1
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, 1996
or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
----------------------- ----------------------
Commission File Number 0-753
PENN VIRGINIA CORPORATION
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(Exact name of registrant as specified in its charter)
Virginia 23-1184320
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 MATSONFORD ROAD SUITE 200
RADNOR, PA 19087
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(Address of principal executive offices) (Zip Code)
(610) 687-8900
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(Registrant's telephone number, including area code)
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(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 9, 1996: 4,341,064
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PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Six Months
Ended June 30, Ended June 30,
---------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
REVENUES:
Timber & land sales $196 $152 $270 $372
Oil and condensate sales 238 231 405 462
Natural gas sales 4341 2,878 9,703 5,987
Royalties-coal 1,666 2,961 3,385 6,129
Royalties-oil & gas 422 341 968 689
Dividends 794 592 1,411 1,217
Other income 152 144 537 290
----- ----- ------ -------
Total revenues $7,809 $7,299 $16,679 $15,146
EXPENSES:
Operating expenses $784 $728 $1,510 $1,452
Exploration and development 166 124 247 242
Taxes other than income 666 458 1,313 899
General and administrative 1,688 1,608 3,383 3,451
Depreciation, depletion, amortization 1,617 1,832 3,243 3,718
----- ----- ----- -----
TOTAL EXPENSES $4,921 $4,750 $9,696 $9,762
OPERATING INCOME $2,888 $2.549 $6,983 $5,384
OTHER (INCOME) EXPENSE:
Interest expense $ 329 $624 $603 $1,010
Gain on sale of securities 0 (4,106) 0 (4,106)
Gain on sale of property (5) (62) (22) (113)
Other income (1,102) (721) (1,911) (1,156)
------- ------- ------- -------
Income before income tax $3,666 $6,814 $8,313 $9,759
Income tax expense 1,129 1,465 1,519 1,768
------- ------- ------- -------
NET INCOME $2,537 $5,349 $6,794 $7,991
======= ======= ======= =======
Net Income per share .58 1.25 1.58 1.87
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING (IN THOUSANDS) 4,296 4,269 4,296 4,269
See accompanying notes to condensed consolidated financial statements.
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PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Three Months Six Months
Ended June 30, Ended June 30,
---------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $2,537 $5,349 $6,794 $7,991
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion, and amortization 1,617 1,832 3,243 3,718
Gain on sale of property, plant and equipment (5) (63) (22) (113)
Gain on sale of securities 0 (4,106) 0 (4,106)
Deferred income taxes 55 (319) (654) 33
Other (1,094) (374) (1,611) (595)
Decrease in current assets 457 1,178 967 1,493
Increase (Decrease) in current liabilities 525 (287) 544 (2,156)
(Increase) Decrease in other assets 2 (16) 3 (77)
Increase (Decrease) in other liabilities (1,086) 495 (728) (288)
Decrease in minority interest (3) (6) (7) (8)
-------- -------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $3,005 $3,683 $8,529 $5,892
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from notes $1,432 $1,381 $2,780 $2,333
Proceeds from the sale of securities 0 4,278 0 4,278
Proceeds from sale of fixed assets 5 116 25 116
Capital expenditures (12,712) (2,748) (12,785) (22,943)
-------- ------- -------- --------
NET CASH PROVIDED, (USED)
BY INVESTING ACTIVITIES $(11,275) $ 3,027 $(9,980) $(16,216)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (1,950) (1,921) (3,868) (3,841)
Proceeds from debt borrowings 19,125 1,500 19,125 18,000
Repayment of long-term debt (3,875) (6,275) (7,825) (7,325)
Purchase of treasury stock 0 0 0 (230)
Issuance of stock 329 0 652 0
Reduction in guaranteed debt to ESOP 0 150 0 300
-------- ------- ------- -------
NET CASH PROVIDED,(USED)
BY FINANCING ACTIVITIES $13,629 $(6,546) $8,084 $6,904
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $5,359 $164 $6,633 $(3,420)
CASH AND CASH EQUIVALENTS-BEGINNING BALANCE 4,267 3,455 2,993 7,039
----- ----- ----- -----
CASH AND CASH EQUIVALENTS-ENDING BALANCE $9,626 $3,619 $9,626 $3,619
===== ===== ===== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid to date for:
Interest $145 $917 $ 268 $997
Income taxes $848 $173 $1,681 $373
See accompanying notes to condensed consolidated financial statements.
