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 September 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
- -----------------------------------------------------------------------------
(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
- -----------------------------------------------------------------------------
(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 November 6, 1996: 4,341,064
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PENN VIRGINIA CORPORATION
INDEX
PAGE
----
PART I Financial Information:
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the three 1
and nine months ended September 30, 1996 and 1995
Condensed Consolidated Statements of Cash Flows for the three 2
and nine months ended September 30, 1996 and 1995
Condensed Consolidated Balance Sheets as of September 30, 1996 3
and December 31, 1995
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 18
3
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
REVENUES:
Timber & land sales $188 $131 $458 $503
Oil and condensate sales 198 214 603 676
Natural gas sales 4,322 2,831 14,025 8,818
Royalties-coal 1,525 1,706 4,910 7,835
Royalties-oil & gas 429 220 1,397 909
Dividends 721 573 2,132 1,790
Other income 128 55 665 345
----- ------ ------ -------
Total revenues $7,511 $5,730 $24,190 $20,876
EXPENSES:
Operating expenses $819 $868 $2,329 $2,320
Exploration and development 210 119 457 361
Taxes other than income 592 489 1,905 1,388
General and administrative 1,882 1,659 5,265 5,110
Depreciation, depletion, amortization 1,669 2,178 4,912 5,896
----- ----- ------ ------
TOTAL EXPENSES $5,172 $5,313 $14,868 $15,075
OPERATING INCOME $2,339 $417 $9,322 $5,801
OTHER (INCOME) EXPENSE:
Interest expense $ 491 $470 $1,094 $1,480
Gain on sale of securities 0 (2,285) 0 (6,391)
Gain on sale of property (2) 1,579 (24) 1,466
Other income (1,429) (450) (3,340) (1,616)
------- ------ -------- --------
Income before income tax $3,279 $1,103 $11,592 $10,862
Income tax expense 583 12 2,102 1,780
----- ------ ----- -----
NET INCOME $2,696 $1,091 $9,490 $9,082
====== ====== ====== ======
Net Income per share .62 .26 2.20 2.13
======= ====== ===== =====
WEIGHTED AVERAGE SHARES OUTSTANDING (IN THOUSANDS) 4,341 4,262 4,310 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 Nine Months
Ended September 30, Ended September 30,
---------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
Net Income $2,696 $1,091 $9,490 $9,082
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion, and amortization 1,669 2,178 4,912 5,896
Gain on sale of property, plant and equipment (3) 1,579 (25) 1,466
Gain on sale of securities 0 (2,285) 0 (6,391)
Deferred income taxes 282 (244) (372) (211)
Other (916) (360) (2,527) (955)
Decrease in current assets 656 1,248 1,623 2,741
Increase (decrease) in current liabilities 2,247 (760) 2,791 (2,916)
(Increase) decrease in other assets (132) (25) (129) (102)
Increase (decrease) in other liabilities (1,173) (172) (1,901) (460)
Decrease in minority interest (5) (4) (12) (12)
-------- -------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $5,321 $2,246 $13,850 $8,138
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from notes $ 591 $1,388 $3,371 $3,721
Proceeds from the sale of securities 3,000 2,378 3,000 6,656
Proceeds from sale of fixed assets 143 767 168 883
Capital expenditures (12,353) (2,390) (25,138) (25,333)
-------- ------- -------- --------
NET CASH PROVIDED, (USED)
BY INVESTING ACTIVITIES $(8,619) $2,143 $(18,599) $(14,073)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (1,957) (1,918) (5,825) (5,759)
Proceeds from debt borrowings 3,679 2,300 22,804 20,300
Repayment of long-term debt (3,575) (5,050) (11,400) (12,375)
Purchase of treasury stock 0 (284) 0 (514)
Issuance of stock 0 0 652 0
Reduction in guaranteed debt to ESOP 0 0 0 300
-------- ------- ------- -------
NET CASH PROVIDED,(USED)
BY FINANCING ACTIVITIES $(1,853) $(4,952) $6,231 $1,952
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS $(5,151) $(563) $1,482 $(3,983)
CASH AND CASH EQUIVALENTS-BEGINNING BALANCE 9,626 3,619 2,993 7,039
------ ----- ----- -----
CASH AND CASH EQUIVALENTS-ENDING BALANCE $ 4,475 $3,056 $4,475 $3,056
======= ====== ====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid to date for:
Interest $337 $420 $605 $1,417
Income taxes $598 $75 $2,279 $448
See accompanying notes to condensed consolidated financial statements.
