UNITED STATES
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 September 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
PENN VIRGINIA CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 23-1184320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 MATSONFORD ROAD SUITE 200
RADNOR, PA 19087
(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
November 4, 1999: 8,921,864
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - Unaudited
(in thousands, except per share amounts)
<TABLE>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Natural gas $5,498 $4,715 $13,563 $14,373
Oil and condensate 128 47 293 260
Natural gas royalties 452 442 1,267 1,195
Coal royalties 4,283 2,629 12,257 7,742
Timber 737 327 1,347 1,154
Dividends 661 662 1,984 1,985
Gain on sale of property - 21 - 45
Other income 620 955 1,718 2,086
Total revenues 12,379 9,798 32,429 28,840
Expenses:
Operating expenses 1,195 953 3,302 2,870
Exploration expenses 696 387 1,370 655
Taxes other than income 662 701 1,985 2,048
General and administrative 2,198 1,725 6,345 5,653
Loss on sale of property - - - 5
Depreciation, depletion,
amortization 2,198 1,697 6,120 5,248
Total expenses 6,949 5,463 19,122 16,479
Operating Income 5,430 4,335 13,307 12,361
Other (Income) Expense:
Interest expense 793 488 1,864 1,487
Gain on sale of securities - - - (14)
Other income (351) (610) (1,072) (2,080)
Income before income tax 4,988 4,457 12,515 12,968
Income tax expense 1,043 1,015 2,490 2,708
Net Income $3,945 $3,442 $10,025 $10,260
Net Income per share, basic $0.47 $0.41 $1.19 $1.24
Net Income per share,
diluted $0.46 $0.41 $1.18 $1.21
Weighted average shares
outstanding 8,423 8,308 8,401 8,292
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
September 30, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ - $ 225
Accounts receivable 6,141 5,682
Current portion of long-term notes receivable 391 364
Current deferred income taxes 577 577
Other 712 680
Total current assets 7,821 7,528
Investments 81,047 104,819
Long-term notes receivable 2,778 3,079
Oil and gas properties; wells and equipment,
using the successful efforts method of
accounting 178,398 157,558
Other property, plant and equipment 85,267 52,455
Less: Accumulated depreciation, (74,792) (68,745)
depletion and amortization
Total property, plant and equipment 188,873 141,268
Other assets 476 237
Total assets $280,995 $256,931
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
September 30, December 31,
1999 1998
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $ 2,203 $ -
Current installments on long-term debt 31 31
Accounts payable 507 1,397
Accrued expenses 4,304 5,039
Deferred income 461 576
Total current liabilities 7,506 7,043
Other liabilities 3,243 2,875
Deferred income taxes 31,471 38,787
Long-term debt 78,485 37,967
Total liabilities 120,705 86,672
Commitments and contingencies - -
Shareholders' equity
Preferred stock of $100 par value-
100,000 shares authorized; none issued - -
Common stock of $6.25 par value-
16,000,000 shares authorized; 8,921,866 and
8,921,866 shares issued in 1999 and 1998,
respectively 55,762 55,762
Other paid-in capital 8,168 8,441
Retained earnings 58,276 53,924
Accumulated other comprehensive income 50,533 65,985
172,739 184,112
Less: 498,902 shares in 1999 and 555,050 in 1998
of common stock held in treasury, at cost 11,149 12,403
Unearned compensation - ESOP 1,300 1,450
Total shareholders' equity 160,290 170,259
Total liabilities and shareholders' equity $ 280,995 $ 256,931
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS - Unaudited
(in thousands)
<TABLE>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net Income $ 3,945 $ 3,442 $ 10,025 $ 10,260