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PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
June 30 December 31,
1996 1995
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $9,626 $2,993
Receivables 3,415 3,924
Current portion of long-term notes receivable 4,321 4,321
Current deferred tax benefit 865 865
Recoverable income taxes 0 375
Inventory 245 187
Prepaid expenses 88 229
------- -------
TOTAL CURRENT ASSETS 18,560 12,894
Investments 102,575 96,645
Long-term notes receivable-net of current portion 3,304 4,582
Property, plant and equipment (net) 102,092 91,016
Intangible assets, net of amortization 737 740
Other assets 122 124
-------- --------
TOTAL ASSETS $227,390 $206,001
======== ========
See accompanying notes to condensed consolidated financial statements.
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PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current installments on long-term debt $4,400 $2,000
Accounts payable 766 2,094
Accrued expenses 5,058 4,670
Deferred liabilities 143 188
Taxes on income 928 358
------- -------
TOTAL CURRENT LIABILITIES 11,295 9,310
------ -----
Other liabilities 6,674 7,402
Deferred taxes 30,942 29,040
Long-term debt, net of current installments 22,418 12,700
Minority interest 185 192
SHAREHOLDERS' EQUITY
Preferred stock of $100 par value-
authorized 100,000 shares; none issued
Common stock of $6.25 par value-
authorized 8,000,000 shares, issued 4,450,717
shares and 4,437,517 shares, respectively 27,817 27,735
Other paid in capital 36,124 35,856
Retained earnings 40,902 37,979
------- -------
104,843 101,570
Less: 109,653 and 175,277 shares of common stock,
respectively, held in treasury 5,582 7,928
Unearned Compensation - ESOP 1,950
Pensions-additional liability 899 899
Add: unrealized investment holding gain, net of tax 59,464 54,614
------- ------
TOTAL SHAREHOLDERS' EQUITY 155,876 147,357
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $227,390 $206,001
======== ========
See accompanying notes to condensed consolidated financial statements.
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PENN VIRGINIA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(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, 1995 annual report on Form 10-K.
Operating results for the six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996.
(2) SECURITIES
The amortized cost, gross unrealized holding gains or losses and market
value for available-for-sale securities at June 30, 1996 were as follows:
(Dollars in thousands)
Amortized Gross Unrealized Market
Cost Holding Gain (loss) Value
---- ------------------- -----
Available-for-sale:
Westmoreland Coal Company $5,263 $877 $6,140
Westmoreland Resources, Inc. 3000 0 3000
Norfolk Southern Corporation 2,839 90,589 93,428
Blue Diamond Coal Company 3 4 7
---------- --------- ----------
$11,105 $91,470 $102,575
The amortized cost and fair value of notes receivable which are
classified as held-to maturity securities were $7,625,000 at June 30, 1996.
(3) OTHER TRANSACTIONS
In May, 1996, the Company completed a coal transaction in which
Westmoreland Coal Company relinquished its rights under a lease of the Company's
Virginia reserves. Penn Virginia paid $10.7 million in cash and other
considerations to Westmoreland Coal Company for the reserve relinquishment.
Westmoreland retained a lease of certain Virginia reserves. Of the
approximately 115 million tons of recoverable coal reserves relinquished,
approximately 50 million have been leased to new operators. Leases for the
remaining 65 million tons of coal reserves are being negotiated with several
coal operators and should be in place by year-end.
In January 1996, the Company entered into three lease agreements with
an operator covering approximately 60 million tons of its coal reserves in West
Virginia. The leases have a fifteen-year initial term with the option to renew
for an additional five-year term. The operator is permitting on the property
and is expected to begin operations in early 1997.