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PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
September 30, December 31,
1996 1995
---- ----
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $4,475 $2,993
Receivables 2,716 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 238 187
Prepaid expenses 138 229
------- -------
TOTAL CURRENT ASSETS 12,753 12,894
Investments 104,463 96,645
Long-term notes receivable-net of current portion 3,738 4,582
Property, plant and equipment (net) 113,166 91,016
Intangible assets, net of amortization 739 740
Other assets 254 124
-------- --------
TOTAL ASSETS $235,113 $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)
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current installments on long-term debt $2,025 $2,000
Accounts payable 1,382 2,094
Accrued expenses 5,929 4,670
Deferred liabilities 119 188
Taxes on income (168) 358
------- -------
TOTAL CURRENT LIABILITIES 9,287 9,310
----- -----
Other liabilities 5,501 7,402
Deferred taxes 34,476 29,040
Long-term debt, net of current installments 25,040 12,700
Minority interest 180 192
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 36,127 35,856
Retained earnings 41,645 37,979
------- -------
105,589 101,570
Less: 109,653 and 175,277 shares of common stock,
respectively, held in treasury 5,582 7,928
Unearned compensation - ESOP 1,900
Pensions-additional liability 899 899
Add: unrealized investment holding gain, net of tax 63,421 54,614
------- ------
TOTAL SHAREHOLDERS' EQUITY 160,629 147,357
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $235,113 $206,001
======== ========
See accompanying notes to condensed consolidated financial statements.
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PENN VIRGINIA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 nine months ended September 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 September 30, 1996 were as follows:
(Dollars in thousands)
Amortized Gross Unrealized Market
Cost Holding Gain (loss) Value
---- ------------------- -----
Available-for-sale:
Westmoreland Coal Company $4,063 $ (338) $ 3,725
Norfolk Southern Corporation 2,839 97,893 100,732
Blue Diamond Coal Company 3 4 7
---------- --------- ----------
$6,905 $97,559 $104,464
The amortized cost and fair value of notes receivable which are
classified as held-to maturity securities were $8,059,000 at September 30,
1996.
(3) OTHER TRANSACTIONS
On September 30, 1996, Westmoreland Coal Company exercised an option to
purchase Penn Virginia's 16 percent position in Westmoreland Resources, Inc., a
joint venture which operates a Montana coal mine. This option was for $3.0
million in cash and was granted as part of the May, 1996 transaction with
Westmoreland Coal Company discussed below.
On September 16, 1996, Penn Virginia contributed 400,000 shares of its
Westmoreland common stock to the Penn Virginia Corporation Benefits Trust Fund,
which is a voluntary employees beneficiary association. The fund provides part
of the life and medical benefits for eligible retired employees of Penn
Virginia. Also, on this date Penn Virginia Equities Corporation filed a
Schedule 13-D in conjunction with this transaction discussing the Company's
intent to sell or otherwise dispose of all or some of the remaining
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shares of Westmoreland Coal Company common stock held by the Company.
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 amount of the borrowing base utilized. The agreement
requires the Company to maintain certain covenants related to net worth,
debt-to-capitalization and dividends.
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 approximately 36 million tons of high BTU coal reserves, of which
approximately 17 to 20 million tons are currently estimated to be recoverable,
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.
In May 1996, the Company completed a coal transaction in which
Westmoreland Coal Company relinquished its rights to approximately 115 million
tons of recoverable coal reserves 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 lease rights to approximately 38 million tons of the Company's
Virginia reserves. Of the approximately 115 million tons of recoverable coal
reserves relinquished, approximately 60 million have been leased to new
operators. Leases for most of the remaining 55 million tons of coal reserves
are being negotiated with several coal operators and are expected to be
completed by year-end.
In September 1996, Westmoreland Coal Company sold certain operations to
Intrepid Coal Corporation. The Company then leased to Intrepid approximately 13
million tons of its Virginia coal reserves which Westmoreland had previously
retained in the May 1996 transaction, described above. These reserves relate
to underground seams in the Holton and Pierrepont mines. The Company expects
Intrepid to begin mining operations in the fourth quarter of 1996.
