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 March 31, 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 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 May 7, 1999: 8,385,104
<PAGE>
<TABLE>
<CAPTION>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - Unaudited
(in thousands, except share data)
Three Months
Ended March 31,
--------------------
1999 1998
------ -------
<S> <C> <C>
Revenues:
Oil and condensate $ 55 $ 117
Natural gas 3,978 4,991
Natural gas royalties 404 363
Coal royalties 3,732 2,531
Timber 249 209
Dividends 662 662
Other income 464 191
------ ------
Total revenues 9,544 9,064
Expenses:
Operating expenses 959 967
Exploration expenses 85 49
Taxes other than income 700 681
General and administrative 2,002 1,781
Loss on the sale of property - 4
Depreciation, depletion, amortization 1,963 1,822
------ ------
Total expenses 5,709 5,304
Operating Income 3,835 3,760
Other (Income) Expense:
Interest expense 563 489
Other income (365) (816)
--------- ---------
Income before income tax 3,637 4,087
Income tax expense 722 935
--------- --------
Net Income $ 2,915 $ 3,152
========= =========
Net Income per share, basic 0.35 0.38
========= =========
Net Income per share, diluted 0.35 0.37
========= =========
Weighted average shares outstanding 8,371 8,278
<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
<PAGE> -1-
<TABLE>
<CAPTION>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, December 31,
1999 1998
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 490 $ 225
Accounts receivable 2,821 5,682
Current portion of long-term notes receivable 373 364
Current deferred income taxes 577 577
Other 562 680
-------- ---------
Total current assets 4,823 7,528
-------- ---------
Investments 87,251 104,819
Long-term notes receivable 2,978 3,079
Oil and gas properties; wells and equipment,
using the successful efforts method of
accounting 158,222 157,558
Other property, plant and equipment 53,445 52,455
Less: Accumulated depreciation, depletion
and amortization (70,688) (68,745)
-------- ---------
Total property, plant and equipment 140,979 141,268
-------- ---------
Other assets 212 237
-------- ---------
Total assets $ 236,243 $ 256,931
========= =========
<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
<PAGE> -2-
<TABLE>
<CAPTION>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
March 31, December 31,
1999 1998
---------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments on long-term debt $ 31 $ 31
Accounts payable 271 1,397
Accrued expenses 3,509 5,039
Taxes on income 418 576
------- -------
Total current liabilities 4,229 7,043
------- -------
Other liabilities 3,457 2,875
Deferred income taxes 32,982 38,787
Long-term debt 35,408 37,967
------- -------
Total liabilities 76,076 86,672
------- -------
Commitments and contingencies
Shareholders' equity
Preferred stock of $100 par value-
authorized 100,000 shares; none issued
Common stock of $6.25 par value-
authorized 16,000,000 shares, issued 8,921,866
shares in 1999 and 1998 55,762 55,762
Other paid in capital 8,362 8,441
Retained earnings 54,956 53,924
Accumulated other comprehensive income 54,565 65,985
------- -------
173,645 184,112
Less: 540,565 shares in 1999 and 555,050 in 1998
of common stock held in treasury, at cost 12,078 12,403
Unearned compensation - ESOP 1,400 1,450
------- -------
Total shareholders' equity 160,167 170,259
------- -------
Total liabilities and shareholders' equity $236,243 $256,931
======== ========
<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
<PAGE> -3-
<TABLE>
<CAPTION>
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS - Unaudited
(in thousands)
Three Months
Ended March 31,
--------------------
1999 1998
------ -------
<S> <C> <C>
Cash flow from operating activities:
Net Income $ 2,915 $ 3,152
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion, and amortization 1,963 1,822
(Gain), loss on sale of property - 4
Deferred income taxes 343 -
Other (195) (562)
Decrease in current assets 2,978 2,904
Decrease in current liabilities (2,815) (1,539)
Increase in other assets 2 (44)
Increase (decrease) in other liabilities 587 178
------- -------
Net Cash provided by operating activities 5,778 5,915
------- -------
Cash flows from investing activities:
Payments received on long-term notes receivable 283 1,489
Proceeds from sale of fixed assets - 21
Capital expenditures (1,635) (820)
------- -------
Net Cash provided (used) by investing
activities (1,352) 690
------- -------
Cash flows from financing activities:
Dividends paid (1,883) (1,862)
Repayment of long-term debt principal (2,575) (2,825)
Issuance of stock 297 72
------- -------
Net Cash provided (used) by financing
activities (4,161) (4,615)
------- -------
Net increase in cash and cash equivalents 265 1,990
Cash and cash equivalents-beginning of period 225 831
------ ------
Cash and cash equivalents-end of period $ 490 $ 2,821
======= =======
Supplemental disclosures of cash flow information:
Cash paid to date for:
Interest $ 585 $ 463
Income taxes 600 -
<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
March 31, 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 three months ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. Certain reclassifications have been made to conform to
the current period's presentation.