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(4) SUBSEQUENT EVENTS
In July, 1996, the Company purchased a coal and timber property in West
Virginia for approximately $8.0 million. The purchase included 15,000 acres
holding 36 million tons of high BTU coal reserves and 11 million board feet of
standing hardwood timber and other assets. Simultaneous with the acquisition,
the Company entered into a long-term lease with the seller for the mining of the
coal reserves. The seller expects to begin coal production from the property in
1998.
In August, 1996, the Company entered into a $50.0 million senior
unsecured revolving credit facility with a group of banks led by Texas Commerce
National Bank. The borrowing base is calculated by the bank group and is based
on cash flows by business segment comprised of oil and gas, coal, and Norfolk
Southern dividends . The borrowing base will be determined semi-annually.
Outstanding balances under the facility bear interest at LIBOR plus a
percentage based on the borrowing capacity utilized.
The agreement will require the Company to maintain certain levels of
net worth, debt to capitalization and dividend limitation requirements.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - SECOND QUARTERS OF 1996 AND 1995 COMPARED.
Consolidated net income for the second quarter of 1996 is $2.5 million
compared with $5.3 million for the second quarter of 1995. The 1995
consolidated net income included a pretax gain on the sale of securities of $4.1
million.
Operating income for the second quarter of 1996 is $2.9 million
compared with $2.5 million for the second quarter of 1995. The discussion of
the segmented financial information included in this report will detail the
specifics of this increase.
Corporate and other non-operating income or expense consist primarily
of general and administrative expense, other non-operating income, interest
expense and income taxes. Corporate general and administrative expenses were
$0.7 million for the second quarter of 1996 compared with $0.5 million for the
second quarter 1995, this increase was due to the exercise of stock options by
a former employee.
Interest expense was down $0.3 million due to the reduction of
outstanding debt. Other non-operating income increased from $0.7 million in the
second quarter of 1995 to $1.1 million in the second quarter of 1996. This
increase was related to an increase in interest income on various long-term
notes receivable. Income taxes decreased from $1.4 million in the second
quarter of 1995 to $1.1 million in the second quarter of 1996. This decrease
is attributable to different components in the tax accrual for the second
quarter of 1996.
RESULTS OF OPERATIONS - SIX MONTHS OF 1996 AND 1995 COMPARED.
Consolidated net income for the first six months of 1996 is $6.8
million compared with $8.0 million for the same period in 1995. The 1995
consolidated net income included a pretax gain on the sale of securities of $4.1
million.
Operating income for the first six months of 1996 is $7.0 million
compared with $5.3 million for the same period in 1995. The discussion of the
segmented financial information included in this report will detail the
specifics of this increase.
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Corporate and other non-operating income or expense consist primarily
of general and administrative expense, other non-operating income, interest
expense and income taxes. Corporate general and administrative expenses were
$1.5 million for the first six months of 1996 compared with $1.3 million for
the same period in 1995, this increase was due to the exercise of stock options
by a former employee.
Interest expense was down $0.4 million due to the reduction of
outstanding debt. Other non-operating income increased $0.7 million for the
first six months of 1996 compared with the same period in 1995. This increase
was result of damages received on an encroachment of the Company's coal reserves
in Virginia and an increase in interest income on various long-term notes
receivable. Income taxes decreased $0.2 for the first six months of 1996
compared with the same period in 1995. This decrease is attributable to
different components in the tax accrual for the first six months of 1996.
The table below illustrates the operating statistics for the various business
segments of the Company and will be used to discuss the variances related to
operating activities for the Company for the three months ended June 30, 1996
and 1995 and for the six months ended June 30, 1996 and 1995.
OPERATIONS SUMMARY
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
PRODUCTION
Natural gas (MMcf)-WI 1,614 1,666 3,311 3,310
Natural gas (MMcf)-RI 181 155 347 310
Oil and condensate (MBbls) 13 13 23 28
Timber (Mbf) 1,073 1,218 1,538 2,290
Coal tons (000) 816 1,303 1,606 2,650
PRICES
Natural gas ($/Mcf)-WI $2.69 $1.73 $2.93 $1.81
Natural gas ($/Mcf)-RI 2.33 2.20 2.79 2.22
Oil and condensate ($/Bbl) 18.31 17.77 17.61 16.50
Timber ($/Mbf) 168 108 160 145
Coal royalties ($/ton) 2.04 2.27 2.11 2.31
The Company operates three business segments, oil and gas, coal and
land and investments. The segmented financial information on operating income
with explanations regarding variances in each segment is presented below.
