Back to GetFilings.com
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, 1998
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 March 5, 1999 was $141,754,832, based on the closing price
of $16.9375 per share. As of that date, 8,369,289 shares of common stock were
issued and outstanding. The number of shareholders of record of the registrant
was 847 as of March 5, 1999.
_____________________________
DOCUMENTS INCORPORATED BY REFERENCE:
Part Into
Which Incorporated
------------------
(1) Proxy Statement for Stockholder Meeting on Part III
May 4, 1999
-1-
Penn Virginia Corporation and Subsidiaries
Part I
1. Business
2. Properties
3. Legal
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 Schedules and Reports on Form 8-K
-2-
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 Appalachian Basin. Its oil and gas operations are
concentrated in western Virginia, southern West Virginia and eastern Kentucky.
The Company had proved reserves of 341,000 barrels of oil and condensate and
163.9 billion cubic feet of natural gas at December 31, 1998.
The Company owned mineral rights to 384.7 million tons of recoverable coal
reserves located in Virginia, West Virginia and Kentucky at December 31, 1998.
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 and land. Financial information concerning the Company's business
segments can be found in Note 14 (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 concentrated in western
Virginia, southern West Virginia and eastern Kentucky. At December 31, 1998,
the Company had 165.9 Bcfe of proved reserves (163.9 Bcf of natural gas)
including 151.0 Bcfe of working interests and 14.9 Bcfe of royalty interests.
Oil and Gas Production
During 1998, 30,000 barrels of oil and condensate and 8.1 Bcf of natural
gas, net to the Company's interest, were produced compared with 38,000 barrels
and 7.8 Bcf in 1997. Prices received by the Company were $11.17 and $17.39
per barrel and $2.54 and $2.81 per Mcf for oil and gas in 1998 and 1997,
respectively.
Exploration and Development
The Company drilled 49.6 net wells in 1998 of which 40.0 were development
and 9.6 were exploratory. A total of 3.5 net wells were dry holes and 1.0 net
exploratory well was being evaluated and tested at year-end. The successful
wells drilled in 1998, including five wells under evaluation at December 31,
1997, contain 14.3 Bcfe of proved reserves.
-3-
Transportation
The Company 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". Penn Virginia completed a by-pass
pipeline in 1998 that reduced the amount of gas gathered by the two primary
providers to 37 percent from 45 percent in 1997. Interruptible gathering
rates have increased in recent 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 will increase from 15.4 cents to 19.4 cents per MMbtu
effective for 1999. CNR's interruptible gathering rates will increase from 26
cents to 27 cents per MMbtu effective February 1, 1999.
Penn Virginia's natural gas production is transported to market primarily
on two major transmission systems. Columbia Gas Transmission and CNG
Transmission transport 63 percent and 31 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.
Marketing
Penn Virginia sold its natural gas using the spot market, commodity
derivative contracts and fixed price physical contracts in 1998. 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 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. Penn Virginia may use
additional contracts to reduce the risk of price fluctuations in 1999 and
beyond. For additional information, see "Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations " Oil and Gas."
Coal and Land Operations
Overview
Penn Virginia owned 135,000 acres of coal and timber bearing land in
Virginia, West Virginia and Kentucky at December 31, 1998.
Coal is mined by several operators according to long-term lease agreements
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's timber assets consist of various hardwoods, primarily red
oak, white oak, yellow poplar and black cherry. The Company owns 203 million
board feet of standing saw timber.
Coal Production
Several operators mined 5.3 million tons of coal from Penn Virginia's
properties in 1998 and paid an average royalty rate of $2.19 per ton compared
with 5.4 million tons mined in 1997 at an average royalty rate of $2.14 per
ton.
-4-
West Virginia
At December 31, 1998, the Company's recoverable coal reserves in West
Virginia were estimated at 91 million tons which produced 0.8 million royalty
tons during 1998. At December 31, 1998, the Company had seven lessees, among
five separate operators, which were actively mining. The Company added a
satellite office in Charleston, West Virginia in late 1997 to increase lessee
participation and search for additional acquisition opportunities.
In 1998, Penn Virginia purchased 4,480 acres of coal and timber property
for $3.3 million. The acquired property contains 9.9 million tons of high
quality metallurgical coal reserves and is contiguous to other properties the
Company owns.
Virginia
At December 31, 1998, the Company's recoverable coal reserves in Virginia
were estimated at 294 million tons. During 1998, operators mined 4.5 million
tons of coal in Virginia and paid an average royalty rate of $2.12 per ton,
compared with 4.1 million tons of coal in 1997 at an average royalty rate of
$2.12 per ton. At December 31, 1998, the Company's Virginia properties had 17
operators actively mining a total of 24 separate lease locations.
In 1998, the Company acquired 5.0 million tons of coal reserves for $3.0
million in a noncash transaction involving the cancellation of a long-term
note receivable.
Timber Production
The Company sold 8.0 million board feet in 1998 for an average price of
$198 per Mbf, compared with 7.9 million board feet at an average price of $206
per Mbf in 1997. The Company's timber resources are managed primarily on a
sustained yield basis using various regeneration and intermediate stand
improvement techniques. The sustained yield essentially allows for the harvest
of an amount equal to the annual growth of timber within the stand. Timber is
also harvested in advance of mining to prevent loss of the resource. 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.
Investments
The Company holds equity investments, primarily in Norfolk Southern
Corporation. In the third quarter of 1997, Norfolk Southern Corporation
declared a three for one stock split and the shares held by the Company
increased from 1,102,400 shares to 3,307,200 shares. The Company received
dividends of $2.6 million in 1998 and 1997 associated with its equity holdings
in Norfolk Southern Corporation.
In the first quarter of 1997, the Company sold 750,000 shares of
Westmoreland Coal Company (Westmoreland) stock. The sale had no significant
effect on 1997 earnings as the Company recorded an impairment of its
investment in Westmoreland stock in 1996.
The fair value of the Company's equity portfolio at December 31, 1998 was
$104.8 million compared with $100.9 million at December 31, 1997. See Note 3
(Investments and Other Income) of the Notes to the Consolidated Financial
Statements for additional information.
-5-
Risks Associated with Business Activities
General
Government Regulations
Penn Virginia's operating segments are 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. 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 1999 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 63 percent and 31 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.
-6-
Coal and Land
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 63 employees at December 31, 1998. The Company considers
its relations with its employees to be good.
-7-
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 51 President and Chief Executive Officer 1996
Steven W. Tholen 48 Vice President and Chief Financial Officer 1995
Keith D. Horton 45 Vice President, Eastern Operations 1996
James O. Idiaquez 51 Vice President, Corporate Development 1998
Nancy M. Snyder 46 Corporate Secretary and General Counsel 1997
Ann N. Horton 40 Principal Accounting Officer and Controller 1995
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 coal and
land management subsidiary. 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.
-8-
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
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
-9-
ITEM 2 - PROPERTIES
Facilities
Penn Virginia Corporation is headquartered in Radnor, Pennsylvania with
additional offices in Duffield, Virginia; Charleston, West Virginia;
Kingsport, Tennessee; and Houston, Texas. The Company believes their 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 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 of or affect
the value of such properties.
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, 1998, 1997 and 1996.
1998 1997 1996
------ ----- -----
Production
Oil and condensate (Mbbls) 30 38 47
Natural gas (MMcf) 8,056 7,755 7,483
Average sales price
Oil and condensate ($/Bbl) $11.17 $17.39 $18.43
Natural gas ($/Mcf) 2.54 2.81 2.84
Production cost
Operating cost per Mcfe $ 0.46 $ 0.42 $ 0.39
Production taxes per Mcfe 0.28 0.26 0.26
----- ------ ------
Total production cost per Mcfe $ 0.74 $ 0.68 $ 0.65
Hedging Summary
Natural gas prices ($/Mcf):
Actual price received for production $ 2.61 $ 2.87 $ 2.82
Effect of hedging activities (.07) (.06) -
----- ------ ------
Average price $ 2.54 $ 2.81 $ 2.82
-10-
Proved Reserves
Penn Virginia had proved reserves of 341,000 barrels of crude oil and
condensate and 163.9 Bcf of natural gas at December 31, 1998. The present
value of the estimated future cash flows discounted at 10 percent (Pre-tax SEC
PV10 Value) at December 31, 1998 was $81 million. At December 31, 1998, the
Company had 263 gross (141 net) proved undeveloped drilling locations.
Natural Pre-tax
Oil and Natural Gas SEC PV10
Condensate Gas Equivalents Value
(Mbbls) (Bcf) (Bcfe) ($MM)
---------- -------- ----------- ---------
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 424 172 173 $141
1996
Developed 390 105 107 $137
Undeveloped 64 70 71 49
---------------------------------------
Total 454 175 178 $186
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 $76 million, $119 million and $153 million at
December 31, 1998, 1997 and 1996, respectively. The weighted average prices
used to determine proved reserves at December 31, 1998, 1997 and 1996 were
($/Bbl) $9.70, $15.50 and $23.25, respectively for oil and condensate and
($/Mcf) $2.14, $3.11 and $3.74, respectively for natural gas.
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 at December 31, 1998 and
1997, were estimated by Wright and Company, Inc. of Brentwood, Tennessee. Net
proved oil and gas reserves as of December 31, 1996 were estimated by the
Company's engineers and reviewed by Williamson Petroleum Consultants, Inc. of
Houston, Texas. 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."
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
-11-
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, 1998. The Company's acreage is concentrated in the
Appalachia Basin, specifically western Virginia, southern West Virginia and
eastern Kentucky.
