SECURITIES AND EXCHANGE COMMISSION | |||||||||
Washington, D.C. 20549 | |||||||||
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FORM 10-Q | |||||||||
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(Mark One) |
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[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||||||
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For the period ended |
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or |
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[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||||||
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For the transition period from | to | ||||||||
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Commission File Number 1-13283 | |||||||||
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PENN VIRGINIA CORPORATION | |||||||||
(Exact | Its Charter) | ||||||||
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Virginia |
| 23-1184320 | |||||||
(State or |
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| Identification No.) | ||||||
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100 MATSONFORD ROAD SUITE 200 |
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RADNOR, PA |
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(Address of |
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(610) 687-8900 | |||||||||
(Registrant's | Telephone Number, Including Area Code) | ||||||||
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(Former | |||||||||
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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. | |||||||||
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| Yes | X | No | |
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Number of shares of common stock of |
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1
PART I. Financial Information
Item 1. Financial Statements
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - Unaudited
(in thousands, except share data)
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| Three Months | ||
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| Ended March 31, | ||
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| 2002 |
| 2001 |
Revenues: |
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Oil and condensate |
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| $ 1,994 |
| $ 82 | |
Natural gas |
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| 11,337 |
| 17,041 | |
Coal royalties |
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| 8,491 |
| 7,333 | |
Timber |
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| 582 |
| 361 |
Dividends |
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| - |
| 198 | |
Gain on sale of properties |
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| - |
| 27 | ||
Other |
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| 1,979 |
| 2,079 | |
Total revenues |
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| 24,383 |
| 27,121 | |
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Expenses: |
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Lease operating expenses |
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| 2,814 |
| 1,779 | ||
Exploration expenses |
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| 138 |
| 707 | ||
Taxes other than income |
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| 1,512 |
| 1,377 | ||
General and administrative |
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| 4,539 |
| 3,036 | ||
Depreciation, depletion, amortization |
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| 6,602 |
| 3,287 | |||
Total expenses |
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| 15,605 |
| 10,186 | |
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Operating income |
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| 8,778 |
| 16,935 | |
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Other income (expense): |
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Interest expense |
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| (470) |
| (807) | |
Interest income |
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| 553 |
| 387 | |
Income before minority interest and income taxes |
| 8,861 |
| 16,515 | ||||
Minority interest in Penn Virginia Resource Partners, L.P. |
| 3,565 |
| - | ||||
Income tax expense |
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| 1,926 |
| 5,805 | |
Net income |
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| $ 3,370 |
| $ 10,710 | |
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Net Income per share, basic |
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| $ 0.38 |
| $ 1.25 | ||
Net Income per share, diluted |
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| $ 0.37 |
| $ 1.22 | ||
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Weighted average shares outstanding, basic |
| 8,909 | 8,549 | |||||
Weighted average shares outstanding, diluted |
| 9,007 |
| 8,755 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
