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110864.23
12.99 10-K
AMENDED AND RESTATED CREDIT AGREEMENT - Page 178
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
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
One Radnor Corporate Center, Suite 200
100 Matsonford Road
Radnor, PA 19087
Registrant's telephone number, including area code: (610) 687-8900
Incorporated in I.R.S Employer Identification Number
VIRGINIA 23-1184320
Securities registered pursuant to section 12(b) of the Act: None
Securities Registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Exchange on which registered
Common Stock, $6.25 Par Value New York Stock Exchange
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
The aggregate market value of the voting stock held by non-
affiliates of the Corporation at February 28, 2000 was
$133,026,881, based on the closing price of $16.375 per share. As
of that date, 8,123,779 shares of common stock were issued and
outstanding. The number of shareholders of record of the
registrant was 851 as of February 28, 2000.
DOCUMENTS INCORPORATED BY REFERENCE:
Part Into
Which Incorporated
(1) Proxy Statement for Stockholder Meeting Part III
on May 2, 2000
Penn Virginia Corporation and Subsidiaries
Part I
1.Business
2.Properties
3.Legal Proceedings
4.Submission of Matters to a Vote of Security Holders
Part II
5.Market for Registrant's Common Equity and Related Stockholder
Matters
6.Selected Financial Data
7.Management's Discussion and Analysis of Financial Condition and
Results of Operations
8.Financial Statements and Supplementary Data
9.Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
Part III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and
Management
13. Certain Relationships and Related Transactions
Part IV
14. Exhibits, Financial Statement Schedules and Reports on Form
8-K
Part 1
ITEM 1 - BUSINESS
General
Penn Virginia Corporation ("Penn Virginia" or the "Company") is
a Virginia corporation founded in 1882. The Company is engaged in
the exploration, development and production of oil and natural gas
and the collection of royalties and overriding royalty interests
on various oil and gas properties; the leasing of coal mineral
rights and the collection of related royalties.
Penn Virginia explores for, develops and produces crude oil,
condensate and natural gas in the eastern and southern portions of
the United States. The Company had proved reserves of 359,000
barrels of oil and condensate and 185.2 billion cubic feet of
natural gas at December 31, 1999.
The Company owned mineral rights to 488 million tons of mineable
and merchantable coal reserves located in central Appalachia at
December 31, 1999. Its coal reserves include both surface and
underground mineable seams. The reserves are generally high
quality, low-sulfur bituminous coal and are leased to various
operators.
Financial Information
The Company operates in two primary business segments: (1) oil
and gas and (2) coal royalty and land management. Financial
information concerning the Company's business segments can be
found in Note 15 (Segment Information) of the Notes to the
Consolidated Financial Statements of Penn Virginia Corporation
which is included in this report.
Oil and Gas
Overview
Penn Virginia's oil and gas properties are located in the
eastern and southern portions of the United States. At December
31, 1999, the Company had 187.4 Bcfe of proved reserves (185.2 Bcf
of natural gas) including 173.1 Bcfe of working interests and 14.3
Bcfe of royalty interests.
Oil and Gas Production
During 1999, 32,000 barrels of oil and condensate and 8,679 MMcf
of natural gas, net to the Company's interest, were produced
compared with 30,000 barrels and 8,056 MMcf in 1998. Prices
received by the Company were $14.47 and $11.17 per barrel and
$2.46 and $2.54 per Mcf for oil and gas in 1999 and 1998,
respectively.
Exploration and Development
The Company drilled 50.8 net wells in 1999 of which 40.1 were
development and 10.7 were exploratory. A total of 3.5 net wells
were non-productive. The successful wells drilled in 1999
contained 14,162 MMcfe of proved developed producing reserves. In
December 1999, the Company purchased a 20 percent interest in a
Texas onshore gulf coast exploration project for an initial cost
of $2.4 million. The project covers 35,000 acres and evidences
Penn Virginia's strategy to expand and diversify its oil and gas
operations outside of the eastern United States through strategic
acquisitions, drilling and exploration.
Transportation
Penn Virginia transports its natural gas to market on various
gathering, transmission and pipeline systems owned primarily by
third parties. The Company's natural gas is gathered principally
by Consolidated Natural Gas "CNG" and Columbia Natural Resources
"CNR". These two primary providers gathered 38 percent and 37
percent of the Company's natural gas for 1999 and 1998,
respectively. Interruptible gathering rates have increased over
the years as pipelines have implemented the mandatory unbundling
of gathering services (Federal Energy Regulatory Commission Order
636) from other transportation services. CNG's interruptible
gathering rates remain unchanged at 19.4 cents per MMbtu for 2000.
CNR's interruptible gathering rates increased from 27 cents to 32
cents per MMbtu, effective February 2000.
The majority of Penn Virginia's natural gas production is
transported to market primarily on two major transmission systems.
Columbia Gas Transmission and CNG Transmission transport 57
percent and 30 percent, respectively, of the Company's natural gas
production. Production could be adversely affected by shutdowns
of the pipelines for maintenance or replacement as pipeline
flexibility is limited. Additionally, the Company acquired
certain oil and gas properties in Mississippi for $13.7 million,
which included a gathering line that transports 10 percent of the
Company's current production.
Marketing
Penn Virginia generally sells its natural gas using the spot
market, commodity derivative contracts and short-term fixed price
physical contracts. From time to time, the Company enters into
commodity derivative contracts or fixed price physical contracts
to mitigate the risk associated with the volatility of natural gas
prices. In April 1997, Penn Virginia executed a contract for a
participating forward swap for 5,000 MMbtu's per day with a floor
price of $2.10 per MMbtu and a re-entry price of $2.48 per MMbtu
for the period of May 1997 through October 1999. In September
1998, the Company completed a second participating forward swap
for an additional 5,000 MMbtu's per day with a floor price of
$2.10 per MMbtu and a re-entry price of $2.35 per MMbtu for the
period of November 1997 through October 1999. Currently, Penn
Virginia is not utilizing any commodity derivative contracts;
however, the Company may use contracts in the future to reduce the
risk of price fluctuations. For additional information, see "Item
7. - Management's Discussion and Analysis of Financial Condition
and Results of Operations - Oil and Gas."
Coal Royalty and Land Management Operations
Overview
Penn Virginia owned 163,000 acres of coal and timber bearing
land in central Appalachia at December 31, 1999. The Company
earns coal royalty revenue, based on long-term lease agreements
with several coal mining operators which generally require royalty
payments to Penn Virginia based on a minimum annual payment, a
minimum dollar royalty per ton and/or a percentage of the coal's
selling price. The Company does not operate coal mines.
The Company's timber assets consist of various hardwoods,
primarily red oak, white oak, yellow poplar and black cherry. The
Company owns 199 million board feet of standing saw timber.
Coal Production
Several operators mined 8.6 million tons of coal from Penn
Virginia's properties in 1999 and paid an average royalty of $2.05
per ton, compared with 5.3 million tons mined in 1998 at an
average royalty of $2.03 per ton.
At December 31, 1999, the Company's mineable and merchantable
coal reserves in central Appalachia were estimated at 488 million
tons. At December 31, 1999, the Company's central Appalachia
properties had operators actively mining a total of 31 separate
lease locations.
Timber Production
The Company sold 9.0 MMbf board feet in 1999 for an average
price of $175 per Mbf, compared with 8.0 MMbf board feet at an
average price of $185 per Mbf in 1998. Timber is harvested in
advance of lessee mining to prevent loss of the resource. Timber
is sold in competitive bid sales involving individual parcels and
also on a contract basis, whereby Penn Virginia pays independent
contractors to harvest timber while the Company directly markets
the product.
Investments
The Company holds equity investments, primarily in Norfolk
Southern Corporation. The Company's 3,307,200 shares of Norfolk
Southern Corporation generated dividends of $2.6 million in 1999,
1998 and 1997. The fair value of the Company's equity portfolio
at December 31, 1999 was $67.8 million compared with $104.8
million at December 31, 1998. See Note 4 (Investments and Other
Income) of the Notes to the Consolidated Financial Statements for
additional information.
Risks Associated with Business Activities
General
Government Regulations
Each of Penn Virginia's businesses is subject to extensive rules
and regulations promulgated by various federal, state and local
government agencies. Failure to comply with such rules and
regulations can result in substantial penalties. The regulatory
burden increases the Company's cost of doing business and affects
its profitability. Although the Company believes it is in material
compliance with all rules, regulations and laws, there can be no
assurance that new interpretations of existing rules, regulations
and laws will not adversely affect the Company's business and
operations.
Competition
The energy industry is highly competitive. Many of the Company's
competitors are large, well-established companies with
substantially larger operating staffs, greater capital resources
and established long-term strategic positions.
Oil and Gas
Prices
Penn Virginia's revenues, profitability and future rate of
growth are highly dependent on the prevailing prices for oil and
gas, which are affected by numerous factors that are generally
beyond the Company's control. Crude oil prices are generally
determined by global supply and demand. Natural gas prices are
influenced by national and regional supply and demand. A
substantial or extended decline in the prices of oil or gas could
have a material adverse effect on the Company's revenues,
profitability and cash flow and could, under certain
circumstances, result in an impairment of the Company's oil and
gas properties.
Exploratory Drilling
Both development and exploratory drilling involve risks.
However, exploratory drilling involves greater risks of dry holes
or failure to find commercial quantities of hydrocarbons than does
development drilling. The Company anticipates the number of
exploratory prospects drilled in the short and long-term may
increase, compared with historical amounts. Consequently, it is
likely that the Company will experience increased levels of
exploration expense in 2000 and beyond.
Transportation
Penn Virginia's natural gas production is transported to market
primarily on two major transmission systems. Columbia Gas
Transmission and CNG Transmission transport 57 percent and 30
percent, respectively, of the Company's natural gas production.
Production can be adversely affected by shutdowns of the pipelines
for maintenance or replacement, as pipeline flexibility is
limited.
Coal Royalty and Land Management
Operating Risks
Penn Virginia's coal royalty stream is impacted by several
factors, which the Company generally cannot control. The number
of tons mined annually is determined by an operator's mining
efficiency, labor availability, geologic conditions, financial
stability, ability to market coal and ability to arrange reliable
transportation to the end-user. Coal emissions are regulated by
various federal and state agencies which affect the quality of
coal that can be burned within compliance guidelines.
Investments
The value of the Company's investment portfolio is subject to
market price fluctuations.
Employees
Penn Virginia had 64 employees at December 31, 1999. The
Company considers its relations with its employees to be good.
Executive Officers of the Company
Below is a list of executive officers of the Company
including their ages and positions held. Each officer is elected
annually by the Board of Directors and serves at the pleasure of
the Board of Directors.
Office
NAME Age Office Held Since
A. James Dearlove 52 President and Chief 1996
Executive Officer
Steven W. Tholen 49 Vice President and 1995
Chief Financial Officer
Keith D. Horton 46 Vice President, 1996
Eastern Operations
James O. Idiaquez 52 Vice President, 1998
Corporate Development
Nancy M. Snyder 47 Corporate Secretary and 1997
General Counsel
Ann N. Horton 41 Principal Accounting 1995
Officer and Controller
A. James Dearlove - Mr. Dearlove is the President and Chief
Executive Officer. He has served in various capacities with the
Company since 1977 including Vice President since 1986, Senior
Vice President since 1992 and President since 1994. Mr. Dearlove
was elected to the Company's Board of Directors effective February
6, 1996. He was appointed Chief Executive Officer in May 1996. He
also serves as director of the Powell River Project and the
National Council of Coal Lessors.
Steven W. Tholen - Mr. Tholen is a Vice President and the
Chief Financial Officer. He joined the Company in 1995.
Previously, he served in various capacities at Cabot Oil and Gas
Corporation, most recently as Treasurer.
Keith D. Horton - Mr. Horton was elected Vice President, Eastern
Operations in February 1999 and has served as an executive officer
for the Company since 1996. He also serves as President of the
Company's oil and gas, and coal and land management subsidiaries.
He has served in various capacities with the Company since 1981.
Mr. Horton serves as Chairman of the Central Appalachian Section
of the Society of Mining Engineers. He also serves as a director
of the Virginia Mining Association, Powell River Project and the
Virginia Coal Council.
James O. Idiaquez - Mr. Idiaquez has served as Vice President,
Corporate Development for the Company since October 1998. From
1978 to 1998, Mr. Idiaquez served in various management
capacities, including corporate planning and acquisitions and
divestitures, with Burlington Resources, Inc. and The Louisiana
Land & Exploration Company.
Nancy M. Snyder - Ms. Snyder has served as Corporate Secretary
and General Counsel since joining the Company in 1997.
Previously, Ms. Snyder was in private and firm practices in the
areas of general corporate and securities law.
Ann N. Horton - Mrs. Horton has served as Principal Accounting
Officer and Controller of the Company since 1995. She has served
in various capacities with the Company and its subsidiaries since
1981.
The following terms have the meanings indicated below when used
in this report.