Gross Acreage Net Acreage
------------- -----------
(in thousands)
Developed 312 160
Undeveloped 190 94
------------------
Total 502 254
Gross Wells Drilled
The following table sets forth the gross 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.
Productive wells means either wells which were producing or which were capable
of commercial production.
1998 1997 1996
------------------
Exploratory
Productive 15 31 10
Dry 1 3 4
Under Evaluation 2 2 -
------------------
Total 18 36 14
1998 1997 1996
------------------
Development
Productive 56 53 50
Dry 3 1 1
------------------
Total 59 54 51
Of the 12 gross wells under evaluation at the end of 1997, 10 were
productive and two remain under evaluation.
-12-
Net Wells Drilled
The following table sets forth the number of net exploratory and
development wells. Net wells equal the number of gross wells multiplied by
Penn Virginia's working interest in each of the gross wells.
1998 1997 1996
-------------------
Exploratory
Productive 8.1 16.0 7.1
Dry 0.5 2.0 3.1
Under Evaluation 1.0 1.0 -
--------------------
Total 9.6 19.0 10.2
1998 1997 1996
-------------------
Development
Productive 37.0 42.0 37.3
Dry 3.0 1.0 1.0
--------------------
Total 40.0 43.0 38.3
Of the 6.0 net wells under evaluation at the end of 1997, 5.0 were
productive and 1.0 remains under evaluation.
Productive Wells
The number of productive oil and gas wells in which Penn Virginia had an
interest at December 31, 1998 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 8 8 7 2 15 10
Gas 710 604 395 59 1,105 663
----- ---- ------ ----- ------ ---
Total 718 612 402 61 1,120 673
-13-
Coal and Land
Penn Virginia's coal reserves and timber assets at December 31, 1998
covered 135,000 acres, including fee acreage, in Virginia, West Virginia and
Kentucky. The coal reserves are in various surface and underground seams.
Penn Virginia's recoverable coal reserves are estimated at 385 million tons
as of December 31, 1998. Recoverable coal reserves mean 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
"recoverable 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, 1998, the
Company owned 203 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.
1998 1997 1996
-----------------------
(in millions)
Beginning of year 379.8 357.6 227.1
Production (5.3) (5.4) (3.4)
Additions, deletions, revisions 10.2 27.6 133.9
-----------------------
End of year 384.7 379.8 357.6
-14-
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 1998.
PART II
ITEM 5 - MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Common Stock Market Prices And Dividends
High and low stock prices and dividends for the last two years were:
1998 1997
-------------------------- -----------------------------
Sales Price Cash Sales Price Cash
---------------- Dividends --------------- Dividends
High Low Paid High Low Paid
- ----------------------------------------------------------------------------
Quarter Ended:
March 31 $29-1/4 $26-7/8 $0.225 $23-3/8 $21-1/2 $0.225
June 30 $30 $25-7/8 $0.225 $25-5/8 $20-3/8 $0.225
September 30 $26-11/32 $21-1/8 $0.225 $31 $23-7/8 $0.225
December 31 $23-1/2 $18-3/8 $0.225 $30-3/4 $26-15/16 $0.225
Stock market prices and dividends for 1997 have been restated to reflect
the two-for-one split of the Company's common stock effective August 15,
1997.
The Company's common stock is traded on the New York Stock Exchange under the
symbol PVA. Prior to September 1997, the Company's common stock was traded on
the NASDAQ under the symbol PVIR.
-15-
ITEM 6 - SELECTED FINANCIAL DATA
Five Year Selected Financial Data
Year Ended December 31, 1998 1997 1996
--------------------------------
(in thousands except per share data)
Revenues $ 38,255 $ 41,404 $ 34,133
Operating income 10,266 18,719 13,212
Net income $ 9,591 $ 16,018 $ 13,040
Per common share:
Net income, basic $ 1.15 $ 1.93 $ 1.51
Net income, diluted 1.13 1.88 1.50
Dividends paid $ 0.90 $ 0.90 $ 0.90
Weighted average shares outstanding 8,310 8,302 8,694
Total assets $256,931 $247,230 $229,514
Long-term debt $ 37,967 $ 31,903 $ 21,233
Stockholders' equity $170,259 $163,704 $160,211
Year Ended December 31, 1995( 1994
(in thousands except per share data)
Revenues $ 38,890 $ 33,711
Operating income 5,855 10,712
Net income $ 10,084 $ 13,501
Per common share:
Net income, basic $ 1.18 $ 1.58
Net income, diluted 1.18 1.58
Dividends paid $ 0.90 $ 1.00
Weighted average shares outstanding 8,538 8,560
Total assets $206,001 $199,259
Long-term debt $ 12,700 $ 9,250
Stockholders' equity $147,357 $137,446
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.
Earnings per share data have been restated for all periods presented to
give effect for the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 128 "Earnings Per Share."
-16-
SUMMARIZED QUARTERLY FINANCIAL DATA
Quarterly financial data for 1998 and 1997 were as follows:
1998
------
Quarters Ended
---------------
(in thousands, except per share data)
Mar.31 June 30 Sept.30 Dec. 31
Revenues $9,064 $9,978 $9,798 $9,415
Operating
Income (loss) 3,760 4,266 4,335 (2,095)
Net income (loss) $3,152 $3,666 $3,442 $ (669)
Net income
per share,
basic $ 0.38 $ 0.44 $ 0.41 $(0.08)
Net income
per share,
diluted $ 0.37 $ 0.43 $ 0.41 $(0.08)
Weighted average
shares outstanding 8,278 8,291 8,308 8,354
Quarterly financial data for 1998 and 1997 were as follows:
1997
Quarters Ended
(in thousands, except per share data)
Mar. 31 June 30 Sept. 30 Dec. 31
Revenues $10,250 $9,413 $8,754 $12,987
Operating
Income (loss) 5,470 3,786 3,564 5,899
Net income (loss) $ 4,726 $3,145 $3,089 $ 5,058
Net income
per share,
basic $ 0.55 $ 0.38 $ 0.36 $ 0.61
Net income
per share,
diluted $ 0.55 $ 0.37 $ 0.35 $ 0.59
Weighted average
shares outstanding 8,620 8,270 8,274 8,274
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.
The sum of the quarters may not equal the total of the respective years
net income per share due to changes in the weighted average shares
outstanding throughout the year.
Earnings per share data have been restated for all periods presented to
give effect for the adoption of SFAS No. 128 "Earnings Per Share."
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).
-17-
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 1998 was $9.6 million with operating income
of $10.3 million. The comparable 1997 results were net income of $16.0
million and operating income of $18.7 million. 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). Additionally, a $2.0 million
gain on the sale of oil and gas properties was included in 1997 revenues.
During 1998, Penn Virginia took steps to strengthen its competitive posture
which included streamlining management, opening an office in Houston, Texas,
and increasing its asset base. These improvements coupled with the Company's
strong financial position could provide numerous opportunities.
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 1998 by drilling
77 gross (49.6 net) wells. The successful wells, including wells under
evaluation at the end of 1997, resulted in the addition of 14.3 Bcfe of proved
developed producing reserves, replacing 174 percent of 1998 production. In
1998, Penn Virginia produced a record 8.2 Bcfe of oil and natural gas, which
was a marginal increase over 1997.
The Company acquired 4.5 Bcfe of proved oil and natural gas reserves for
$3.4 million in 1998. In addition, 14,000 net acres were added to the
Company's lease position as part of its program to add additional drilling
locations and exploratory opportunities.
Coal production from the properties owned by Penn Virginia remained
relatively constant at 5.3 million tons in 1998, despite production being lost
due to a lost sales contract by a lessee, unexpected financial difficulties by
a lessee, which have been resolved, and some unusually long permitting delays.
In 1998, Penn Virginia acquired a strategically important block of high
quality, recoverable coal and other assets for $3.0 million. The newly
acquired tract is contiguous to the Company's river-based Bull Creek property
and the two together are referred to as the Coal River properties.
Penn Virginia expended $3.2 million in 1998 to build a unit train loadout
facility, which is expected to be completed in March 1999. The facility will
accommodate 100 rail car unit trains which can be loaded in approximately four
hours, thus generating substantial savings for two of the Company's lessees
due to increased efficiency. The capability to load large trains rapidly is
important to the Company's Virginia lessees in terms of their ability to
compete. The Company intends to lease the facility to a third party operator
and receive a throughput fee for use of the loadout.
-18-
Goals and Strategy
Penn Virginia's primary goal is to increase shareholder wealth. The Company
intends to grow but only if such growth results in adding real economic value.
The Company believes growth in economic value will ultimately be reflected in
the price of its stock. The components of a value-added strategy include
growth, margin management, value enhancement, and divestiture. Penn Virginia
intends to increase reserves, production, and value over a commodity price
cycle. Managing margins includes mitigating the low points of a price cycle
through hedging and an aggressive management of costs primarily through an
emphasis on improvements in productivity. Value enhancement activities include
pursuing competitive advantages that increase the value of existing assets and
improve the opportunities to make successful acquisitions. Finally, selective
divestiture of declining or non-strategic assets and redeployment of the capital
resources is an important part of the Company's management of its long-term
asset portfolio.
Penn Virginia's long-term oil and gas strategy is to add to its base of
proved reserves through a combination of low-risk development drilling,
moderate-risk exploratory drilling and property acquisitions. The Company
targets acquisition candidates with significant development and exploration
opportunities and/or the potential to consolidate operations, reduce operating
costs per unit of production as well as accelerate cash flow.
To facilitate its strategy and based on the current industry environment,
the Company opened an office in Houston, Texas during the fourth quarter of
1998 with the primary goal of acquiring oil and gas properties outside the
Appalachia Basin. Expanding its oil and gas business outside of Appalachia is
part of the Company's long-term plan and recently, quality acquisition
opportunities have become available at prices which the Company believes will
enable it to execute its value-adding strategy.