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OIL AND GAS
The table below illustrates the results of operations for the oil and gas
segment for the three months ended June 30, 1996 and 1995 and for the six
months ended June 30, 1996 and 1995.
OIL AND GAS
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1995 1996 1995
----- ----- ---- ----
(Dollars in thousands) (Dollars in thousands)
REVENUES:
Natural gas sales $4,341 $2,878 $9,703 $5,987
Oil and gas royalties 422 341 968 689
Oil and condensate 238 231 405 462
Other income 141 133 491 243
----- ----- ----- -----
TOTAL REVENUES $5,142 $3,583 $11,567 $7,381
------ ------ ------- ------
EXPENSES:
Operating expenses $ 746 $ 715 $ 1,446 $1,420
Exploration and development 114 82 175 146
Taxes other than income 531 346 1,073 658
General and administrative 634 800 1,215 1,534
Depreciation and depletion 1,579 1,779 3,166 3,634
----- ----- ----- -----
TOTAL EXPENSES $3,604 $3,722 $7,075 $7,392
------ ------ ------ ------
OPERATING INCOME $1,538 $ 139 $4,492 $ (11)
====== ====== ====== =======
RESULTS OF OPERATIONS - SECOND QUARTERS OF 1996 AND 1995 COMPARED.
NATURAL GAS SALES. Natural gas sales increased $1.5 million (52 PERCENT) in
the second quarter of 1996 compared with the same period of 1995. This was
accomplished primarily on the strength of pricing, with volume remaining
virtually unchanged between the two comparison periods. The average price
received by the Company for its working interest gas was $2.69 per thousand
cubic feet (Mcf) compared with $1.73 per Mcf for the same period of 1995. Penn
Virginia has entered into several short-term contracts with prices ranging from
$2.46 per Mcf to $2.65 per Mcf from April, 1996 thru March, 1997. These
contracts cover approximately 20-25 percent of the Company's estimated
production during this period. The Company also entered into two short-term
contracts for the period May 1996 thru November 1996, with prices ranging from
$2.65 per Mcf to $2.78 per Mcf. These contracts cover approximately 20-25
percent of the Company's estimated production during this period.
OIL AND CONDENSATE SALES. Oil sales increased $7,000 (3 PERCENT) in the
second quarter of 1996 compared with the same period of 1995. Prices per
barrel were higher, averaging $18.31 per barrel (Bbl) for 1996 compared with
$17.77 per Bbl for 1995. Production was unchanged for 1996 compared with the
same period of 1995. The primary field affected by this increase was Cutshin.
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OIL AND GAS ROYALTIES. Oil and gas royalties increased $81,000 (24
PERCENT) in the second quarter of 1996 compared with the same period of 1995.
This variance resulted from an increase in volume of 26 million cubic feet
(MMcf) and an upturn in average prices from $2.20 per Mcf in the second quarter
1995 to $2.33 per Mcf in the second quarter of 96.
OTHER INCOME. Other income increased $8,000 (6 PERCENT) in the second
quarter of 1996 compared with the same period of 1995. This increase resulted
from additional gathering system income in the Roaring Fork field due to
increased volume transported.
OPERATING EXPENSES. Operating expenses for the second quarter of 1996 were
$746,000, which is an increase of $31,000 (4 PERCENT) compared with the same
period of 1995. This increase is related to the increased processing and
gathering fees the Company is experiencing in certain fields, offset by
decreases in repairs and maintenance, utilities and rentals and well workovers.
EXPLORATION AND DEVELOPMENT. Exploration and development expenses
increased $32,000 (39 percent) in the second quarter of 1996 compared with the
same period of 1995. This increase was due to the timing of delay rental
payments.
