Exhibit 99.1
INDEPENDENT AUDITORS’ REPORT
The Board of Directors
Penn Virginia Resource GP, LLC:
We have audited the accompanying balance sheet of Penn Virginia Resource GP, LLC as of December 31, 2002. This financial statement is the responsibility of Penn Virginia Resource GP, LLC’s management. Our responsibility is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit of a balance sheet includes examining, on a test basis, evidence supporting the amounts and disclosures in that balance sheet. An audit of a balance sheet also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all material respects, the financial position of Penn Virginia Resource GP, LLC as of December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.
KPMG LLP
Houston, Texas
June 9, 2003
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PENN VIRGINIA RESOURCE GP, LLC
BALANCE SHEET
December 31, 2002
(in thousands)
ASSETS | |
Current assets: | |
Accounts receivable – affiliates | $ 2,816 |
Prepaid expenses | 416 |
Total current assets | 3,232 |
| | |
Investment in Penn Virginia Resource Partners, L.P. | 665 |
| | |
Total assets | $ 3.897 |
| |
LIABILITIES AND OWNER’S EQUITY | |
Current Liabilities: | |
Line of credit | $ 17 |
Accounts payable | 172 |
Accounts payable - affiliates | 1,273 |
Accrued liabilities | 1,956 |
Total current liabilities | 3,418 |
| | |
Other long-term liabilities | 27 |
Owner’ Equity: | |
Owner’s equity | 858 |
Less: Unearned compensation | 406 |
Total owner’s equity | 452 |
| | |
Total liabilities and owner’s equity | $ 3,897 |
See accompanying notes.
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PENN VIRGINIA RESOURCE GP, LLC
NOTES TO BALANCE SHEET
1.
Nature of Operations
Penn Virginia Resource GP, LLC (the “General Partner”) is a Delaware limited liability company formed on July 9, 2001 to become the general partner of Penn Virginia Resource Partners, L.P. (the “Partnership”). The General Partner is an indirect wholly owned subsidiary of Penn Virginia Corporation. The General Partner owns a 2% general partner interest in the Partnership.
The Partnership is a Delaware limited partnership formed by Penn Virginia Corporation in July 2001 to own and operate most of the assets, liabilities and operations of Penn Virginia Corporation’s coal royalty business. The Partnership, through its wholly owned subsidiary Penn Virginia Operating Co., LLC, enters into leases with various third-party operators that gives those operators the right to mine coal reserves on the Partnership’s land in exchange for royalty payments. The Partnership also sells timber growing on its land and provides fee-based infrastructure facilities to certain lessees to enhance coal production and to generate additional coal services revenues.
The General Partner manages the operations and activities of the Partnership and owes a fiduciary duty to the Partnership’s unitholders. Most of the Partnership’s personnel are employees of the General Partner. The General Partner is liable for all of the Partnership’s debts (to the extent not paid from the Partnership’s assets), except for indebtedness or other obligations that are made specifically non-recourse to the General Partner.
The General Partner does not receive any management fee or other compensation for the management of the Partnership. The General Partner and its affiliates are reimbursed for expenses incurred on the Partnership’s behalf. These expenses include the costs of employee, officer and director compensation and benefits properly allocable to the Partnership and all other expenses necessary or appropriate to conduct the business of, and allocable to, the Partnership. The partnership agreement provides that the General Partner will determine the expenses that are allocable to the Partnership in any reasonable manner determined by our General Partner in its sole discretion.
2.
Significant Accounting Policies
Basis of Presentation
The accompanying balance sheet of Penn Virginia Resource GP, LLC is of the parent company only and does not include the accounts of Penn Virginia Resource Partners, L.P. or any of its subsidiaries. The General Partner’s uses the equity method to account for its investment in the Partnership. The balance sheet of the General Partner should be read in conjunction with the financial statements and accompanying notes of Penn Virginia Resource Partners, L.P. as of and for the year ended December 31, 2002, filed on Form 10-K/A.
Cash and Cash Equivalents
Cash equivalents are defined as all highly liquid investments purchased with an original maturity of three months or less. The General Partner generally does not maintain cash balances. Cash transactions are generally settled through intercompany accounts (see Note 3. Related Party Transactions).
Fair Value of Financial Instruments
Accounts receivable and accounts payable approximate fair value due to the short-term maturity of these financial instruments.
Use of Estimates
The preparation of the accompanying balance sheet in conformity with accounting principles generally accepted in the United States of America requires management to make certain assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
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3.
Related Party Transactions
Accounts Receivable – Affiliates and Accounts Payable – Affiliates
Accounts receivable – affiliates and accounts payable – affiliates reflect the General Partner’s participation in Penn Virginia Corporation’s central cash management program, wherein all of the General Partner’s receipts are remitted to Penn Virginia Corporation and its subsidiaries and all cash disbursements are funded by Penn Virginia Corporation and its subsidiaries.
4.
Accrued Liabilities
Accrued liabilities as of December 31, 2002 are summarized as follows (in thousands):
Accrued professional services | $ 1,200 |
Accrued payroll | 576 |
Other | 180 |
| | |
Total | $ 1,956 |
5.
Line of Credit
As part of Penn Virginia Corporation’s $5.0 million line of credit, the General Partner has a $0.5 million line of credit with a financial institution due in December 2003, renewable annually. We have an option to elect either a fixed rate LIBOR loan, floating rate LIBOR loan or base rate (as determined by the financial institution) loan.
6.
Unearned Compensation
The General Partner granted 24,500 restricted units to directors and officers of the general partner in 2002. A restricted unit entitles the grantee to receive a common unit upon the vesting of the restricted unit. Restricted units vest upon terms established by the Partnership Compensation Committee, but in no case earlier than the conversion to common units of the Partnership’s outstanding subordinated units. In addition, the restricted units will vest upon a change of control of the General Partner or the Penn Virginia Corporation. If a grantee’s employment with or membership on the Partnership’s Board of Directors of the General Partner terminates for any reason, the grantee’s restricted units will be automatically forfeited unless, and to the extent, the compensation committee provides otherwise. Common units to be delivered upon the vesting of restricted units may be common units acquired by the general partner in the open market, common units already owned by the general partner, common units acquired by the general partner directly from the Partnership or any other person or any combination of the foregoing. The General Partner will be entitled to reimbursement by the Partnership for the cost incurred in acquiring such common units. Distributions payable with respect to restricted units may, at the Partnership’s Compensation Committee’s request, be paid directly to the grantee or held by the Partnership and made subject to a risk of forfeiture during the applicable restriction period.
The following table summarizes information with respect to restricted units awarded by the general partner:
| 2002
| |
|---|
| Restricted
Units
| | Fair
Value
|
|---|
| Outstanding at beginning of year | | | | — | | $ | — | |
| Granted | | | | 24,500 | | $ | 24.50 | |
| Vested | | | | 4,000 | | $ | 24.50 | |
| Forfeited | | | | — | | | — | |
| |
| |
| Outstanding at end of year | | | | 20,500 | | $ | 24.50 | |
| |
| |
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