquired 7.5 million tons of coal contiguous to its
existing Wise property reserves for approximately $1.9 million.
In the first six months of 1998, the Company successfully
completed the repurchase of coal reserves previously sold to an
operator under an installment sale.
In the oil and gas segment the Company had capital expenditures
totaling approximately $3.5 million in the first six months of
1998. The Company has drilled 25 gross (17.5 net) wells in the
first six months of the year. The Company expects to drill
approximately 50 net wells in 1998, with approximately 10 to 15
wells in exploratory areas.
Capital Resources and Liquidity.
Net cash provided by operating activities was $14.7 million in the
first six months of 1998 compared with $10.3 million in the first
six months of 1997. The Company's borrowings decreased from $33.9
million at the end of 1997 to $28.9 million at June 30, 1998.
The Company has four fixed-price term agreements for a portion of
its natural gas production to limit exposure to price
fluctuations. Presently, the Company has sold approximately 8,500
net Mcf per day at a weighted average price in excess of $2.80
per Mcf. These physical sales cover various periods with
termination dates of October 1998 and December 1998.
Additionally, the Company has two natural gas derivative
transactions. The financial instruments executed provide a price
floor to limit downside price risk and a market participation
price that allows the Company to receive the benefit of a price
upturn. One financial transaction is for 5,000 MMBtu per day with
a floor of approximately $2.10 per MMBtu and market re-opener at
$2.48 per MMBtu with a term from May 1997 through October 1999.
The second transaction is also for 5,000 MMBtu per day with a
floor of approximately $2.10 per MMBtu and market re-opener at
$2.35 per MMBtu with a term from November 1997 through October
1999.
The Company also holds an investment in Norfolk Southern common
stock. At June 30, 1998, the Company had an unrealized holding
gain of approximately $95.8 million.
The Company recovered the lease on its Bull Creek property from
the lessee who is in Chapter 11 Bankruptcy proceedings.
Subsequently the Company re-entered into a lease agreement for a
portion of the Bull Creek reserves. Anticipated production of
Bull Creek reserves under this lease is expected to commence by
the second quarter of 1999. A Buchanan property lessee lost a
sales contract earlier this year and ceased production in the
first quarter of 1998. A new lease for these reserves has been
negotiated with another operator. Production is expected to resume
in the third quarter of 1998.
Year 2000
The Company is investigating the extent to which the
Company's currently installed information technology and non-
information technology systems, and those of third parties with
whom the Company conducts business, will be affected by what is
commonly known as the "Year 2000" problem. The Company has
reviewed its Year 2000 issues and has inquired and received verbal or
written assurances from a majority of its providers as to their
progress in addressing Year 2000 issues and that such providers
expect to be Year 2000 compliant in all material respects.
The Company estimates that costs incident to Year 2000
compliance will not exceed $100,000.
Based on information known at this time, the Company expects
to be Year 2000 compliant in all material respects in a timely
manner and does not believe that Year 2000 compliance will have a
material adverse effect on the Company. No assurance can be
given, however, that all of the Company's systems or those of
third parties with whom the Company conducts business will be
Year 2000 compliant, that compliance costs will not exceed
expected amounts or that the impact of any failure by the Company
or any such third party to achieve Year 2000 compliance will not
have a material adverse effect on the Company.
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
<PAGE> 13
statements.
Important factors that could cause the actual results of
operations or financial condition of Penn Virginia to differ
include, but are not necessarily limited to: the cost of finding
and successfully developing oil and gas reserves; the cost of
finding new coal reserves; the ability to acquire new oil and gas
and coal reserves on satisfactory terms; the price for which such
reserves can be sold; the volatility of commodity prices for oil
and gas and coal; the risks associated with having or not having
price risk management programs; Penn Virginia's ability to lease
new and existing coal reserves; the ability of Penn Virginia's
lessees to produce sufficient quantities of coal on an economic
basis from Penn Virginia's reserves; the ability of lessees to
obtain favorable contracts for coal produced from Penn Virginia
reserves; Penn Virginia's ability to obtain adequate pipeline
transportation capacity for its oil and gas production;
competition among producers in the coal and oil and gas
industries generally and in the Appalachian Basin in particular;
the extent to which the amount and quality of actual production
differs from estimated recoverable coal reserves and proved oil
and gas reserves; unanticipated geological problems; availability
of required materials and equipment; the occurrence of unusual
weather or operating conditions including force majeure or
events; the failure of equipment or processes to operate in
accordance with specifications or expectations; delays in
anticipated start-up dates; environmental risks affecting the
drilling and producing of oil and gas wells or the mining of coal
reserves; the timing of receipt of necessary governmental
permits; labor relations and costs; accidents; changes in
governmental regulation or enforcement practices, especially with
respect to environmental, health and safety matters, including
with respect to emissions levels applicable to coal-burning power
generators; risks and uncertainties relating to general domestic
and international economic (including inflation and interest
rates) and political conditions; the experience and financial
condition of lessees of coal reserves, joint venture partners and
purchasers of reserves in transactions financed by Penn Virginia,
including their ability to satisfy their royalty, environmental,
reclamation and other obligations to Penn Virginia and others;
changes in financial market conditions; changes in the market
prices or value of the marketable securities owned by Penn
Virginia, including the price of Norfolk Southern common stock
and other risk factors detailed in Penn Virginia's Securities and
Exchange commission filings. Many of such factors are beyond
Penn Virginia's ability to control or predict. Readers are
cautioned not to put undue reliance on forward-looking
statements.