The Houston office is staffed with two experienced oil and gas
acquisition professionals. Currently, the Company is searching for
acquisitions which have characteristics of being predominately natural gas,
stacked pay targets with upside exploration, exploitation and development
potential primarily in the onshore Gulf Coast, Arkoma, east Texas and Anadarko
basins.
Penn Virginia's coal and land strategy is to maximize coal production from
its properties for the long term by leasing reserves to a diversified mix of
quality operators. Timber production is coordinated to facilitate coal mining
activities. The Company is continuing to search for beneficial coal and land
asset acquisitions.
Penn Virginia's investment in Norfolk Southern Corporation is considered an
important financial asset but not a strategic asset.
-19-
Results of Operations
Consolidated Net Income
Penn Virginia's 1998 net income was $9.6 million, compared with $16.0
million in 1997 and $13.0 million in 1996. 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.
Income before income taxes in 1996 includes a $3.3 million loss from the
sale of the Company's investment in Westmoreland Coal Company common stock and
$0.6 million gain for the settlement of the abrogation of natural gas sales
contracts by Columbia Energy Company.
Selected Financial Data
1998 1997 1996
------ ------ ------
(in millions, except share data)
Revenues $ 38.3 $ 41.4 $ 34.1
Operating costs and expenses 28.0 22.7 20.9
Operating income 10.3 18.7 13.2
Net income 9.6 16.0 13.0
Earnings per share, basic 1.15 1.93 1.51
Earnings per share, diluted 1.13 1.88 1.50
-20-
Oil and Gas
The oil and gas segment explores for, develops and produces crude oil and
natural gas in western Virginia, southern West Virginia and eastern Kentucky.
The Company also owns mineral rights to oil and gas reserves.
Selected Financial and Operating Data
1998 1997 1996
-------------------------------
(in millions, except as noted)
Revenues
Oil and condensate $ 0.3 $ 0.7 $ 0.9
Natural gas sales 18.9 20.2 19.3
Royalty income 1.6 1.6 1.1
Gain on the sale of property - 2.0 -
Other 0.3 0.4 1.1
----------------------------
Total Revenues 21.1 24.9 23.1
Expenses
Lease operating expenses 3.8 3.4 3.1
Exploration expenses 0.5 1.4 0.4
Taxes other than income 2.3 2.1 2.0
General and administrative 3.2 2.7 2.7
----------------------------
Operating Expenses 9.8 9.6 8.2
Depreciation, depletion and amortization 6.4 5.9 6.6
Impairment of properties 4.6 - -
----------------------------
Total Expenses 20.8 15.5 14.8
----------------------------
Operating Income (Loss) $ 0.3 $ 9.4 $ 8.3
Production
Oil and condensate (MBbls) 30 38 47
Natural gas (Bcf) 7.4 7.2 6.8
Royalty natural gas (Bcf) 0.6 0.6 0.7
Prices
Oil and condensate ($/Bbl) $ 11.17 $ 17.39 $ 18.43
Natural gas ($/Mcf) 2.55 2.81 2.84
Royalty natural gas ($/Mcf) 2.45 2.89 2.66
Hedging Summary
Natural gas prices ($/Mcf):
Actual price received for production $ 2.61 $ 2.87 $ 2.82
Effect of hedging activities (.07) (.06) -
-----------------------------
Average price $ 2.54 $ 2.81 $ 2.82
The oil and gas segment had operating income of $0.3 million in 1998
compared with $9.4 million in 1997 and $8.3 million in 1996.
Revenues. 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
-21-
three percent increase in production. Additionally, a $2.0 million gain on the
sale of oil and gas properties was included in 1997 revenues.
Oil and gas revenues increased $1.8 million, or eight percent, from 1996 to
1997 primarily due to the $2.0 million gain on the sale of oil and gas
properties in 1997. The Company received an average of $2.81 per Mcf for its
working interest gas in 1997 compared with $2.84 per Mcf in 1996.
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 $0.5 million
in 1998 and 1997 on hedging activities. The Company had no comparable hedging
activities in 1996.
Operating expenses. Oil and gas operating expenses increased $0.2 million,
or two percent, in 1998. In the fourth quarter of 1998, the Company's
management approved a plan to reduce administrative and operational overhead
costs in its oil and gas subsidiary. 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 penalty. As of February 28, 1999, the Company had paid out $0.1
relating to severance and expects all remaining costs to be paid out by June
30, 1999. 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 increases were offset by a $0.9
million decline in exploration expenses due to a reduction in dry hole costs
and other preliminary field costs incurred by the Company in 1997.
Exploration expenses were the primary factor for the $1.4 million increase
in 1997, compared with 1996, due to dry hole costs for five exploratory wells
in 1997 relating to the Company's aggressive drilling program.
Depreciation, depletion and amortization. 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.
Depreciation, depletion and amortization was $5.9 million in 1997,
representing a decrease of $0.7 million from the 1996 amount of $6.6 million.
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.
-22-
Coal and Land
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
1998 1997 1996
---------------------------
(in millions except as noted)
Revenues
Coal royalties $ 11.5 $ 11.6 $ 7.0
Timber 1.7 1.8 0.8
Gain on the sale of property 0.1 0.1 -
Other 1.2 0.4 0.4
------------------------
Total Revenues 14.5 13.9 8.2
Expenses
Operating costs 0.2 0.3 0.1
Exploration expenses 0.5 0.3 0.4
Taxes other than income 0.4 0.3 0.3
General and administrative 2.2 1.8 1.5
------------------------
Operating Expenses 3.3 2.7 2.3
Depreciation, depletion and amortization 0.6 0.5 0.2
------------------------
Total Expenses 3.9 3.2 2.5
------------------------
Operating Income $ 10.6 $ 10.7 $ 5.7
------------------------
Production
Royalty coal tons produced (millions) 5.3 5.4 3.4
Timber sales (millions of board feet) 8.0 7.9 4.0
Prices
Royalty per ton of coal produced $ 2.19 $ 2.14 $ 2.07
Timber sales price per Mbf $ 198 $ 206 $ 183
Revenues. Revenues for the coal and land segment were $14.5 million in
1998, $13.9 million in 1997 and $8.2 million in 1996, representing a four
percent increase from 1997 to 1998 and 70 percent increase from 1996 to 1997.
The $0.6 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 which was recognized in other operating income. The Company, from
time to time, receives restitution for circumstances that inhibit mining
reserves in a certain location.
The increase of 70 percent from 1996 to 1997 was, in part, a result of new
leases on the Company's Wise property (primarily the Virginia acreage formerly
leased to Westmoreland Coal Company). These additional leases were signed in
1996 and early 1997 and produced an additional 935,000 tons from this
property. In early 1997, the Company also acquired additional coal reserves,
which provided royalties on an additional 881,000 tons in 1997.
-23-
Operating expenses. Coal and land operating expenses increased 22 percent
in 1998 to $3.3 million, compared with $2.7 million in 1997 and $2.3 million
in 1996. The $0.6 million increase from 1997 to 1998 primarily resulted
from a $0.4 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, unexpected legal costs were incurred during
1998 to protect the Company's interests relating to a lease termination by a
lessee and a lessee bankruptcy.
The $0.4 million increase from 1996 to 1997 was attributable to an
additional $0.3 million incurred in general and administrative expense
necessitated from the segment's growth.
Corporate and Other
Dividends. Dividend income of $2.6 million in 1998 remained constant,
compared with $2.6 million in 1997 and $2.8 million in 1996. Penn Virginia's
holdings primarily consist of 3,307,200 (1997 post-split) shares of Norfolk
Southern Corporation.
Impairment of investment. In the fourth quarter of 1996, the Company sold
598,600 shares of its Westmoreland Coal Company common stock to various
purchasers. In December 1996, Westmoreland Coal Company filed for Chapter 11
bankruptcy causing Penn Virginia to write down its investment in the remaining
755,811 shares held at year-end resulting in a $1.9 million charge.
Proved Reserves
Oil and Gas. Penn Virginia added 14.3 Bcfe of proved developed oil and gas
reserves from its 77 gross (49.6 net) well drilling program in 1998. The
drilling program replaced 174 percent of 1998 production at a finding and
development cost of $0.76 per Mcfe of proved developed reserves. During the
last four years, the Company's drilling program has replaced 164 percent of
production with proved developed reserves at a weighted average finding and
development cost of $0.92 per Mcfe.
The Company acquired 4.5 Bcfe of proved oil and gas reserves (3.7 Bcfe of
proved developed reserves) during 1998 for $3.4 million. The acquisition cost
was $0.76 per proved Mcfe or $0.92 per proved developed Mcfe. Approximately
2.2 Bcfe of the proved reserves acquired were royalty interests.
Penn Virginia's total proved reserves at year-end 1998 declined 8.2 Bcfe to
165.9 Bcfe primarily due to the decline in prices for oil and natural gas.
Without the price-related declines, proved reserves would have been up 5.2
Bcfe to 179.3 Bcfe. Proved developed reserves increased 7.6 Bcfe to 120.0
Bcfe. Proved undeveloped reserves declined 15.8 Bcfe to 45.9 Bcfe. Proved
undeveloped reserves of 7.9 Bcfe were drilled and converted to proved
developed reserves during 1998. At year-end 1998, proved developed reserves
comprised 72 percent of the Company's total proved reserves, compared with 65
percent at year-end 1997. The Company has 141 net proved undeveloped drilling
locations at year-end 1998, compared with 206 locations at year-end 1997.
