UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-753
PENN VIRGINIA CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 23-1184320
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
800 THE BELLEVUE 200 SOUTH BROAD STREET, PHILADELPHIA, PA 19102
(Address of principal executive offices)
(Zip code)
(215)545-6600
(Registrant's telephone number; including area code)
NONE
(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 March 31, 1995: 4,273,240
PENN VIRGINIA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months
Ended March 31
1995 1994
(In thousands, except
per share data)
Revenues:
Sales $ 220 $ 121
Coal royalties 3,168 3,528
Oil and gas sales and royalties 3,791 4,341
Dividends 625 577
Other income, net 540 578
8,344 9,145
Expenses:
Cost of sales 724 640
Selling, general and administrative 1,844 1,682
Exploration and development 118 69
Depreciation, depletion and amortization 1,886 1,551
Taxes other than on income 441 409
Interest 386 454
5,399 $4,805
Income from operations 2,945 4,340
Income taxes 303 1,100
Net income $ 2,642 $ 3,240
Income per common share (based on 4,275,890 and
4,279,540 weighted average shares outstanding
in 1995 and 1994): $ .62 $ .76
<FN>
See accompanying notes to condensed consolidated financial statements.
PENN VIRGINIA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
(UNAUDITED)
March 31, 1995 December 31, 1994
ASSETS
Current assets
Cash and cash equivalents $ 3,455 $ 7,039
Receivables 3,278 3,286
Current portion of long-term notes receivable 3,646 3,646
Inventory 607 599
Current deferred tax benefit 1,451 1,451
Recoverable income taxes 1,388 1,646
Other 192 249
Total current assets 14,017 17,916
Investments 90,204 85,321
Long-term notes receivable, net of current portion 8,259 8,881
Property, plant and equipment (net) 104,522 86,246
Other assets 952 895
Total assets $ 217,954 $ 199,259
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current installments on long-term debt $ 7,175 $ 7,325
Accounts payable 1,173 4,409
Accrued expenses 4,751 3,913
Deferred income 217 220
Taxes on income 529 -
Total current liabilities 13,845 15,867
Other liabilities 8,093 8,237
Deferred taxes 29,882 28,459
Long-term debt, net of current installments 24,850 9,250
Shareholders' Equity
Preferred stock of $100 par value -
authorized 100,000 shares; issued none - -
Common stock of $6.25 par value -
authorized 8,000,000 shares; issued 4,437,517
shares in 1995 and 1994 27,734 27,734
Other paid-in capital 34,793 34,793
Retained earnings 36,294 35,571
98,821 98,098
Less: 165,277 and 157,977 shares in 1995 and 1994
of common stock held in treasury 7,644 7,435
Guaranteed debt to Employee Stock
Ownership Plan 150 300
Add: Unrealized holding gain - investments 50,257 47,083
Total shareholders' equity 141,284 137,446
Total liabilities and shareholders' equity $ 217,954 $ 199,259
[FN]
See accompanying notes to condensed consolidated financial statements.
PENN VIRGINIA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months
Ended March 31
(In thousands)
1995 1994
Cash flows from operating activities:
Net cash flows from operating activities $ 2,209 $ 2,290
Cash flows from (used in) investing activities:
Payment received on long-term notes 952 934
Purchases of fixed assets (20,195) (933)
Net cash flows provided (used) by investing
activities (19,243) 1
Cash flows from (used in) financing activities:
Dividends paid (1,920) (1,918)
Repayment of long-term debt principal (1,050) (1,050)
Proceeds from long-term borrowings 16,500 -
Purchase of treasury stock (230) -
Reduction in Guaranteed debt to ESOP 150 150
Net cash flows provided (used) by
financing activities 13,450 (2,818)
Net (decrease) in cash and cash equivalents (3,584) (527)
Cash and cash equivalents - beginning balance 7,039 23,869
Cash and cash equivalents - ending balance $ 3,455 $ 23,342
Supplemental disclosures of cash flow information:
Cash paid to date for:
Interest $ 80 $ 295
Income taxes $ - $ 1,755
[FN]
See accompanying notes to condensed consolidated financial statements.