While Penn Virginia periodically reassesses material trends
and uncertainties affecting Penn Virginia's results of operations
and financial condition in connection with the preparation of
Management's Discussion and Analysis of Results of Operations and
Financial Condition and certain other sections contained in Penn
Virginia's quarterly, annual or other reports filed with the
Securities and Exchange Commission, Penn Virginia does not intend
to publicly review or update any particular forward-looking
statement, whether as a result of new information, future events
or otherwise.
<PAGE> 14
PART II Other information
Item 5. Shareholder Proposals
Any shareholder who, in accordance with and subject to the
provisions of the proxy rules of the Securities and Exchange
commission, wishes to submit a proposal for inclusion in the
Company's proxy statement for its 1999 Annual meeting of
Shareholders must deliver such proposal in writing to the
Company's Secretary at the Company's principal executive offices
at One Radnor Corporate Center, Suite 200, 100 Matsonford Road,
Radnor, Pennsylvania 19087, not later than November 27, 1998.
Pursuant to new amendments to Rule 14a-4(c) of the
Securities Exchange Act of 1934, as amended, and the Company's
By-laws, if a shareholder who intends to present a proposal at
the 1999 Annual Meeting of Shareholders does not notify the
Company of such proposal on or prior to the earlier of 90 days
prior to the date of the 1999 Annual Meeting or February 3,1999,
then management proxies will be permitted to use their
discretionary authority to vote on the proposal when the proposal
is raised at the 1999 Annual Meeting of Shareholders, even though
there is no discussion of the proposal in the 1999 proxy
statement.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule, filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended
June 30, 1998.
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, as amended, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
PENN VIRGINIA CORPORATION
Date: August 14, 1998 By: /s/ Steven W. Tholen
--------------- -----------------------
Steven W. Tholen, Vice
President and Chief
Financial Officer
Date: August 14, 1998 By: /s/ Ann N. Horton
--------------- ------------------------
Ann N. Horton, Controller
and Principal Accounting
Officer
<PAGE> 16
PENN VIRGINIA CORPORATION
INDEX
- -----------------------------------------------------------------
PAGE
PART I Financial Information:
Item 1. Financial Statements
Condensed Consolidated Statements of Income for
the three and six months ended June 30, 1998 and 1997 1
Condensed Consolidated Balance Sheets as of June 30,
1998 and December 31, 1997 2
Condensed Consolidated Statements of Cash Flows
for the three and six months ended June 30, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7
PART II Other Information
Item 5. Shareholder Proposals 15
Item 6. Exhibits and Reports on Form 8-K 15
<PAGE>
Article 5 of Regulation S-X
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,799
<SECURITIES> 0
<RECEIVABLES> 3,251
<ALLOWANCES> 0
<INVENTORY> 244
<CURRENT-ASSETS> 8,379
<PP&E> 197,484
<DEPRECIATION> 65,170
<TOTAL-ASSETS> 240,678
<CURRENT-LIABILITIES> 5,776
<BONDS> 0
0
0
<COMMON> 55,887
<OTHER-SE> 110,108
<TOTAL-LIABILITY-AND-EQUITY> 240,678
<SALES> 17,352
<TOTAL-REVENUES> 19,042
<CGS> 1,917
<TOTAL-COSTS> 1,917
<OTHER-EXPENSES> 9,099
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 999
<INCOME-PRETAX> 8,511
<INCOME-TAX> 1,693
<INCOME-CONTINUING> 6,818
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,818
<EPS-PRIMARY> 0.82
<EPS-DILUTED> 0.80
</TABLE>