March 31, December 31, 2002 2001 (Unaudited) ASSETS Current assets Cash and cash equivalents $ 13,485 $ 9,621 Accounts receivable 14,156 15,403 Current portion of long-term notes receivable 494 599 Price risk management assets 427 3,674 Other 1,243 1,105 Total current assets 29,805 30,402 Property and Equipment Oil and gas properties (successful efforts method) 343,518 335,494 Other property and equipment 118,633 117,789 Less: Accumulated depreciation, depletion and amortization (78,697) (72,095) Net property and equipment 383,454 381,188 Restricted U.S. Treasury Notes 43,387 43,387 Other assets 5,375 5,194 Total assets $ 462,021 $ 460,171 PENN VIRGINIA CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE SHEETS(in thousands)
| Three Months |
| Six Months | ||||
| Ended June 30, |
| Ended June 30, | ||||
| 2002 |
| 2001 |
| 2002 |
| 2001 |
Revenues: |
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Natural gas | $ 15,683 |
| $ 14,506 |
| $ 27,020 |
| $ 31,547 |
Oil and condensate | 1,875 |
| 77 |
| 3,869 |
| 159 |
Coal royalties | 6,693 |
| 7,928 |
| 15,184 |
| 15,261 |
Timber | 499 |
| 397 |
| 1,081 |
| 758 |
Other | 898 |
| 1,833 |
| 2,877 |
| 4,137 |
Total revenues | 25,648 |
| 24,741 |
| 50,031 |
| 51,862 |
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Expenses: |
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Lease operating expenses | 2,568 |
| 1,792 |
| 5,382 |
| 3,571 |
Exploration expenses | 2,026 |
| 1,948 |
| 2,164 |
| 2,655 |
Taxes other than income | 1,610 |
| 1,238 |
| 3,122 |
| 2,615 |
General and administrative | 5,519 |
| 2,927 |
| 10,058 |
| 5,963 |
Depreciation, depletion, amortization | 7,010 |
| 3,474 |
| 13,612 |
| 6,761 |
Total expenses | 18,733 |
| 11,379 |
| 34,338 |
| 21,565 |
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Operating income | 6,915 |
| 13,362 |
| 15,693 |
| 30,297 |
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Other income (expense): |
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Interest expense | (489) |
| (289) |
| (959) |
| (1,096) |
Interest and other income | 522 |
| 457 |
| 1,075 |
| 844 |
Gain on sale of securities | - |
| 54,688 |
| - |
| 54,688 |
Income from continuing operations before minority |
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interest, income taxes and discontinued operations | 6,948 |
| 68,218 |
| 15,809 |
| 84,733 |
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Minority interest in Penn Virginia Resource Partners, L.P. | 2,377 |
| - |
| 5,942 |
| - |
Income tax expense | 1,629 |
| 25,200 |
| 3,555 |
| 31,005 |
Income from continuing operations | 2,942 |
| 43,018 |
| 6,312 |
| 53,728 |
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Income from discontinued operations (including gain on |
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sale and net of taxes) | 221 |
| - |
| 221 |
| - |
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Net income | $ 3,163 |
| $ 43,018 |
| $ 6,533 |
| $ 53,728 |
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Income from continuing operations per share, basic | $ 0.33 |
| $ 4.88 |
| $ 0.71 |
| $ 6.19 |
Net income per share, basic | $ 0.35 |
| $ 4.88 |
| $ 0.73 |
| $ 6.19 |
Income from continuing operations per share, diluted | $ 0.33 |
| $ 4.79 |
| $ 0.70 |
| $ 6.09 |
Net income per share, diluted | $ 0.35 |
| $ 4.79 |
| $ 0.73 |
| $ 6.09 |
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Weighted average shares outstanding, basic | 8,927 |
| 8,820 |
| 8,918 |
| 8,679 |
Weighted average shares outstanding, diluted | 8,984 |
| 8,982 |
| 8,968 |
| 8,827 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
2
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - Unaudited
(in thousands, except share data) thousands)
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| March 31, |
| December 31, | |
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| 2002 |
| 2001 | |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities |
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Current maturities of long-term debt |
| $ 2,989 |
| $ 1,235 | ||||
Accounts payable |
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| 4,472 |
| 3,987 | ||
Accrued liabilities |
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| 7,539 |
| 13,831 | ||
Price risk management liabilities |
| 2,654 |
| - | ||||
Taxes on income |
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| 1,499 |
| - | ||
Total current liabilities |
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| 19,153 |
| 19,053 | |||
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Other liabilities |
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| 9,119 |
| 8,877 | ||
Deferred income taxes |
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| 54,202 |
| 55,861 | |||
Long-term debt |
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| 8,000 |
| 3,500 | ||
Long-term debt secured by U.S. Treasury Notes |
| 43,387 |
| 43,387 | ||||
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Minority interest in Penn Virginia Resource Partners, L.P. | 145,559 |
| 144,039 | |||||
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Shareholders' equity |
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Preferred stock of $100 par value- |
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authorized 100,000 shares; none issued |
| - |
| - | ||||
Common stock of $6.25 par value- |
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16,000,000 shares authorized; 8,921,866 shares issued | 55,762 |
| 55,762 | |||||
Other paid in capital |
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| 9,935 |