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation, depletion, and
amortization 2,198 1,697 6,120 5,248
Gain on sale of securities - - - (14)
Gain on sale of property,
plant and equipment - (21) - (40)
Deferred income taxes 767 797 1,004 1,814
Dry hole expense 481 60 601 47
Other (323) (594) (978) (1,560)
Changes in operating assets
and liabilities:
Current assets (1,317) 419 (488) 4,559
Current liabilities 404 (835) (1,740) (3,024)
Other assets (321) (33) (316) 4,195
Other liabilities (122) 55 369 (1,803)
Net Cash provided by
operating activities 5,712 4,987 14,597 19,682
Cash flows from investing activities:
Proceeds from the sale of securities - - - 17
Proceeds from notes receivable 417 417 1,252 2,116
Proceeds from sale of fixed assets - 21 - 80
Capital expenditures (49,418) (8,258) (54,253) (14,666)
Net Cash used in investing
activities (49,001) (7,820) (53,001) (12,453)
Cash flows from financing activities:
Dividends paid (1,895) (1,868) (5,673) (5,597)
Proceeds from debt borrowings 45,025 3,500 46,703 3,500
Repayment of debt (17) (25) (3,982) (5,075)
Issuance of stock 63 248 1,131 933
Net Cash provided by (used in)
financing activities 43,176 1,855 38,179 (6,239)
Net increase (decrease) in cash
and cash equivalents (113) (978) (225) 990
Cash and cash equivalents-beginning
balance 113 2,799 225 831
Cash and cash equivalents-ending
balance $ - $ 1,821 $ - $ 1,821
Supplemental disclosures of cash flow information:
Cash paid to date for:
Interest $ 842 $ 520 $ 1,907 $ 1,540
Income taxes - 300 1,600 1,000
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
PENN VIRGINIA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
(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, 1998 annual report on Form 10-
K. Operating results for the nine months ended September 30, 1999 are
not necessarily indicative of the results that may be expected for the
year ended December 31, 1999.
(2) ACQUISITIONS
In July 1999, the Company acquired certain oil and gas properties in
southern Mississippi for $13.8 million, subject to certain post-
closing adjustments. The acquisition was funded by borrowings from the
Company's revolving credit facility (the "Revolver").
In September 1999, the Company successfully completed the purchase of
fee mineral and lease rights for coal reserves and related assets in
southern West Virginia. The $30.7 million acquisition was funded by
borrowings from the Company's Revolver.
(3) SECURITIES
The cost, gross unrealized holding gains or losses and market value
for available-for-sale securities at September 30, 1999 were as
follows (in thousands):
<TABLE>
Gross Unrealized Market
Cost Holding Gain Value
<S> <C> <C> <C>
Available-for-Sale:
Norfolk Southern Corporation $ 2,839 $ 78,187 $ 81,026
Other - 21 21
$ 2,839 $ 78,208 $ 81,047
</TABLE>
(4) 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.
(5) LONG-TERM DEBT
In August 1999, the Company entered into an agreement with a group of
major U.S. banks for a $120 million unsecured revolving credit
facility with a final maturity of June 2003. The Revolver is governed
by a borrowing base calculation, currently $110 million, and will be
redetermined semi-annually. The Company has the option to elect
interest at (i) LIBOR plus a Eurodollar margin ranging from 100 to 150
basis points, based on the percentage of the borrowing base
outstanding or (ii) the greater of the prime rate or federal funds
rate plus 50 basis points. The financial covenants require the
Company to maintain certain levels of net worth, debt-to-
capitalization and dividend limitation restrictions. The Company is
currently in compliance with all of its covenants.
(6) EARNINGS PER SHARE
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 September 30, 1999
and 1998.