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 mid-1997.
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ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THIRD QUARTERS OF 1996 AND 1995 COMPARED.
Consolidated net income for the third quarter of 1996 is $2.7 million
compared with $1.1 million for the third quarter of 1995. The 1995
consolidated net income included a pretax gain on the sale of securities of
$2.3 million and a pretax loss on the sale of certain non-strategic oil and gas
properties of $1.5 million. Operating
income for the third quarter of 1996 is $2.3 million compared with $0.4 million
for the third quarter of 1995. A discussion of the segmented financial
information is included in this report.
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
$0.9 million for the third quarter of 1996 compared with $0.7 million for the
third quarter 1995, as a result of increased consulting fees.
Interest expense was $0.5 million for the third quarter of 1996, which
is unchanged compared with the third quarter of 1995. Other non-operating
income increased from $0.4 million in the third quarter of 1995 to $1.4 million
in the third quarter of 1996. This increase was related to additional
interest income on various long-term notes receivable. Income taxes increased
$0.6 million in the third quarter of 1996 due to an increase in consolidated
net income for the quarter offset by other components in the tax accrual.
RESULTS OF OPERATIONS - NINE MONTHS OF 1996 AND 1995 COMPARED.
Consolidated net income for the first nine months of 1996 is $9.5
million compared with $9.0 million for the same period in 1995. The 1995
consolidated net income included a pretax gain on the sale of securities of
$6.4 million, offset partially by a pretax loss on the sale of certain
non-strategic oil and gas properties of $1.8 million.
Operating income for the first nine months of 1996 is $9.3 million
compared with $5.8 million for the same period in 1995. A discussion of the
segmented financial information is included in this report.
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
$2.4 million for the first nine months of 1996 compared with $1.9 million for
the same period in 1995, consulting fees increased and also compensation
expense 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 $1.7 million for the
first nine months of 1996 compared with the same period in 1995. This increase
was a result of the damages received on an encroachment of the Company's coal
reserves in Virginia and additional in interest income on various long-term
notes receivable. Income taxes increased $0.3 for the first nine months of
1996 compared with the same period in 1995, due to an increase in consolidated
net income.
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The table below illustrates the operating statistics for the various business
segments of the Company and will be used to discuss the variances related to
operating activities for the Company for the three months ended September 30,
1996 and 1995 and for the nine months ended September 30, 1996 and 1995.
OPERATIONS SUMMARY
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
PRODUCTION
Timber (Mbf) 1,038 603 2,576 2,893
Oil and condensate (MBbls) 12 13 35 41
Natural gas (MMcf)-WI 1,669 1,749 4,980 5,059
Natural gas (MMcf)-RI 168 101 515 411
Coal tons (000) 752 726 2,358 3,376
PRICES
Timber ($/Mbf) $ 181 $ 217 $ 160 $ 157
Oil and condensate ($/Bbl) 16.50 16.46 17.23 16.49
Natural gas ($/Mcf)-WI 2.59 1.62 2.82 1.74
Natural gas ($/Mcf)-RI 2.55 2.18 2.71 2.21
Coal royalties ($/ton) 2.03 2.35 2.08 2.32
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 September 30, 1996 and 1995 and for the nine
months ended September 30, 1996 and 1995.
OIL AND GAS
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- -------------------
1996 1995 1996 1995
----- ----- ---- ----
(Dollars in thousands) (Dollars in thousands)
REVENUES:
Oil and condensate $ 198 $ 214 $ 603 $ 676
Natural gas sales 4,322 2,831 14,025 8,818
Oil and gas royalties 429 220 1,397 909
Other income 112 38 603 281
------ ------- ------ ------
TOTAL REVENUES $5,061 $3,303 $16,628 $10,684
------ ------ ------- -------
EXPENSES:
Operating expenses $786 $845 $2,232 $2,265
Exploration and development 78 93 253 239
Taxes other than income 473 392 1,546 1,050
General and administrative 652 725 1,867 2,259
Depreciation and depletion 1,617 2,139 4,783 5,773
----- ----- ----- -----
TOTAL EXPENSES $3,606 $4,194 $10,681 $11,586
------ ------ ------- -------
OPERATING INCOME $1,455 $ (891) $ 5,947 $ (902)
====== ========= ======= ========
RESULTS OF OPERATIONS - THIRD QUARTERS OF 1996 AND 1995 COMPARED.