Bbl - means a standard barrel of 42 U.S. gallons liquid volume
Bcf - means one billion cubic feet
Bcfe - means one billion cubic feet equivalent with one barrel of
oil or condensate converted to six thousand
cubic feet of natural gas based on the estimated relative energy
content
Gross - acre or well means an acre or well in which a working
interest is owned
Mbbl - means one thousand barrels
Mbf - means one thousand board feet
Mcf - means one thousand cubic feet
MMbf - means one million board feet
MMbtu - means one million British thermal units
MMcf - means one million cubic feet
Net - acres or wells is determined by multiplying the gross
acres or wells by the working interest in those
gross acres or wells
Proved
Reserves- means those estimated quantities of crude oil,
condensate and natural gas that geological and engineering
data demonstrate with reasonable certainty to be
recoverable in future years from known oil and gas
reservoirs under existing economic and operating conditions
ITEM 2 - PROPERTIES
Facilities
Penn Virginia Corporation is headquartered in Radnor,
Pennsylvania with additional offices in Duffield, Virginia;
Charleston, West Virginia; and Houston, Texas. The Company
believes its leased properties are adequate for current needs.
Title to Properties
Penn Virginia believes it has satisfactory title to all of its
properties in accordance with standards generally accepted in the
oil and gas and coal royalty and land management industries.
As is customary in the oil and gas industry, the Company makes
only a cursory review of title to farmout acreage and to
undeveloped oil and gas leases upon execution of any contracts.
Prior to the commencement of drilling operations, a thorough title
examination is conducted and curative work is performed with
respect to significant defects. To the extent title opinions or
other investigations reflect defects, Penn Virginia cures such
title defects. If the Company was unable to remedy or cure any
title defect of a nature such that it would not be prudent to
commence drilling operations on a property, the Company could
suffer a loss of its investment in the property. Penn Virginia
has obtained title opinions on substantially all of its producing
properties and believes that it has satisfactory title to such
properties in accordance with standards generally accepted in the
oil and gas industry. Prior to completing an acquisition of
producing oil and gas leases, the Company obtains title opinions
on all material leases. Penn Virginia's oil and gas properties
are subject to customary royalty interests, liens for current
taxes and other burdens that the Company believes do not
materially interfere with the use or affect the value of such
properties.
Of the 163,000 acres of coal and timber bearing land, Penn
Virginia owns 70 percent in fee and 30 percent in mineral.
Additionally, the Company leases over 25,000 acres of coal and
timber bearing land from third parties.
Oil and Gas
Production and Pricing
The following table sets forth production, sales prices and
production costs with respect to the Company's properties for the
years ended December 31, 1999, 1998 and 1997.
1999 1998 1997
Production
Oil and condensate (Mbbls) 32 30 38
Natural gas (MMcf) 8,679 8,056 7,755
Average sales price
Oil and condensate ($/Bbl) $14.47 $11.17 $17.39
Natural gas ($/Mcf) 2.46 2.54 2.81
Production cost
Operating cost per Mcfe $0.46 $0.46 $0.42
Production taxes per Mcfe 0.25 0.28 0.26
Total production cost per Mcfe $0.71 $0.74 $0.68
Hedging Summary
Natural gas prices ($/Mcf):
Actual price received $2.50 $2.61 $2.87
for production
Effect of hedging activities (.04) (.07) (.06)
Average price $2.46 $2.54 $2.81
Proved Reserves
Penn Virginia had proved reserves of 359,000 barrels of crude
oil and condensate and 185.2 Bcf of natural gas at December 31,
1999. The present value of the estimated future cash flows
discounted at 10 percent (Pre-tax SEC PV10 Value) at December 31,
1999 was $136 million. At December 31, 1999, the Company had 240
gross (139 net) proved undeveloped drilling locations.
Natural Pre-tax
Oil and Natural Gas SEC PV10
Condensate Gas Equivalents Value
(Mbbls) (Bcf) (Bcfe) ($MM)
1999
Developed 326 138 140 $116
Undeveloped 33 47 47 20
Total 359 185 187 $136
1998
Developed 313 118 120 $ 73
Undeveloped 28 46 46 8
Total 341 164 166 $ 81
1997
Developed 364 110 112 $110
Undeveloped 60 61 61 31
Total 424 171 173 $141
The standardized measure of discounted future net cash flows,
which represents the present value of future net revenues after
income taxes discounted at ten percent, was $119 million, $76
million and $119 million at December 31, 1999, 1998 and 1997,
respectively. The weighted average prices used to determine
proved reserves at December 31, 1999, 1998 and 1997 were ($/Bbl)
$21.78, $9.70 and $15.50, respectively, for oil and condensate and
($/Mcf) $2.69, $2.14 and $3.11, respectively, for natural gas.
For information on the changes in standardized measure of
discounted future net cash flows, see "Note 17. Supplementary
Information on Oil and Gas Producing Activities (Unaudited)" in
"Item 8. - Financial Statements and Supplementary Data."
In accordance with the Securities and Exchange Commission's
guidelines, the engineers' estimates of future net revenues from
the Company's properties and the pre-tax SEC PV10 value thereof
are made using oil and natural gas sales prices in effect at the
dates of such estimates. The prices are held constant throughout
the life of the properties except where such guidelines permit
alternate treatment, including the use of fixed and determinable
contractual price escalations. Net proved oil and gas reserves
for the three years ended December 31, 1999 were estimated by
Wright and Company, Inc. Prices for natural gas and, to a lesser
extent, oil are subject to substantial seasonal fluctuations and
prices for each are subject to substantial fluctuations as a
result of numerous other factors. See "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Proved reserves are the estimated quantities of natural gas and
condensate that geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions.
Proved developed reserves are proved reserves that can be expected
to be recovered through existing wells with existing equipment and
operating methods. There are numerous uncertainties inherent in
estimating quantities of proved reserves and in projecting future
rates of production and timing of development expenditures,
including many factors beyond the control of the Company. Reserve
engineering is a subjective process of estimating underground
accumulations of oil and natural gas that cannot be measured in an
exact manner, and the accuracy of any reserve estimate is a
function of the quality of available data and of engineering and
geological interpretation and judgement. The quantities of oil
and natural gas that are ultimately recovered, production and
operating costs, the amount of timing of future development
expenditures and future oil and natural gas sales prices may all
differ from those assumed in these estimates. Therefore, the pre-
tax SEC PV10 value amounts shown above should not be construed as
the current market value of the estimated oil and natural gas
reserves attributable to the Company's properties. The
information set forth in the foregoing tables includes revisions
of certain volumetric reserve estimates attributable to proved
properties included in the preceding year's estimates. Such
revisions are the result of additional information from subsequent
completions and production history from the properties involved or
the result of a decrease (or increase) in the projected economic
life of such properties resulting from changes in production
prices.
Acreage
The following table sets forth the Company's developed and
undeveloped acreage at December 31, 1999. The Company's acreage is
located in the eastern and southern portions of the United States.
Gross Acreage Net Acreage
(in thousands)
Developed 312 162
Undeveloped 129 50
Total 441 212
Wells Drilled
The following table sets forth the gross and net number of
exploratory and development wells drilled during the last three
years. The number of wells drilled means the number of wells spud
at any time during the respective year. Net wells equal the number
of gross wells multiplied by Penn Virginia's working interest in
each of the gross wells. Productive wells represent either wells
which were producing or which were capable of commercial
production.
1999 1998 1997
Development Gross Net Gross Net Gross Net
Productive 61 38.1 56 37.0 53 42.0
Non-productive 2 2.0 3 3.0 1 1.0
63 40.1 59 40.0 54 43.0
Exploratory
Productive 16 9.2 15 8.1 31 16.0
Non-productive 3 1.5 3 1.5 5 3.0
19 10.7 18 9.6 36 19.0
Total 82 50.8 77 49.6 90 62.0
The four gross (2.0 net) wells under evaluation at the end of
1998 were non-productive.
Productive Wells
The number of productive oil and gas wells in which Penn
Virginia had an interest at December 31, 1999 is set forth below.
Productive wells are producing wells or wells capable of
commercial production.
Operated Wells Non-Operated Wells Total
Gross Net Gross Net Gross Net
Oil 10 10 6 2 16 12
Gas 780 656 400 61 1,180 717
Total 790 666 406 63 1,196 729
Coal Royalty and Land Management
Penn Virginia's coal reserves and timber assets at December 31,
1999 covered 163,000 acres, including fee acreage, in central
Appalachia. The coal reserves are in various surface and
underground seams.
Penn Virginia's mineable and merchantable coal reserves are
estimated at 488 million tons as of December 31, 1999. Mineable
and merchantable coal reserves means coal that is economically
mineable using existing equipment and methods under federal and
state laws now in effect. Reserve estimates are adjusted annually
for production, unmineable areas, acquisitions and sales of coal
in place. The majority of the Company's reserves are high in
energy content, low in sulfur and suitable for either the steam or
metallurgical markets.
The amount of coal a lessee can profitably mine at any given
time is subject to several factors and may be substantially
different from "mineable and merchantable reserves." Included
among the factors that influence profitability are the existing
market price, coal quality and operating costs.
The Company's timber assets consist of various hardwoods,
primarily red oak, white oak, yellow poplar and black cherry. At
December 31, 1999, the Company owned 199 million board feet of
standing saw timber.
Coal Reserves
The following table sets forth the coal reserves that are owned
by the Company. The reserves are estimated internally by the
Company's engineers.
1999 1998 1997
(in million tons)
Beginning of year 384.7 379.8 357.6
Production (8.6) (5.3) (5.4)
Additions, deletions, revisions 112.3 10.2 27.6
End of year 488.4 384.7 379.8
ITEM 3 - LEGAL PROCEEDINGS
The Company is involved in various legal proceedings arising in
the ordinary course of business. While the ultimate results of
these cannot be predicted with certainty, Company management
believes these claims will not have a material effect on the
Company's financial position, liquidity or operations.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the fourth quarter of 1999.
PART II
ITEM 5 - MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER
MATTERS
Common Stock Market Prices And Dividends
High and low closing stock prices and dividends for the last two
years were:
1999 1998
Cash Cash
Sales Price Dividends Sales Price Dividends
High Low Paid High Low Paid
Quarter Ended:
March 31 $20-3/4 $16-11/16 $0.225 $29-1/4 $26-7/8 $0.225
June 30 $21-11/16 $17-5/16 $0.225 $30 $25-7/8 $0.225
September 30 $23-1/16 $20-1/2 $0.225 $26-11/32 $21-1/8 $0.225
December 31 $21 $16-1/8 $0.225 $23-1/2 $18-3/8 $0.225
The Company's common stock is traded on the New York Stock
Exchange under the symbol PVA.
ITEM 6 - SELECTED FINANCIAL DATA
Five Year Selected Financial Data
Year Ended December 31, 1999 1998 1997(a) 1996(a) 1995(a)
(in thousands except per share data)
Revenues (b) $47,135 $38,144 $41,132 $34,102 $38,890
Operating income 20,715 10,266 18,719 13,212 5,855
Net income $14,504 $ 9,591 $16,018 $13,040 $10,084
Per common share:
Net income, basic $ 1.73 $ 1.15 $ 1.93 $ 1.51 $ 1.18
Net income, diluted 1.71 1.13 1.88 1.50 1.18
Dividends paid $ 0.90 $ 0.90 $ 0.90 $ 0.90 $ 0.90
Weighted average 8,406 8,310 8,302 8,694 8,538
shares outstanding
Total assets $274,011 $256,931 $247,230 $229,514 $206,001
Long-term debt $78,475 $37,967 $31,903 $21,233 $12,700
Stockholders' equity $154,343 $170,259 $163,704 $160,211 $147,357
(a) All weighted average share and per share data have been
restated to reflect the two-for-one split of the Company's
common stock in August 1997.
(b) Certain reclassifications between revenues and operating
expenses have been made to conform to the current year
presentation.
SUMMARIZED QUARTERLY FINANCIAL DATA
Quarterly financial data for 1999 and 1998 were as follows:
1999 1998
Quarters Ended Quarters Ended
(in thousands, except per share data)
Mar.31 June 30 Sept.30 Dec.31 Mar.31 June 30 Sept.30 Dec.31(b)
Revenues (c) $9,509 $10,437 $12,306 $14,883 $9,050 $9,941 $9,779 $9,374
Operating 3,835 4,042 5,430 7,408 3,760 4,266 4,335 (2,095)
Income
(loss)
Net income $2,915 $3,165 $3,945 $4,479 $3,152 $3,666 $3,442 $(669)
(loss)
Net income
per share,
basic (a) $0.35 $0.38 $0.47 $0.53 $0.38 $0.44 $0.41 $(0.08)
Net income
per share,
diluted (a) $0.35 $0.37 $0.46 $0.53 $0.37 $0.43 $0.41 $(0.08)
Weighted average
shares
outstanding 8,371 8,410 8,423 8,423 8,278 8,291 8,308 8,354
(a) The sum of the quarters may not equal the total of the
respective year's net income per share due to changes in the
weighted average shares outstanding throughout the year.
(b) Operating income for fourth quarter of 1998 included a
noncash charge relating to impairments of certain oil and gas
properties of $4.6 million ($3.7 million after tax) primarily due
to a decline in commodity prices and a restructuring charge of
$0.6 million ($0.4 million after tax).
