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, 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 August 6, 1999: 8,921,866
<PAGE>
<TABLE>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - unaudited
(in thousands, except share amounts)
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Revenues:
Natural gas $ 4,087 $ 4,667 $ 8,065 $ 9,658
Oil and condensate 110 96 165 213
Natural gas royalties 411 390 815 753
Coal royalties 4,242 2,582 7,974 5,113
Timber 361 618 610 827
Dividends 661 661 1,323 1,323
Gain on sale of property - 24 - 24
Other income 634 940 1,098 1,131
Total revenues 10,506 9,978 20,050 19,042
Expenses:
Operating expenses 1,148 950 2,107 1,917
Exploration expenses 589 219 674 268
Taxes other than income 623 666 1,323 1,347
General and administrative 2,145 2,147 4,147 3,928
Loss on sale of property - 1 - 5
Depreciation, depletion, 1,959 1,729 3,922 3,551
amortization
Total expenses 6,464 5,712 12,173 11,016
Operating Income 4,042 4,266 7,877 8,026
Other (Income) Expense:
Interest expense 508 510 1,071 999
Gain on sale of securities - (14) - (14)
Other income (356) (654) (721) (1,470)
Income before income tax 3,890 4,424 7,527 8,511
Income tax expense 725 758 1,447 1,693
Net Income $ 3,165 $ 3,666 $ 6,080 $ 6,818
Net Income per share, basic 0.38 0.44 0.72 0.82
Net Income per share, diluted 0.37 0.43 0.72 0.80
Weighted average shares 8,410 8,291 8,391 8,285
outstanding
<FN>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, December 31,
1999 1998
(unaudited)
ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $ 113 $ 225
Accounts receivable 4,900 5,682
Current portion of long-term notes receivable 382 364
Current deferred income taxes 577 577
Other 635 680
Total current assets 6,607 7,528
Investments 99,653 104,819
Long-term notes receivable 2,878 3,079
Oil and gas properties; wells and
equipment, using the successful efforts 160,447 157,558
methods of accounting
Other property, plant and equipment 54,281 52,455
Less: Accumulated depreciation, (72,625) (68,745)
depletion and amortization
Total property, plant and equipment 142,103 141,268
Other assets 189 237
Total assets $251,430 $256,931
<FN>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, December 31,
1999 1998
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Short-term debt $ 1,678 $ -
Current installments on long-term debt 31 31
Accounts payable 691 1,397
Accrued expenses 3,992 5,039
Taxes on income 185 576
Total current liabilities 6,577 7,043
Other liabilities 3,366 2,875
Deferred income taxes 37,216 38,787
Long-term debt 34,002 37,967
Total liabilities 81,161 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 shares issued 55,762 55,762
Other paid-in capital 8,154 8,441
Retained earnings 56,226 53,924
Accumulated other comprehensive income 62,626 65,985
182,768 184,112
Less: Treasury stock, at cost -
498,902 shares in 1999
and 555,050 in 1998 11,149 12,403
Unearned compensation - ESOP 1,350 1,450
Total shareholders' equity 170,269 170,259
Total liabilities and shareholders' equity $ 251,430 $256,931
<FN>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS-unaudited
(in thousands)
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Cash flow from operating activities:
Net Income $ 3,165 $ 3,666 $ 6,080 $ 6,818
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation, depletion, 1,959 1,729 3,922 3,551
and amortization
Gain on sale of property, plant - (23) - (19)
and equipment
Deferred income taxes (106) 1,017 237 1,017
Dry hole expense 120 (13) 120 (13)
Other (326) (615) (655) (965)
Changes in operating assets and liabilities:
Current assets (2,149) 1,236 829 4,140
Current liabilities 671 (650) (2,144) (2,189)
Other assets 3 4,272 5 4,228
Other liabilities (96) (2,032) 491 (1,858)
Net Cash provided by
operating activities $ 3,241 $ 8,573 $ 8,885 $14,696
Cash flows from investing activities:
Proceeds from the sale of securities - 17 - 17
Proceeds from notes 418 418 835 1,698
Proceeds from sale of fixed assets - 38 - 59
Capital expenditures (3,200) (5,588) (4,835) (6,408)
Net Cash used in investing
activities (2,782) (5,115) (4,000) (4,634)
Cash flows from financing activities:
Dividends paid (1,895) (1,867) (3,778) (3,729)
Proceeds from debt borrowings 1,678 - 1,678 -
Repayment of debt principal (1,390) (2,225) (3,965) (5,050)
Issuance of stock 771 613 1,068 685
Net Cash used in
financing activities $ (836) $(3,479) $(4,997) $(8,094)
Net increase (decrease) in cash
and cash equivalents $ (377) $ (21) $ (112) $ 1,968
Cash and cash equivalents-beginning 490 2,820 225 831
Cash and cash equivalents-ending $ 113 $ 2,799 $ 113 $ 2,799
Supplemental disclosures of cash flow information:
Interest paid $ 480 $ 557 $ 1,065 $ 1,020
Income taxes paid 1,000 700 1,600 700
<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
<PAGE>
PENN VIRGINIA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 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 six months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1999.