Coal Land Management. Penn Virginia's recoverable coal reserves were 385
million tons at year end 1998, compared with 380 million tons at year-end
1997. The Company purchased 15 millon tons of coal reserves during 1998.
Recoverable coal reserves means coal that is economically mineable
using existing equipment and methods under federal and state laws now in
effect. Approximately 65 percent of the Company's high quality metallurgical
coal reserves are classified as post year 2000 compliance or near-compliance
coals.
-24-
Market Risk
Marketable Equity Securities. At December 31, 1998, the Company's
marketable equity securities, consisting primarily of Norfolk Southern
Corporation, were recorded at their fair value of $104.8 million, including
net unrealized gains of $102.0 million. The fair value of the Company's
marketable equity securities is significantly affected by market price
fluctuations. See Note 3 of the Notes to Consolidated Financial Statements.
Interest Rate Risk. The carrying value of Penn Virginia's debt
approximates fair value. At December 31, 1998, the Company had $38.0 million
of long-term debt, primarily represented by an unsecured revolving credit
facility (the "Revolver") totaling $37.1 million. The Revolver matures in
August 2000 and interest is calculated at a floating-rate based on current
market rates. The Revolver bears interest at LIBOR, CD rate or the base rate
at the option of the Company, plus a percentage based on the percentage of the
borrowing base outstanding. As a result, the Company's 1999 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 agreements 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 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.
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 41 percent of its 1998
production and recognized an opportunity cost of $0.5 million, which offset
oil and gas revenues. To date, the Company has not hedged crude oil prices.
The Company will constantly review and may alter its hedged positions.
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 $19.2 million in 1998, compared with $19.7 million in 1997 and
$18.5 million in 1996. The Company's consolidated cash balance decreased to
$0.2 million in 1998 from $0.8 million in 1997.
-25-
Cash flows from Investing Activities
The Company used $18.3 million in investing activities in 1998, compared
with $15.8 million in 1997 and $20.0 million in 1996. Capital expenditures,
including acquisitions and noncash items, totaled $23.6 million, compared with
$23.2 million in 1997 and $29.2 million in 1996. During 1998, the Company
successfully completed a $3.0 million noncash repurchase of coal reserves
previously sold to an operator under an installment sale. The following table
sets forth capital expenditures, including acquisitions and noncash items,
made by the Company during the periods indicated.
Year ended December 31,
1998 1997 1996
---- ---- ----
(in thousands)
Oil and gas
Acquisitions $ 3,557 $ 163 $ 439
Development 8,527 10,446 7,173
Exploration 1,534 3,061 2,337
Support equipment and facilities 171 114 132
Coal and land
Acquisitions 6,260 9,203 19,015
Support equipment and facilities 3,532 199 60
Other 42 6 62
------- ------- -------
Total capital expenditures $23,623 $23,192 $29,218
======= ======= =======
The Company drilled 37.0 net successful development wells, 8.1 net
successful exploratory wells and 3.5 net dry holes in 1998 compared with 42.0
net successful development wells, 11.0 exploratory wells and 3.0 net dry holes
in 1997. In addition, the Company drilled 1.0 and 6.0 net exploratory wells,
which were being evaluated and tested at year end 1998 and 1997, respectively.
Of the 6.0 net wells under evaluation at the end of 1997, 5.0 were productive
and 1.0 remains under evaluation.
In 1998, the coal and land segment acquired 9.9 million tons of high
quality metallurgical coal reserves for cash. Additionally, the Company
acquired 5.0 million tons of coal reserves in a noncash transaction involving
the cancellation of a long-term note receivable. The coal and land segment
expended $3.2 million in 1998 relating to a unit train loadout facility,
which is expected to be completed by the end of March 1999. The loadout will
permit unit trains to load numerous cars of coal in a limited time frame,
thus generating substantial savings due to increased efficiency. The Company
intends to lease the facility to a third party operator and receive a
throughput fee for use of the loadout.
Capital expenditures before lease and proved property acquisitions for 1999
are expected to be $11 to $13 million including $10 to $12 million for the oil
and gas segment and $1.0 million for the coal and land segment. The Company
plans to drill approximately 30 to 40 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 coal acquisitions as well as oil and
gas acquisitions both in its traditional area of interest, Appalachia, 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 outside of Appalachia. With its 18 percent debt to
capitalization ratio at December 31, 1998, the Company has the ability to
increase debt to fund potential acquisitions. In addition, the Company has
3.3 million shares of Norfolk Southern Corporation common stock, which had a
pre-tax value at year-end 1998 of $104.8 million, which can be used to fund
acquisitions.
In 1998, the Company received payments on long-term coal notes of $2.3
million and $0.1 million from the sale of oil and gas properties.
-26-
Management believes its cash flow from operations, portfolio of investments
and sources of debt financing are sufficient to fund its 1999 planned capital
expenditure program.
Cash flows from Financing Activities
Net cash provided (used) by financing activities was $(1.5) million in 1998
compared with $(5.0) million in 1997 and $0.4 million in 1996.
Penn Virginia had additional debt capacity of $37.9 million at December 31,
1998 under a committed revolving credit facility (the "Revolver") with a group
of major U.S. banks. 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 $37.1 million and $31.0 million at December 31,
1998 and 1997, 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. Beginning in the year
2000, these systems will require modification to recognize a calendar year by
four digits.
Accordingly, the Company continues to investigate the extent to which its
currently installed information technology and non-information technology
systems will be affected by what is commonly known as the "Year 2000" problem
and is implementing a plan to take reasonable steps to prevent its mission
critical functions from being impaired by the Year 2000 problem. The phrase
"computer equipment and software" includes what is commonly considered
technology systems, including accounting, data processing, telephones and
other systems. Non-information technology systems include alarm systems,
metering devices, monitors for field operation and other systems. The Company
is utilizing resources to test, reprogram, modify and/or replace both systems,
as necessary. Evaluation, testing and replacement should be completed by July
1999.
The Company has also been inquiring and has received verbal or written
assurances from the vast majority of its providers as to their progress in
addressing Year 2000 issues and that such providers expect to be year 2000
compliant in all material respects. The Company expects to complete
communications with remaining providers by July 1999.
Based on information known at this time, the Company expects to be Year
2000 compliant in all material respects in a timely manner and does not
believe that Year 2000 compliance will have a material adverse effect on the
Company. The total costs for the Year 2000 compliance review, evaluation,
assessment and remediation efforts are not expected to be in excess of
$100,000. Of this amount, less than $10,000 has been incurred through
December 31, 1998.
The Company is in the initial stages of developing a Year 2000 contingency
plan. The Company believes a more comprehensive and effective contingency
plan will be developed once potential concerns are evaluated and risk has been
fully assessed. The contingency plan, which is to be completed by October
1999, will place the majority of its emphasis on primary concerns that would
inhibit operations or record keeping.
The costs of Year 2000 compliance and the dates on which the Company plans
to complete modifications and replacements are based on management's best
estimates, which were derived utilizing numerous assumptions of future events
including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ materially
from those plans.
-27-
Accounting for Derivative Instruments and Hedging Activities. In June
1998, the Financial Accounting Standards Board 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.
SFAS No. 133 is effective as of the beginning of fiscal years ending after
June 15, 1999 with earlier application allowed as of the beginning of any
quarter beginning after issuance. Penn Virginia intends to adopt SFAS No. 133
in the last half of 1999 and, under present conditions, 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.
-28-
Important factors that could cause the actual results of operations or
financial condition of Penn Virginia to differ include, but are not
necessarily limited to: the cost of finding and successfully developing oil
and gas reserves; the cost of finding new coal reserves; the ability to
acquire new oil and gas and coal reserves on satisfactory terms; the price for
which such reserves can be sold; the volatility of commodity prices for oil
and gas and coal; the risks associated with having or not having price risk
management programs; Penn Virginia's ability to lease new and existing coal
reserves; the ability of Penn Virginia's lessees to produce sufficient
quantities of coal on an economic basis from Penn Virginia's reserves; the
ability of lessees to obtain favorable contracts for coal produced from Penn
Virginia reserves; Penn Virginia's ability to obtain adequate pipeline
transportation capacity for its oil and gas production; competition among
producers in the coal and oil and gas industries generally and in the
Appalachian Basin in particular; the extent to which the amount and quality of
actual production differs from estimated recoverable coal reserves and proved
oil and gas reserves; unanticipated geological problems; availability of
required materials and equipment; the occurrence of unusual weather or
operating conditions including force majeure 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
publicly review or update any particular forward-looking statement, whether as
a result of new information, future events or otherwise.
-29-
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 24, 1999 By: /S/ Steven W. Tholen
_________________________________
(Steven W. Tholen, Vice President
and Chief Financial Officer)
March 24, 1999 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/ Lennox K. Black Chairman of the Board March 24, 1999
______________________________ and Director
(Lennox K. Black)
/S/ Richard A. Bachmann Director March 24, 1999
______________________________
(Richard A. Bachmann)
/S/ John D. Cadigan Director March 24, 1999
______________________________
(John D. Cadigan)
/S/ A. James Dearlove Director and March 24, 1999
______________________________ Chief Executive Officer
(A. James Dearlove)
/S/ Robert Garrett Director March 24, 1999
_____________________________
(Robert Garrett)
/S/ Peter B. Lilly Director March 24, 1999
_____________________________
(Peter B. Lilly)
/S/ Marsha R. Perelman Director March 24, 1999
_____________________________
(Marsha R. Perelman)
/S/ Joe T. Rye Director March 24, 1999
_____________________________
(Joe T. Rye)
/S/ John A. H. Shober Director March 19, 1999
_____________________________
(John A. H. Shober)
/S/ Frederick C. Witsell, Jr. Director March 24, 1999
_____________________________
(Frederick C. Witsell, Jr.)