(c) Certain reclassifications between revenues and operating
expenses have been made to conform to the current year
presentation.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following review of operations and financial condition of
Penn Virginia Corporation and subsidiaries should be read in
conjunction with the Consolidated Financial Statements and Notes
thereto.
Overview
Penn Virginia's net income for 1999 was $14.5 million with
operating income of $20.7 million. The comparable 1998 results
were net income of $9.6 million and operating income of $10.3
million. Revenues for 1999 were $47.1 million, a 24 percent
increase over 1998 and net income was $14.5 million, or $1.71 per
share (diluted), a 51 percent increase over the 1998 level of $9.6
million, or $1.13 per share (diluted). The 1999 increases were a
direct result of increased production of natural gas and higher
levels of coal royalties. The Company's 1998 financial
performance was adversely impacted by a noncash charge relating to
impairments of certain oil and gas properties of $4.6 million
($3.7 million after tax) primarily due to a decline in commodity
prices and a restructuring charge of $0.6 million ($0.4 million
after tax).
During 1999, Penn Virginia successfully expanded its oil and gas
operations into Mississippi and the Texas onshore gulf coast and
began an ambitious exploration program. As a result of a
strategic coal acquisition, the Company's coal reserves grew by 27
percent to 488 million tons.
Management believes its natural gas operations will be expanded
over the next several years through a combination of exploitation,
exploration and acquisition of new properties. In July 1999, Penn
Virginia acquired certain oil and gas properties in Mississippi
for $13.7 million. The acquisition, which is 99 percent natural
gas, added 23.3 Bcfe in proved reserves and provides numerous
future drilling locations, which is the primary focus of the
Company's 2000 drilling program. The majority of the low-risk
developmental drilling locations are in the Selma Chalk formation
at a depth of 6,900 feet. In December 1999, the Company purchased
a 20 percent working interest in a Texas onshore gulf coast
exploration project for $2.4 million. The project is in its
initial phases and is comprised of a portfolio of drilling
prospects with varying risk/reward characteristics.
Historically, Penn Virginia has focused most of its operations
in the eastern United States and particularly in Appalachia.
However, the Company believes continued growth opportunities,
especially in oil and natural gas, will be enhanced by a presence
outside the Appalachian Basin. In the fourth quarter of 1998, the
Company opened a regional office in Houston, Texas for the purpose
of establishing a meaningful, non-Appalachian presence in oil and
natural gas.
The Company continued its aggressive drilling program in 1999 by
drilling 82 gross (50.8 net) wells. In 1999, Penn Virginia
produced a record 8,871 MMcfe of oil and natural gas, which was an
eight percent increase over 1998.
Penn Virginia participates in the coal industry exclusively
through its royalty position. The Company leases the rights to
mine its coal reserves to various operators who pay a minimum
annual payment, a minimum dollar royalty per ton and/or a
percentage of the sales price. Since the Company does not mine
the coal, the coal royalty and land management segment tends to
have relatively high margins. Coal royalty and land management
segment revenues increased $7.1 million, or 49 percent, to $21.5
million in 1999. The increase was attributable to enhanced
production from lessees due to the completion of the unit train
loadout facility, start-up operations from some lessees and
acquisitions.
In April 1999, Penn Virginia completed a $5.2 million state-of-
the-art coal loadout facility in Virginia. The facility
accomodates 100 rail car unit trains which can be loaded in
approximately four hours, thus generating substantial savings for
the Company's lessees. The loadout is primarily utilized by the
Company's lessees and provides them a competitive advantage by
reducing delivery costs to their principal customers.
Additionally, the loadout facility has accelerated the cash flow
received by the Company, primarily due to increased production
from lessees.
In September 1999, Penn Virginia completed a $30 million
acquisition which included over 90 million tons of high quality
coal reserves, as well as oil and gas leases, timber assets, a
short line railroad and a coal loading dock on the Kanawha River.
The acquisition covers over 24,000 acres and complements the
existing asset base of the Company's Coal River Properties. The
Company continues to diversify its coal customer base by adding
additional lessees and by searching for additional coal reserve
acquisition opportunities.
At December 31, 1999, the Company owned 3,307,200 shares of
Norfolk Southern stock, which decreased in priced from $31.6875
per share at December 31, 1998 to $20.50 per share, reducing the
value of the investment by $37.0 million, or $24.1 million after
tax. See Note 4 (Investments and Dividend Income).
Results of Operations
Consolidated Net Income
Penn Virginia's 1999 net income was $14.5 million, compared with
$9.6 million in 1998 and $16.0 million in 1997. Revenues for 1999
were $47.1 million, a 24 percent increase over 1998 and net income
was $14.5 million, or $1.71 per share (diluted), a 51 percent
increase over the 1998 level of $9.6 million, or $1.13 per share
(diluted). The 1999 increases were a direct result of increased
production of natural gas and higher levels of coal royalties.
Net income for 1998 included a noncash charge relating to
impairments of certain oil and gas properties of $4.6 million
($3.7 million after tax) primarily due to a decline in commodity
prices and a restructuring charge of $0.6 million ($0.4 million
after tax).
Income before income taxes includes a gain of approximately $2.0
million on the sale of non-strategic oil and gas properties in
November 1997.
Selected Financial Data
1999 1998 1997
(in millions, except share data)
Revenues $47.1 $38.1 $41.1
Operating costs and expenses 26.4 27.9 22.4
Operating income 20.7 10.3 18.7
Net income 14.5 9.6 16.0
Earnings per share, basic 1.73 1.15 1.93
Earnings per share, diluted 1.71 1.13 1.88
Oil and Gas Segment
The oil and gas segment explores for, develops and produces
crude oil and natural gas in the eastern and southern portions of
the United States. The Company also owns mineral rights to oil and
gas reserves.
Selected Financial and Operating Data
1999 1998 1997
(in thousands, except as noted)
Revenues
Oil and condensate $ 463 $ 335 $ 661
Natural gas sales 21,384 20,482 21,849
Gain on the sale of property - 2 1,889
Other 1,095 289 469
Total Revenues 22,942 21,108 24,868
Expenses
Lease operating expenses 4,090 3,761 3,356
Exploration expenses 1,699 488 1,439
Taxes other than income 2,165 2,343 2,069
General and administrative 2,148 3,153 2,675
Operating Expenses 10,102 9,745 9,539
Depreciation, depletion
and amortization 6,951 6,460 5,920
Loss on the sale of properties - 6 4
Impairment of properties - 4,641 -
Total Expenses 17,053 20,852 15,463
Operating Income $5,889 $ 256 $9,405
Production
Oil and condensate (MBbls) 32 30 38
Natural gas (MMcf) 8,679 8,056 7,755
Prices
Oil and condensate ($/Bbl) $14.47 $11.17 $17.39
Natural gas ($/Mcf) 2.46 2.54 2.81
Hedging Summary
Natural gas prices ($/Mcf):
Actual price received for
production $ 2.50 $ 2.61 $2.87
Effect of hedging activities (.04) (.07) (.06)
Average price $2.46 $ 2.54 $ 2.81
The oil and gas segment had operating income of $5.9 million in
1999 compared with $0.3 million in 1998 and $9.4 million in 1997.
Revenues. Oil and gas revenues increased $1.9 million, or nine
percent, from 1998 to 1999 primarily due to a $0.8 million
increase in natural gas sales and a $0.8 million increase in other
income. Natural gas production increased eight percent, offset by
a three percent decrease in average price per Mcf. The production
increase is a result of an acquisition in Mississippi and the
Company's 1999 drilling program. Other operating income increased
$0.8 million due to $0.4 million received for the final settlement
of a 1995 contract dispute and $0.2 million for reimbursement of
lost production caused by third party pipeline damages.
Revenues for the oil and gas segment decreased $3.8 million, or
15 percent, from 1997 to 1998. The change resulted from a 10
percent decrease in average natural gas prices recognized by the
Company, offset by a three percent increase in production.
Additionally, a $2.0 million gain on the sale of oil and gas
properties was included in 1997 revenues.
The Company, from time to time, hedges the price received for
market-sensitive production through the use of swaps with
purchased options. Gains and losses from hedging activities are
included in natural gas revenues when the hedged production
occurs. The Company recognized a loss of $0.4 million in 1999 and
$0.5 million in 1998 and 1997 on hedging activities.
Operating expenses. Production costs, consisting of lease
operating expense and taxes other than income, increased from $6.1
million in 1998 to $6.3 million in 1999. On a Mcfe basis,
production costs decreased from $0.74 per Mcfe in 1998 to $0.71
per Mcfe in 1999. The decrease on a Mcfe basis resulted from less
tax being paid due to the relocation of the offices of the oil and
gas segment.
Exploration expenses increased from $0.5 million in 1998 to $1.7
million in 1999. The increase is attributable to charges relating
to seven gross (3.5 net) nonproductive, exploratory wells and
preliminary field costs incurred in 1999. Additionally, the
Company's exploration program included $0.3 million in seismic
expenditures.
General and administrative expenses decreased from $3.2 million
in 1998 to $2.1 million in 1999. The decrease primarily relates
to the Company's 1998 plan to reduce administrative and
operational overhead costs in its oil and gas subsidiary. In
connection with the plan, the Company recorded a pre-tax charge to
general and administrative expense totaling $0.6 million in 1998
related to severance costs for six employees and a lease
cancellation penalty. The Company completed its restructuring
plan in August 1999. There were no adjustments to the liability
recorded in 1998 that resulted in an adjustment to net income in
1999.
The oil and gas segment's operating expenses increased $0.2
million, or two percent, in 1998. In the fourth quarter of 1998,
the Company's management approved the aforementioned $0.6 million
plan to reduce administrative and operational overhead costs in
its oil and gas subsidiary. Lease operating expenses increased
$0.4 million as a result of increased production and additional
operating expenses associated with the Company's new coalbed
methane wells. These 1998 increases were offset by a $0.9 million
decline in exploration expenses due to a reduction in dry hole
costs.
Depreciation, depletion and amortization. Oil and gas
depreciation, depletion and amortization increased to $7.0 million
in 1999 but remained relatively constant on a unit basis at $0.79
per Mcfe in 1999, compared with $6.4 million, or $0.78 per Mcfe,
in 1998.
Oil and gas depreciation, depletion and amortization increased
$0.5 million to $6.4 million in 1998, compared with $5.9 million
in 1997. The change was attributable to the decrease in natural
gas pricing used in the 1998 year-end reserve reports, which
caused negative reserve revisions and, consequently, a higher
depletion rate using the units-of-production method.
Impairment of oil and gas properties. In accordance with SFAS
No. 121, the Company reviews its oil and gas properties for
impairment whenever events and circumstances indicate a decline in
the recoverability of their carrying value. In the fourth quarter
of 1998, the Company estimated the expected future cash flows of
its oil and gas properties and compared such future cash flows to
the carrying amount of the oil and gas properties to determine if
the carrying amount was recoverable. For those oil and gas
properties which the carrying amount exceeded the estimated
undiscounted future cash flows, an impairment was determined to
exist; thus, the Company adjusted the carrying amount of the
respective oil and gas properties to their fair value as
determined by discounting their estimated future cash flows. The
factors used to determine fair value included, but were not
limited to, estimates of proved reserves, future commodity
pricing, future production estimates, anticipated capital
expenditures and a discount rate commensurate with the Company's
internal rate of return on its oil and gas properties. As a
result, the Company recognized a noncash pre-tax charge of $4.6
million ($3.7 million after tax) related to its oil and gas
properties in the fourth quarter of 1998.
Coal Royalty and Land Management Segment
The coal and land segment includes Penn Virginia's mineral
rights to coal reserves, its timber assets and its land assets.
Selected Financial and Operating Data
1999 1998 1997
(in thousands, except as noted)
Revenues
Coal royalties $17,624 $10,705 $11,355
Timber 1,667 1,600 1,488
Gain on the sale of property 280 70 94
Other 1,976 2,014 682
Total Revenues 21,547 14,389 13,619
Expenses
Operating costs 221 96 74
Exploration expenses 268 549 314
Taxes other than income 506 352 259
General and administrative 2,623 2,184 1,764
Operating Expenses 3,618 3,181 2,411
Depreciation, depletion
and amortization 1,269 589 516
Total Expenses 4,887 3,770 2,927
Operating Income $16,660 $10,619 $10,692
Production
Royalty coal tons produced by
lessees (thousands) 8,603 5,278 5,422
Timber sales (Mbf) 9,020 7,981 7,933
Prices
Royalty per ton $2.05 $2.03 $2.09
Timber sales price per Mbf $ 175 $ 185 $ 172
Revenues. Coal royalty and land management segment revenues
were $21.5 million in 1999, $14.4 million in 1998 and $13.7
million in 1997, representing a 49 percent increase from 1998 to
1999 and five percent increase from 1997 to 1998. The $7.1
million increase in 1999 was attributable to enhanced production
from existing lessees due to the completion of the unit train
loadout, start-up operations for some lessees and acquisitions.