(2) SECURITIES
The cost, gross unrealized holding gains or losses and market value
for available-for-sale securities at June 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 $96,790 $99,629
Other - 24 24
$ 2,839 $96,814 $99,653
</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.
<PAGE>
(4) 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 June 30,
1999 and 1998.
<TABLE>
Three Months Ended Three Months Ended
June 30, 1999 June 30, 1998
Income Shares Per Share Income Shares Per Share
(Numerator)(Denominator) Amount (Numerator)(Denominator)Amount
(in thousands except per share amounts)
Basic EPS:
<S> <C> <C> <C> <C> <C> <C>
Income from
continuing
operations $ 3,165 8,410 $0.38 $3,666 8,291 $0.44
Dilutive Securities:
Stock options - 80 - 240
Diluted EPS:
Income from
continuing
operations $ 3,165 8,490 $0.37 $3,666 8,531 $0.43
</TABLE>
<TABLE>
Six Months Ended Six Months Ended
June 30, 1999 June 30, 1998
Income Shares Per Share Income Shares Per Share
(Numerator)(Denominator) Amount (Numerator)(Denominator) Amount
(in thousands except per share amounts)
Basic EPS:
Income from
<S> <C> <C> <C> <C> <C> <C>
continuing
operations $6,080 8,391 $0.72 $6,818 8,285 $0.82
Dilutive
Securities:
Stock options - 78 - 236
Diluted EPS:
Income from
continuing
operations $6,080 8,469 $0.72 $ 6,818 8,521 $ 0.80
</TABLE>
(5) 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 six
month periods ended June 30, 1999 and 1998, the components of
comprehensive income are as follows:
<TABLE>
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
(in thousands)
<S> <C> <C> <C> <C>
Net income $ 3,165 $3,666 $6,080 $6,818
Unrealized holding gains
(losses), net of
tax of $4,341, $(8,756),
$(1,809), and
$(795), respectively 8,061 (16,262) (3,359) (1,476)
Reclassification adjustment,
net of tax of $5 - (9) - (9)
Comprehensive income (loss) $11,226 $(12,605) $ 2,721 $ 5,333
</TABLE>
<PAGE>
(6) 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
Oil and Gas Coal and Land and Other Consolidated
(in thousands)
<S> <C> <C> <C> <C>
For the six months ended June 30, 1999
Revenues $ 9,494 $9,233 $1,323 $20,050
Operating income
(loss) 1,671 7,083 (877) 7,877
For the six months ended June 30, 1998
Revenues $10,803 $6,916 $1,323 $19,042
Operating income
(loss) 3,322 5,126 (422) 8,026
Identifiable assets
June 30, 1999 98,418 71,153 81,859 251,430
Dec. 31, 1998 102,698 63,424 90,809 256,931
</TABLE>
Operating income is total revenue less operating
expenses. Operating income does not include certain other income
items, gain (loss) on sale of securities, unallocated general
corporate expenses, interest expense and income taxes.
Identifiable assets are those assets used in the Company's
operations in each segment. Corporate assets are principally cash
and marketable securities.
(7) SUBSEQUENT EVENTS
On July 9, 1999, Penn Virginia purchased certain oil and gas
properties located in Mississippi for $13.7 million, subject to
certain post-closing adjustments. The acquisition was funded by
borrowings from the Company's revolving credit facility
("Revolver').
On July 1, 1999, the Company entered into an agreement to acquire
fee mineral and lease rights to coal reserves and related assets in
southern West Virginia for $31 million. The Company intends to use
borrowings from their Revolver to complete the transaction.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company operates in two 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 Western Virginia, Southern
West Virginia and Eastern Kentucky. The Company acquired certain
oil and gas properties on July 9, 1999 for $13.7 million which are
located in southern Mississippi. The coal and land segment
includes Penn Virginia's mineral rights to coal reserves, its
timber assets an land assets.