TAXES OTHER THAN INCOME. Taxes other than income increased $185,000
(53 PERCENT) in the second quarter of 1996 compared with the same period in
1995. Severance and ad valorem taxes represented the majority of the increase,
which is a function of the increase in the sales price received for the
Company's natural gas.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
$166,000 (21 PERCENT) in the second quarter of 1996 compared with the same
period in 1995. The primary factor effecting the decrease was a reduction in
personnel and their related benefit costs.
DEPRECIATION AND DEPLETION. Depreciation and depletion expense decreased
$200,000 (11 PERCENT) from $1,779,000 in the second quarter of 1995 to
$1,579,000 in the second quarter 1996. This decrease was a result of lower
depletion rates related to the implementation of the Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of. The implementation resulted
in an impairment being recorded in the fourth quarter of 1995 on the Company's
Pikeville field.
RESULTS OF OPERATIONS - SIX MONTHS OF 1996 AND 1995 COMPARED.
NATURAL GAS SALES. Natural gas sales increased $3.7 million (62 PERCENT)
in the first six months of 1996 compared with the same period of 1995. This
was accomplished primarily on the strength of pricing with volume remaining
virtually unchanged between the two comparison periods. The average price
received by the Company for its working interest gas was $2.93 per Mcf compared
with $1.81 per Mcf for the same period of 1995. Working interest volume in
MMcf for the first six months of 1996 was 3,311 compared with 3,310 for the
same period of 1995.
OIL AND CONDENSATE SALES. Oil sales decreased $57,000 (12 PERCENT) in the
first six months of 1996 compared with the same period of 1995. This variance
was a result of a reduction in volume of 5 MBbls for the first six months of
1996 compared with the same period of 1995. Pricing for oil was stronger for
the first six months of 1996, averaging $17.61 per Bbl compared with $16.50 per
Bbl for the first six months of 1995.
OIL AND GAS ROYALTIES. Oil and Gas royalties increased $279,000 (41
PERCENT) in the first six months of 1996 compared with the same period of 1995.
This variance resulted from an increase in
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volume of 37 MMcf and an increase in average prices from $2.22 per Mcf in the
first six months of 1995 compared with $2.79 per Mcf in the first six months of
1996.
OTHER INCOME. Other income increased $248,000 (102 PERCENT) for the first
six months of 1996 compared with the same period of 1995. This increase was
primarily a result of additional funds from the final settlement received from
the Company's natural gas contract claim settlement against Columbia, which was
reported in 1995.
OPERATING EXPENSES. Operating expenses increased $26,000 (2 PERCENT) for
the first six months of 1996 compared with the same period of 1995. This
variance is a result of increased gathering and processing fees in the
Company's various fields, offset by decreases in repairs and maintenance,
utilities and rentals and well workovers.
EXPLORATION AND DEVELOPMENT. Exploration and development expenses
increased $29,000 (20 PERCENT) in the first six months of 1996 compared with
the same period of 1995. In 1995 there were adjustments to accruals for dry
hole expenses that are not present in 1996. All other exploration and
development expenses are consistent from 1995 to 1996.
TAXES OTHER THAN INCOME. Taxes other than income increased $415,000
(63 PERCENT) in the first six months of 1996 compared with the same period of
1995. Severance and ad valorem taxes represented the majority of the increase,
which is a function of the increase in sales price received for the Company's
natural gas.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
$319,000 (21 PERCENT) for the first six months of 1996 compared with the same
period of 1995. The primary factor effecting the decrease is a reduction in
personnel and their related benefit cost.
DEPRECIATION AND DEPLETION. Depreciation and depletion decreased $468,000
(13 PERCENT) for the first six months of 1996 compared with the same period
of 1995. This decrease is a result of lower depletion rates related to the
implementation of the Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets to be Disposed of. The
implementation resulted in an impairment being recorded in the fourth quarter
of 1995 on the Company's Pikeville field.
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COAL AND LAND
The table below illustrates the results of operations for the coal and land
segment for the three months ended June 30, 1996 and 1995 and for the six
months ended June 30, 1996 and 1995.