<TABLE>
Three Months Ended Three Months Ended
September 30, 1999 September 30, 1998
Income Shares Per Share Income Shares Per Share
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income $3,945 8,423 $0.47 $3,442 8,308 $0.41
Dilutive
Securities:
Stock options - 109 - 153
Diluted EPS:
Net income $3,945 8,532 $0.46 $3,442 8,461 $0.41
Nine Months Ended Nine Months Ended
September 30, 1999 September 30, 1998
Income Shares Per Share Income Shares Per Share
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
(in thousands, except per share amounts)
Basic EPS:
Net income $10,025 8,401 $1.19 $10,260 8,292 $1.24
Dilutive
Securities:
Stock options - 89 - 217
Diluted EPS:
Net income $10,025 8,490 $1.18 $10,260 8,509 $1.21
</TABLE>
(7) COMPREHENSIVE INCOME
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 three and nine month
periods ended September 30, 1999 and 1998, the components of
comprehensive income are as follows:
<TABLE>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
(in thousands)
<S> <C> <C> <C> <C>
Net income $ 3,945 $ 3,442 $10,025 $10,260
Unrealized holding losses, net of
tax of $6,513, $865, $8,320 and
$1,660, respectively (12,093) (1,607) (15,452) (3,083)
Reclassifaction adjustment,
net of tax of $5 - - - (9)
Comprehensive income (loss) $(8,148) $ 1,835 $(5,427) $7,168
</TABLE>
(8) SEGMENT INFORMATION
In 1998, the Company adopted Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
which established standards for reporting and disclosing information
about operating segments of an enterprise. The adoption of this
statement did not change the operating segments the Company formerly
disclosed under SFAS No. 14 "Financial Reporting of Segments of a
Business Enterprise."
Penn Virginia's operations are classified into two operating
segments:
Oil and Gas - crude oil and natural gas exploration, development
and production.
Coal and Land - the leasing of mineral rights and subsequent
collection of royalties and the development and harvesting of timber.
<TABLE>
Corporate ate
Oil and Gas Coal and Land and other Consolidated
in thousands
<S> <C> <C> <C> <C> 0
For the nine months
ended September 30, 1999
Revenues $ 15,716 $ 14,728 $ 1,985 $ 32,429
Operating income (loss) 3,285 11,385 (1,363) 13,307
For the nine months
ended September 30, 1998
Revenues $ 16,053 $ 10,802 $ 1,985 $ 28,840
Operating income (loss) 4,751 8,148 (538) 12,361
Identifiable assets
September 30, 1999 $115,563 $105,483 $ 59,949 $280,995
December 31, 1998 102,698 62,575 91,658 256,931 1
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Penn Virginia operates two primary business segments: oil and gas, and
coal and land.
The oil and gas segment explores for, develops and produces crude oil
and natural gas in Virginia, West Virginia, Kentucky and Mississippi.
In July 1999, the Company acquired certain oil and gas properties in
southern Mississippi for $13.8 million, subject to certain post-
closing adjustments, and the purchase was funded by borrowings from
the Company's Revolver. The acquired properties, which are 99 percent
natural gas, hold 22 Bcfe of proved reserves and provide numerous
drilling opportunities. The properties currently produce 2.6 MMcf of
natural gas per day and are operated by Penn Virginia. This
acquisition is representative of the Company's continuing effort to
broaden and diversify its oil and gas operations.
The coal and land segment includes Penn Virginia's mineral rights to
coal reserves, timber assets and land assets in Virginia, West
Virginia and Kentucky. In September 1999, the Company successfully
completed the purchase of fee mineral and lease rights to
approximately 90 million tons of high quality coal reserves located in
southern West Virginia. Approximately 66 million tons are owned by
Penn Virginia with the remainder subject to long-term leases. The
$30.7 million acquisition was funded by borrowings from the Company's
Revolver.
Results of Operations - Third quarters of 1999 and 1998 compared.
Penn Virginia reported 1999 third quarter earnings of $3.9 million, or
$0.46 per share (diluted), compared with $3.4 million, or $0.41 per
share (diluted), for the third quarter of 1998. On a consolidated
basis, revenues increased $2.6 million in the third quarter of 1999
due to a $1.0 million increase in oil and gas segment revenues and a
$1.6 million increase in the coal and land segment.
Results of Operations - Nine months of 1999 and 1998 compared.
Penn Virginia reported 1999 nine months earnings of $10.0 million, or
$1.18 per share (diluted), compared with $10.3 million, or $1.21 per
share (diluted), for the 1998 comparable period. On a consolidated
basis, revenues increased $3.6 million as a result of a $3.9 million
increase in the coal and land segment, offset by a $0.3 million
decrease in the oil and gas segment.