In order to broaden and diversify its oil and gas operations, Penn
Virginia's Houston, TX office continues to concentrate on property
acquisitions located in Louisiana, Texas, Oklahoma and Mississippi.
On July 9, 1999, the Company successfully completed the purchase
certain oil and gas properties located in Mississippi for $13.7
million, subject to certain post-closing adjustments The
acquisition was funded by borrowings from the Company's Revolver.
The properties hold 22 billion Bcfe of proved reserves and are 99
percent natural gas. The properties will be operated by Penn
Virginia and currently produce 2.6 Mmcf of natural gas per day.
On July 1, 1999, the Company entered into an agreement to acquire
fee mineral and lease rights to an aggregate of approximately 94
million tons of high quality coal reserves held in three separate
properties located in southern West Virginia. Approximately 66
million tons will be owned by Penn Virginia with the remainder
subject to long-term leases. The $31 million purchase is
contingent upon, among other things, obtaining typical consents and
is expected to close during the third quarter.
Results of Operations - Second quarters of 1999 and 1998 Compared.
Penn Virginia reported 1999 second quarter earnings of $3.2
million, or $0.37 per share (diluted), compared with $3.7 million,
or $0.43 per share (diluted), for the third quarter of 1998. On a
consolidated basis, revenues increased $0.5 million in the second
quarter of 1999 primarily from increases in coal segment revenues,
offset by a decline in natural gas prices.
Results of Operations - Six months of 1999 and 1998 Compared.
Penn Virginia reported 1999 six months earnings of $6.1 million, or
$0.72 per share (diluted), compared with $6.8 million, or $0.80 per
share (diluted), for the same period of 1998. On a consolidated
basis, revenues increased $1.0 million, primarily from increases in
coal segment revenues, offset by a decline in natural gas prices.
Operating expenses on a consolidated basis were $1.2 million higher
than the 1998 comparable period.
Selected operating and financial data by segment is presented below.
<PAGE>
Oil and Gas Segment
Operating income for the oil and gas segment was $1.7 million for
the six months ended June 30, 1999, compared with $3.3 million for
the same period in 1998. Operational and financial data for the
Company's oil and gas segment for the 1999 and 1998 three and six
months ended June 30 is summarized in the following tables:
<TABLE>
Operations Summary
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Production
Natural gas (MMcf)-Working Interest 1,867 1,819 3,718 3,732
Natural gas (MMcf)-Royalty Interest 176 147 364 287
Oil and condensate (MBbls) 9 8 16 17
Production, MMcfe 2,097 2,014 4,178 4,121
Average Realized Prices
Natural gas ($/Mcf)- Working Interest $ 2.19 $ 2.57 $ 2.17 $ 2.59
Natural gas ($/Mcf)- Royalty Interest 2.34 2.65 2.24 2.62
Oil and condensate ($/Bbl) 12.59 12.00 10.55 12.53
Average Costs (per MMcfe)
Lease operating $ 0.50 $ 0.44 $ 0.47 $ 0.44
Exploration expenses 0.20 0.03 0.11 0.02
Taxes other than income 0.22 0.26 0.25 0.26
General and administrative 0.25 0.33 0.25 0.31
Depreciation, depletion and amortization 0.79 0.77 0.79 0.78
Total costs $ 1.96 $ 1.83 $ 1.87 $ 1.81
</TABLE>
Penn Virginia's price risk program permits the utilization of
agreements 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 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 treated 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 half 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
second quarter of 1999, the Company recognized a $0.2 million loss
on hedging activities compared with a $0.2 million loss in the
second quarter of 1998. For the first six months of 1999, the
Company recognized a gain of $0.1 million on hedging activities
compared with a $0.4 million loss in 1998. The following table
shows the effect of hedging activities on the Company's working
interest natural gas prices:
<PAGE>
<TABLE>
Hedging Summary
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Natural gas prices ($/Mcf):
Actual price received for production $ 2.27 $ 2.68 $ 2.15 $ 2.70
Effect of hedging activities (0.08) (0.11) 0.02 (0.11)
Average price $ 2.19 $ 2.57 $ 2.17 $ 2.59
</TABLE>
<PAGE>
<TABLE>
Financial Summary
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
(in thousands)
Revenues:
<S> <C> <C> <C> <C>
Natural gas sales $ 4,087 $ 4,667 $ 8,065 $ 9,658
Oil and gas royalties 411 390 815 753
Oil and condensate 110 96 165 213
Gain on the sale of property - 3 - 24
Other income 310 103 449 154
Total revenues $ 4,918 $ 5,259 $ 9,494 $10,802
Expenses:
Operating expenses $ 1,045 $ 889 $ 1,952 $ 1,828
Exploration expenses 424 58 448 95
Taxes other than income 468 525 1,031 1,081
General and administrative 524 667 1,063 1,273
Loss on the sale of property - - - 4
Depreciation and depletion 1,655 1,548 3,329 3,199
Total expenses 4,116 3,687 7,823 7,480
Operating Income $ 802 $ 1,572 $ 1,671 $ 3,322
</TABLE>
Results of Operations - Oil and Gas Segment
Revenues. Revenues decreased $0.3 million, or six percent, to $4.9
million in the second quarter of 1999, compared with $5.3 million
for the same period of 1998. This decrease was primarily a result
of a $0.6 million decrease in natural gas sales. Revenues for the
six months of 1999 decreased $1.3 million, or 12 percent, to $9.5
million from the comparable 1998 amount primarily due to the
average price received for natural gas.