-30-
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Penn Virginia Corporation and Subsidiaries
Index to Financial Section
Management's Report on Financial Information 32
Reports of Independent Public Accountants 33
Financial Statements and Supplementary Data 34
-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
-32-
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Penn Virginia Corporation:
We have audited the accompanying consolidated balance sheets of Penn
Virginia Corporation (a Virginia corporation) and subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatements. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Houston, Texas
February 28, 1999
-33-
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1998 1997 1996
---- ---- ----
(in thousands, except share data)
Revenues
Oil and condensate $ 335 $ 661 $ 866
Natural gas 18,899 20,179 19,347
Natural gas royalties 1,583 1,648 1,776
Coal royalties 11,548 11,617 7,009
Timber 1,711 1,765 810
Dividends 2,646 2,646 2,750
Gain on the sale of property 72 1,983 29
Other 1,461 905 1,546
------- ------- -------
38,255 41,404 34,133
Expenses:
Operating expenses 3,968 3,703 3,194
Exploration expenses 1,189 1,753 805
Taxes other than income 2,788 2,431 2,443
General and administrative 8,234 8,240 7,637
Loss on the sale of property 7 9 11
Impairment of oil and gas properties 4,641 - -
Depreciation, depletion and amortization 7,162 6,549 6,831
------ ------- -------
27,989 22,685 20,921
Operating Income 10,266 18,719 13,212
Other (income) expense:
Interest expense 2,017 2,317 1,389
Interest income (3,421) (3,534) (3,957)
Impairment of investment - - 1,917
(Gain) loss on sale of securities (14) (50) 1,405
Other (269) (301) (1,633)
-------- ------- --------
Income from operations before income taxes 11,953 20,287 14,091
Income tax expense 2,362 4,269 1,051
------- ------- -------
Net Income $ 9,591 $16,018 $13,040
======= ======= =======
Net income per share, basic $ 1.15 $ 1.93 $ 1.51
Net income per share, diluted $ 1.13 $ 1.88 $ 1.50
Weighted average shares outstanding 8,310 8,302 8,634
The accompanying notes are an integral part of these consolidated financial
statements.
-34-
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1998 1997
----- ----
(in thousands, except share data)
Assets
Current assets
Cash and cash equivalents $ 225 $ 831
Accounts receivable 5,682 7,404
Current portion of long-term notes receivable 364 2,414
Current deferred income taxes 577 696
Other 680 544
-------- --------
Total current assets 7,528 11,889
Investments (Note 3) 104,819 100,885
Long-term notes receivable (Note 4) 3,079 4,195
Oil and gas properties, wells and equipment,
using the successful efforts method of
accounting 157,558 148,487
Other property, plant and equipment 52,455 42,626
Less: Accumulated depreciation, depletion
and amortization 68,745 61,677
-------- --------
Total property, plant and equipment (Note 5) 141,268 129,436
Other assets 237 825
-------- --------
Total assets $256,931 $247,230
======== ========
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt (Note 6) $ 31 $ 2,025
Accounts payable 1,397 1,828
Accrued expenses 5,039 5,885
Deferred income - 279
Taxes on income 576 144
-------- --------
Total current liabilities 7,043 10,161
Other liabilities (Note 10) 2,875 4,822
Deferred income taxes 38,787 36,640
Long-term debt (Note 6) 37,967 31,903
-------- --------
Total liabilities 86,672 83,526
Commitments and contingencies
Shareholders' equity
Preferred stock of $100 par value -
Authorized 100,000 shares; issued none - -
Common stock of $6.25 par value -
Authorized 16,000,000 shares; issued
8,921,866 shares in 1998 and 8,901,434
in 1997 55,762 55,634
Other paid-in-capital 8,441 8,431
Retained earnings 53,924 51,813
Accumulated other comprehensive income 65,985 63,500
-------- --------
184,112 179,378
Less: 555,050 shares in 1998 and 627,108 in 1997
of common stock held in treasury, at cost 12,403 14,024
Unearned compensation - ESOP 1,450 1,650
-------- --------
Total shareholders' equity 170,259 163,704
-------- --------
Total liabilities and shareholders' equity $256,931 $247,230
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
-35-
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
Other
Shares Common Paid-in
Outstanding Stock Capital
------------ ------ -------
Balance at December 31, 1995 4,262,240 $27,734 $35,858
Dividends paid - - -
Contribution to ESOP 58,824 - -
Exercise of stock options 20,176 83 266
Allocation of ESOP shares - - 14
Net income - - -
Other comprehensive income,
net of tax - - -
--------- -------- --------
Balance at December 31, 1996 4,341,240 27,817 36,138
Two-for-one common stock split 4,341,240 27,817 (27,817)
Dividends paid - - -
Exercise of stock options 12,464 - 9
Purchase of treasury stock (420,618) - -
Allocation of ESOP shares - - 101
Net income - - -
Other comprehensive income,
net of tax - - -
--------- -------- --------
Balance at December 31, 1997 8,274,326 55,634 8,431
Dividends paid - - -
Stock issued as compensation 5,357 - 26
Exercise of stock options 87,133 128 (114)
Allocation of ESOP shares - - 98
Net income - - -
Other comprehensive income,
net of tax - - -
--------- -------- --------
Balance at December 31, 1998 8,366,816 $55,762 $ 8,441
========= ======= =========
Accumulated
Other
Retained Comprehensive Treasury
Earnings Income Stock
-------- ------------- ---------
Balance at December 31, 1995 $37,978 $53,715 $ (7,928)
Dividends paid (7,778) - -
Contribution to ESOP - - 2,661
Exercise of stock options - - (308)
Allocation of ESOP shares - - -
Net income 13,040 - -
Other comprehensive income,
net of tax - 6,726 -
------- -------- --------
Balance at December 31, 1996 43,240 60,441 (5,575)
Two-for-one common stock split - - -
Dividends paid (7,445) - -
Exercise of stock options - - 279
Purchase of treasury stock - - (8,728)
Allocation of ESOP shares - - -
Net income 16,018 - -
Other comprehensive income,
net of tax - 3,059 -
------- -------- --------
Balance at December 31, 1997 51,813 63,500 (14,024)
Dividends paid (7,480) - -
Stock issued as compensation - - 120
Exercise of stock options - - 1,501
Allocation of ESOP shares - - -
Net income 9,591 - -
Other comprehensive income,
net of tax - 2,485 -
------- -------- --------
Balance at December 31, 1998 $53,924 $ 65,985 $ (12,403)
======= ======== =========
Unearned Total
Compensation Stockholders' Comprehensive
ESOP Equity Income
------------ ------------- -------------
Balance at December 31, 1995 $ - $147,357
Dividends paid - (7,778)
Contribution to ESOP (2,000) 661
Exercise of stock options - 41
Allocation of ESOP shares 150 164
Net income - 13,040 $ 13,040
Other comprehensive income,
net of tax - 6,726 6,726
------- -------- --------
Balance at December 31, 1996 (1,850) 160,211 $ 19,766
========
Two-for-one common stock split - -
Dividends paid - (7,445)
Exercise of stock options - 288
Purchase of treasury stock - (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 December 31, 1997 (1,650) 163,704 $ 19,077
========
Dividends paid - (7,480)
Stock issued as compensation - 146
Exercise of stock options - 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 December 31, 1998 $ (1,450) $170,259 $ 12,076
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
-36-
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1998 1997 1996
---- ---- ----
(in thousands)
Cash flows from operating activities:
Net income $9,591 $16,018 $13,040
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation, depletion and amortization 7,162 6,549 6,831
Impairment of oil and gas properties 4,641 - -
Impairment of investment - - 1,917
(Gain) loss on the sale of securities (14) (50) 1,405
Gain on the sale of property, plant and equipment (65) (1,983) (18)
Deferred income taxes 923 2,169 (369)
Dry hole expense 58 949 16
Interest income (3,336) (2,833) (3,957)
Other 597 175 176
------- ------- -------
19,557 20,994 19,041
Changes in operating assets and liabilities:
Accounts receivable 1,721 (2,548) (932)
Other current assets (136) (116) 2,157
Accounts payable and accrued expenses (1,277) 358 591
Deferred income (279) - (260)
Taxes on income 432 136 (350)
Other assets and liabilities and investments (781) 881 (1,765)
------- ------- -------
Net cash flows provided by operating
activities 19,237 19,705 18,482
------- ------- -------
Cash flows from investing activities:
Proceeds from the sale of securities 17 - 3,448
Proceeds from the sale of property,
plant and equipment 79 3,957 190
Payments received on long-term notes receivable 2,253 3,456 5,621
Producing properties acquired (3,351) (82) (250)
Lease acquisitions (3,512) (9,284) (19,204)
Capital expenditures (13,806) (13,826) (9,764)
------- ------- ------
Net cash flows used in investing activities (18,320) (15,779) (19,959)
------- ------- -------
Cash flows from financing activities:
Dividends paid (7,480) (7,445) (7,778)
Proceeds from long-term borrowings 9,100 19,513 24,128
Repayment of long-term borrowings (5,100) (8,917) (16,625)
Purchases of treasury stock - (8,728) -
Issuance of stock 1,957 589 652
------- ------- ------
Net cash flows provided by (used in)
financing activities (1,523) (4,988) 377
------- ------- ------
Net decrease in cash and cash equivalents (606) (1,062) (1,100)
Cash and cash equivalents - beginning of year 831 1,893 2,993
------- ------- ------
Cash and cash equivalents - end of year $ 225 $ 831 $ 1,893
======= ======= =======
Supplemental disclosures:
Cash paid during the year for:
Interest $ 2,065 $ 2,243 $ 1,449
Income taxes $ 1,100 $ 930 $ 2,468
Noncash investing activities:
Note receivable exchanged for:
Other property, plant and equipment $ 2,954 $ - $ -
Deferred revenue $ 1,296 $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
-37-
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Operations
Penn Virginia Corporation ("Penn Virginia" or the "Company") is an
Appalachia energy company. Penn Virginia explores for, develops and produces
crude oil, condensate and natural gas in western Virginia, southern West
Virginia and eastern Kentucky.