OIL AND CONDENSATE SALES. Oil sales decreased $16,000 (7 percent) in the
third quarter of 1996 compared with the same period of 1995. Prices averaged
$16.50 per barrel (Bbl) for 1996 compared with $16.46 per Bbl for 1995.
Production declined in the third quarter of 1996 compared with the same period
of 1995.
NATURAL GAS SALES. Natural gas sales increased $1.5 million (53 PERCENT)
in the third 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 $2.59 per thousand
cubic feet (Mcf) compared with $1.62 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 through 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 through 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.
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The Company has entered into four new contracts for the period December
1996 to March 1997 with prices ranging from $3.11 per Mcf to $3.25 per Mcf.
These new contracts will cover approximately 20-25 percent of the Company's
estimated production for this time period.
OIL AND GAS ROYALTIES. Oil and gas royalties increased $209,000 (95
PERCENT) in the third quarter of 1996 compared with the same period of 1995.
This variance resulted from an increase in volume of 67 million cubic feet
(MMcf) and an upturn in average prices from $2.18 per Mcf in the third quarter
of 1995 to $2.55 per Mcf in the third quarter of 1996.
OTHER INCOME. Other income increased $74,000 (195 PERCENT) in the third
quarter of 1996 compared with the same period of 1995. This increase resulted
primarily from the sale of the Company's seismic data on certain areas of
eastern Kentucky.
OPERATING EXPENSES. Operating expenses for the third quarter of 1996 were
$786,000, which is a decrease of $59,000 (7 PERCENT) compared with the same
period of 1995. This decrease is related to reductions in repairs and
maintenance, utilities and rentals and well workovers, offset by increased
processing and gathering fees.
EXPLORATION AND DEVELOPMENT. Exploration and development expenses
decreased $15,000 (16 PERCENT) in the third quarter of 1996 compared with the
same period of 1995. This decrease is a result of lower costs for the 1996
reserve study.
TAXES OTHER THAN INCOME. Taxes other than income increased $81,000 (21
PERCENT) in the third quarter of 1996 compared with the same period in 1995.
Severance and ad valorem taxes which represented the majority of the increase,
were up as a result of the increase in the sales price received for the
Company's natural gas.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
$73,000 (10 PERCENT) in the third quarter of 1996 compared with the same period
in 1995. The primary factor for the decrease was a reduction in
personnel and their related benefit costs.
DEPRECIATION AND DEPLETION. Depreciation and depletion expense decreased
$522,000 (24 PERCENT) from $2,139,000 in the third quarter of 1995 to
$1,617,000 in the third 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 one of the
Company's gas fields in eastern Kentucky.
RESULTS OF OPERATIONS - NINE MONTHS OF 1996 AND 1995 COMPARED.
OIL AND CONDENSATE SALES. Oil sales decreased $73,000 (11 PERCENT) in the
first nine months of 1996 compared with the same period of 1995. This variance
was a result of a reduction in volume of 6 MBbls for the first nine months of
1996 compared with the same period of 1995. Pricing for oil was stronger for
the first nine months of 1996, averaging $17.23 per Bbl compared with $16.49
per Bbl for the first nine months of 1995.
NATURAL GAS SALES. Natural gas sales increased $5.2 million (59 PERCENT)
in the first nine 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 $2.82 per Mcf compared
with $1.74 per
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Mcf for the same period of 1995. Working interest volume in MMcf for the first
nine months of 1996 was 4,980 compared with 5,059 for the same period of 1995.
OIL AND GAS ROYALTIES. Oil and gas royalties increased $488,000 (54
PERCENT) in the first nine months of 1996 compared with the same period of
1995. This variance resulted from an increase in volume of 104 MMcf and an
increase in average prices from $2.21 per Mcf in the first nine months of 1995
compared with $2.71 per Mcf in the first nine months of 1996.
OTHER INCOME. Other income increased $322,000 (115 PERCENT) for the first
nine 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 Gas
Transmission, which was reported in 1995, the sale of the company's seismic
data on certain areas in eastern Kentucky and an increase in gathering system
income from various fields.
OPERATING EXPENSES. Operating expenses for the first nine months of 1996
were virtually unchanged compared with 1995.