Selected operating and financial data by segment is presented below.
Oil and Gas Segment
Operating income for the oil and gas segment was $3.3 million for the
nine months ended September 30, 1999, compared with $4.8 million for
the same period in 1998. Operational and financial data for the
Company's oil and gas segment for the three and nine months ended
September 30, 1999 and 1998 is as follows:
Operations Summary
<TABLE>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Production
Natural gas (MMcf)-Working Interest 2,143 1,776 5,861 5,508
Natural gas (MMcf)-Royalty Interest 173 187 537 474
Oil and condensate (MBbls) 8 5 24 22
Production, MMcfe 2,364 1,993 6,542 6,114
Average Realized Prices
Natural gas ($/Mcf)-Working Interest $ 2.57 $ 2.65 $ 2.31 $ 2.61
Natural gas ($/Mcf)-Royalty Interest 2.61 2.36 2.36 2.52
Oil and condensate ($/Bbl) 18.85 9.40 12.47 11.82
Average Costs (per Mcfe)
Lease operating $ 0.47 $ 0.46 $ 0.47 $ 0.45
Exploration expenses 0.25 0.10 0.16 0.05
Taxes other than income 0.22 0.28 0.24 0.27
General and administrative 0.22 0.31 0.24 0.31
Depreciation, depletion, and
amortization 0.79 0.77 0.79 0.77
Total costs $ 1.95 $ 1.92 $ 1.90 $ 1.85
</TABLE>
Penn Virginia's price risk program permits the utilization of fixed-
price contracts and financial instruments (such as futures, forward
and option contracts and swaps) to mitigate the price risks associated
with fluctuations in natural gas prices as they relate to the
Company's anticipated production. These contracts and/or financial
instruments are designated as hedges and accounted for on the accrual
basis with gains and losses being recognized based on the type of
contract and exposure being hedged. Realized gains and losses on
natural gas financial instruments designated as hedges of anticipated
transactions are accounted for as deferred charges or credits, as
applicable, on the balance sheet until recognized. Net gains and
losses on such financial instruments, including accrued gains or
losses upon maturity or termination of the contract, are recognized in
operating income. Approximately 85 percent of the Company's 1999
working interest natural gas production was sold at market prices,
with the remainder sold under fixed-price term contracts. In the third
quarter of 1999, the Company recognized a $276,000 loss on hedging
activities compared with a $20,000 gain in the third quarter of 1998.
For the first nine months of 1999, the Company recognized a loss of
$211,000 on hedging activities compared with $377,000 in 1998. The
following table shows the effect of hedging activities on the
Company's working interest natural gas prices:
Hedging Summary
<TABLE>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Natural gas prices ($/Mcf):
Actual price received for
production $ 2.70 $ 2.64 $ 2.35 $ 2.68
Effect of hedging activities (.13) .01 (.04) (.07)
Average price $ 2.57 $ 2.65 $ 2.31 $ 2.61
Financial Summary
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
(in thousands)
Revenues:
Natural gas sales $ 5,498 $ 4,715 $13,563 $14,373
Oil and gas royalties 452 442 1,267 1,195
Oil and condensate 128 47 293 260
Gain on the sale of property - 2 - 2
Other income 144 45 593 223
Total revenues 6,222 5,251 15,716 16,053
Expenses:
Operating expenses 1,101 919 3,053 2,747
Exploration expenses 595 197 1,043 292
Taxes other than income 530 567 1,561 1,648
General and administrative 519 616 1,582 1,889
Loss on the sale of property - - - 4
Depreciation and depletion 1,863 1,523 5,192 4,722
Total expenses 4,608 3,822 12,431 11,302
Operating income $ 1,614 $ 1,429 $ 3,285 $ 4,751
</TABLE>
Results of Operations - Oil and Gas Segment
Revenues. Revenues increased $1.0 million, or 19 percent, to $6.2
million in the third quarter of 1999. This increase was primarily a
result of a $0.8 million increase in natural gas sales. Revenues for
the first nine months of 1999 decreased two percent to $15.7 million
primarily due to a $0.8 million decrease in natural gas sales.