The Company owns the land and mineral rights to recoverable coal reserves
and timber located in Virginia, West Virginia and Kentucky. The coal reserves
are leased to various operators who mine and market the coal. Penn Virginia
collects royalties based on the 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 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.
Stock Split
On July 22, 1997, the Board of Directors declared a two-for-one stock split
on the Company's common stock effected in the form of a stock dividend to
holders of record on August 1, 1997. All weighted average share and per
share data have been restated to reflect the stock split, except where noted.
New Accounting Standards
In 1998, the Company adopted Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which established
standards for reporting and disclosing information about operating segments of
an enterprise. The adoption of this statement did not change the operating
segments the Company formerly disclosed under SFAS No. 14 "Financial Reporting
of Segments of a Business Enterprise."
In 1998, the Company adopted SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS No. 132 revised standards
for disclosing information relating to SFAS No. 87, "Employers' Accounting for
Pensions" and SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." The adoption of this statement did not have an effect
on the Company's financial position or results of operations.
In June 1998, the FASB issued 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
-38-
unrecognized firm commitment, an available-for-sale security, or a foreign
currency denominated forecasted transaction.
SFAS No. 133 is effective as of the beginning of fiscal years ending after
June 15, 1999 with earlier application allowed. Penn Virginia intends to
adopt SFAS No. 133 in 2000 and, under present conditions, 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 leaseholds costs are amortized over the average
holding period of five years. In addition, certain 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.
-39-
Other Property, Plant and Equipment
Property, plant and equipment are carried at cost and include expenditures
for new facilities and for improvements which substantially increase the
productive lives of existing plant and equipment. Maintenance and repair costs
are expensed as incurred. Depreciation of plant 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 recoverable 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 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, utilizing a risk-adjusted rate of return.
Concentration of Credit Risk
Substantially all of the Company's accounts receivable at December 31, 1998
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 4 for a discussion of notes receivable.
The Company periodically 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 at December 31,
1998 was 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's derivative financial instruments mature monthly through October
1999. The fair values of the Company's open derivative contracts at December
31, 1998 and 1997 were $0.1 million and $(1.7) million, respectively.
Oil and Gas Revenues
Gas revenues generally are recorded using the entitlement method in which
the Company recognized 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 balancing
receivables are recorded when the Company's ownership share of production
exceeds sales. At December 31, 1998 the Company's receivables included $0.9
million of natural gas imbalances.
-40-
Royalties
Coal royalty income is recognized on the basis of tons sold 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. Oil and natural
gas royalties are recorded on the basis of volume sold.
Income Tax
The Company accounts for income taxes in accordance with the provisions
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. Investments and Other Income
The cost, gross unrealized holding gains and fair value of available-for-
sale securities were as follows (in thousands):
Gross
Unrealized
Holding Fair
Cost Gains Value
---- ---------- -----
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
======== ======== ========
At December 31, 1997
Available-for-sale
Norfolk Southern Corporation $ 2,839 $ 98,031 $100,870
Other 3 13 16
-------- -------- --------
$ 2,842 $ 98,044 $100,886
======== ======== ========
Related dividend income is as follows (in thousands):
For the years ended December 31
1998 1997 1996
--------- ------- ---------
Norfolk Southern Corporation $ 2,646 $ 2,646 $ 2,470
Other - - 280
-------- -------- --------
$ 2,646 $ 2,646 $ 2,750
======== ======== ========
The Company owned 3,307,200 shares of Norfolk Southern Corporation stock at
December 31, 1998. The closing stock price for Norfolk Southern Corporation
was $31.6875 and $30.50 per share at December 31, 1998 and 1997, respectively.
A three-for-one stock split was declared by Norfolk Southern Corporation in
1997.
-41-
4. Notes Receivable
The Company has a note receivable related to the sale of approximately 60
million tons of coal reserves in 1986. The note, originally discounted at 9.5
percent, requires fixed quarterly payments with a maturity date of July 2005.
During 1998, the Company exchanged a note receivable, net of deferred revenue,
for other property and equipment in which no gain or loss was recognized.
Maturities of notes receivable are as follows (in thousands):
December 31,
1998 1997
------- -------
Current $ 364 $ 2,414
Due after one year through five years 1,853 1,928
Thereafter 1,226 2,267
------- -------
$ 3,443 $ 6,609
======= =======
The fair value of the Company's notes receivable at December 31, 1998 and
1997 was approximately $5.3 million and $5.1 million, respectively.
5. Property, Plant and Equipment
Property, plant and equipment includes (in thousands):
December 31,
1998 1997
Oil and gas properties $157,558 $148,487
Other property, plant and equipment:
Land 694 694
Timber 188 188
Coal properties 45,176 38,917
Other plant and equipment 6,397 2,827
-------- --------
210,013 191,113
Less: Accumulated depreciation,
depletion and amortization (68,745) (61,677)
-------- --------
Net property, plant and equipment $141,268 $129,436
======== ========
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 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 1997 or 1996.
-42-
6. Long-Term Debt
Long-term debt consists of the following (in thousands):
December 31,
1998 1997
------- -------
Revolving credit, variable rate of 6.3%
at December 31, 1998, due in 2000 $ 37,100 $ 31,000
Senior notes, 8.83%, due May 10, 1998 - 2,000
Other 898 928
-------- --------
37,998 33,928
Less: current maturities (31) (2,025)
-------- --------
Total long-term debt $ 37,967 $ 31,903
======== ========
Revolving Credit
In 1996, the Company entered into an agreement with a group of major U.S.
banks for a $50 million unsecured revolving credit facility (the "Revolver")
with a final maturity of August 2000. During 1997, the Company increased the
revolving credit facility to $75 million.
The Revolver bears interest at LIBOR, CD rate or the base rate at the
option of the Company plus a percentage based on the percentage of the
borrowing base outstanding. The financial covenants require the Company to
maintain certain levels of net worth, debt-to-capitalization and dividend
limitation restrictions, among other requirements. At December 31, 1998, the
Company was in compliance with all of its convenants.
Senior Notes
In May 1991, the Company issued $10 million of its 7-year 8.83% Senior
Notes to an institutional investor in a private placement offering. The 8.83%
Senior Notes required annual principal payments and were repaid in May 1998.
The aggregate maturities applicable to outstanding debt at December 31,
1998 are as follows (in thousands):
1999 $ 31
2000 37,134
2001 37
2002 40
2003 42
Thereafter 714
-43-
7. Accrued Expenses
Accrued expenses are summarized as follows (in thousands):
December 31,
1998 1997
------- -------
Pension $ 453 $ 468
Compensation 594 487
Accrued lease - 208
Accrued oil and gas royalties 392 519
Taxes other than income 873 678
Postretirement health care 841 719
Accrued restructuring charges 552 -
Other 1,334 2,806
------- -------
$ 5,039 $ 5,885
======= =======
In the fourth quarter of 1998, the Company's management approved a plan to
reduce administrative and operational overhead costs in its oil and gas
subsidiary. 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 penalty. As of
February 28, 1999, the Company had paid out $0.1 million relating to severance
and expects all remaining costs to be paid out by June 30, 1999.
8. Income Taxes
The provision for income taxes from continuing operations is comprised of the
following (in thousands):
Year ended December 31,
1998 1997 1996
---- ---- ----
Current income taxes
Federal $ 1,341 $ 1,677 $ 1,013
State 98 423 542
------- ------- -------
Total current 1,439 2,100 1,555
------- ------- -------
Deferred income taxes
Federal 901 2,438 (553)
State 22 (269) 49
------- ------- -------
Total deferred 923 2,169 (504)
------- ------- -------
Total income tax expense $ 2,362 $ 4,269 $ 1,051
======= ======= =======
-44-
The difference between the reported income tax expense and income tax
expense computed by multiplying income from continuing operations before
income taxes by the blended federal and state statutory income tax rate is as
follows (in thousands):
Year ended December 31,
1998 1997 1996
------- ------ ------
Computed at blended federal statutory tax rate $4,150 $7,100 $4,932
State income taxes, net of federal income tax effect 524 100 384
Dividends received deduction (648) (648) (674)
Non-conventional fuel source credit (1,525) (1,510) (1,769)
Adjustment to prior year provisions - (200) (1,244)
Percentage depletion (350) (416) -
Contribution to funded postretirement benefit plan - - (420)
Other 211 (157) (158)
------ ------ -------
Total income tax expense $2,362 $4,269 $1,051
====== ====== ======
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant portions of
the net deferred tax liability consist of the following (in thousands):
December 31,
1998 1997
------ ------
Deferred tax liabilities:
Notes receivable $ 1,143 $ -
Investments 35,693 34,316
Oil and gas properties 16,860 14,508
Other 1,024 1,478
------- -------
Total deferred tax liabilities 54,720 50,302
------- -------
Deferred tax assets:
Notes receivable - (1,647)
Other property, plant, and equipment (7,123) (4,059)
Accrued expenses (954) (1,233)
Other long-term liabilities (954) (1,122)
Alternative minimum tax credit carryforwards (6,560) (5,340)
State tax loss carryforwards (881) (661)
Postretirement benefit contribution carryforward (38) (296)
------- -------
Total deferred tax assets (16,510) (14,358)
------- -------
Net deferred tax liability $38,210 $35,944
======= =======
Deferred tax assets-current $ (577) $ (696)
Deferred tax liabilities-noncurrent 38,787 36,640
------- -------
$38,210 $35,944
======= =======
As of December 31, 1998, the Company had available for federal income tax
purposes, alternative minimum tax credits of approximately $6.6 million which
can be carried forward indefinitely as a credit against the regular tax
liability. The Company has various state tax loss carryforwards of $10.4
million which, if unused, will expire from 2009 to 2013. The Company has a
carryforward of excess contributions to a funded postretirement benefit plan
of $0.1 million which have no expiration date.