(2) SECURITIES
The cost, gross unrealized holding gains or losses and market value
for available-for-sale securities at March 31, 1999 were as follows:
<TABLE>
<CAPTION>
Gross Unrealized Market
Cost Holding Gain (loss) Value
------- ------------------- -------
<S> <C> <C> <C>
Available-for-sale:
Norfolk Southern Corporation $ 2,839 $84,389 $87,228
Other - 23 23
------- ------- -------
$ 2,839 $84,412 $87,251
</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> -5-
(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 for the quarters ended March 31, 1999 and
1998.
<TABLE>
<CAPTION>
March 31, 1999
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Basic EPS:
Income from continuing operations $ 2,915 8,371 $ 0.35
Dilutive Securities:
Stock options - 77
Diluted EPS:
-------- ----- -------
Income from continuing operations $ 2,915 8,448 $ 0.35
<CAPTION>
March 31, 1998
-----------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
------------ ------------- ---------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Basic EPS:
Income from continuing operations $ 3,152 8,278 $ 0.38
Dilutive Securities:
Stock options - 234
Diluted EPS:
-------- ----- -------
Income from continuing operations $ 3,152 8,512 $ 0.37
</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 month periods ended March 31, 1999
and 1998, the components of comprehensive income are as follows:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------
1999 1998
-------- --------
<S> <C> <C>
Net income $ 2,915 $ 3,152
Unrealized holding gains (losses) on available-for-sale
securities, net of tax of $(6,148) and $7,962 ,
respectively (11,420) 14,786
-------- --------
Comprehensive income (loss) $ (8,505) $ 17,938
</TABLE>
<PAGE> -6-
(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>
<CAPTION>
Corporate
Oil and Gas Coal and Land and Other Consolidated
----------- ------------- ---------- ------------
(in thousands)
<S> <C> <C> <C> <C>
March 31, 1999
Revenues $ 4,576 $ 4,307 $ 661 $ 9,544
Operating income (loss) 869 3,265 (299) 3,835
Identifiable assets 96,242 70,449 69,552 236,243
</TABLE>
<TABLE>
<CAPTION>
Corporate
Oil and Gas Coal and Land and Other Consolidated
----------- ------------- ---------- ------------
(in thousands)
<S> <C> <C> <C> <C>
March 31, 1998
Revenues $ 5,543 $ 2,858 $ 663 $ 9,064
Operating income (loss) 1,750 2,093 (84) 3,760
</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.
<PAGE> -7-
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 also owns mineral rights to oil and gas reserves. The
coal and land segment includes Penn Virginia's mineral rights to coal
reserves, its timber assets and land assets. Selected operating and financial
data by segment is presented below.
Penn Virginia's Houston office is now staffed and the initial
acquisition focus has been on properties in southern Louisiana, south Texas
and Mississippi. In addition, the Company continues to evaluate Appalachian
natural gas property acquisition opportunities.
Results of Operations - First Quarters of 1999 and 1998 Compared
Penn Virginia reported 1999 first quarter consolidated earnings of
$2.9 million or $0.35 per share (diluted), compared with $3.2 million or $0.37
per share (diluted) for the first quarter of 1998. On a consolidated basis,
revenues increased $0.5 million, primarily as a result of increased coal
production by the Company's lessees, offset by price decreases in the oil and
gas segment. Expenses on a consolidated basis were $0.4 million higher than
the 1998 comparable period. The aforementioned Houston office was the primary
reason for a $0.2 million increase in general and administrative expenses and
a $0.1 increase in consolidated depreciation, depletion and amortization was
primarily related to the coal and land segment. Interest expense for the
first quarter of 1999 increased $0.1 million over the comparable 1998 period
due to draws on the Company's Revolver for capital expenditures in the last
half of 1998.