Natural gas sales decreased $580,000, or 12 percent, in the second
quarter of 1999 and $1.6 million, or 16 percent for the six months
ended June 30, 1999, compared with 1998 amounts. Despite slight
increases in natural gas volumes, the average price received for
working interest natural gas declined 15 percent to $2.19 per
thousand cubic feet (Mcf) in the second quarter and 16 percent to
$2.17 per Mcf for the six months ended June 30, 1999, compared with
1998 amounts.
<PAGE>
Oil and condensate revenues increased $14,000 and decreased $48,000
for the three and six months ended June 30, 1999 from $96,000 and
$213,000 for the comparable periods in 1998. These fluctuations
are attributable to the volatility in average prices received.
While volumes remained relatively constant, prices increased five
percent to $12.59 in the second quarter of 1999 and decreased 16
percent to $10.55 for the six months ended June 30, 1999, compared
with the respective 1998 amounts.
Expenses. Expenses for the oil and gas segment increased to $4.1
million and $7.8 million for the three and six months ended June
30, 1999, respectively, compared with $3.7 million and $7.5 million
for the same periods in 1998. These fluctuations are primarily due
to increases in exploration expenses and depreciation and
depletion, offset by a decrease in general and administrative
expenses.
Lease operating expenses increased $156,000 and $124,000 for the
three and six months ended June 30, 1999 from $889,000 and $1.8
million for the same periods in 1998. On a Mcfe basis, lease
operating expenses increased to $0.47 cents for the first six
months of 1999 from $0.44 cents in 1998. The increase was due to
several repair and maintenance projects performed in June 1999 and
increases in compressor rentals in various fields.
Exploration expenses increased to $424,000 and $448,000 for the
three and six months ended June 30, 1999 from $58,000 and $95,000
for the same periods in 1998. These increases were related to dry
hole costs and the purchase of additional seismic data.
Taxes other than income decreased 11 percent to $468,000 in the
second quarter of 1999, compared with $525,000 in the same period
of 1998. For the six months ended June 30, 1998, taxes other than
income decreased five percent, to $1,031,000, from the comparable
1998 amount. The decrease resulted from less excise taxes being
paid due to the relocation of the Company's oil and gas offices.
General and administrative expenses decreased 21 percent to
$524,000 in the second quarter of 1999, compared with $667,000 in
the same period of 1998. For the six months ended June 30, 1998,
general and administrative expenses decreased 16 percent, to
$1,063,000, from the comparable 1998 amount. The decrease relates
to the December 1998 relocation of the offices for the oil and gas
segment.
Depreciation and depletion increased to $1.7 million and $3.3
million for the three and six months ended June 30, 1999, compared
with $1.5 million and $3.2 million for the same periods in 1998.
Depreciation and depletion, on a Mcf basis remained relatively
constant at $0.79 for the six months ended June 30, 1999, compared
with $0.78 for the same period in 1998.
<PAGE>
Coal and Land Segment
Operating income for the coal segment was $7.1 million for the six
months of 1999 and $5.1 million for the comparable period of 1998.