Natural gas sales increased 17 percent to $5.5 million in the third
quarter of 1999 and decreased six percent to $13.6 million for the
first nine months of 1999, compared with $4.7 million and $14.4
million in the 1998 comparable periods. Natural gas volumes, on a
Mcfe basis, increased 19 percent and seven percent for the three and
nine months ended September 30, 1999, respectively. The variance for
the three quarters ended 1999 is due to a 12 percent decline in the
average price received by the Company for its working interest gas,
offset by a seven percent increase in natural gas volumes.
Oil and condensate revenues increased $81,000 and $33,000 for the
three and nine months ended September 30, 1999 from $47,000 and
$260,000 for the comparable periods in 1998. These increases are
primarily attributable to increases in the average price received.
Prices increased $9.45 per Bbl, or 101 percent, for the third quarter
of 1999 compared with the same period of 1998 and $0.65 per Bbl, or
five percent, for the first nine months of 1999 compared with the same
period of 1998.
Expenses. Expenses for the oil and gas segment increased to $4.6
million and $12.4 million for the three and nine months ended
September 30, 1999, respectively, compared with $3.8 million and $11.3
million for the same periods in 1998. These fluctuations represent
increases in operating expenses, exploration expenses and depreciation
and depletion, offset by a decrease in general and administrative
expenses.
Lease operating expenses increased 22 percent to $1.1 million in the
third quarter of 1999 compared with $0.9 million for the same period
in 1998 due to an increase in natural gas production. On a Mcfe
basis, lease operating expenses remained relatively constant at $0.47
in the third quarter of 1999 compared with $0.46 in 1998. For the
first nine months of 1999, lease operating expenses increased to $3.0
million from $2.7 million for the comparable 1998 period. On a Mcfe
basis, lease operating expenses increased to $0.47 for the first nine
months of 1999 from $0.45 in 1998. This slight increase was due to
several repair and maintenance projects and increases in compressor
rentals in various fields.
Exploration expenses increased to $595,000 and $1.0 million for the
three and nine months ended September 30, 1999 from $197,000 and
$292,000 for the same periods in 1998. These increases are
attributable to increased dry hole costs related to the Company's
drilling program and the purchase of additional seismic data.
Taxes other than income decreased $37,000 and $87,000 for the three
and nine months ended September 30, 1999, from $567,000 and $1.6
million for the 1998 comparable periods. The decrease primarily
resulted from less taxes being paid due to the relocation of the
offices of the oil and gas segment.
Depreciation and depletion increased to $1.9 million and $5.2 million
for the third quarter and first nine months of 1999 from $1.5 million
and $4.7 million for the same periods in 1998. Depreciation and
depletion, on a Mcfe basis, remained relatively constant at $0.79 for
the three and nine months ended September 30, 1999, compared with
$0.77 for the same periods in 1998.