The $0.7 million increase from 1997 to 1998 primarily resulted
from a $0.8 million receipt for the sale of coal reserves as a
result of a power line relocation that was recognized in other
operating income. The Company, from time to time, receives
reimbursement for circumstances that inhibit mining reserves in a
certain location.
Operating expenses. The coal royalty and land management
segment's operating expenses increased $0.4 million, or 13
percent, to $3.6 million, compared with $3.2 million in 1998.
General and administrative expenses increased $0.4 million in 1999
due to legal fees incurred by the Company to pursue the potential
recovery of coal reserves and the addition of three additional
employees in the Charleston, West Virginia office relating to the
Company's September 1999 acquisition. Exploration expenses
decreased $0.3 million to $0.2 million in 1999 primarily due to
increased 1998 costs incurred to maintain a mine on a terminated
lease.
The coal royalty and land management segment's operating
expenses increased 28 percent in 1998 to $3.2 million, compared
with $2.5 million in 1997. The $0.7 million increase from 1997 to
1998 primarily resulted from a $0.4 million increase in general
and administrative due to personnel additions related to the
opening of an office in Charleston, West Virginia during the last
half of 1997. Furthermore, a slight increase in legal costs were
incurred during 1998 to protect the Company's interests relating
to a lease termination by a lessee and a lessee bankruptcy.
Corporate and Other
Dividends. Dividend income of $2.6 million in 1999 remained
constant, compared with $2.6 million in 1998 and 1997. Penn
Virginia's holdings primarily consist of 3,307,200 shares of
Norfolk Southern Corporation.
Proved Reserves
Oil and Gas. In 1999, Penn Virginia added 14.2 Bcfe of proved
developed oil and gas reserves from its 82 gross (50.8 net) well
drilling program, replacing 122 percent of 1999 production.
The Company acquired 23.4 Bcfe of proved oil and gas reserves
(12.8 Bcfe of proved developed reserves) during 1999 for $14.1
million. The acquisition cost was $0.60 per proved Mcfe.
Penn Virginia's total proved reserves at year-end 1999 increased
21.5 Bcfe, or 13 percent, to 187.4 Bcfe primarily due to
acquisitions. Proved developed reserves increased 20.2 Bcfe, or
17 percent, to 140.2 Bcfe. Proved undeveloped reserves increased
1.2 Bcfe to 47.1 Bcfe. Proved undeveloped reserves of 9.3 Bcfe
were drilled and converted to proved developed reserves during
1999. At year-end 1999, proved developed reserves comprised 75
percent of the Company's total proved reserves, compared with 72
percent at year-end 1998. The Company has 139 net proved
undeveloped drilling locations at year-end 1999, compared with 141
locations at year-end 1998.
Coal Royalty and Land Management. Penn Virginia's mineable and
merchantable coal reserves were 488 million tons at year end 1999,
compared with 385 million tons at year-end 1998. The Company
purchased over 90 million tons of coal reserves during 1999.
Mineable and merchantable coal reserves means coal that is
economically mineable using existing equipment and methods under
federal and state laws now in effect.
Market Risk
Marketable Equity Securities. At December 31, 1999, the
Company's marketable equity securities, consisting primarily of
Norfolk Southern Corporation common stock, were recorded at their
fair value of $67.8 million, including net unrealized gains of
$65.0 million. The closing stock price for Norfolk Southern
Corporation was $20.50 and $31.69 per share at December 31, 1999
and 1998, respectively. At February 28, 2000, the closing price
for Norfolk Southern Corporation was $13.94. The fair value of the
Company's marketable equity securities is significantly affected
by market price fluctuations. See Note 4 of the Notes to
Consolidated Financial Statements.
Interest Rate Risk. The carrying value of Penn Virginia's debt
approximates fair value. At December 31, 1999, the Company had
$78.5 million of long-term debt, primarily represented by an
unsecured revolving credit facility (the "Revolver") totaling
$77.7 million. The Revolver matures in June 2003 and is governed
by a borrowing base calculation that is redetermined semi-
annually. The Company has the option to elect interest at (i)
Libor plus a Eurodollar margin ranging from 100 to 150 basis
points, based on the percentage of the borrowing base outstanding
or (ii) the greater of the prime rate or federal funds rate plus
50 basis points. As a result, the Company's 2000 interest costs
will fluctuate based on short-term interest rates relating to the
Revolver.
Hedging Activities. Penn Virginia's price risk program permits
the utilization of fixed-price contracts and financial instruments
(such as futures, forward and option contracts and swaps) to
mitigate the price risks associated with fluctuations in natural
gas prices as they relate to the Company's anticipated production.
These contracts and/or financial instruments are designated as
hedges and accounted for on the accrual basis with gains and
losses being recognized based on the type of contract and exposure
being hedged. Realized gains and losses on natural gas financial
instruments designated as hedges of anticipated transactions are
treated as deferred charges or credits, as applicable, on the
balance sheet until recognized. Net gains and losses on such
financial instruments, including accrued gains or losses upon
maturity or termination of the contract, are recognized in
operating income concurrently with the hedged transaction.
In April 1997, Penn Virginia executed a contract for a
participating forward swap for 5,000 MMbtu's per day with a floor
price of $2.10 per MMbtu and a re-entry price of $2.48 per MMbtu
for the period of May 1997 through October 1999. In September
1997, the Company completed a second participating forward swap
for an additional 5,000 MMbtu's per day with a floor price of
$2.10 per MMbtu and a re-entry price of $2.35 per MMbtu for the
period of November 1997 through October 1999. The Company hedged
34 percent of its 1999 production and recognized an opportunity
cost of $0.4 million, which offset oil and gas revenues. To date,
the Company has not hedged crude oil prices. At December 31,
1999, no contracts were in place; however, Penn Virginia
constantly reviews market conditions and may alter its hedged
positions at any time.
Capital Resources and Liquidity
Cash flows from Operating Activities
Funding for the Company's activities has historically been
provided by operating cash flows and bank borrowings. Net cash
provided from operating activities was $25.1 million in 1999,
compared with $19.2 million in 1998 and $19.7 million in 1997.
The Company's consolidated cash balance increased to $0.7 million
in 1999 from $0.2 million in 1998.
Cash flows from Investing Activities
The Company used $58.7 million in investing activities in 1999,
compared with $18.3 million in 1998 and $15.8 million in 1997.
Capital expenditures, including acquisitions and noncash items,
totaled $60.7 million, compared with $23.6 million in 1998 and
$23.2 million in 1997. The following table sets forth capital
expenditures, including acquisitions and noncash items, made by
the Company during the periods indicated.
Year ended December 31,
1999 1998 1997
Oil and gas (in thousands)
Acquisitions $16,620 $3,557 $ 163
Development 9,189 8,527 10,446
Exploration 2,587 1,534 3,061
Support equipment and
facilities 209 171 114
Coal royalty and land management
Lease acquisitions 30,094 6,260 9,203
Support equipment and
facilities 1,861 3,532 199
Other 91 42 6
Total capital expenditures $60,651 $23,623 $23,192
In July 1999, Penn Virginia acquired certain oil and gas
properties in Mississippi for $13.7 million. The acquisition,
which is 99 percent natural gas, added 23.3 Bcfe of proved
reserves and provides numerous future drilling locations, which is
the primary focus of the Company's 2000 drilling program. In
December 1999, the Company purchased a 20 percent interest in a
Texas onshore gulf coast exploration project for $2.4 million.
The project is in its initial phases and is comprised of a
portfolio of drilling prospects with varying risk/reward
characteristics.
The Company drilled 38.1 net successful development wells, 9.2
net successful exploratory wells and 3.5 net non-productive wells
in 1999 compared with 37.0 net successful development wells, 8.1
net successful exploratory wells and 4.5 net non-productive wells
in 1998. The 2.0 net wells under evaluation at the end of 1998
were non-productive.
In September 1999, the Company completed an acquisition which
included over 90 million tons of high quality coal reserves as
well as oil and gas leases, timber assets, a short line railroad
and a coal loading dock on the Kanawha River in West Virginia.
The $30 million acquisition complements the Company's existing
Coal River Properties located on the inland river system in West
Virginia.
Capital expenditures for 2000, before lease and proved property
acquisitions, are expected to be $22 to $24 million including $21
to $23 million for the oil and gas segment and $1 million for the
coal royalty and land management segment. The Company plans to
drill approximately 50 to 60 net development wells and 10 to 20
exploratory wells. Management continually reviews the Company's
drilling expenditures and may increase, decrease or reallocate
amounts based on industry conditions.
Penn Virginia is actively seeking oil and gas acquisitions, as
well as coal reserve acquisitions, both in the eastern United
States, and in other areas of the U.S. The Company opened an
office in Houston, Texas during the fourth quarter of 1998 with
the primary purpose of acquiring oil and gas properties. The
Company's acquisition efforts in both the oil and gas segment and
coal royalty and land management segment are reflected in the 1999
financial results.
In 1999, the Company received payments on long-term notes
receivable of $1.7 million and $0.3 million from the sale of
property and equipment.
Management believes its cash flow from operations, portfolio of
investments and sources of debt financing are sufficient to fund
its 2000 planned capital expenditure program.
Cash flows from Financing Activities
Net cash provided (used) by financing activities was $34.1
million in 1999, compared with $(1.5) million in 1998 and $(5.0)
million in 1997.
Penn Virginia has a $120 million unsecured revolving credit
facility (the "Revolver") with a final maturity of June 2003. The
Revolver contains financial covenants requiring the Company to
maintain certain levels of net worth, debt-to-capitalization and
dividend limitation restrictions, among other requirements. The
outstanding balance on the Revolver was $77.7 million and $37.1
million at December 31, 1999 and 1998, respectively. Management
believes its portfolio of investments and sources of funding are
sufficient to meet short and long-term liquidity needs not funded
by cash flows from operations.
Other Issues
Year 2000. Historically, most computer systems, including
microprocessors embedded into field equipment and other machinery,
utilized software that recognized a calendar year by its last two
digits. At January 1, 2000, it was anticipated that these systems
would require modification to recognize a calendar year by four
digits. The Year 2000 issue has caused no disruption to the
Company's mission-critical facilities or operations, and resulted
in no material costs. Penn Virginia will remain vigilant for Year
2000 related problems that may yet occur. The Company anticipates
that the Year 2000 problem will not create material disruptions to
its facilities or operations, and will not create material costs.
Accounting for Derivative Instruments and Hedging Activities.
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") which establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It
requires that an entity recognize all derivatives as either assets
or liabilities in the statement of financial position and measure
those instruments at fair value. If certain conditions are met, a
derivative may be specifically designated as (a) a hedge of the
exposure to changes in the fair value of a recognized asset or
liability or an unrecognized firm commitment, (b) a hedge of the
exposure to changes in the fair value of the exposure to variable
cash flows of a forecasted transaction, or (c) a hedge of the
foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale
security, or a foreign-currency-denominated forecasted
transaction.
In June 1999, FASB issued SFAS No. 137 which deferred the
effective date of SFAS No. 133 for all fiscal quarters of all
fiscal years beginning after June 15, 2000. Given its low levels
of derivative activity, the Company does not expect adoption to
have a significant impact on the Company's financial position,
results of operations or liquidity.
Environmental Matters
Penn Virginia's operating segments are subject to various
environmental hazards. Several federal, state and local laws,
regulations and rules govern the environmental aspects of the
Company's business. Noncompliance with these laws, regulations and
rules can result in substantial penalties or other liabilities.
The Company does not believe its environmental risks are
materially different from those of comparable companies or that
cost of compliance will have a material adverse effect on
profitability, capital expenditures, cash flows or competitive
position. There is no assurance that changes in or additions to
laws, regulations or rules regarding the protection of the
environment will not have such an impact. The Company believes it
is materially in compliance with environmental laws, regulations
and rules.
In conjunction with the leasing of property to coal operators,
all environmental and reclamation liabilities are the
responsibility of the lessees. However, if the lessee is not
financially capable of fulfilling those obligations, there is a
possibility the appropriate authorities would attempt to assign
those liabilities to the landowner. The Company would vigorously
contest such an assignment.
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 mineable and merchantable coal reserves and proved oil
and gas reserves; unanticipated geological problems; availability
of required materials and equipment; the occurrence of unusual
weather or operating conditions including force majeure or events;
the failure of equipment or processes to operate in accordance
with specifications or expectations; delays in anticipated start-
up dates; environmental risks affecting the drilling and producing
of oil and gas wells or the mining of coal reserves; the timing of
receipt of necessary governmental permits; labor relations and
costs; accidents; changes in governmental regulation or
enforcement practices, especially with respect to environmental,
health and safety matters, including with respect to emissions
levels applicable to coal-burning power generators; risks and
uncertainties relating to general domestic and international
economic (including inflation and interest rates) and political
conditions; the experience and financial condition of lessees of
coal reserves, joint venture partners and purchasers of reserves
in transactions financed by Penn Virginia, including their ability
to satisfy their royalty, environmental, reclamation and other
obligations to Penn Virginia and others; changes in financial
market conditions; changes in the market prices or value of the
marketable securities owned by Penn Virginia, including the price
of Norfolk Southern common stock and other risk factors detailed
in Penn Virginia's Securities and Exchange commission filings.