-45-
9. Pension Plans and Other Postretirement Benefits
The Company and its wholly-owned subsidiaries provided a noncontributory,
defined benefit pension plan and early retirement programs (the "Plans") for
eligible employees. Benefits were based on the employee's average annual
compensation and years of service. Pension expense amounted to $19,000,
$160,000 and $527,000 in 1998, 1997 and 1996, respectively.
Benefits accrued by the Company's employees under the defined benefit plan
were frozen effective June 30, 1996. In connection with the freezing of such
benefits the Company recognized a charge of $228,000 in 1996. The freezing of
the defined benefit plan may result in reduced future annual net periodic
pension expense.
The Company sponsors a defined benefit postretirement 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, 1998 and 1997 and a statement
of the funded status at December 31, 1998 and 1997 is as follows (in
thousands):
Pension Postretirement
---------------- ------------------
1998 1997 1998 1997
------- ------- ------- -------
Reconciliation of benefit obligation:
Obligation - beginning of year $11,474 $11,752 $ 3,665 $ 4,083
Service cost - - 15 18
Interest cost 792 812 213 261
Benefits paid (1,143) (1,175) (297) (258)
Actuarial (gain) loss 578 85 (484) (439)
------- ------- ------- -------
Obligation - end of year 11,701 11,474 3,112 3,665
------- ------- ------- -------
Reconciliation of fair value of
plan assets:
Fair value - beginning of year 9,653 8,179 1,615 1,620
Actual return on plan assets 1,604 2,220 387 261
Employer contributions 442 516 - -
Participant contributions - - 3 1
Benefit payments (1,143) (1,175) (298) (257)
Administrative expenses (88) (87) (9) (10)
------- ------- ------- -------
Fair value - end of year 10,468 9,653 1,698 1,615
------- ------- ------- ------
Funded status:
Funded status - end of year (1,233) (1,821) (1,414) (2,050)
Unrecognized transition (asset) obligation 30 33 - -
Unrecognized prior service cost 60 67 - -
Unrecognized (gain) loss (351) (196) 53 874
------- ------- ------- ------
Net amount recognized $(1,494) $(1,917) $(1,361) $(1,176)
======= ======= ======= =======
-46-
The following table provides the amounts recognized in the statements of
financial position at December 31, 1998 and 1997 (in thousands):
Pension Postretirement
---------------- ------------------
1998 1997 1998 1997
------- ------- ------- -------
Prepaid benefit cost $ 569 $ 250 $ - $ -
Accrued benefit liability (2,619) (2,618) (1,361) (1,176)
Other long-term assets 91 100 - -
Accumulated other comprehensive income 465 351 - -
------- ------- ------- -------
Obligation - end of year $(1,494) $(1,917) $(1,361) $(1,176)
======= ======= ======= =======
The following table provides the components of net periodic benefit cost for
the plans for the two years ended December 31, 1998 and 1997 (in thousands):
Pension Postretirement
---------------- ------------------
1998 1997 1998 1997
------- ------- ------- -------
Service cost $ 80 $ 70 $ 15 $ 18
Interest cost 792 812 213 261
Expected return on plan assets (869) (736) (43) (49)
Amortization of prior service cost 6 6 - -
Amortization of transitional obligation 4 3 - -
Recognized actuarial loss 6 5 - 60
------- ------- ------- -------
Obligation - end of year $ 19 $ 160 $ 185 $ 290
===== ====== ====== ======
The assumptions used in the measurement of the Company's benefit obligation
were as follows:
Pension Postretirement
---------------- ------------------
1998 1997 1998 1997
------- ------- ------- -------
Discount rate 6.75% 7.25% 6.75 % 7.25 %
Expected return on plan assets 9.50 9.50 3.00 3.00
Since the benefits accrued under the defined benefit plan were frozen
effective June 1996, it is not necessary to assume a rate of compensation
increase. For measurement purposes, an 8.5 percent annual rate increase in
the per capita cost of covered health care benefits was assumed for 1998. 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 postretirement benefits. A one percent change in assumed
health care cost trend rates would have the following effects for 1998 (in
thousands):
One percent One percent
increase decrease
----------- -----------
Effect on total of service and interest
cost components $ 9 $ (8)
Effect on postretirement benefit obligation 141 (127)
-47-
10. Other Liabilities
Other liabilities are summarized in the following table (in thousands):
December 31,
1998 1997
-------- --------
Postretirement health care $ 520 $ 457
Deferred income 842 2,121
Pension 1,409 2,062
Other 104 182
------- -------
$ 2,875 $ 4,822
======= =======
11. 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 years ended December 31, 1998, 1997
and 1996.
1998
-----------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- -----------
(in thousands, except per share amounts)
Basic EPS:
Income from
continuing operations $ 9,591 8,310 $ 1.15
Dilutive Securities:
Stock options - 153
------- -----
Diluted EPS:
Income from continuing operations $ 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
======== =====
1996
-----------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- -----------
(in thousands, except per share amounts)
Basic EPS:
Income from
continuing operations $ 13,040 8,634 $ 1.51
Dilutive Securities:
Stock options - 60
-------- -----
Diluted EPS:
Income from
continuing operations $ 13,040 8,694 $ 1.50
======== =====
12. Stock Option and Stock Ownership Plans
Stock Option Plans
On May 2, 1995, the 1994 Stock Option Plan (1994 Plan) and the 1995
Directors' Stock Option Plan (1995 Plan) were approved by the shareholders.
The Company also has outstanding stock options under another stock option
plan, the 1980 Incentive Stock Option Plan (1980 Plan) which has expired.
Under these plans, incentive and nonqualified stock options may be granted to
key employees and officers of the Company and nonqualified stock options may
be granted to directors of the Company. Under the 1980 Plan, some options were
granted with stock appreciation rights (SARs); however, none of the options
outstanding at December 31, 1998 have SARs.
Options granted under the 1980, 1994 and 1995 Plans (collectively known as
the "Plans") may be exercised at any time after twelve months 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 fair market value of the
Company's stock on the date of the grant. Of the 1,735,700 options that were
granted under the Plans, 772,300 options have been exercised, forfeited or
have expired. At December 31, 1998, options totaling 962,800 remain
outstanding.
The Company, from time to time, grants nonqualified stock options to
individual directors. At December 31, 1998, 40,000 options from the
individual grants remain outstanding.
-48-
The following table summarizes information with respect to the common stock
options awarded under the Plans and grants described above. The stock option
table for 1996 reflects shares and weighted average exercise prices on pre-
stock split basis.
1998
---------------------------
Shares
Under Weighted Avg.
Options Exercise Price
Outstanding, Beginning of year 1,036,500 $ 18.19
Effect of Stock Split - $ -
Granted-Options 80,600 $ 25.06
Exercised-Options 96,901 $ 18.53
Cancelled 17,399 $ 21.56
Outstanding, End of year 1,002,800 $ 18.65
Weighted average of fair value of
options granted during the year $ 8.50
1997
---------------------------
Shares
Under Weighted Avg.
Options Exercise Price
Outstanding, Beginning of year 397,950 $ 33.63
Effect of Stock Split 397,950 $ 16.82
Granted-Options 281,600 $ 22.10
Exercised-Options 34,000 $ 16.25
Cancelled 7,000 $ 28.50
Outstanding, End of year 1,036,500 $ 18.19
Weighted average of fair value of
options granted during the year $ 7.50
1996
---------------------------
Shares
Under Weighted Avg.
Options Exercise Price
Outstanding, Beginning of year 251,450 $ 34.73
Effect of Stock Split - -
Granted-Options 207,200 $ 33.48
Exercised-Options 20,000 $ 32.57
Cancelled 40,700 $ 40.17
Outstanding, End of year 397,950 $ 33.63
Weighted average of fair value of
options granted during the year $ 10.05
The following table summarizes certain information regarding stock options
outstanding at December 31, 1998:
Options Outstanding Options Exercisable
---------------------------------------- -------------------------
Weighted Avg.
Range of Number Remaining Weighted Avg. Number Weighted Avg
Exercise Outstanding Contractual Exercise Exercisable Exercise
Price at 12/31/98 Life Price at 12/31/98 Price
- ---------- ----------- -------------- ------------ ----------- ------------
$15 to $18 658,800 6.5 $16.46 658,800 $16.46
$21 to $24 284,000 6.8 $22.00 254,000 $22.05
$25 to $30 60,000 9.3 $26.85 10,000 $25.38
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. The
Company recognized $0.1 million in compensation expense related to its stock-
based compensation plan in 1998; however, no amounts were recognized in 1997
or 1996. 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:
1998 1997 1996
------ ------- -------
Net Income (in thousands) $9,022 $14,208 $12,032
Earnings per share, basic $1.09 $ 1.71 $ 1.39
Earnings per share, diluted $1.07 $ 1.67 $ 1.38
-49-
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 fair value of the options granted during 1996 is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions: a) dividend yield of 5.3 percent to 5.5 percent b) expected
volatility of 40.2 percent to 41.2 percent, c) risk-free interest rate of 5.7
percent to 7.6 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 February 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 will be no employee contributions,
participants will 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,
1998, the unearned portion of the ESOP ($1.5 million) was recorded as a
contra-equity account entitled "Unearned Compensation-ESOP."