COAL AND LAND
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in Thousands) (Dollars in Thousands)
REVENUES:
Coal royalties $1,666 $2,961 $3,385 $6,129
Timber and land sales 196 152 270 372
Other income 10 11 45 47
----- ----- ----- -----
TOTAL REVENUES $1,872 $3,124 $3,700 $6,548
------ ------ ------ ------
EXPENSES:
Operating expenses $ 39 $ 12 $ 65 $ 31
Exploration and development 52 43 72 96
Taxes other than income 112 71 183 146
General and administrative 328 332 643 651
Depreciation and depletion 32 43 63 65
------ ----- ------ ------
TOTAL EXPENSES $ 563 $ 501 $1,026 $ 989
------ ------ ------ ------
OPERATING INCOME $1,309 $2,623 $2,674 $5,559
====== ====== ====== ======
RESULTS OF OPERATIONS - SECOND QUARTERS OF 1996 AND 1995 COMPARED
COAL ROYALTIES. Coal royalties decreased $1.3 million (44 PERCENT) in the
second quarter of 1996 compared with the same period in 1995. The largest
single factor affecting this decrease was the idling of Westmoreland Coal
Company operations on the Company's property located in Virginia. As reported
earlier, this idling began in July, 1995. As reported in the notes to the
financial statements included herein, this lease has been restructured and
mining from the relinquished coal reserves is expected to begin in the fourth
quarter of 1996. Westmoreland Coal Company retained a lease of approximately
40 million tons of recoverable coal reserves on which it employs two contract
mining operations.
Royalties from other lessees decreased approximately $0.2 million in the
second quarter of 1996 compared with the second quarter of 1995 due to the
depletion of reserves in certain areas. The Company also began to receive
minimum royalty payments on the new leases in West Virginia signed in January,
1996.
TIMBER AND LAND SALES. Timber and land sales increased $44,000 (29
PERCENT) in the second quarter of 1996 compared with the same period of 1995.
In the second quarter of 1996, the Company sold 1,073 thousand board feet (Mbf)
of timber compared with 1,218 Mbf for the same period in 1995. The sales price
per Mbf increased from $108 per Mbf in the second quarter of 1995 to $168 per
Mbf in the second quarter of 1996. This change in volume is a function of the
timing of the Company's timber parcel sales.
OTHER INCOME. Other income was virtually unchanged for the second quarter
of 1996 compared with the second quarter of 1995.
OPERATING EXPENSES. Operating expenses increased $27,000 (225 PERCENT)
from $12,000 in the second quarter of 1995 to $39,000 in the second quarter of
1996 related to the recognition of expenses
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associated with timber sales performed by the Company. Previously, the Company
only used contractors to sell its timber.
EXPLORATION AND DEVELOPMENT. Exploration and development expenses
increased $9,000 (21 PERCENT) from $43,000 in the second quarter of 1995 to
$52,000 in the second quarter of 1996. This increase resulted from the timing
of the Company's coal core drilling program.
TAXES OTHER THAN INCOME. Taxes other than income for the second
quarter 1996 increased $41,000 (58 PERCENT) from $71,000 in 1995 to $112,000 in
1996 as a result of increased business franchise taxes in West Virginia.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
second quarter 1996 were consistent with the second quarter 1995.
DEPRECIATION AND DEPLETION. Depreciation and depletion decreased $11,000
(26 PERCENT) from $43,000 in the second quarter of 1995 to $32,000 in the
second quarter of 1996. This decrease is a result of lower depletion expense
due to decreased coal production offset by an increase in depreciation expense
on fixed assets.
RESULTS OF OPERATIONS - SIX MONTHS OF 1996 AND 1995 COMPARED.
COAL ROYALTIES. Coal royalties decreased $2.7 million (44 PERCENT) for
the first six months of 1996 compared with the same period of 1995. The
largest single factor affecting this decrease was the idling of Westmoreland
Coal Company operations on the Company's property located in Virginia. As
reported earlier this idling began in July, 1995. Royalties from other lessees
in the first six months of 1996 decreased approximately $.3 million due to the
depletion of reserves in certain areas and the transition of new mining
start-ups, offset by cash received for an encroachment on the Company's
reserves.