EXPLORATION AND DEVELOPMENT. Exploration and development expenses
increased $14,000 (6 PERCENT) in the first nine 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 $496,000 (47
PERCENT) in the first nine months of 1996 compared with the same period of
1995. Severance and ad valorem taxes represented the majority of the increase,
due to the increase in sales price received for the Company's natural gas.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased
$392,000 (17 PERCENT) for the first nine months of 1996 compared with the same
period of 1995. The primary factor for the decrease is a reduction in
personnel and their related benefit cost.
DEPRECIATION AND DEPLETION. Depreciation and depletion decreased $990,000
(17 PERCENT) for the first nine 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 one of the Company's gas fields in eastern Kentucky.
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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 September 30, 1996 and 1995 and for the nine
months ended September 30, 1996 and 1995.
COAL AND LAND
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in Thousands) (Dollars in Thousands)
REVENUES:
Timber and land sales $ 188 $ 131 $ 458 $ 503
Coal royalties 1,525 1,706 4,910 7,835
Other income 16 17 61 64
----- ----- ----- -----
TOTAL REVENUES $1,729 $1,854 $5,429 $8,402
------ ------ ------ ------
EXPENSES:
Operating expenses $32 $24 $97 $55
Exploration and development 132 25 204 121
Taxes other than income 103 55 286 201
General and administrative 357 252 1,000 903
Depreciation and depletion 31 30 94 95
------ ------ ------ ------
TOTAL EXPENSES $ 655 $ 386 $1,681 $ 1,375
------ ------ ------ -------
OPERATING INCOME $1,074 $1,468 $3,748 $7,027
====== ====== ====== ======
RESULTS OF OPERATIONS - THIRD QUARTERS OF 1996 AND 1995 COMPARED
TIMBER AND LAND SALES. Timber and land sales increased $57,000 (44
PERCENT) in the third quarter of 1996 compared with the same period of 1995.
In the third quarter of 1996, the Company sold 1,038 thousand board feet (Mbf)
of timber compared with 603 Mbf for the same period in 1995. The sales price
per Mbf decreased from $217 per Mbf in the third quarter of 1995 to $181 per
Mbf in the third quarter of 1996. This change in volume is a function of the
timing of the Company's timber parcel sales.
COAL ROYALTIES. Coal royalties decreased $0.2 million (11 PERCENT) in the
third quarter of 1996 compared with the same period in 1995. The largest single
factor for this decrease was the idling of Westmoreland Coal Company operations
on the Company's property located in Virginia. As earlier reported, this idling
began in July 1995. As reported in the notes to the financial statements
included herein, new leases have been completed for approximately 73 million
tons of the 115 million tons relinquished, and mining from the relinquished coal
reserves is expected to begin in the fourth quarter of 1996. Westmoreland Coal
Company continues to retain a lease of approximately 25 million tons of
recoverable coal reserves, including reserves on which it employs two contract
mining operations.
OTHER INCOME. Other income was virtually unchanged for the third quarter
of 1996 compared with the third quarter of 1995.
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OPERATING EXPENSES. Operating expenses increased $8,000 (33 PERCENT) from
$24,000 in the third quarter of 1995 to $32,000 in the third quarter of 1996
related to the recognition of expenses associated with timber sales performed
by the Company. Previously, the Company only used contractors to harvest and
sell its timber.
EXPLORATION AND DEVELOPMENT. Exploration and development expenses
increased $107,000 (428 PERCENT) from $25,000 in the third quarter of 1995 to
$132,000 in the third 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 third quarter 1996
increased $48,000 (87 PERCENT) from $55,000 in 1995 to $103,000 in 1996 as a
result of additional business franchise taxes in West Virginia and increased
property taxes.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$105,000 (42 PERCENT) in the third quarter of 1996 compared with the third
quarter of 1995. This increase is a result of additional personnel and
employee benefit cost increases.
DEPRECIATION AND DEPLETION. Depreciation and depletion was virtually
unchanged for the third quarter of 1996 compared with the third quarter of
1995.
RESULTS OF OPERATIONS - NINE MONTHS OF 1996 AND 1995 COMPARED.