Many of such factors are beyond Penn Virginia's ability to control
or predict. Readers are cautioned not to put undue reliance on
forward-looking statements.
While Penn Virginia periodically reassesses material trends and
uncertainties affecting Penn Virginia's results of operations and
financial condition in connection with the preparation of
Management's Discussion and Analysis of Results of Operations and
Financial Condition and certain other sections contained in Penn
Virginia's quarterly, annual or other reports filed with the
Securities and Exchange Commission, Penn Virginia does not intend
to review or update any particular forward-looking statement,
whether as a result of new information, future events or
otherwise.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
March 22, 2000 By: /s/ Steven W. Tholen
(Steven W. Tholen,
Vice President and
Chief Financial Officer)
March 22, 2000 By: /s/ Ann N. Horton
(Ann N. Horton, Controller and
Principal Accounting Officer)
Pursuant to the requirements of Section 13 or 15(d) 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.
/s/ Robert Garrett Chairman of the Board March 22, 2000
(Robert Garrett) and Director
/s/ Richard A. Bachmann Director March 22, 2000
(Richard A. Bachmann)
/s/ Lennox K. Black Director March 22, 2000
(Lennox K. Black)
/s/ John D. Cadigan Director March 22, 2000
(John D. Cadigan)
/s/ A. James Dearlove Director and March 22, 2000
(A. James Dearlove) Chief Executive Officer
/s/ Peter B. Lilly Director March 22, 2000
(Peter B. Lilly)
/s/ Marsha R. Perelman Director March 22, 2000
(Marsha R. Perelman)
/s/ Joe T. Rye Director March 22, 2000
(Joe T. Rye)
/s/ John A. H. Shober Director March 22, 2000
(John A. H. Shober)
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Penn Virginia Corporation and Subsidiaries
Index to Financial Section
Management's Report on Financial Information 29
Reports of Independent Public Accountants 30
Financial Statements and Supplementary Data 31
Management's Report on Financial Information
Management of Penn Virginia Corporation is responsible for the
preparation and integrity of the financial information included in
this annual report. The financial statements have been prepared in
accordance with generally accepted accounting principles, which
involve the use of estimates and judgments where appropriate.
The corporation has a system of internal accounting controls
designed to provide reasonable assurance that assets are
safeguarded against loss or unauthorized use and to produce the
records necessary for the preparation of financial information.
The system of internal control is supported by the selection and
training of qualified personnel, the delegation of management
authority and responsibility, and dissemination of policies and
procedures. There are limits inherent in all systems of internal
control based on the recognition that the costs of such systems
should be related to the benefits to be derived. We believe the
corporation's systems provide this appropriate balance.
The corporation's independent public accountants, Arthur Andersen
LLP, have developed an understanding of our accounting and
financial controls and have conducted such tests as they consider
necessary to support their opinion on the financial statements.
Their report contains an independent, informed judgment as to the
corporation's reported results of operations and financial
position.
The Board of Directors pursues its oversight role for the
financial statements through the Audit Committee, which consists
solely of outside directors. The Audit Committee meets regularly
with management, the internal auditor and Arthur Andersen LLP,
jointly and separately, to review management's process of
implementation and maintenance of internal controls, and auditing
and financial reporting matters. The independent and internal
auditors have unrestricted access to the Audit Committee.
A. James Dearlove Steven W. Tholen
President and Vice President and
Chief Executive Officer Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Penn Virginia Corporation:
We have audited the accompanying consolidated balance sheets of
Penn Virginia Corporation (a Virginia corporation) and
subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended December 31,
1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Penn Virginia Corporation and subsidiaries as of December 31,
1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted
in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
February 16, 2000
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1999 1998 1997
(in thousands, except share data)
Revenues
Oil and condensate $ 463 $ 335 $ 661
Natural gas 21,384 20,482 21,827
Coal royalties 17,624 10,705 11,364
Timber 1,667 1,600 1,493
Dividends 2,646 2,646 2,646
Gain on the sale of property 280 72 1,983
Other 3,071 2,304 1,158
47,135 38,144 41,132
Expenses
Operating expenses 4,311 3,857 3,431
Exploration expenss 2,146 1,189 1,753
Taxes other than income 2,795 2,788 2,431
General and administrative 8,775 8,234 8,240
Loss on the sale of property - 7 9
Impairment of oil and gas
properties - 4,641 -
Depreciation, depletion and
amortization 8,393 7,162 6,549
26,420 27,878 22,413
Operating Income 20,715 10,266 18,719
Other (income) expense:
Interest expense 3,298 2,017 2,317
Interest income (1,354) (3,421) (3,534)
Gain on sale of securities - (14) (50)
Other (63) (269) (301)
Income from operations before
income taxes 18,834 11,953 20,287
Income tax expense 4,330 2,362 4,269
Net Income $ 14,504 $9,591 $16,018
Net income per share, basic $1.73 $1.15 $1.93
Net income per share, diluted $1.71 $1.13 $1.88
Weighted average shares
outstanding, basic 8,406 8,310 8,302
Weighted average shares
outstanding, diluted 8,480 8,463 8,500
The accompanying notes are an integral part of these consolidated financial
statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1999 1998
(in thousands, except share data)
Assets
Current assets
Cash and cash equivalents $ 657 $ 225
Accounts receivable 6,880 5,682
Current portion of long-term notes
receivable 816 364
Current deferred income taxes 155 577
Other 813 680
Total current assets 9,321 7,528
Investments (Note 4) 67,816 104,819
Long-term notes receivable (Note 5) 3,518 3,079
Property and Equipment
Oil and gas properties, wells and
equipment, using the successful
efforts method of accounting 185,048 157,558
Other property and equipment 82,772 52,455
Less: Accumulated depreciation,
depletion and amortization 76,553 68,745
Net property and equipment (Note 6) 191,267 141,268
Other assets 2,089 237
Total assets $ 274,011 $256,931
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt
(Note 7) $ 34 $ 31
Accounts payable 1,570 1,397
Accrued expenses 5,470 5,039
Taxes on income - 576
Total current liabilities 7,074 7,043
Other liabilities (Note 11) 5,854 2,875
Deferred income taxes 28,265 38,787
Long-term debt (Note 7) 78,475 37,967
Total liabilities 119,668 86,672
Commitments and contingencies (Note 16)
Shareholders' equity
Preferred stock of $100 par value -
Authorized 100,000 shares; none issued - -
Common stock of $6.25 par value -
16,000,000 shares authorized;
8,921,866 shares issued 55,762 55,762
Other paid-in-capital 8,096 8,441
Retained earnings 60,860 53,924
Accumulated other comprehensive income 42,017 65,985
166,735 184,112
Less:498,238 shares in 1999 and
555,050 in 1998 of common stock
held in treasury, at cost 11,142 12,403
Unearned compensation - ESOP 1,250 1,450
Total shareholders' equity 154,343 170,259
Total liabilities and shareholders'
equity $274,011 $ 256,931
The accompanying notes are an integral part of these consolidated
financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
Accumulated
Other Other
Shares Common Paid-in Retained Comprehensive
Outstanding Stock Capital Earnings Income
Balance at 12/31/96 4,341,240 $ 27,817 $ 36,138 $43,240 $60,441
Two-for-one common
stock split 4,341,240 27,817 (27,817) - -
Dividends paid
($0.90 per share) - - - (7,445) -
Exercise of stock
options 12,464 - 9 - -
Purchase of treasury
stock (420,618) - - - -
Allocation of ESOP shares - - 101 - -
Net income - - - 16,018 -
Other comprehensive
income, net of tax - - - - 3,059
Balance at 12/31/97 8,274,326 55,634 8,431 51,813 63,500
Dividends paid
($0.90 per share) - - - (7,480) -
Stock issued as
compensation 5,357 - 26 - -
Exercise of stock options 87,133 128 (114) - -
Allocation of ESOP shares - - 98 - -
Net income - - - 9,591 -
Other comprehensive income,
net of tax - - - - 2,485
Balance at 12/31/98 8,366,816 55,762 8,441 53,924 65,985
Dividends paid
($0.90 per share) - - - (7,568) -
Stock issued as
compensation 7,878 - (13) - -
Exercise of stock options 48,934 - (365) - -
Allocation of ESOP shares - - 33 - -
Net income - - - 14,504 -
Other comprehensive loss,
net of tax - - - - (23,968)
Balance at 12/31/99 8,423,628 $ 55,762 $8,096 $ 60,860 $ 42,017
Penn Virginia Corporation and Subsidiaries Consolidated Statements of
Shareholders' Equity (in thousands,except share data) continued below.
Unearned Total
Treasury Compensation Stockholders' Comprehensive
Stock ESOP Equity Income (Loss)
Balance at 12/31/96 $(5,575) $(1,850) $160,211
Two-for-one common
stock split - - -
Dividends paid
($0.90 per share) - - (7,445)
Exercise of stock options 279 - 288
Purchase of treasury stock (8,728) - (8,728)
Allocation of ESOP shares - 200 301
Net Income - - 16,018 $16,018
Other comprehensive income,
net of tax - - 3,059 3,059
Balance at 12/31/97 (14,024) (1,650) 163,704 19,077
Dividends paid
($0.90 per share) - - (7,480)
Stock issued as
compensation 120 - 146
Exercise of stock options 1,501 - 1,515
Allocation of ESOP shares - 200 298
Net Income - - 9,591 $9,591
Other comprehensive income,
net of tax - - 2,485 2,485
Balance at 12/31/98 (12,403) (1,450) 170,259 12,076
Dividends paid
($0.90 per share) - - (7,568)
Stock issued as
compensation 176 - 163
Exercise of stock options 1,085 - 720
Allocation of ESOP shares - 200 233
Net Income - - 14,504 $14,504
Other comprehensive loss,
net of tax - - (23,968) (23,968)
Balance at 12/31/99 $(11,142) $(1,250) $154,343 $(9,464)
The accompanying notes are an integral part of these consolidated
financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1999 1998 1997
(in thousands)
Cash flows from operating activities:
Net income $14,504 $9,591 $16,018
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation, depletion and amortization 8,393 7,162 6,549
Impairment of oil and gas properties - 4,641 -
Gain on the sale of securities - (14) (50)
Gain on the sale of property and equipment (280) (65) (1,983)
Deferred income taxes 2,805 923 2,169
Dry hole expense 1,115 58 949
Interest income (1,306) (3,336) (2,833)
Other 22 597 175
25,253 19,557 20,994
Changes in operating assets and liabilities:
Accounts receivable (1,198) 1,721 (2,548)
Other current assets (133) (136) (116)
Accounts payable and accrued expenses 604 (1,277) 358
Deferred income - (279) -
Taxes on income (576) 432 136
Other assets and liabilities and investments 1,105 (781) 881
Net cash flows provided by operating
activities 25,055 19,237 19,705
Cash flows from investing activities:
Proceeds from the sale of securities - 17 -
Proceeds from the sale of property and equipment 299 79 3,957
Payments received on long-term notes receivable 1,670 2,253 3,456
Producing properties acquired (13,921) (3,351) (82)
Lease acquisitions (32,793) (3,512) (9,284)
Capital expenditures (13,937)(13,806) (13,826)
Net cash flows used in investing
activities (58,682)(18,320) (15,779)
Cash flows from financing activities:
Dividends paid (7,568) (7,480) (7,445)
Proceeds from long-term borrowings 44,500 9,100 19,513
Repayment of long-term borrowings (3,990) (5,100) (8,917)
Purchases of treasury stock - - (8,728)
Issuance of stock 1,117 1,957 589
Net cash flows provided by (used in)
financing activities 34,059 (1,523) (4,988)
Net decrease in cash and cash equivalents 432 (606) (1,062)
Cash and cash equivalents - beginning of year 225 831 1,893
Cash and cash equivalents - end of year $ 657 $ 225 $ 831
Supplemental disclosures:
Cash paid during the year for:
Interest $2,980 $2,065 $2,243
Income taxes $2,100 $1,100 $ 930
Noncash investing activities:
Note receivable for sale of property and equipment $1,255 $ - $ - Note receivable
exchanged for:
Other property and equipment $ - $2,954 $ -
Deferred revenue $ - $1,296 $ -
The accompanying notes are an integral part of these consolidated
financial statements.
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations
Penn Virginia Corporation ("Penn Virginia" or the "Company")
explores for, develops and produces crude oil, condensate and
natural gas in the eastern and southern portions of the United
States.
The Company owns land and mineral rights to mineable and
merchantable coal reserves and timber located in central
Appalachia. The coal reserves are leased to various operators who
mine and market the coal. Penn Virginia collects royalties based
on the lessee's production and sale of reserves. Timber is sold
in competitive bid sales involving individual parcels and also on
a contract basis, where Penn Virginia pays independent contractors
to harvest timber while the Company directly markets the product.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of
Penn Virginia Corporation and all wholly-owned subsidiaries. The
Company owns and operates its undivided oil and gas properties and
manages its coal reserves through its wholly-owned subsidiaries.