Coal and Land Segment
Operating income for the coal and land segment was $11.4 million for
the first nine months of 1999 and $8.2 million for the comparable
period of 1998. The coal and land segment's operational and financial
data for the three and nine months ended September 30, 1999 and 1998
is as follows:
Operations Summary
<TABLE>
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Production
Coal tons (000's) 2,116 1,288 5,865 3,855
Timber (Mbf) 3,631 1,669 6,322 5,776
Average Realized Prices
Coal royalties ($/ton) $ 2.02 $ 2.04 $ 2.09 $ 2.01
Timber ($/Mbf) 193 177 202 183
Average Costs (per ton)
Lease operating $ 0.04 $ 0.03 $ 0.04 $ 0.03
Exploration expenses 0.04 0.15 0.03 0.09
Taxes other than on income 0.05 0.09 0.05 0.08
General and administrative 0.29 0.29 0.31 0.37
Depreciation, depletion, and
amortization 0.14 0.11 0.14 0.11
Total costs $ 0.56 $ 0.67 $ 0.57 $ 0.68
Financial Summary
Three Months Nine Months
Ended September 30, Ended September 30,
1999 1998 1999 1998
(in thousands)
Revenues:
Coal royalties $ 4,283 $ 2,629 $12,257 $ 7,742
Timber sales 737 327 1,347 1,154
Gain on sale of property - 43 - 43
Other income 475 887 1,124 1,863
Total revenues 5,495 3,886 14,728 10,802
Expenses:
Operating expenses 94 34 249 123
Exploration expenses 89 190 154 359
Taxes other than income 102 114 316 319
General and administrative 614 382 1,797 1,415
Loss on sale of property - - - 1
Depreciation and depletion 294 144 827 437
Total expenses 1,193 864 3,343 2,654
Operating income $ 4,302 $ 3,022 $11,385 $ 8,148
</TABLE>
Results of Operations - Coal and Land Segment
Revenues. Revenues increased 41 percent to $5.5 million in the third
quarter of 1999 and 36 percent to $14.7 million for the first nine
months of 1999 compared with $3.9 million and $10.8 million for the
same periods in 1998.
Coal royalties increased $1.7 million to $4.3 million in the third
quarter of 1999 and $4.5 million to $12.3 million for the first nine
months of 1998 compared with the same periods in 1998. These
increases are attributable to increased production from existing
lessees, start-up operations for some lessees, acquisitions in the
last half of 1998 and completion of the unit train loadout.
Production from lessees during a portion of 1998 was hindered by the
loss of a sales contract by one lessee, financial difficulties by
another lessee and coal transportation delays due to adverse weather
conditions. Additionally, the average realization per ton for the
first nine months of 1999 increased to $2.09 from the comparable 1998
amount of $2.01.
Timber sales increased $410,000, or 125 percent, in the third quarter
of 1999 and $193,000, or 17 percent, for the first nine months of 1999
compared with the same periods in 1998. Volume sold increased from
1,699 thousand board feet (Mbf) in the third quarter of 1998 to 3,631
Mbf in the third quarter of 1999 primarily due to timber harvested
from the West Virginia properties during the third quarter of 1999.
Additionally, the average realized price increased from $177 Mbf and
$183 Mbf for the three and nine months ended September 30, 1998,
respectively, to $193 Mbf and $202 Mbf for the comparable periods in
1999.
Other income decreased $412,000 in the third quarter of 1999 and
$739,000 for the first nine months of 1999 compared with the same
periods in 1998. These decreases were due to a $759,000 receipt for a
power line relocation in September 1998. The Company, from time to
time, receives restitution for circumstances that inhibit mining
reserves in a certain location.
Expenses. Expenses increased 39 percent to $1.2 million in the third
quarter of 1999 and 22 percent to $3.3 million for the first nine
months of 1999 compared with $864,000 and $2.7 million for the same
periods in 1998 primarily due to increases in general and
administrative expenses and depreciation and depletion.
Operating expenses increased to $94,000 and $249,000 for the three and
nine months ended September 30, 1999, from $34,000 and $123,000 for
the same periods in 1998. These increases are a result of timber
expenses associated with increased sales and operating expenses
arising from the April 1999 addition of the Company's unit train
loadout facility.
Taxes other than income remained constant at $102,000 and $316,000 for
the three and nine month periods ended September 30, 1999 compared
with $114,000 and $319,000 for the comparable periods in 1998.
General and administrative expenses increased to $614,000 in the third
quarter of 1999 and $1.8 million for the first nine months of 1999
compared with $382,000 and $1.4 million for the same periods in 1998.
The majority of the variance is related to an increase in current year
legal fees incurred by the Company to pursue the potential
recoverability of coal reserves and a bad debt recovery in the third
quarter of 1998.