TIMBER AND LAND SALES. Timber and land sales decreased $45,000 (9 percent)
for the first nine months of 1996 compared with the same period of 1995. The
primary reason for this decline is the timing of parcel sales, the remainder of
which are scheduled in the fourth quarter of 1996. The sales price per Mbf did
increase in the first nine months of 1996 compared with the same period in
1995. The price increased from $157 per Mbf to $160 per Mbf. In the first nine
months of 1996, the Company sold 2,576 Mbf of timber compared with 2,893 Mbf
for the same period in 1995.
COAL ROYALTIES. Coal royalties decreased $2.9 million (37 PERCENT) for
the first nine 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.
OTHER INCOME. Other Income was virtually unchanged for the first nine
months of 1996 compared with the first nine months of 1995.
OPERATING EXPENSES. Operating expenses increased $42,000 (76 PERCENT) from
$55,000 in the first nine months of 1995 to $97,000 for the first nine months
of 1996. This increase was due to the recognition of expenses associated with
timber sales performed by the Company. Previously, the Company only used
contractors to harvest and sell its timber.
EXPLORATION AND DEVELOPMENT. Exploration and development expenses
increased $83,000 (69 PERCENT) for the first nine months of 1996 compared with
the same period of 1995. This increase is a result of the timing of the
Company's coal core drilling program.
TAXES OTHER THAN INCOME. Taxes other than income increased $85,000 (42
PERCENT) in the first nine 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, and increased property taxes.
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GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$97,000 (11 PERCENT) in the first nine months of 1996 compared with the same
period in 1995. This increase is a result of personnel and employee benefit
cost increases.
DEPRECIATION AND DEPLETION. Depreciation and depletion for the first nine
months of 1996 were consistent with the first nine months of 1995.
INVESTMENTS
The table below illustrates the investments held at September 30, 1996 and
the results of operations for the investment segment for the three months ended
September 30, 1996 and 1995 and for the nine months ended September 30, 1996
and 1995.
September 30, 1996 September 30, 1996
------------------- ------------------
COMMON SHARES OWNED:
Norfolk Southern Corporation 1,102,400 1,102,400
Westmoreland Coal Company 1,354,411 1,754,411
Blue Diamond Coal Company 287 287
INVESTMENTS
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in thousands) (Dollars in Thousands)
REVENUES:
Dividends $721 $573 $2,132 $1,790
---- ---- ------ ------
TOTAL REVENUES 721 573 2,132 1,790
--- --- ----- -----
EXPENSES:
General and administrative 6 3 19 12
----- ----- ----- ------
TOTAL EXPENSES 6 3 19 12
----- ----- ------ ------
OPERATING INCOME $ 715 $ 570 $2,113 $1,778
===== ===== ===== ======
RESULTS OF OPERATIONS - THIRD QUARTERS OF 1996 AND 1995 COMPARED.
DIVIDENDS. Dividend income from the Company's various investments in
energy related companies is $721,000 for the third quarter 1996 an increase of
$148,000 (26 Percent) due to increases in the Norfolk Southern Corporation
dividend and the timing of the Westmoreland Resources Inc. dividend.
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GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$3,000 (100 PERCENT) from the third quarter of 1995 to the third quarter of
1996 as a result of increases in professional services being rendered.
RESULTS OF OPERATIONS - NINE MONTHS OF 1996 AND 1995 COMPARED.
DIVIDENDS. Dividend income from the Company's various investments in
energy related companies increased $342,000 (19 PERCENT) due to an increase in
the Norfolk Southern Corporation dividend, for the first nine
months of 1996 compared with the same period in 1995.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$7,000 (58 PERCENT) for the first nine 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 nine months of 1996, capital expenditures totaled $25.1
million.
In May 1996, the Company completed a transaction with Westmoreland Coal
Company in which the Company regained control of 115 million tons of its
recoverable 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 the lease rights to
approximately 38 million tons of the Company's recoverable Virginia reserves.
Of the approximately 115 million tons of recoverable coal reserves
relinquished, approximately 60 million have been leased to new operators and
the Company currently expects that these operators will commence mining on some
of these reserves in the fourth quarter of 1996. Leases for most of the
remaining 55 million tons of coal are being negotiated with several coal
operators and should be in place by year-end.
In July 1996, 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 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.
The remaining $6.4 million of capital expenditures were in the oil and gas
segment. At September 30, 1996, 33.1 net wells had been drilled with 32.1 net
wells successful and 1.0 net development dry hole. The Company also began its
exploratory drilling program in the Hinton, West Virginia field. Results are
encouraging. At September 30, 1996, 6.0 net wells had been successfully
drilled.