The coal segment's operational and financial data for the 1999 and
1998 second quarter and six month period is summarized in the
following tables:
<TABLE>
Operations Summary
Three Months Nine Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
Production
<S> <C> <C> <C> <C>
Coal tons (000's) 2,043 1,346 3,749 2,567
Timber (Mbf) 1,577 3,123 2,691 4,107
Average Realized Prices
Coal royalties ($/ton) $ 2.08 $ 1.92 $ 2.13 $ 1.99
Timber ($/Mbf) 220 172 213 186
Average Costs (per ton)
Lease operating $ 0.05 $ 0.04 $ 0.04 $ 0.03
Exploration expenses 0.01 0.12 0.02 0.07
Taxes other than on income 0.06 0.09 0.06 0.08
General and administrative 0.29 0.40 0.32 0.40
Depreciation, depletion and
amortization 0.13 0.11 0.14 0.11
Total costs $ 0.54 $ 0.76 $ 0.58 $ 0.69
</TABLE>
<TABLE>
Financial Summary
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
(in thousands)
Revenues:
<S> <C> <C> <C> <C>
Coal royalties $ 4,242 $ 2,582 $ 7,974 $ 5,113
Timber sales 361 618 610 827
Other income 322 857 649 976
Total revenues 4,925 4,057 9,233 6,916
Expenses:
Operating expenses $ 103 $ 61 $ 155 $ 89
Exploration expenses 21 158 65 169
Taxes other than income 109 119 214 205
General and administrative 601 535 1,183 1,033
Loss on sale of property - - - 1
Depreciation and depletion 273 151 533 293
Total expenses 1,107 1,024 2,150 1,790
Operating Income $ 3,818 $ 3,033 $ 7,083 $ 5,126
</TABLE>
<PAGE>
Results of Operations - Coal and Land Segment
Revenues. Revenues increased 21 percent to $4.9 million in the
second quarter of 1999 and 33 percent to $9.2 million for the first
six months of 1999, compared with $4.1 million and $6.9 million for
the same periods in 1998.
Coal royalties increased $1.7 million to $4.2 million in the second
quarter of 1999 and $2.9 million to $8.0 million for the first six
months of 1999, as compared with the same periods in 1998. These
increases are attributable to increased production from existing
lessees, start-up operations for some lessees, production on the
Company's Coal River Properties which was recovered from a lessee
who was in bankruptcy proceedings in 1998, acquisitions in the last
half of 1998 and completion of the unit train loadout. Production
from lessees during the first half 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 six months of 1999 increased to $2.13 from the
comparable 1998 amount of $1.99.
Timber sales decreased $257,000 to $361,000 in the second quarter
of 1999 and $217,000 to $610,000 for the first six months of 1999,
compared with the same periods in 1998. This decrease was
primarily related to the timing of the Company's parcel timber
sales.
Other income decreased $535,000 in the second quarter of 1999 and
$327,000 for the first six months of 1999, as compared with the
same periods in 1998. These decreases were due to $750,000
recouped in June 1998 by the Company due to lessees not meeting
minimum production requirements, offset by revenues received in
1999 by the Company's unit train loadout facility.
Expenses. Expenses increased eight percent to $1.1 million in the
second quarter of 1999 and 20 percent to $2.2 million for the first
six months of 1999, compared with $1.0 million and $1.8 million for
the same periods in 1998 primarily due to increases in general and
administrative expenses and depreciation and depletion.
General and administrative expenses increased 12 percent to
$601,000 in the second quarter of 1999 and increased 15 percent to
$1,183,000 for the first six months of 1999, compared with $535,000
and $1,033,000 for the same periods in 1998. The majority of the
variance is related to an increase in legal fees incurred by the
Company to pursue the potential recoverability of coal reserves.
Depreciation and depletion increased to $273,000 and $533,000 for
the three and six month periods ended June 30, 1999 from $151,000
and $293,000 for the comparable periods in 1998. Depreciation and
depletion, on a per ton basis, was $0.13 and $0.14 for the three
and six months periods ended June 30, 1999, compared with $0.11 for
the both periods in 1998. The depletion rate, on a per ton basis,
increased due to the 1999 completion of the unit train loadout
facility and the Company's 1998 acquisitions.
<PAGE>
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 $8.9 million in the first six
months of 1999 compared with $14.7 million in the first six months
of 1998. The Company's consolidated cash balance decreased from
$0.2 million at the end of 1998 to $0.1 million at June 30, 1999
while consolidated borrowings decreased from $38.0 million to $35.7
million for the same periods, respectively.
Net Cash Used in Investing Activities.
Net cash used in investing activities totaled $4.0 million and $4.6
million for the first six months of 1999 and 1998, respectively.
In the first six months of 1999, capital expenditures totaled $4.8
million compared with $6.4 million in the first six months of 1998.