Depreciation and depletion increased to $294,000 and $827,000 for the
three and nine months ended September 30, 1999 from $144,000 and
$437,000 for the 1998 comparable periods. Depreciation and depletion,
on a per ton basis, was $0.14 for the three and nine month periods
ended September 30, 1999 compared with $0.11 for both periods in 1998.
The depletion rate, on a per ton basis, increased due to the 1999
completion of the unit train loadout and the Company's 1998
acquisitions.
Capital Resources and Liquidity.
Net Cash Provided by Operating Activities.
Funding for the Company's business activities has historically been
provided by operating cash flows and bank borrowings. Net cash
provided by operating activities was $14.6 million in the first nine
months of 1999 compared with $19.7 million in the first nine months of
1998.
Net Cash Used in Investing Activities.
Net cash used in investing activities totaled $53.0 million and $12.5
million for the first nine months of 1999 and 1998, respectively. In
the first nine months of 1999, capital expenditures totaled $54.3
million compared with $14.7 million in the first nine months of 1998.
Acquisitions and oil and gas development activities were the primary
uses of funds. The capital expenditures, including acquisitions, made
by the Company for the first nine months of 1999 and 1998 are as
follows:
<TABLE>
Nine Months
Ended September 30,
1999 1998
(in thousands)
<S> <C> <C>
Oil and Gas Segment
Acquisitions $14,066 $ 3,356
Development 6,266 6,704
Exploration 953 412
Support equipment 156 172
Coal and Land Segment
Acquisitions 30,698 3,123
Support equipment and facilities 2,070 887
Other 44 12
Total capital expenditures $54,253 $14,666
</TABLE>
In the oil and gas segment, the Company had capital expenditures
totaling $21.4 million in the first nine months of 1999. In July
1999, the Company successfully completed the acquisition of producing
properties in Mississippi which accounted for $13.8 million.
Additionally, the Company drilled 51 gross (31.5 net) development
wells and 14 gross (9.1 net) exploratory wells in the first nine
months of 1999. The Company expects to drill approximately 50 net
wells in 1999 with approximately 10 wells in exploratory areas.
In September 1999, the Company successfully completed a $30.7 million
acquisition of fee mineral and lease rights to approximately 90
million tons of high quality coal reserves located in West Virginia.
Approximately 66 million tons are owned by Penn Virginia with the
remainder subject to long-term leases.
The Company also holds an investment in Norfolk Southern common stock
which had an unrealized holding gain of approximately $78.2 million at
September 30, 1999.
Net Cash Used in Financing Activities.
Net cash provided (used) by financing activities totaled $38.2 million
and $(6.2) million for the first nine months of 1999 and 1998,
respectively. Net borrowings totaled $42.7 for the first nine months
of 1999 and were used to fund $44.8 million in acquisitions. The
Company has also expended $5.7 million in dividends in 1999.
The Company has a $120 million unsecured revolving credit facility
(the "Revolver") with a final maturity of June 2003. The Revolver
contains financial covenants requiring the Company to maintain certain
levels of net worth, debt-to-capitalization and dividend limitation
requirements among other restrictions. The outstanding balance on the
Revolver was $80.7 million at September 30, 1999 and $38.0 million at
December 31, 1998. Management believes its portfolio of investments
and sources of funding are sufficient to meet any liquidity needs not
funded from operations.
Other Issues
Year 2000. Historically, most computer systems, including
microprocessors embedded into field equipment and other machinery,
utilized software that recognized a calendar year by its last two
digits. Beginning in the year 2000, these systems will require
modification to recognize a calendar year by four digits.
Accordingly, the Company has investigated the extent to which its
currently installed information technology and non-information
technology systems will be affected by what is commonly known as the
"Year 2000" problem and has implemented a plan to take reasonable
steps to prevent its mission critical functions from being impaired by
the Year 2000 problem. The phrase "computer equipment and software"
includes what is commonly considered technology systems, including
accounting, data processing, telephones and other systems. Non-
information technology systems include alarm systems, metering
devices, monitors for field operation and other systems. Evaluation
and testing have been completed and the Company has replaced all
necessary items.