In September 1996, the Company entered into an agreement with The Atlas
Energy Group to explore and develop the Tug River Prospect in eastern Kentucky.
Atlas has participated in a number of successful Appalachian drilling projects
and is funding fifty percent of the Tug River drilling program, which calls for
five gross wells in 1996 and up to an expected ten wells per year thereafter.
Penn Virginia will operate the field.
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The 1996 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 nine months of 1996.
Net cash provided by operating activities was $13.9 million during the first
nine months of 1996 compared with $8.1 million for the first nine months of
1995. The primary reason for this increase was the price the Company received
for its oil and natural gas. As discussed under the gas sales caption, the
Company has entered into short-term contracts for its natural gas to partially
reduce price volatility.
Long-term debt proceeds for the first nine months of 1996 were $11.4
million compared with $7.9 million for the same period in 1995.
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 amount of the borrowing base capacity utilized. The agreement requires the
Company to maintain certain covenants related to net worth,
debt-to-capitalization and dividends.
FORWARD-LOOKING STATEMENTS
Statements included in this report which are not historical facts
(including any statements concerning plans and objectives of management for
future operations or economic performance, or assumptions related thereto) are
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and Section 27A of the Securities Act of
1933, as amended. In addition, Penn Virginia and its representatives may from
time to time make other oral or written statements which are also forward
looking statements.
Such forward looking statements include, among other things, statements
regarding development activities, capital expenditures, acquisitions and
dispositions, drilling and exploration programs, expected commencement dates of
coal mining or oil and gas production, projected quantities of future oil and
gas production by Penn Virginia, projected quantities of future coal production
by the Company's lessees producing coal from reserves leased from Penn
Virginia, costs and expenditures as well as projected demand or supply for
coal and oil and gas, which will affect sales levels, prices and royalties
realized by Penn Virginia.
These forward-looking statements are made based upon management's
current plans, expectations, estimates, assumptions and beliefs concerning
future events impacting Penn Virginia and therefore involve a number of risks
and uncertainties. Penn Virginia cautions that forward-looking statements are
not guarantees and that actual results could differ materially from those
expressed or implied in the forward-looking statements.
Important factors that could cause the actual results of operations or
financial condition of Penn Virginia to differ include, but are not necessarily
limited to: the cost of finding and successfully developing oil and gas
reserves; the cost of finding new coal reserves; the ability to acquire new oil
and gas and coal reserves on satisfactory terms; the price for which such
reserves can be sold; the volatility of commodity prices for oil and gas and
coal; the risks associated with having or not having price risk management
programs; Penn Virginia's ability to lease new and existing coal reserves; the
ability of Penn Virginia's lessees to produce sufficient quantities of coal on
an economic basis from Penn Virginia's reserves; the ability of lessees to
obtain favorable contracts for coal produced from Penn Virginia reserves; Penn
Virginia's ability to obtain adequate pipeline transportation capacity for its
oil and gas production; competition among producers in the coal and oil and gas
industries generally and in the Appalachian basin in particular; the extent to
which the amount and quality of actual production differs from estimated
recoverable coal reserves and proved oil and gas reserves; unanticipated
geological problems; availability of required materials and equipment; the
occurrence of unusual weather or operating conditions including force majeure
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.
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PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(4) Credit Agreement dated August 2, 1996 between
Penn Virginia Corporation and Texas Commerce
Bank National Association, As Agent, filed
herewith. Certain exhibits and schedules have
been omitted and will be provided to the
Securities and Exchange Commission upon
request.
(27) Financial Data Schedule, filed herewith.
(b) Reports on Form 8-K
Three reports on Form 8-K were filed during the third
quarter. All reports involved the change in
Registrant's certifying accountant. The date of the
first Form 8-K filing was August 30, 1996.
Subsequently Form 8-K/A, Amendment No. 1 was filed on
August 30, 1996 and Form 8-K/A, Amendment No. 2 was
filed on September 6, 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: November 14, 1996 By:
----------------------------- ------------------------------------
Steven W.Tholen, Vice President
Chief Financial Officer
Date: November 14, 1996 By:
----------------------------- ------------------------------------
Ann N. Horton, Controller
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