Oil and Gas Segment
Operating income for the oil and gas segment was $0.9 million for the
first quarter of 1999, compared with $1.7 million for the first quarter of
1998. Operational and financial data for the Company's oil and gas segment
for the first quarter of 1999 and 1998 is summarized as follows:
<TABLE>
Operations Summary
<CAPTION>
Three Months
Ended March 31,
-------------------
1999 1998
------ ------
<S> <C> <C>
Production
Natural gas (MMcf)-Working Interest 1,851 1,913
Natural gas (MMcf)-Royalty Interest 188 140
Oil and condensate (MBbls) 7 9
Production, MMcfe 2,081 2,107
Average Realized Prices
Natural gas ($/Mcf)- Working Interest $2.15 $ 2.61
Natural gas ($/Mcf)- Royalty Interest 2.15 2.59
Oil and condensate ($/Bbl) 7.86 13.00
Average Costs (per MMcfe)
Lease operating $0.44 $ 0.45
Exploration expenses 0.01 0.02
Taxes other than on income 0.27 0.26
General and administrative 0.26 0.29
Depreciation, depletion and amortization 0.80 0.78
</TABLE>
<PAGE> -8-
All of the Company's first quarter 1999 working interest natural gas
production was sold at market prices, compared with 50 percent of production
in the comparable 1998 period. The remaining 50 percent of 1998 working
interest natural gas production was sold under fixed-price term contracts.
The Company has fixed-price term contracts totaling 6,300 Mcf per day which
begin in April and June of 1999 and expire in August and October of 1999. 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 first quarter of 1999, the Company
recognized a $0.2 million gain on hedging activities, compared with a $0.2
million loss in the first quarter of 1998. The following table shows the
effect of hedging activities on the Company's working interest natural gas
prices:
<TABLE>
<CAPTION>
Hedging Summary
---------------
Three Months
Ended March 31,
-------------------
1999 1998
------ ------
<S> <C> <C>
Natural gas prices ($/Mcf):
Actual price received for production $2.04 $2.71
Effect of hedging activities 0.11 (0.10)
Average price 2.15 2.61
</TABLE>
<TABLE>
<CAPTION>
Financial Summary
-----------------
Three Months
Ended March 31,
-------------------
1999 1998
------ ------
(in thousands)
(Unaudited)
<S> <C> <C>
Revenues:
Oil and condensate $ 55 $ 117
Natural gas 3,978 4,991
Natural gas royalties 404 363
Other income 139 72
------ ------
Total revenues 4,576 5,543
------ ------
Expenses:
Operating expenses 907 939
Exploration expenses 24 37
Taxes other than income 563 556
General and administrative 539 606
Loss on the sale of property - 4
Depreciation and depletion 1,674 1,651
------ ------
Total expenses 3,707 3,793
------ ------
Operating Income $ 869 $1,750
====== ======
</TABLE>
<PAGE> -9-
Oil and Condensate Sales. Oil sales decreased $62,000, or 53 percent, in the
first quarter of 1999, compared with the same period of 1998. Prices per
barrel were lower, averaging $7.86 per barrel (Bbl) for 1999 compared with
$13.00 per Bbl for 1998. Also, oil volume was down 2 MBbls for first quarter
of 1999 compared with 1998.
Natural Gas. Natural gas sales decreased $1.0 million, or 20 percent, in the
first quarter of 1999, compared with the same period of 1998. Natural gas
prices were down approximately 18 percent in the first quarter of 1999
compared with the first quarter of 1998. The average price received by the
Company for its working interest gas was $2.15 per thousand cubic feet (Mcf)
compared with $2.61 per Mcf for the same period of 1998.
Natural Gas Royalties. Oil and gas royalties increased $41,000, or 11
percent, in the first quarter of 1999, compared with the same period of 1998.
The variance resulted from a 34 percent increase in volumes, offset by a
decrease in pricing from $2.59 in the first quarter of 1998 to $2.15 in the
first quarter of 1999.
Operating Expenses. Operating expenses for the first quarter of 1999 were
$907,000, which is a decrease of $32,000, or three percent, compared with the
first quarter of 1998. On a MMcfe basis, operating expenses remained
relatively constant at $0.44 in 1999 versus $0.45 in 1998.
Exploration Expenses. Exploration expenses for the first quarter of 1999
remained relatively constant at $24,000, compared with $37,000 in the first
quarter of 1998.
Taxes other than on Income. Taxes other than on income increased $7,000, or
one percent, in the first quarter of 1999, compared with the same period in
1998. On a MMcfe basis, taxes other than on income remained relatively
constant at $0.27 cents in 1999 versus $0.26 cents in 1998.