The Company has also been inquiring and has received verbal or written
assurances from the vast 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
expects to complete communications with remaining providers by
November 1999.
Based on information known at this time, the Company believes it is
Year 2000 compliant, excluding the effects of third parties, and does
not believe that Year 2000 compliance will have a material adverse
effect on the Company. The total costs for the Year 2000 compliance
review, evaluation, assessment and remediation efforts are not
expected to be in excess of $100,000. Of this amount, less than
$50,000 has been incurred through September 30, 1999.
The Company is currently completing a Year 2000 contingency plan. The
Company believes a more comprehensive and effective contingency plan
is being developed since more significant concerns are evaluated and
risk has been more fully assessed. The contingency plan, which is to
be completed by November 1999, will place the majority of its emphasis
on primary concerns that would inhibit operations or record keeping.
The costs of Year 2000 compliance and the dates on which the Company
plans to complete modifications and replacements are based on
management's best estimates, which were derived utilizing numerous
assumptions of future events including the continued availability of
certain resources, third party modification plans and other factors.
However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans.
Accounting for Derivative Instruments and Hedging Activities. In June
1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133,
"Accounting for Derivative Instruments and Hedging Activities" which
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value
of a recognized asset or liability or an unrecognized firm commitment,
(b) a hedge of the exposure to changes in the fair value of the
exposure to variable cash flows of a forecasted transaction, or (c) a
hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an available-for-
sale security, or a foreign-currency-denominated forecasted
transaction.
In June 1999, the FASB issued SFAS No. 137 which deferred the
effective date of SFAS No. 133 for all fiscal quarters of all fiscal
years beginning after June 15, 2000. Under present conditions, the
Company does not expect adoption to have a significant impact on the
Company's financial position, results of operations or liquidity.
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
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.
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 2000 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
26, 1999.
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 2000 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 2000 Annual Meeting
or February 2, 2000, then management proxies will be permitted to use
their discretionary authority to vote on the proposal when the
proposal is raised at the 2000 Annual Meeting of Shareholders, even
though there is no discussion of the proposal in the 2000 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
One report on Form 8-K was filed during the quarter. The report
involved an acquisition on September 24, 1999 and was filed under
"Item 5. Other Events" on October 8, 1999.
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: November 12, 1999 By: /s/ Steven W.
Tholen
Steven W. Tholen, Vice
President and
Chief Financial Officer
Date: November 12, 1999 By: /s/ Ann N. Horton
Ann N. Horton, Controller
and
Principal Accounting
Officer
PENN VIRGINIA CORPORATION
INDEX
PAGE
PART I Financial Information:
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the three 1
and nine months ended September 30, 1999 and 1998
Condensed Consolidated Balance Sheets as of September 30, 1999 and
2
December 31, 1998
Condensed Consolidated Statements of Cash Flows for the three 4
and nine months ended September 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
8
and Results of Operations
PART II Other Information
Item 5. Shareholder Proposals 17
Item 6. Exhibits and Reports on Form 8-K 17
Article 5 of Regulation S-X
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 6,141
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,821
<PP&E> 263,665
<DEPRECIATION> 74,792
<TOTAL-ASSETS> 280,995
<CURRENT-LIABILITIES> 7,506
<BONDS> 0
0
0
<COMMON> 55,762
<OTHER-SE> 104,528
<TOTAL-LIABILITY-AND-EQUITY> 280,995
<SALES> 28,727
<TOTAL-REVENUES> 32,429
<CGS> 3,302
<TOTAL-COSTS> 3,302
<OTHER-EXPENSES> 15,820
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,864
<INCOME-PRETAX> 12,515
<INCOME-TAX> 2,490
<INCOME-CONTINUING> 10,025
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,025
<EPS-BASIC> 1.19
<EPS-DILUTED> 1.18
</TABLE>