TIMBER AND LAND SALES. Timber and land sales decreased $102,000 (27
PERCENT) for the first six months of 1996 compared with the same period of
1995. The primary reason for this decline is the timing of parcel sales, the
bulk of which are not scheduled until the third and fourth quarters of 1996.
The sales price per Mbf did increase in the first six months of 1996 compared
with the same period in 1995. The price increased from $145 per Mbf to $160 per
Mbf. In the first six months of 1996, the Company sold 1,538 Mbf of timber
compared with 2,290 Mbf for the same period in 1995.
OTHER INCOME. Other Income was virtually unchanged for the first six
months of 1996 compared with the first six months of 1995.
OPERATING EXPENSES. Operating expenses increased $34,000 (110 PERCENT)
from $31,000 in the first six months of 1995 to $65,000 for the first six
months of 1996. This increase was due to the renewal of a land lease on a
unit-train load-out site.
EXPLORATION AND DEVELOPMENT. Exploration and development expenses
decreased $24,000 (25 PERCENT) for the first six months of 1996 compared with
the same period of 1995. This decrease is a result of the timing of the
Company's coal core drilling program and the reduction of the Company's cash
contribution to a research project it participates in with Virginia Tech.
TAXES OTHER THAN INCOME. Taxes other than income increased $37,000 (25
PERCENT) in the first six months of 1996 compared with the same period of 1995.
This increase is due to additional business franchise taxes in the state of
West Virginia.
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GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
first six months of 1996 were consistent with the first six months of 1995.
DEPRECIATION AND DEPLETION. Depreciation and depletion decreased $2,000 (3
PERCENT) for the first six months of 1996 compared with the same period of
1995. This decrease is a result of lower depletion expense due to decreased
coal production offset by an increase in depreciation expense on fixed assets.
INVESTMENTS
The table below illustrates the investments held at June 30, 1996 and the
results of operations for the investment segment for the three months ended
June 30, 1996 and 1995 and for the six months ended June 30, 1996 and 1995.
June 30, 1996
-------------
COMMON SHARES OWNED:
Norfolk Southern Corporation 1,102,400
Westmoreland Coal Company 1,754,411
Westmoreland Resources, Inc 1,600
Blue Diamond Coal Company 287
INVESTMENTS
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in thousands) (Dollars in Thousands)
REVENUES:
Dividends $794 $592 $1,411 $1,217
---- ---- ------ ------
TOTAL REVENUES 794 592 1,411 1,217
--- --- ----- -----
EXPENSES:
General and administrative 8 3 13 9
----- ----- ----- -----
TOTAL EXPENSES 8 3 13 9
----- ----- ----- -----
OPERATING INCOME $ 786 $ 589 $1,398 $1,208
=== === ===== ======
RESULTS OF OPERATIONS - SECOND QUARTERS OF 1996 AND 1995 COMPARED.
DIVIDENDS. Dividend income from the Company's various investments in
energy related companies is $794,000 for the second quarter 1996 an increase of
$202,000 (34 PERCENT) due to the timing of the payment of Westmoreland
Resources, Inc. dividends.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$5,000 (167 PERCENT) from the second quarter of 1995 to the second quarter of
1996 as a result of increases in professional services being rendered.
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RESULTS OF OPERATIONS - SIX MONTHS OF 1996 AND 1995 COMPARED.
DIVIDENDS. Dividend income from the Company's various investments in
energy related companies increased $194,000 (16 PERCENT) for the first six
months of 1996 compared with the same period in 1995 due to the timing of the
payment of Westmoreland Resources, Inc. dividends.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$4,000 (44 PERCENT) for the first six months of 1996 compared with the same
period of 1995 as a result of increases in professional services being
rendered.
CAPITAL EXPENDITURES, CAPITAL RESOURCES AND LIQUIDITY.
CAPITAL EXPENDITURES.
During the first six months of 1996, capital expenditures totaled $12.8
million compared with $22.9 million for the first six months of 1995.