PENN VIRGINIA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying condensed consoli-
dated financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
financial position as of March 31, 1995, and the results of
operations and cash flows for the three months ended March 31, 1995
and 1994.
Property, plant and equipment consist of the following:
March 31, 1995 December 31, 1994
(In thousands)
Property, plant and equipment $ 140,407 $ 120,251
Less: Accumulated depreciation
and depletion (35,885) (34,005)
Net property, plant and equipment $ 104,522 $ 86,246
2. During the first quarter of 1995 the Company completed two signifi-
cant asset transactions. The first transaction consisted of the
relinquishment of the West Virginia Hampton lease by Westmoreland
Coal Company. The second transaction consisted of the acquisition of
an oil and gas property located in eastern Kentucky that increased
the Company's oil and gas reserves by approximately 42 billion cubic
feet(bcf) at a cost of approximately $17 million. This oil and gas
property is contiguous to a previously acquired oil and gas property
in 1992 and will allow access to an additional gas pipeline
transmission system thereby widening the marketability of the
Company's gas reserves.
3. The amortized cost, gross unrealized holding gains and fair value for
available-for-sale securities at March 31, 1995 were as follows:
Gross
Unrealized
Amortized Holding Fair
Cost Gain Value
(In thousands)
Available-for-sale
Westmoreland Coal Company $ 5,263 $ - $ 5,263
Westmoreland Resources, Inc. 4,530 - 4,530
Norfolk Southern Corporation 3,096 77,315 80,411
$ 12,889 $ 77,315 $ 90,204
On April 21, 1995 the Company sold 65,000 shares of its Norfolk
Southern Corporation common stock investment for approximately $4.3
million in cash. The proceeds from this sale will be utilized for
general corporate purposes as well as for working capital and debt
service requirements.
The amortized cost and fair value of notes receivable which are
classified as held-to-maturity securities was $11,905,000 at March
31, 1995.
4. During the first quarter of 1995 the Company set in place a new $20
million loan and agency agreement with First Fidelity Bank as the
lead lender and a couple of other commercial bank lenders. The pro-
ceeds from this debt borrowing were used to finance the acquisition
of the Loup Creek oil and gas property and the relinquishment of the
Hampton leases from Westmoreland Coal Company.
As of March 31, 1995, $16.5 million was drawndown on this agreement
and is included with long-term debt on the Company's balance sheet.
The remainder of $3.5 million is available for future drawdowns as
deemed necessary by the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of operations for the quarter ended March 31, 1995 as compared to the
quarter ended March 31, 1994:
Income from operations before income taxes decreased $1,395,000 or 32% for
the first quarter of 1995 compared to the first quarter of 1994. This decrease
is composed of a $96,000 decrease in the coal and land segment, a $61,000 de-
crease in the investment segment, a $1,187,000 decrease in the oil and gas
segment and a $51,000 increase in general corporate expenses and interest.
Income taxes decreased in the first quarter of 1995 versus 1994 by
$797,000 or 72% due mainly to a decrease in book taxable income and the esti-
mated decrease in the effective federal tax rate due to the effect of an
increased dividends received deduction, percentage depletion and shale tax
credits relative to lower operating revenues.
Coal and Land
1995 1994
(Thousands of dollars)
Revenues:
Sales $ 220 $ 121
Royalties 3,168 3,528
Other 484 290
Total 3,872 3,939
Expenses:
Cost of sales 19 26
Selling, general and administrative 319 309
Exploration and development 52 39
Depreciation, depletion and amortization 22 43
Taxes other than on income 75 41
Total 487 458
Operating Profit $ 3,385 $ 3,481
The decrease in the coal and land segment operating profit of $96,000 or
3% is mainly attributable to decreased coal royalties from Westmoreland Coal
Company's Virginia and West Virginia leases as well as a decrease in coal
tonnages mined by independents in Virginia. Partially offsetting this decrease
in coal royalty income was an increase in bulk timber sales and higher interest
income recognized on long-term coal notes due to higher coal production.