The Company accounts for its ownership interest in oil and gas
properties using the proportionate consolidation method, whereby
the Company's share of assets, liabilities, revenues and expenses
is included in the appropriate classification in the financial
statements. Intercompany balances and transactions have been
eliminated in consolidation. In the opinion of management, all
adjustments have been reflected that are necessary for a fair
presentation of the consolidated financial statements. Certain
amounts have been reclassified to conform to the current year's
presentation.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging
Activities," which establishes accounting and reporting standards
for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to
as derivatives) and for hedging activities. It requires an entity
to recognize all derivatives as either assets or liabilities in
the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes
in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (b) a hedge of the exposure to
changes in the fair value of the exposure to variable cash flows
of a forecasted transaction, or (c) a hedge of the foreign
currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign currency denominated forecasted transaction.
In June 1999, the FASB issued SFAS No. 137 which deferred the
effective date of SFAS No. 133 for all fiscal quarters of all
fiscal years beginning after June 15, 2000. Given its low levels
of derivative activity, the Company does not expect adoption to
have a significant impact on the Company's financial position,
results of operations or liquidity.
Use of Estimates
Preparation of the accompanying consolidated financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities in the consolidated
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash equivalents
The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents.
Investments
Investments consist of equity securities. The Company classifies
its equity securities as available-for-sale. Available-for-sale
securities are recorded at fair value based upon market
quotations. Unrealized holding gains and losses, net of the
related tax effect, on available-for-sale securities are excluded
from earnings and are reported as a separate component of
stockholders' equity until realized. A decline in the market
value of any available-for-sale security below cost that is deemed
other than temporary, is charged to earnings in the period it
occurs resulting in the establishment of a new cost basis for the
security. Dividend income is recognized when earned. Realized
gains and losses for securities classified as available-for-sale
are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
Notes Receivable
Notes receivable are recorded at cost, adjusted for amortization
of discounts or accretion of premium. Discounts and premiums are
amortized over the life of the notes receivable using the
effective interest rate method.
Oil and Gas Properties
The Company uses the successful efforts method of accounting for
its oil and gas operations. Under this method of accounting, costs
to acquire mineral interests in oil and gas properties, to drill
and equip development wells including development dry holes, and
to drill and equip exploratory wells that find proved reserves are
capitalized. Capitalized costs of producing oil and gas fields
are amortized using the unit-of-production method based on
estimates of proved oil and gas reserves on a field-by-field
basis. Oil and gas reserve quantities represent estimates only
and there are numerous uncertainties inherent in the estimation
process. Actual future production may be materially different
from amounts estimated and such differences could materially
affect future amortization of proved properties. Estimated costs
(net of salvage value) of plugging and abandoning oil and gas
wells are reported as additional depreciation and depletion
expense using the units-of-production method.
The costs of unproved leaseholds are capitalized pending the
results of exploration efforts. Unproved leasehold costs are
assessed periodically, on a property-by-property basis, and a loss
is recognized to the extent, if any, the cost of the property has
been impaired. As unproved leaseholds are determined to be
productive, the related costs are transferred to proved
leaseholds. Exploratory costs including exploratory dry holes,
annual delay rental and geological and geophysical costs are
charged to expense when incurred.
Other Property and Equipment
Other property and equipment is carried at cost and includes
expenditures for additions and improvements, which substantially
increase the productive lives of existing assets. Maintenance and
repair costs are expensed as incurred. Depreciation of property
and equipment is generally computed using the straight-line method
over their estimated useful lives, varying from 3 years to 20
years. Coal in place is depleted at a rate based upon the cost of
the mineral properties and estimated mineable and merchantable
tonnage therein. When an asset is retired or sold, its cost and
related accumulated depreciation are removed from the accounts.
The difference between undepreciated cost and proceeds from
disposition is recorded as gain or loss.
Impairment of Long-Lived Assets
In accordance with SFAS No.121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of",
the Company reviews its long-lived assets to be held and used,
including proved oil and gas properties accounted for using the
successful efforts method of accounting, whenever events or
circumstances indicate that the carrying value of those assets may
not be recoverable. SFAS No.121 requires an impairment loss be
recognized when the carrying amount of an asset exceeds the sum of
the undiscounted estimated future cash flows. In this
circumstance, the Company recognizes an impairment loss equal to
the difference between the carrying value and the fair value of
the asset. Fair value is estimated to be the present value of
expected future net cash flows from proved reserves, utilizing a
risk-adjusted rate of return.
Concentration of Credit Risk
Substantially all of the Company's accounts receivable at
December 31, 1999 result from oil and gas sales and joint interest
billings to third party companies in the oil and gas industry.
This concentration of customers and joint interest owners may
impact the Company's overall credit risk, either positively or
negatively, in that these entities may be similarly affected by
changes in economic or other conditions. In determining whether
or not to require collateral from a customer or joint interest
owner, the Company analyzes the entity's net worth, cash flows,
earnings and credit ratings. Receivables are generally not
collateralized. Historical credit losses incurred by the Company
on receivables have not been significant.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash
equivalents, marketable securities, natural gas swaps, accounts
receivable, notes receivables, accounts payable and long-term
debt. The carrying values of cash, marketable securities, accounts
receivables and payables, and long-term debt approximate fair
value. See Note 5 for a discussion of notes receivable.
The Company, from time to time, enters into derivative financial
instruments to mitigate its exposure to natural gas price
volatility. The derivative financial instruments, which are
placed with a major financial institution the Company believes is
a minimum credit risk, take the form of swaps with purchased
options. These derivative financial instruments are designated as
hedges and realized gains and losses from the Company's price risk
management activities are recognized in natural gas revenues when
the associated production occurs.
The fair value of open derivative financial instruments is
determined by comparing the New York Mercantile Exchange forward
prices at year-end with the appropriate location differential
adjustment to the contractual prices designated in the derivative
financial instruments. The Company had no outstanding derivative
financial instruments at December 31, 1999. The fair value of the
Company's open derivative contracts at December 31, 1998 was $0.1
million.
Oil and Gas Revenues
Natural gas revenues generally are recorded using the entitlement
method in which the Company recognizes its ownership interest in
natural gas production as revenue. If the Company's sales exceed
its ownership share of production, the differences are recorded as
deferred revenue. Natural gas pipeline balancing receivables are
recorded when the Company's ownership share of production exceeds
sales. At December 31, 1999 and 1998, the Company's receivables
included $1.3 million and $0.9 million of natural gas pipeline
imbalances, respectively.
Royalties
Coal royalty income is recognized on the basis of tons sold by
the Company's lessees and the corresponding revenue from those
sales. All coal leases are based on an annual minimum payment due
or a percentage of the gross sales price.
Income Tax
The Company accounts for income taxes in accordance with the
provisions of SFAS No. 109, "Accounting for Income Taxes." This
statement requires a company to recognize deferred tax liabilities
and assets for the expected future tax consequences of events that
have been recognized in a company's financial statements or tax
returns. Using this method, deferred tax liabilities and assets
are determined based on the difference between the financial
statement carrying amounts and tax bases of assets and liabilities
using enacted tax rates.
3.
Acquisitions
In September 1999, the Company successfully completed the
purchase of fee mineral and lease rights for coal reserves and
related assets in West Virginia. The $30 million acquisition was
funded by borrowings from the Company's revolving credit facility
(the "Revolver") and accounted for at fair value. The operations
have been included in the Company's statement of income as of the
closing date. The following unaudited proforma results of
operations have been prepared as though the aforementioned
acquisition had been completed on January 1, 1998. The unaudited
proforma results of operations consist of the following as of
December 31, 1999 (in thousands, except share data):
1999 1998
Revenues $ 51,528 $44,079
Net income $ 15,005 $10,013
Net income per share, diluted $ 1.77 $ 1.18
In July 1999, Penn Virginia acquired certain oil and gas
properties in Mississippi for $13.7 million. The acquisition was
funded by borrowings from the Company's Revolver and was accounted
for at fair value. The operations are included in the Company's
statement of income as of the closing date.
4. Investments and Dividend Income
The cost, gross unrealized holding gains and fair value of
available-for-sale securities were as follows (in thousands):
Gross
Unrealized
Holding Fair
At December 31, 1999 Cost Gains Value
Available-for-sale
Norfolk Southern Corporation $2,839 $64,959 $67,798
Other - 18 18
$2,839 $64,977 $67,816
At December 31, 1998
Available-for-sale
Norfolk Southern Corporation $2,839 $101,958 $104,797
Other - 22 22
$2,839 $101,980 $104,819
The Company owned 3,307,200 shares of Norfolk Southern
Corporation stock at December 31, 1999. Dividend income from the
Company's investment in Norfolk Southern Corporation was $2.6
million for the three years ended December 31, 1999, 1998 and
1997. The closing stock price for Norfolk Southern Corporation
was $20.50 and $31.6875 per share at December 31, 1999 and 1998,
respectively.
5. Notes Receivable
The Company has two notes receivable collateralized by property
and equipment. During 1999, the Company received a $1.3 million
note receivable for a portion of the proceeds relating to a
property and equipment sale.
Maturities of notes receivable are as follows (in thousands):
December 31,
1999 1998
Current $ 816 $ 364
Due after one year through five years 2,876 1,853
Thereafter 642 1,226
$4,334 $3,443
The fair value of the Company's notes receivable at December 31,
1999 and 1998 was $6.9 million and $5.3 million, respectively.
6. Property and Equipment
Property and equipment includes (in thousands):
December 31,
1999 1998
Oil and gas properties $185,048 $157,558
Other property and equipment:
Land 1,813 694
Timber 188 188
Coal properties 73,081 45,176
Other equipment 7,690 6,397
267,820 210,013
Less: Accumulated depreciation,
depletion and amortization (76,553) (68,745)
Net property and equipment $191,267 $141,268
In accordance with SFAS No. 121, the Company reviews its proved
oil and gas properties and other long-lived assets for impairment
whenever events and circumstances indicate a decline in the
recoverability of their carrying value. In the fourth quarter of
1998, the Company estimated the expected future cash flows of its
oil and gas properties and compared such future cash flows to the
carrying amount of the oil and gas properties to determine if the
carrying amount was recoverable. For certain oil and gas
properties, the carrying amount exceeded the estimated
undiscounted future cash flows; thus, the Company adjusted the
carrying amount of the respective oil and gas properties to their
fair value as determined by discounting their estimated future
cash flows. The factors used to determine fair value included,
but were not limited to, estimates of proved reserves, future
commodity pricing, future production estimates, anticipated
capital expenditures and a discount rate commensurate with the
Company's internal rate of return on its oil and gas properties.
As a result, the Company recognized a noncash pre-tax charge of
$4.6 million ($3.7 million after tax) related to its oil and gas
properties in the fourth quarter of 1998. There were no
impairments of oil and gas properties in 1999 or 1997.
7. Long-Term Debt
Long-term debt consists of the following (in thousands):
December 31,
1999 1998
Revolving credit, variable rate of 7.5%
at December 31, 1999, due in 2003 $77,650 $37,100
Other 859 898
78,509 37,998
Less: current maturities (34) (31)
Total long-term debt $78,475 $37,967
Revolving Credit Facility
In August 1999, the Company amended and restated its agreement
with a group of major U.S. banks for a $120 million unsecured
revolving credit facility (the "Revolver") with a final maturity
of June 2003. The Revolver is governed by a borrowing base
calculation and will be redetermined semi-annually. The Company
has the option to elect interest at (i) Libor plus a Eurodollar
margin ranging from 100 to 150 basis points, based on the
percentage of the borrowing base outstanding or (ii) the greater
of the prime rate or federal funds rate plus 50 basis points. The
Revolver allows for issuance of letters of credit which are
limited to no more than $10 million. The financial covenants
require the Company to maintain levels of net worth, debt-to-
capitalization and dividend limitation restrictions. The Company
is currently in compliance with all of its covenants.
Line of Credit
The Company has a $5 million line of credit with a financial
institution due in December 2000, renewable annually. The Company
has an option to elect either a fixed rate LIBOR loan, floating
rate LIBOR loan or base rate loan.
The aggregate maturities applicable to outstanding debt at
December 31, 1999 are as follows (in thousands):
2000 $ 34
2001 37
2002 40
2003 77,693
2004 46
Thereafter 658
8. Accrued Expenses
Accrued expenses are summarized as follows (in thousands):
December 31,
1999 1998
Pension $ 140 $ 453
Compensation 715 594
Accrued oil and gas royalties 752 392
Taxes other than income 878 873
Post-retirement health care 203 841
Interest 324 -
Accrued restructuring charges - 552
Accrued drilling costs 1,086 348
Other 1,372 986
$5,470 $5,039
In 1998, the Company's management approved a plan to reduce
administrative and operational overhead costs. In connection with
such a plan, the Company recorded a pre-tax charge to general and
administrative expense totaling $0.6 million related to severance
costs for six employees and a lease cancellation fee. The plan to
reduce administrative and operational overhead costs was completed
in August 1999. There were no adjustments to the liability
recorded in 1998 that resulted in an adjustment to net income for
1999.