General and Administrative. General and administrative expenses decreased to
$539,000, or $0.26 per MMcfe, in the first quarter of 1999 from $606,000, or
$0.29 per MMcfe, in 1998. This decrease is a result of the fourth quarter
1998 restructuring.
Depreciation and Depletion. Depreciation and depletion expense increased
$23,000, or one percent, from $1,651,000 in the first quarter of 1998 to
$1,674,000 in 1999. The rate increased from $0.78 per Mcfe in the first
quarter of 1998 to $0.80 per Mcfe in the first quarter of 1999. The
adjustments in reserve estimates at December 31, 1998 which were primarily
related to year end commodity prices, caused a minor fluctuation in the 1999
depletion rate.
<PAGE> -10-
Coal and Land Segment
Operating income for the coal and land segment was $3.3 million for the
first quarter of 1999, compared with $2.1 million for the first quarter of
1998. Operational and financial data for the Company's coal segment for the
1999 and 1998 first quarter is summarized in the following tables:
<TABLE>
<CAPTION>
Operations Summary
- ------------------
Three Months
Ended March 31,
-------------------
1999 1998
------ ------
<S> <C> <C>
Production
Timber (Mbf) 1,114 984
Coal tons (000's) 1,706 1,221
Average Realized Prices
Timber ($/Mbf) $ 204 $ 191
Coal royalties ($/ton) 2.19 2.07
Average Costs (per ton)
Lease operating $ 0.03 $ 0.03
Exploration expenses 0.03 0.01
Taxes other than on income 0.06 0.07
General and administrative 0.34 0.41
Depreciation, depletion and amortization 0.15 0.12
<CAPTION>
Financial Summary
- -----------------
Three Months
Ended March 31,
-------------------
1999 1998
------ ------
(in thousands)
(Unaudited)
<S> <C> <C>
Revenues:
Coal royalties $ 3,732 $ 2,531
Timber sales 249 209
Other income 327 119
Total revenues 4,308 2,859
Expenses:
Operating expenses 52 28
Exploration expenses 44 11
Taxes other than income 105 86
General and administrative 582 498
Loss on the sale of property - 1
Depreciation and depletion 260 142
Total expenses 1,043 766
Operating Income $ 3,265 $ 2,093
</TABLE>
<PAGE> -11-
Coal Royalties. Coal royalties increased $1.2 million, or 47 percent, in the
first quarter of 1999 compared with the same period in 1998. Coal production
generated by the Company's lessees increased by 485,000 tons, or 40 percent,
to 1,706,000 tons in the first quarter of 1999, compared with 1,221,000 tons
in 1998. Lessee production in the first quarter of 1998 was enhanced by
additional production on new leases and the Company's $6.3 million of
acquisitions in 1998. Lessee production in the first quarter of 1998 was
hindered by the loss of a sales contract by one lessee and financial
difficulties experienced by another lessee. Additionally, power outages and
coal transportation delays due to a severe snowstorm adversely affected the
first quarter 1998 production of several of the Company's lessees.
Furthermore, the average realization per ton increased to $2.19 in the first
quarter of 1999 from $2.07 in the 1998 comparable period.
Timber Sales. Timber sales increased slightly to $249,000 in the first
quarter of 1999 from $209,000 in the comparable 1998 period. Volume sold was
1,114 Mbf in the first quarter of 1999, compared with 984 Mbf in 1998. The
average realized prices also increased from $191 per Mbf in the first quarter
of 1998 to $204 per Mbf in the comparable period of 1999.
Other Income. Other income increased $208,000, or 175 percent, in the first
quarter of 1999, compared with the first quarter of 1998. The increase is
largely due to the receipt of lost minimums received from the Company's
lessees.
Operating Expenses. Operating expenses increased from $28,000 in the first
quarter of 1998 to $52,000 in the first quarter of 1999. The increase is a
result of costs associated with the sale of timber on the Company's
properties.
Exploration Expenses. Exploration expenses increased $33,000 to $44,000 in
the first quarter of 1999 from $11,000 in the 1998 comparable period. The
increase is a result of the timing of the startup of the Company's 1998 coal
core drilling program.
Taxes other than Income. Taxes other than income increased $19,000, or 22
percent, from $86,000 in the first quarter of 1998 to $105,000 in the first
quarter of 1999. On a per ton basis, taxes other than income remained
relatively constant at $0.06 in 1999 versus $0.07 in 1998.