Investments
1995 1994
(Thousands of dollars)
Revenues:
Dividends $ 625 $ 577
Other 3 125
Total 628 702
Expenses:
Selling, general and administrative 6 16
Depreciation - 2
Taxes other than on income - 1
Total 6 19
Operating Profit $ 622 $ 683
The decrease in the investment segment of $61,000 or 9% is mainly
attributable to a decrease in interest income earned on short-term investments
of $122,000 offset in part by an increase of $48,000 in dividend income.
Oil and Gas
1995 1994
(Thousands of dollars)
Revenues:
Sales $ 3,443 $ 3,720
Royalties 348 621
Other 10 106
Total 3,801 4,447
Expenses:
Cost of sales 705 613
Selling, general and administrative 734 665
Exploration and development 64 30
Depreciation, depletion and amortization 1,856 1,497
Taxes other than on income 313 326
Total 3,672 3,131
Operating Profit $ 129 $ 1,316
Operating profit for the oil and gas segment decreased $1,187,000 or 90%.
The decrease is mainly attributable to a 30% decline in gas prices in 1995
versus 1994 that reduced sales by $277,000 or 7%. The gas price reduction and
gas production decreases lowered oil and gas royalties by $273,000 or 44%.
Other income decreased by $96,000 or 91% due mainly to a decline in delay
rental income from coal-bed methane gas leases.
The increase in cost of sales of $92,000 or 15% is due mainly to increased
well workover and well tending expense, increased joint venture related ex-
penses and additional lease operating expenses associated with oil and gas
properties acquired subsequent to the first quarter of 1994. Selling, general
and administrative expenses increased by $69,000 or 10% due mainly to the new
office lease costs following the relocation to Kingsport, Tennessee in the
second quarter of 1994. The increase in exploration and development is mainly
attributable to a 1994 first quarter reversal of accrued geological and geo-
physical costs that did not reoccur in 1995. Depreciation, depletion and
amortization increased by $359,000 or 24% due mainly to the effect of lower gas
pricing and higher gas production volumes on the depletion rate calculation for
1995.
Corporate
The increase in general corporate expenses and interest of $51,000 or 4%
is mainly attributable to a $117,000 increase in selling, general and admin-
istrative expenses due to higher salary, legal, consulting and environmental
related expenses. Partially offsetting this increase is a decrease of $68,000
in interest expense due mainly to lower debt balances outstanding.
Financial Condition, Liquidity, Capital Resources and Other Financial Data at
March 31,1995:
Working capital at March 31, 1995 was $172,000 compared to $2 million at
December 31, 1994. See the Condensed Consolidated Statement of Cash Flows for
details regarding the change. On April 21, 1995 the Company sold 65,000 shares
of Norfolk Southern Corporation common stock for approximately $4.3 million in
cash. The proceeds from this sale will be utilized for general corporate
purposes as well as for working capital and debt service requirements.
At March 31, 1995, there were $5.5 million in unused credit lines.
There are two main factors that could influence future earnings and cash
flow of the Company. One of these is gas prices. Since the majority of the
Company's gas is sold in the spot market or under contracts less than one
year in duration, future earnings will be directly related to the fluctuation
of those prices. Any sustained decline in these prices could result in some
impairment of oil and gas assets.
In an effort to mitigate the recent decline in gas prices, which are
expected to continue through the summer of 1995, the Company has undertaken
several steps. The current year's drilling program has been curtailed to
maximize the financial returns from our reserves; a program to further reduce
general and administrative expenses has been instituted and a program to lock
in roughly 35% of our production at acceptable (but below 1994) prices through
the summer was completed.