In May, 1996 the Company completed a transaction with Westmoreland Coal
Company in which the Company regained control of its Virginia coal reserves.
Penn Virginia paid $10.7 million in cash and other considerations to
Westmoreland Coal Company in exchange for the reserve relinquishment.
Westmoreland also retained a lease of certain Virginia reserves. Of the
approximately 115 million tons of recoverable coal reserves relinquished,
approximately 50 million have been leased to new operators. Leases for the
remaining 65 million tons of coal are being negotiated with several coal
operators and should be in place by year-end.
The remaining $2.1 million of capital expenditures have been made in the
oil and gas segment within the first six months of 1996. Drilling of the
budgeted thirty to forty development wells has begun. At June 30, 1996, 14.6
net wells had been drilled with 13.6 net wells successful and 1.0 net
developmental dry hole. The Company also began its exploratory drilling program
in the Hinton field. Results are encouraging, at June 30, 1996, 2.0 net wells
had been successfully drilled. The Company will continue with an 8 to 10 well
exploratory drilling program for 1996.
In the first six months of 1995 the Company acquired certain oil and gas
properties in southern West Virginia for approximately $17.0 million in cash.
This transaction included 58 producing wells and approximately 47 billion cubic
feet (Bcf) of natural gas reserves. Also, during this period, the Company
regained control of its West Virginia coal reserves when Westmoreland Coal
Company relinquished its lease in return for $3.0 million and other
consideration. The remainder of capital expenditures in the first six months
of 1995 were related to the developmental drilling program in the oil and gas
segment. At June 30, 1995, 19.1 net wells had been drilled successfully with
no dry holes.
Subsequent to the end of the second quarter the Company completed an
acquisition of a coal and timber bearing property in West Virginia. For
approximately $8.0 million, the Company acquired 15,000 acres holding 36
million tons of high-BTU coal reserves of which 17 to 20 million tons are
currently estimated to be recoverable and 11 million board feet of standing
timber. Simultaneous with the acquisition, the company leased the reserves
back to the seller, who will mine the coal.
The current year capital expenditure program and proved property
acquisitions will be funded by internally generated cash flow and additional
debt.
CAPITAL RESOURCES AND LIQUIDITY.
Cash provided by operating activities and an increase in long-term
borrowing were the primary sources of capital in the first six months of 1996.
Net cash provided by operating activities was $8.5 million during the first six
months of 1996, compared with $5.9 million for the first six months of 1995.
The primary reason for this increase was the price the Company received for its
oil and natural gas. As disclosed earlier, the Company has entered into
short-term contracts for its natural gas to partially reduce price volatility.
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Long term debt proceeds for the first six months of 1996 were $19.1 million
compared with $18.0 million for the same period in 1995.
Subsequent to the end of the second quarter of 1996 the Company entered
into a $50.0 million senior unsecured revolving credit facility with a group of
banks led by Texas Commerce National Bank. The borrowing base is calculated by
the bank group and is based on cash flows by business segment comprised of oil
and gas, coal, and Norfolk Southern dividends . The borrowing base will be
determined semi-annually. Outstanding balances under the facility bear
interest at LIBOR plus a percentage based on the borrowing capacity utilized.
The agreement will require the Company to maintain certain levels of net
worth, debt to capitalization and dividend limitation requirements.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(15) Letter Re: Unaudited interim financial
information
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed for the quarter
ended June 30, 1996
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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 14, 1996 By: /s/ STEVEN W. THOLEN
--------------------------- -------------------------------------
Steven W. Tholen, Vice President,
Chief Financial Officer
Date: August 14, 1996 By: /s/ ANN N. HORTON
--------------------------- -------------------------------------
Ann N. Horton, Controller
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PENN VIRGINIA CORPORATION
INDEX
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PAGE
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PART I Financial Information:
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the three 1
and six months ended June 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows for the three 2
and six months ended June 30, 1996 and 1995
Condensed Consolidated Balance Sheets as of June 30, 1996 and 3
December 31, 1995
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition 6
and Results of Operations
PART II Other Information
Item 6. Exhibits and Reports on Form 8-K 15
17