Oil and gas development activities and support equipment and
facilities for the coal segment were the primary uses of funds. The
capital expenditures, including acquisitions, made by the Company
for the first six months of 1999 and 1998 are as follows:
<TABLE>
Six Months
Ended June 30,
1999 1998
(in thousands)
Oil and Gas
<S> <C> <C>
Acquisitions $ 192 $ 333
Development 2,487 2,607
Exploration 288 245
Support equipment 42 97
Coal and Land
Acquisitions 344 2,963
Support equipment and facilities 1,447 140
Other 35 23
Total capital expenditures $ 4,835 $ 6,408
</TABLE>
In the oil and gas segment, the Company had capital expenditures
totaling $3.0 million in the first six months of 1999. The Company
drilled 20 gross (19.0 net) development wells and one gross (0.5
net) exploratory well in the first six months of 1999. The Company
expects to drill approximately 40 net wells in 1999, with
approximately 10 wells in exploratory areas.
In the coal and land segment, capital expenditures totaled $1.8
million. The Company has expended $1.4 million in 1999 on its unit
train loadout which became operational in March 1999. The loadout
is a computerized state-of-the-art facility capable of blending
coals, sampling coal quality, loading and weighing 90 to 108
railcars (a unit train) with 100 to 120 tons of coal each in four
hours. The facility has capacity of up to four million tons
annually and currently serves two of the Company's lessees.
The Company also holds an investment in Norfolk Southern common
stock which had a gross unrealized holding gain of $96.8 million at
June 30, 1999.
<PAGE>
Net Cash Used in Financing Activities.
Net cash used in financing activities totaled $5.0 million and $8.1
million for the first six months of 1999 and 1998, respectively.
Net cash used in financing activities was primarily used to fund
the payment of $3.8 million in dividends in 1998.
Penn Virginia has a $75 million unsecured revolving credit facility
(the "Revolver") with a final maturity of August 2000. Currently,
the Company is in the process of increasing the Revolver from $75
million to $120 million and extending the maturity to June 30,
2003. The availability for borrowings under the Revolver is
governed by a semiannual borrowing base calculation. The Revolver
bears interest at LIBOR or the base rate at the option of the
Company plus a percentage based on the percentage of the borrowing
base outstanding. The outstanding balance on the Revolver was
$33.2 million at June 30, 1999 and $37.1 million at December 31,
1998.
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 continues to investigate 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 is implementing 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. The Company is utilizing resources to
test, reprogram, modify and/or replace both systems, as necessary.
Evaluation, testing and replacement should be completed by
September 1999.
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 September 1999.
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. 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 $25,000 has been incurred through June 30, 1999.
The Company is in the initial stages of developing a Year 2000
contingency plan. The Company believes a more comprehensive and
effective contingency plan will be developed once potential
concerns are evaluated and risk has been 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.
<PAGE>
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"
("SFAS 133") 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.
<PAGE>
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.
<PAGE>
PART II Other information
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule, filed herewith.
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended
June 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
PENN VIRGINIA CORPORATION
Date: August 13, 1999 By: /s/ Steven W. Tholen
Steven W. Tholen,
Vice President
and Chief Financial Officer
Date: August 13, 1999 By: /s/ Forrest W. McNair
Forrest W. McNair,
Financial Reporting Manager
<PAGE>
PENN VIRGINIA CORPORATION
INDEX
PAGE
PART I Financial Information:
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the three 2
and six months ended June 30, 1999 and 1998
Condensed Consolidated Balance Sheets as of June 30, 1999 and 3
December 31, 1998
Condensed Consolidated Statements of Cash Flows for the three 5
and six months ended June 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition 9
and Results of Operations
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K 20
<PAGE>
Article 5 of Regulation S-X
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 113
<SECURITIES> 0
<RECEIVABLES> 4,900
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,607
<PP&E> 214,728
<DEPRECIATION> 72,625
<TOTAL-ASSETS> 251,430
<CURRENT-LIABILITIES> 6,577
<BONDS> 0
0
0
<COMMON> 55,762
<OTHER-SE> 114,507
<TOTAL-LIABILITY-AND-EQUITY> 251,430
<SALES> 17,629
<TOTAL-REVENUES> 20,050
<CGS> 2,107
<TOTAL-COSTS> 2,107
<OTHER-EXPENSES> 10,066
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,071
<INCOME-PRETAX> 7,527
<INCOME-TAX> 1,447
<INCOME-CONTINUING> 6,080
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,080
<EPS-BASIC> 0.72
<EPS-DILUTED> 0.72
</TABLE>