The second factor is the performance of Westmoreland Coal Company (WCX),
our largest coal lessee. In 1994, WCX reported net income of $20.2 million
compared to a net loss of $97.6 million for 1993. In a news release dated
March 31, 1995 WCX stated that the improvement in net income in 1994 included
$41.1 million of gains from the sales of the assets of Kentucky Criterion Coal
Coal Company and certain idled facilities in West Virginia. In addition, WCX
added that during 1994 $55 million of debt was repaid and that it currently has
adequate cash reserves. However, as further stated by WCX, it still faces
significant challenges including substantial heritage costs for postretirement
medical and workers' compensation liabilities, ongoing operating losses at the
Virginia division and the loss of above-market price coal contracts at that
location in 1995 and mid-1996. WCX reported that it continues to review
various options including the possible future downsizing, sale or shut-down of
all or a portion of the Virginia Division, at which time it may be required
to accelerate the recognition, for accounting purposes, of a significant
portion of its postretirement medical liabilities. WCX also stated that the
total amount of that recognition is not currently known, but the book impact of
this non-cash expense on its shareholders' equity could affect its legal
ability to pay preferred stock dividends.
WCX is burdened by a difficult coal price environment and significant
costs for retirees and idle mines that must be borne by a shrinking production
base. If WCX cannot mine profitably or significantly curtails its mining
activity, then Penn Virginia's cash flows would be adversely affected. A
prolonged period of depressed prices for coal would affect the merchantability
of the reserves leased to WCX and could ultimately result in a curtailment of
production from Penn Virginia's reserves.
In an effort to diversify the risks associated with having one principal
lessee on the Company's West Virginia coal properties and more fully exploit
the mineable coal reserves the Company obtained the relinquishment of the WCX
Hampton leases in February, 1995. It is the Company's intent to have several
lessees mining coal on this property by expanding the current mineable
reserve base. Management is currently evaluating several options from po-
tential coal lessees that could have a positive impact on coal royalty income
in the future.
The Company continues to evaluate its investment in WCX, and any
deterioration in its financial condition that results in the carrying value for
that investment being in excess of fair value could result in additional
losses.
Except for matters discussed above, management is not presently aware of
any trends or demands which exist or uncertainties which are reasonably likely
to result in the Company's liquidity increasing or decreasing in any material
way.
REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The accompanying condensed consolidated financial statements have been
reviewed by the Company's independent certified public accountants, KPMG Peat
Marwick LLP, in accordance with the established professional standards and
procedures for such a limited review.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 15: Letter Re: Unaudited interim financial information.
Exhibit 27: Financial data schedule for the three months ending
March 31, 1995.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the quarter ended March 31,
1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PENN VIRGINIA CORPORATION
(Registrant)
Date: May 15, 1995 A. James Dearlove
(A. James Dearlove, President and Chief Operating
Officer)
Date: May 15, 1995 William M. Swenson
(William M. Swenson, Assistant Controller)
(Principal Accounting Officer)
KPMG Peat Marwick LLP
Certified Public Accountants
1600 Market Street
Philadelphia, PA 19103
INDEPENDENT ACCOUNTANT'S REPORT
The Board of Directors
Penn Virginia Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of Penn
Virginia Corporation and subsidiaries as of March 31, 1995 and the related
condensed consolidated statements of income and cash flows for the three month
periods ended March 31, 1995 and 1994. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical review pro-
cedures to financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Penn Virginia Corporation and
subsidiaries as of December 31, 1994, and the related consolidated statements
of income, shareholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated March 1, 1995, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1994, is fairly presented, in all material
respects in relation to the consolidated balance sheet from which it has been
derived.
KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Philadelphia, PA
May 10, 1995
EXHIBIT INDEX
Exhibit No. Description
15 Letter re unaudited interim financial information
27 Financial data schedule