General and Administrative. General and administrative expenses increased
$84,000, or 17 percent, in the first quarter of 1999, compared with the same
period of 1998. The variance is primarily related to an increase in legal fees
incurred by the Company to pursue the potential recoverability of coal
reserves.
Depreciation and Depletion. Depreciation and depletion increased to $260,000,
or $0.15 per ton, in the first quarter of 1999 from $142,000, or $0.12 per
ton, in the 1998 comparable period. The depletion rate, on a per ton basis,
increased due to the Company's 1998 acquisitions.
<PAGE> -12-
Capital Expenditures, Capital Resources and Liquidity
Cash Flows from Operating Activities.
Funding for the Company's activities has historically been provided by
operating cash flows and bank borrowings. Net cash provided by operating
activities was $5.8 million in the first quarter of 1999, compared with $5.9
million in the first quarter of 1998. The Company's cash balance increased to
$0.5 million at March 31, 1999, compared with $0.2 million at December 31,
1998.
Cash Flows from Investing Activities.
During the first quarter of 1999, the Company used $1.4 million in
investing activities. Capital expenditures totaled $1.6 million in the first
quarter of 1999, compared with $0.8 million in the first quarter of 1998. The
Company expended $0.9 million in 1999 to complete its unit train loadout in
Virginia 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. Initial annualized throughput is
expected to be 1.5 to 2.0 million tons. The facility has capacity of up to
four million tons annually and currently serves two of the Company's lessees.
Additionally, the Company incurred additional capital expenditures relating
to the drilling and development of wells in the oil and gas segment in the
first quarter of 1999. Of the 30 to 40 development wells scheduled for
drilling in 1999, 2.5 net wells had been drilled by the end of the first
quarter.
Cash Flows from Financing Activities.
Net cash used in investing activities totaled $4.2 in the first quarter of
1999, compared with $4.6 million in 1998. Penn Virginia paid $1.9 million of
dividends in the first quarter of 1999 and also used $2.6 million as a
repayment of long-term debt. The Company had additional debt capacity of
$40.4 million at March 31, 1999 under a committed revolving credit facility
(the "Revolver") with a group of major U.S. banks. The Revolver contains
financial covenants requiring the Company to maintain certain levels of net
worth, debt-to-capitalization and dividend limitation restrictions, among
other requirements. The outstanding balance on the Revolver was $34.6 million
at March 31, 1999 and $37.1 million at December 31, 1998. Management believes
its portfolio of investments and sources of funding are sufficient to meet
short- and long-term liquidity needs not funded by cash flows from operations.
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 July
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 July 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 $10,000 has been incurred through March
31, 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 October
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 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.
SFAS No. 133 is effective as of the beginning of fiscal years beginning
after June 15, 1999 with earlier application allowed as of the beginning of
any quarter beginning after issuance. Penn Virginia intends to adopt SFAS No.
133 in 2000 and, under present conditions, 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.
<PAGE> -14-
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> -15-
PART II Other information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter ended March 31, 1999
<PAGE> -16-
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: May 14, 1999 By: /s/ Steven W. Tholen
------------ -------------------------
Steven W. Tholen
Vice President and
Chief Financial Officer
Date: May 14, 1999 By: /s/ Ann N. Horton
------------ ------------------------------
Ann N. Horton
Controller and
Principal Accounting Officer
<PAGE> -17-
<TABLE>
PENN VIRGINIA CORPORATION
INDEX
<CAPTION>
PAGE
----
<S> <C>
PART I Financial Information:
- ------
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the Three 1
Months Ended March 31, 1999 and 1998
Condensed Consolidated Balance Sheets as of March 31, 1999 and 2
December 31, 1998
Condensed Consolidated Statements of Cash Flows for the Three 4
Months Ended March 31, 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 6. Exhibits and Reports on Form 8-K 16
</TABLE>
<PAGE>
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 490
<SECURITIES> 0
<RECEIVABLES> 2,821
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,823
<PP&E> 211,667
<DEPRECIATION> 70,688
<TOTAL-ASSETS> 236,243
<CURRENT-LIABILITIES> 4,229
<BONDS> 0
0
0
<COMMON> 55,762
<OTHER-SE> 104,405
<TOTAL-LIABILITY-AND-EQUITY> 236,243
<SALES> 8,418
<TOTAL-REVENUES> 9,544
<CGS> 959
<TOTAL-COSTS> 959
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