Shareholder Rights Plan
On February 11, 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 February 11, 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.
-50-
Accumulated Other Comprehensive Income
In the first quarter of 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires the display of comprehensive income and
its components in the financial statements. 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 years ended December
31, 1998, 1997 and 1996, the components of accumulated other comprehensive
income are as follows (in thousands):
Net Accumulated
unrealized Minimum other
holding gain - pension comprehensive
investments liability income
--------------- --------- -------------
Balance at December 31, 1995 $54,614 $(899) $53,715
Unrealized holding gains, net
of tax of $ 2,391 4,442 - 4,442
Reclassification adjustments, net
of tax of $1,163 2,159 - 2,159
Pension plan adjustment, net
of tax of $67 - 125 125
------- ----- -------
Balance at December 31, 1996 61,215 (774) 60,441
Unrealized holding gains, 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 gains, 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
======= ====== =======
-51-
14. 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 and Land - the leasing of mineral rights and subsequent collection of
royalties and the development and harvesting of timber.
Corporate
Oil and Gas Coal and Land and Other Consolidated
----------- ------------- ---------- ------------
(in thousands)
December 31, 1998
Revenues $ 21,108 $14,500 $ 2,647 $ 38,255
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
Corporate
Oil and Gas Coal and Land and Other Consolidated
----------- ------------- ---------- ------------
(in thousands)
December 31, 1997
Revenues $ 24,868 $ 13,891 $ 2,645 $ 41,404
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
Corporate
Oil and Gas Coal and Land and Other Consolidated
----------- ------------- ---------- ------------
(in thousands)
December 31, 1996
Revenues $ 23,119 $ 8,264 $ 2,750 $ 34,133
Operating income (loss) 8,332 5,754 (874) 13,212
Identifiable assets 90,657 38,696 100,161 229,514
Depreciation, depletion
and amortization 6,576 196 59 6,831
Capital expenditures 10,081 19,076 61 29,218
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, 1998, one customer of the oil and gas
segment accounted for $4.8 million, or 13 percent, of the Company's
consolidated revenues.
-52-
15. Commitments and Contingencies
Rental Commitments
Minimum rental commitments under all non-cancelable operating leases,
primarily real estate, in effect at December 31, 1998 were as follows (in
thousands):
Year ending December 31,
- ------------------------
1999 $1,009
2000 318
2001 94
2002 76
2003 74
Thereafter 68
------
Total minimum payments $1,639
======
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 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.
-53-
16. 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,
1998 1997 1996
------- -------- ---------
(in thousands)
Proved properties $ 49,126 $ 45,775 $ 46,744
Unproved properties 1,408 1,202 1,267
Wells, equipment and facilities 104,404 99,055 87,832
Support equipment 2,620 2,455 2,341
-------- ------- --------
157,558 148,487 138,184
Accumulated depreciation and depletion (62,545) (56,099) (51,086)
-------- ------- --------
Net capitalized costs $ 95,013 $ 92,388 $ 87,098
======== ======== ========
Costs Incurred in Certain Oil and Gas Activities
Year Ended December 31,
1998 1997 1996
------- -------- ---------
(in thousands)
Proved property acquisition costs $ 3,351 $ 73 $ 250
Unproved property acquisition costs 206 90 189
Exploration costs 2,022 3,346 2,604
Development costs and other 8,698 10,560 7,305
-------- ------- --------
Total costs incurred $ 14,277 $ 14,069 $ 10,348
======== ======== ========
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 includes revenues from a natural gas contract settlement
and charges 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.
Costs Incurred in Certain Oil and Gas Activities
Year Ended December 31,
1998 1997 1996
------- -------- ---------
(in thousands)
Revenues $ 20,817 $ 22,488 $ 21,989
Other oil and gas revenue - - 611
Production costs 4,746 5,425 5,113
Exploration costs 488 1,439 402
Depreciation and depletion 6,695 5,920 6,576
Impairment of oil and gas properties 4,641 - -
-------- --------- --------
4,247 9,704 10,509
Income tax expense 1,062 2,807 981
-------- --------- --------
Results of operations $ 3,185 $ 6,897 $ 9,528
======== ======== ========
-54-
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 western Virginia, southern West
Virginia and eastern Kentucky. Net proved oil and gas reserves at December
31, 1998 and 1997 were estimated by Wright and Company, Inc. of Brentwood,
Tennessee. Net proved oil and gas reserves at December 31, 1996 were
estimated by the Company's engineers and were reviewed by Williamson Petroleum
Consultants, Inc. of Houston, Texas. 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, 1995 431 170,261
Revisions of previous estimates 70 7,861
Extensions, discoveries and other additions - 4,579
Production (47) (7,483)
Purchase of reserves - 230
---- -------
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
==== =======
Proved Developed Reserves:
December 31, 1996 390 105,113
==== =======
December 31, 1997 364 110,259
==== =======
December 31, 1998 313 118,146
==== =======
-55-
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. Natural gas prices were also
adjusted to give effect for financial hedge contracts in place at year end.
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 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,
1998 1997 1996
--------- --------- --------
(in thousands)
Future cash inflows $354,567 $539,781 $666,658
Future production costs 123,007 144,129 163,477
Future development costs 26,128 36,537 38,639
-------- -------- --------
205,432 359,115 464,542
Future income tax expense 28,031 70,033 100,285
-------- -------- --------
Future net cash flows 177,401 289,082 364,257
10% annual discount for estimated timing
of cash flows 101,737 169,987 210,966
-------- -------- --------
Standardized measure of discounted future
net cash flows $ 75,664 $119,095 $153,291
======== ======== ========
Changes in Standardized Measure of Discounted Future Net Cash Flows
Year Ended December 31,
1998 1997 1996
--------- -------- --------
(in thousands)
Sales of oil and gas, net of production costs $(16,071) $(17,063) $(16,876)
Net changes in prices and production costs (57,646) (35,686) 59,168
Extension, discoveries and additions,
net of costs 4,906 14,318 3,932
Development costs incurred during the period 5,289 3,070 5,456
Revisions of previous quantity estimates (6,735) (9,036) 9,412
Purchase of minerals-in-place 2,896 270 275
Sale of minerals-in-place (26) (4,990) -
Accretion of discount 14,059 17,548 11,719
Net change in income taxes 12,006 701 (4,150)
Other changes (2,109) (3,328) (3,879)
-------- -------- --------
Net increase (decrease) (43,431) (34,196) 65,057
Beginning of year 119,095 153,291 88,234
-------- -------- --------
End of year $ 75,664 $119,095 $153,291
======== ======== ========
-56-
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.
-57-
PART IV
ITEM 14 - EXHIBITS 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) Amended and restated articles of incorporation of the Company.
(3.2) Amended bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's current report on Form 8-K filed
with the Securities and Exchange Commission on February 23, 1998.
(Commission File No. 0-753)).
(4.1) 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) Credit Agreement dated August 21, 1996 between Penn Virginia
Corporation and Chase Bank of Texas (formerly Texas Commerce
Bank National Association), as Agent (incorporated by reference
to Exhibit 4 to the Company's quarterly report on Form 10-Q
filed for the quarter ended September 30, 1996 (Commission File
No. 0-753)).
(10.2) First Amendment to Credit Agreement dated as of May 1, 1997
between Penn Virginia Corporation and Texas Commerce Bank
National Association, as Agent (incorporated by reference on Form
8-K filed on December 5,1997 (Commission File No. 0-753)).
(10.3) Copies of various other long-term debt instruments and agreements
of the Company are not filed pursuant to Item 601(b)(4)(iii)(A)
of Regulation S-K, and the Company agrees to furnish copies of
such debt instruments and agreements to the Commission upon
request.
(10.4) 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)).
(10.5) Penn Virginia Corporation 1980 Incentive Stock Option Plan
(incorporated by reference to Appendix 5 of the Prospectus
comprising part of the Company's Registration Statement on Form
S-8 filed with the Securities and Exchange Commission on May 13,
1982 ( Registration No. 2-77500)).
(10.6) Form of agreement to evidence stock options and stock
appreciation rights granted under the Penn Virginia Corporation
1980 Incentive Stock Option Plan ( incorporated by reference to
Exhibit 15.1(b) to the Company's Registration Statements on Form
S-8 filed with the Securities and Exchange commission on May 13,
1982 ( Registration No. 2-77500)).
(10.7) Amendment No. 1 to Penn Virginia Corporation 1980 Incentive Stock
Option Plan (incorporated by reference to Exhibit 19.1 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1987 (Commission File No. 0-753)).
(10.8) 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)).
(10.9) 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 31, 1997.
(10.10) Penn Virginia Corporation 1994 Stock Option Plan ( incorporated
by reference to Annex A of the Company's definitive Proxy
Statement dated March 28, 1995 (Commission File No. 0-753)).
(10.11) Penn Virginia Corporation 1995 Directors' Stock Option Plan
(incorporated by reference to Annex B of the Company's definitive
Proxy Statement dated March 28, 1995 (Commission File No. 0-
753)).
(21) Subsidiaries of the Company.
(23.1) Consent of Arthur Andersen LLP
-58-
(b) Reports on Form 8-K
The Company has not filed any reports on Form 8-K
(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.)
-59-