9. Income Taxes
The provision for income taxes from continuing operations is
comprised of the following (in thousands):
Year ended December 31,
1999 1998 1997
Current income taxes
Federal $1,525 $1,341 $1,677
State - 98 423
Total current 1,525 1,439 2,100
Deferred income taxes
Federal 2,426 901 2,438
State 379 22 (269)
Total deferred 2,805 923 2,169
Total income tax expense $ 4,330 $ 2,362 $ 4,269
The difference between the reported income tax expense and income
tax expense computed by applying the statutory tax rate to income
from operations before income taxes is as follows (in thousands):
Year ended December 31,
1999 1998 1997
Computed at statutory tax rate $6,592 $4,150 $7,100
State income taxes, net of federal income
tax effect 246 78 100
Dividends received deduction (648) (648) (648)
Non-conventional fuel source credit (1,471) (1,525) (1,510)
Percentage depletion (414) (350) (416)
Other, net 25 657 (357)
Total income tax expense $ 4,330 $2,362 $ 4,269
The tax effects of temporary differences that give rise to
significant portions of the net deferred tax liability consist of
the following (in thousands):
December 31,
1999 1998
Deferred tax assets:
Other long-term liabilities $1,936 $ 954
Alternative minimum tax credits 7,329 6,560
State tax loss carryforwards 938 881
Other 565 1,514
Total deferred tax assets 10,768 9,909
Deferred tax liabilities:
Notes receivable (1,169) (1,143)
Investments (22,745) (35,693)
Oil and gas properties (12,012) (10,611)
Other property and equipment (1,823) -
Other (1,129) (672)
Total deferred tax liabilities (38,878) (48,119)
Net deferred tax liability $ (28,110) $(38,210)
Deferred tax assets-current $ 155 $ 577
Deferred tax liabilities-noncurrent (28,265) (38,787)
$ (28,110)$ (38,210)
As of December 31, 1999, the Company had available for federal
income tax purposes, alternative minimum tax credits of
approximately $7.3 million which can be carried forward
indefinitely as a credit against the regular tax liability.
The Company has various state tax loss carryforwards of $10.7
million which, if unused, will expire from 2014 to 2019.
10.Pension Plans and Other Post-retirement Benefits
The Company and its wholly-owned subsidiaries provided a
noncontributory, defined benefit pension plan, which was frozen in
1996, and early retirement programs (the "Plans") for eligible
employees. Benefits were based on the employee's average annual
compensation and years of service.
The Company sponsors a defined benefit post-retirement plan that
covers employees hired prior to January 1, 1991 who retire from
active service. The plan provides medical benefits for the
retirees and dependents and life insurance for the retirees. The
medical coverage is noncontributory for retirees who retired prior
to January 1, 1991 and may be contributory for retirees who retire
after December 31, 1990.
A reconciliation of the changes in the benefit obligations and
fair value of assets for the two years ended December 31, 1999 and
1998 and a statement of the funded status at December 31, 1999 and
1998 is as follows (in thousands):
Pension Post-retirement
1999 1998 1999 1998
Reconciliation of benefit obligation:
Obligation - beginning of year $ 11,701 $11,474 3,112 $3,665
Service cost - - 14 15
Interest cost 748 792 206 213
Benefits paid (1,083) (1,143) (366) (297)
Actuarial (gain) loss (754) 578 (129) (484)
Other - - 99 -
Obligation - end of year 10,612 11,701 2,936 3,112
Reconciliation of fair value of plan assets:
Fair value - beginning of year 10,468 9,653 1,698 1,615
Actual return on plan assets 982 1,604 221 387
Employer contributions 271 442 26 -
Participant contributions - - 8 3
Benefit payments (1,083) (1,143) (366) (298)
Administrative expenses (44) (88) (9) (9)
Fair value - end of year 10,594 10,468 1,578 1,698
Funded status:
Funded status - end of year (18) (1,233) (1,358) (1,414)
Unrecognized transition obligation 26 30 - -
Unrecognized prior service cost 55 60 92 -
Unrecognized (gain) loss (1,189) (351) (249) 53
Net amount recognized $ (1,126)$(1,494) $ (1,515)$ (1,361)
The following table provides the amounts recognized in the
statements of financial position at December 31, 1999 and 1998 (in
thousands):
Pension Post-retirement
1999 1998 1999 1998
Accrued benefit liability $(1,542) $(2,050) $(1,515) $(1,361)
Other long-term assets 81 91 - -
Accumulated other comprehensive
income 335 465 - -
Obligation - end of year $ (1,126) $(1,494) $(1,515) $(1,361)
The following table provides the components of net periodic
benefit cost for the plans for the two years ended December 31,
1999 and 1998 (in thousands):
Pension Post-retirement
1999 1998 1999 1998
Service cost $ 80 $ 80 $ 14 $ 15
Interest cost 749 792 206 213
Expected return on plan assets (949) (869) (47) (43)
Amortization of prior service cost 6 6 7 -
Amortization of transitional
obligation 4 4 - -
Recognized actuarial loss 13 6 - -
Net periodic benefit cost $ (97)$ 19 $ 180 $ 185
The assumptions used in the measurement of the Company's benefit
obligation were as follows:
Pension Post-retirement
1999 1998 1999 1998
Discount rate 7.50% 6.75% 7.50% 6.75 %
Expected return on plan assets 9.50 9.50 3.00 3.00
Since the benefits accrued under the defined benefit plan were
frozen in 1996, it is not necessary to assume a rate of
compensation increase. For measurement purposes, an 8.0 percent
annual rate increase in the per capita cost of covered health care
benefits was assumed for 1999. The rate is assumed to decrease
gradually to 5.5 percent for 2004 and remain at that level
thereafter.
Assumed health care cost trend rates have a significant effect on
the amounts reported for post-retirement benefits. A one percent
change in assumed health care cost trend rates would have the
following effects for 1999 (in thousands):
One percent One percent
increase decrease
Effect on total of service and
interest cost components $ 9 $(8)
Effect on post-retirement benefit
obligation 128 (116)
11. Other Liabilities
Other liabilities are summarized in the following table (in
thousands):
December 31,
1999 1998
Post-retirement health care $1,312 $ 520
Deferred income 2,793 842
Pension 1,402 1,409
Other 347 104
$ 5,854 $2,875
12. Earnings Per Share
The following is a reconciliation of the numerators and
denominators used in the calculation of basic and diluted earnings
per share ("EPS") for income from continuing operations for the
three years ended December 31, 1999.
1999 1998
Income Shares PerShare Income Shares PerShare
(Numerator)(Denominator)Amount (Numerator)(Denominator) Amount
(in thousands, except per share amounts)
Basic EPS:
Income from
continuing
operations $14,504 8,406 $1.73 $9,591 8,310 $1.15
Dilutive
Securities:
Stock options - 74 - 153
Diluted EPS:
Income from
continuing
operations $14,504 8,480 $1.71 $ 9,591 8,463 $1.13
1997
Income Shares Per Share
(Numerator) (Denominator) Amount
(in thousands, except per share amounts)
Basic EPS:
Income from continuing
operations $16,018 8,302 $1.93
Dilutive Securities:
Stock Options - 198
Diluted EPS:
Income from continuing
operations $16,018 8,500 $1.88
Antidilutive stock options are precluded from the computation of
diluted EPS; however, such options could potentially dilute basic
EPS in the future.
13.Stock Option and Stock Ownership Plans
Stock Option Plans
The Company has several stock option plans (collectively known as
the "Plans") which allow incentive and nonqualified stock options
to be granted to key employees and officers of the Company and
nonqualified stock options to be granted to directors of the
Company. Options granted under the Plans may be exercised at any
time after one year and prior to ten years following the grant,
subject to special rules that apply in the event of death,
retirement and/or termination of an optionee. The exercise price
of all options granted under the Plans is at the fair market value
of the Company's stock on the date of the grant.
The following table summarizes information with respect to the
common stock options awarded under the Plans and grants described
above.
1999 1998 1997
Shares Shares Shares
Under Weighted Avg. Under Weighted Avg. Under Weighted Avg.
Options Exercise Price OptionsExercise Price Options Exercise Price
Outstanding,
Beginning
of year 1,002,800 $18.65 1,036,500 $18.19 397,950 $33.63
Effect of
Stock Split - $ - - $ - 397,950 $16.82
Granted-Options 91,800 $ 20.27 80,600 $25.06 281,600 $ 22.10
Exercised-
Options 49,000 $16.44 96,901 $18.53 34,000 $ 16.25
Cancelled 31,100 $23.84 17,399 $21.56 7,000 $28.50
Outstanding,
End
of year 1,014,500 $18.74 1,002,800 $18.65 1,036,500 $ 18.19
Weighted average of fair
value of options granted
during the year $ 6.02 $8.50 $ 7.50
The following table summarizes certain information regarding
stock options outstanding at December 31, 1999:
Options Outstanding Options Exercisable
Weighted
Avg. Weighted Number Weighted
Range of Number Remaining Avg. Exercisable Avg.
Exercise Outstanding Contractual Exercise at Exercise
Price at 12/31/99 Life Price 12/31/99 Price
$15 to $19 621,600 6.2 $ 16.52 609,800 $16.46
$20 to $24 339,800 7.4 $ 21.55 259,800 $21.92
$25 to $30 53,100 7.9 $ 26.82 53,100 $26.82
The Company applies the intrinsic value method for reporting
compensation expense pursuant to Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" to its
stock-based compensation plans. Had compensation expense for the
Company's stock-based compensation plans been determined in
accordance with the fair value method pursuant to SFAS No. 123
"Accounting for Stock-Based Compensation", the Company's proforma
net income and earnings per share would have been as follows:
1999 1998 1997
Net Income (in thousands) $14,111 $9,022 $14,208
Earnings per share, basic $ 1.68 $ 1.09 $ 1.71
Earnings per share, diluted $ 1.66 $ 1.07 $ 1.67
The fair value of the options granted during 1999 is estimated on
the date of grant using the Black-Scholes option-pricing model
with the following assumptions: a) dividend yield of 4.4 percent
to 4.6 percent b) expected volatility of 38.6 percent, c) risk-
free interest rate of 4.8 percent to 4.9 percent and d) expected
life of eight years.
The fair value of the options granted during 1998 is estimated on
the date of grant using the Black-Scholes option-pricing model
with the following assumptions: a) dividend yield of 3.4 percent
to 4.2 percent b) expected volatility of 37.7 percent to 38.8
percent, c) risk-free interest rate of 4.7 percent to 5.7 percent
and d) expected life of eight years.
The fair value of the options granted during 1997 is estimated on
the date of grant using the Black-Scholes option-pricing model
with the following assumptions: a) dividend yield of 3.6 percent
to 4.1 percent b) expected volatility of 36.8 percent, c) risk-
free interest rate of 6.2 percent to 6.7 percent and d) expected
life of 10 years.
The effects of applying SFAS No. 123 in this proforma disclosure
are not indicative of future amounts.
Employees' Stock Ownership Plan
In 1996, the Board of Directors extended the Employees' Stock
Ownership Plan ("ESOP"). All employees with one year of service
are participants. The ESOP is designed to enable employees of the
Company to accumulate stock ownership. While there are no employee
contributions, participants receive an allocation of stock which
has been contributed by the Company. Compensation costs are
reported when such shares are released to employees. The ESOP
borrowed $2.0 million from the Company in 1996 and used the
proceeds to purchase treasury stock. Under the terms of the ESOP,
the Company will make annual contributions over a 10-year period.
At December 31, 1999, the unearned portion of the ESOP ($1.3
million) was recorded as a contra-equity account entitled
"Unearned Compensation-ESOP."
Shareholder Rights Plan
In February 1998, the Board of Directors adopted a Shareholder
Rights Plan designed to prevent an acquirer from gaining control
of the Company without offering a fair price to all shareholders.
Each Right entitles the holder to purchase from the Company one
one-thousandth of a share of Series A Junior Participating
Preferred Stock, $100 par value, at a price of $100 subject to
adjustment. The Rights are not exercisable or transferable apart
from the common stock until ten days after a person or affiliated
group has acquired fifteen percent or more, or makes a tender
offer for fifteen percent or more, of the Company's common stock.
Each Right will entitle the holder, under certain circumstances
(such as a merger, acquisition of fifteen percent or more of
common stock of the Company by the acquiring person or sale of
fifty percent or more of the Company's assets or earning power),
to acquire at half the value, either common stock of the Company,
a combination of cash, other property, or common stock or other
securities of the Company, or common stock of the acquiring
person. Any such event would also result in any Rights owned
beneficially by the acquiring person or its affiliates becoming
null and void. The Rights expire in February 2008 and are
redeemable at any time until ten days following the time an
acquiring person acquires fifteen percent or more of the Company's
common stock at $0.001 per Right.
14. Accumulated Other Comprehensive Income
Comprehensive income represents certain changes in equity during
the reporting period, including net income and other comprehensive
income, which includes, but is not limited to, unrealized gains
from marketable securities and futures contracts, foreign currency
translation adjustments and minimum pension liability adjustments.
Reclassification adjustments represent gains or losses from
investments realized in net income for each respective year. For
the three years ended December 31, 1999, the components of
accumulated other comprehensive income are as follows (in
thousands):
Accumulated
Net unrealized Minimum other
holding gain - pension comprehensive
investments liability income
Balance at December 31, 1996 $61,215 $ (774) $60,441
Unrealized holding gain,
net of tax of $1,370 2,546 - 2,546
Reclassification adjustment,
net of tax of $17 (33) - (33)
Pension plan adjustment,
net of tax of $294 - 546 546
Balance at December 31, 1997 63,728 (228) 63,500
Unrealized holding gain,
net of tax of $1,383 2,568 - 2,568
Reclassification adjustment,
net of tax of $5 (9) - (9)
Pension plan adjustment,
net of tax of $40 - (74) (74)
Balance at December 31, 1998 66,287 (302) 65,985
Unrealized holding loss,
net of tax of $12,951 (24,052) - (24,052)
Pension plan adjustment,
net of tax of $46 - 84 84
Balance at December 31, 1999 $ 42,235 $ (218) $ 42,017
15. Segment Information
Penn Virginia's operations are classified into two operating
segments:
Oil and Gas - crude oil and natural gas exploration,
development and production.
Coal Royalty and Land Management - the leasing of mineral
rights and subsequent collection of royalties and the
development and harvesting of timber.
Coal Royalty
and Land Corporate
Oil and Gas Management and Other Consolidated
(in thousands)
December 31, 1999
Revenues $22,942 $21,547 $2,646 $47,135
Operating income(loss) 5,889 16,660 (1,834) 20,715
Identifiable assets 120,954 83,975 69,082 274,011
Depreciation, depletion
and amortization 6,951 1,269 173 8,393
Capital expenditures 28,605 31,955 91 60,651
Coal Royalty
and Land Corporate
Oil and Gas Management and Other Consolidated
(in thousands)
December 31, 1998
Revenues $21,108 $14,389 $2,647 $38,144
Operating income (loss) 256 10,619 (609) 10,266
Identifiable assets 102,698 63,424 90,809 256,931
Depreciation, depletion
and amortization 6,460 589 113 7,162
Capital expenditures 13,789 9,792 42 23,623
Coal Royalty
and Land Corporate
Oil and Gas Management and Other Consolidated
(in thousands)
December 31, 1997
Revenues $24,868 $13,619 $2,645 $41,132
Operating income (loss) 9,405 10,692 (1,378) 18,719
Identifiable assets 99,073 46,950 101,207 247,230
Depreciation, depletion
and amortization 5,920 516 113 6,549
Capital expenditures 13,784 9,402 6 23,192
Operating income is total revenue less operating expenses.
Operating income does not include certain other income items, gain
(loss) on sale of securities, unallocated general corporate
expenses, interest expense and income taxes. Identifiable assets
are those assets used in the Company's operations in each segment.
Corporate assets are principally cash and marketable securities.
For the year ended December 31, 1999, two customers of the oil
and gas segment accounted for $9.6 million, or 20 percent, and
$6.9 million, or 13 percent, respectively of the Company's
consolidated net revenues. For the year ended December 31, 1998,
one customer of the oil and gas segment accounted for $4.8
million, or 13 percent, of the Company's consolidated revenues.
16. Commitments and Contingencies
Rental Commitments
Minimum rental commitments under all non-cancelable operating
leases, primarily real estate, in effect at December 31, 1999 were
as follows (in thousands):
Year ending December 31,
2000 $ 401
2001 159
2002 117
2003 82
2004 73
Total minimum payments $ 832
Legal
The Company is involved, from time to time, in various legal
proceedings arising in the ordinary course of business. While the
ultimate results of these proceedings cannot be predicted with
certainty, Company management believes these claims will not have
a material effect on the Company's financial position, liquidity
or operations.
17. Supplementary Information on Oil and Gas Producing Activities
(Unaudited)
The following supplementary information regarding the oil and gas
producing activities of Penn Virginia is presented in accordance
with the requirements of the Securities and Exchange Commission
(SEC) and the SFAS No. 69 "Disclosures about Oil and Gas Producing
Activities". The amounts shown include Penn Virginia's net working
and royalty interests in all of its oil and gas operations.
Capitalized Costs Relating to Oil and Gas Producing Activities
Year Ended December 31,
1999 1998 1997
(in thousands)
Proved properties $41,084 $35,842 $32,491
Unproved properties 3,959 1,408 1,202
Wells, equipment and facilities 137,176 117,688 112,339
Support equipment 2,829 2,620 2,455
185,048 157,558 148,487
Accumulated depreciation and depletion (69,495) (62,545) (56,099)
Net capitalized costs $ 115,553 $ 95,013 $ 92,388
Costs Incurred in Certain Oil and Gas Activities
Year Ended December 31,
1999 1998 1997
(in thousands)
Proved property acquisition costs $14,069 $3,351 $73
Unproved property acquisition costs 2,551 206 90
Exploration costs 3,171 2,022 3,346
Development costs and other 9,398 8,698 10,560
Total costs incurred $ 29,189 $ 14,277 $14,069
Results of Operations for Oil and Gas Producing Activities
The following schedule includes results solely from the
production and sale of oil and gas and a noncash charge for
property impairments. It excludes general and administrative
expenses and gains or losses on property dispositions. The income
tax expense is calculated by applying the statutory tax rates to
the revenues after deducting costs, which include depletion
allowances and giving effect to oil and gas related permanent
differences and tax credits.
Year Ended December 31,
1999 1998 1997
(in thousands)
Revenues $21,847 $20,817 $22,488
Production costs 5,092 4,746 5,425
Exploration costs 1,699 488 1,439
Depreciation and depletion 6,951 6,460 5,920
Impairment of oil and gas properties - 4,641 -
8,105 4,482 9,704
Income tax expense 1,864 1,062 2,807
Results of operations $ 6,241 $ 3,420 $6,897
Oil and Gas Reserves
The following schedule presents the estimated oil and gas
reserves owned by Penn Virginia. This information includes Penn
Virginia's royalty and net working interest share of the reserves
in oil and gas properties. Net proved oil and gas reserves for
the three years ended December 31, 1999 were estimated by Wright
and Company, Inc. All reserves are located in the United States.
There are many uncertainties inherent in estimating proved
reserve quantities, and projecting future production rates and the
timing of future development expenditures. In addition, reserve
estimates of new discoveries are more imprecise than those of
properties with a production history. Accordingly, these estimates
are subject to change as additional information becomes available.
Proved oil and gas reserves are the estimated quantities of crude
oil, condensate and natural gas that geological and engineering
data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and
operating conditions at the end of the respective years. Proved
developed oil and gas reserves are those reserves expected to be
recovered through existing equipment and operating methods.
Net quantities of proved reserves and proved developed reserves
during the periods indicated are set forth in the tables below:
Oil and Natural
Proved Developed and Condensate Gas
Undeveloped Reserves: (MBbls) (MMcf)
December 31, 1996 454 175,448
Revisions of previous estimates 10 (10,538)
Extensions, discoveries and other additions 3 17,848
Production (38) (7,755)
Purchase of reserves - 304
Sale of reserves in place (5) (3,745)
December 31, 1997 424 171,562
Revisions of previous estimates (53) (11,978)
Extensions, discoveries and other additions - 7,885
Production (30) (8,056)
Purchase of reserves - 4,495
Sale of reserves in place - (35)
December 31, 1998 341 163,873
Revisions of previous estimates 31 2,106
Extensions, discoveries and other additions - 4,661
Production (32) (8,679)
Purchase of reserves 19 23,237
December 31, 1999 359 185,198
Proved Developed Reserves:
December 31, 1997 364 110,259
December 31, 1998 313 118,146
December 31, 1999 326 138,283
The following table sets forth the standardized measure of the
discounted future net cash flows attributable to the Company's
proved oil and gas reserves. Future cash inflows were computed by
applying year-end prices of oil and gas to the estimated future
production of proved oil and gas reserves. Natural gas prices were
escalated only where existing contracts contained fixed and
determinable escalation clauses. Contractually provided natural
gas prices in excess of estimated market clearing prices were used
in computing the future cash inflows only if the Company expects
to continue to receive higher prices under legally enforceable
contract terms. Future prices actually received may materially
differ from the estimates in the standardized measure.
Future production and development costs represent the estimated
future expenditures (based on current costs) to be incurred in
developing and producing the proved reserves, assuming
continuation of existing economic conditions. Future income tax
expenses were computed by applying statutory income tax rates to
the difference between pre-tax net cash flows relating to the
Company's proved oil and gas reserves and the tax basis of proved
oil and gas properties. In addition, the effects of statutory
depletion in excess of tax basis, available net operating loss
carryforwards and alternative minimum tax credits were used in
computing future income tax expense. The resulting annual net cash
inflows were then discounted using a 10 percent annual rate.
December 31,
1999 1998 1997
(in thousands)
Future cash inflows $ 505,685 $354,567 $539,781
Future production costs 151,220 123,007 144,129
Future development costs 30,431 26,128 36,537
324,034 205,432 359,115
Future income tax expense 58,068 28,031 70,033
Future net cash flows 265,966 177,401 289,082
10% annual discount for estimated
timing of cash flows 146,703 101,737 169,987
Standardized measure of discounted
future net cash flows $ 119,263 $ 75,664 $ 119,095
Changes in Standardized Measure of Discounted Future Net Cash
Flows
Year Ended December 31,
1999 1998 1997
(in thousands)
Sales of oil and gas, net of
production costs $(16,755) $(16,071) $(17,063)
Net changes in prices and production
costs 32,111 (57,646) (35,686)
Extensions, discoveries and other
additions 4,090 4,906 14,318
Development costs incurred during the
period 5,330 5,289 3,070
Revisions of previous quantity estimates 1,709 (6,735) (9,036)
Purchase of minerals-in-place 20,438 2,896 270
Sale of minerals-in-place - (26) (4,990)
Accretion of discount 8,116 14,059 17,548
Net change in income taxes (11,526) 12,006 701
Other changes 86 (2,109) (3,328)
Net increase (decrease) 43,599 (43,431) (34,196)
Beginning of year 75,664 119,095 153,291
End of year $ 119,263 $ 75,664 $119,095
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10, 11, 12 AND 13 - DIRECTORS AND EXECUTIVE OFFICERS OF THE
COMPANY, EXECUTIVE OFFICERS OF THE COMPANY, EXECUTIVE
COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT, AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except for information concerning executive officers of the
Company included as an unnumbered item in Part 1, in accordance
with General Instruction G(3), reference is hereby made to the
Company's definitive proxy statement to be filed within 120 days
after the end of the fiscal year covered by this report.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) Financial Statements
1. Financial Statements - The financial statements
filed herewith are listed in the Index to Financial
Statements on page 28 of this report.
2. All schedules are omitted because they are not required,
inapplicable or the information is included in the consolidated
financial statements or the notes thereto.
3. Exhibits
(3.1) Articles of Incorporation of the Company.
(3.2) Articles of Amendment of Articles of Incorporation of
the Company.
(3.3) Amended bylaws of the Company.
(4) Rights Agreement dated as of February 11, 1998
between Penn Virginia Corporation and American Stock
Transfer & Trust Company, as Agent (incorporated by
reference to Exhibit 1.1 to the Company's Registration
Statement on Form 8-A filed with Securities and Exchange
Commission on February 20, 1998. (Commission File No. 0-
753)).
(10.1) Amended and restated Credit Agreement dated July 30,
1999 among Penn Virginia Corporation and Chase Bank of Texas
National Association, as Agent and First Union National Bank,
First National Bank of Chicago and PNC Bank National Association.
(10.2) Penn Virginia Corporation and Affiliated
Companies Employees' Stock Ownership Plan, as amended
(incorporated by reference to Exhibit 19 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1986 (Commission File No. 0-753)).
(10.3) Penn Virginia Corporation and Affiliated
Companies' Employees' Retirement/Savings Plan
(incorporated by reference to Exhibit 18(b) to the
Company's Registration Statement on Form S-8 filed with
the Securities and Exchange Commission on May 13, 1991
(Registration No. 33-40430)).
(10.4) The Company has adopted a policy concerning
severance benefits for certain senior officers of the
Company. The description of such policy is incorporated
herein by reference to the description of such policy
contained in the Company's definitive Proxy Statement
dated March 27, 2000.
(10.5) Penn Virginia Corporation 1994 Stock Option
Plan, as amended.
(10.6) Penn Virginia Corporation 1995 Directors'
Stock Option Plan, as amended.
(10.7) Penn Virginia Corporation 1999 Employee Stock
Incentive Plan.
(21) Subsidiaries of the Company.
(23.1) Consent of Arthur Andersen LLP.
(27) Financial Data Schedule. (Exhibit 27 is submitted
as an exhibit only in the electronic format of this
Annual Report on Form 10-K submitted to the Securities
and Exchange Commission.)
(b) Reports on Form 8-K
On October 8, 1999, Penn Virginia Corporation filed
one report on Form 8-K. The report involved an
acquisition on September 24, 1999 and was filed under
"Item 5. Other Events."