| 9,869 | ||
Retained earnings |
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| 120,487 |
| 119,125 | ||
Accumulated other comprehensive income | (1,987) |
| 1,756 | |||||
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| 184,197 |
| 186,512 | |
Less: 6,339 shares on March 31, 2002 and 23,765 on December 31, 2001 |
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of common stock held in treasury, at cost |
| 166 |
| 599 | ||||
Unearned compensation |
| 1,430 |
| 459 | ||||
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Total shareholders' equity |
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| 182,601 |
| 185,454 | |||
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Total liabilities and shareholders' equity | $ 462,021 |
| $ 460,171 |
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| June 30, |
| December 31, |
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| 2002 |
| 2001 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
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| $ 11,799 |
| $ 9,621 | ||
Accounts receivable |
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| 14,773 |
| 15,403 | ||
Current portion of long-term notes receivable |
| 505 |
| 599 | ||||
Price risk management assets |
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| 284 |
| 3,674 | ||
Other |
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| 1,229 |
| 1,105 |
Total current assets |
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| 28,590 |
| 30,402 | ||
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Property and equipment |
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Oil and gas properties (successful efforts method) |
| 354,589 |
| 335,494 | ||||
Other property and equipment |
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| 120,597 |
| 117,789 | ||
Less: Accumulated depreciation, depletion and amortization | (85,732) |
| (72,095) | |||||
Net property and equipment |
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| 389,454 |
| 381,188 | ||
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Restricted U.S. Treasury Notes |
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| 43,387 |
| 43,387 | |||
Other assets |
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| 5,260 |
| 5,194 | |
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Total assets |
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| $ 466,691 |
| $ 460,171 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
3
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS - Unaudited
(in thousands, except share data)
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| June 30, |
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| 2002 |
| 2001 |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities |
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Current maturities of long-term debt |
| $ 66 |
| $ 1,235 | |||
Accounts payable |
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| 752 |
| 3,987 | |
Accrued liabilities |
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| 7,822 |
| 13,831 | |
Price risk management liabilities |
| 1,347 |
| - | |||
Taxes on income |
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| 1,424 |
| - | |
Total current liabilities |
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| 11,411 |
| 19,053 | ||
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Other liabilities |
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| 12,021 |
| 8,877 | |
Deferred income taxes |
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| 56,182 |
| 55,861 | ||
Long-term debt |
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| 14,000 |
| �� 3,500 | |
Long-term debt secured by U.S. Treasury Notes | 43,387 |
| 43,387 | ||||
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Minority interest in Penn Virginia Resource Partners, L.P. | 143,149 |
| 144,039 | ||||
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Shareholders' equity |
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Preferred stock of $100 par value- |
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authorized 100,000 shares; none issued |
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| - | |||
Common stock of $6.25 par value- |
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16,000,000 shares authorized; 8,943,376 shares issued | 55,895 |
| 55,762 | ||||
Other paid in capital |
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| 11,495 |
| 9,869 | |
Retained earnings |
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| 121,643 |
| 119,125 | |
Accumulated other comprehensive income | (1,139) |
| 1,756 | ||||
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| 187,894 |
| 186,512 |
Less: 23,765 shares of common stock held in treasury, |
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at cost on December 31, 2001 |
| - |
| 599 | |||
Unearned compensation |
| 1,353 |
| 459 | |||
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Total shareholders' equity |
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| 186,541 |
| 185,454 | ||
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Total liabilities and shareholders' equity | $ 466,691 |
| $ 460,171 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED CASH FLOW STATEMENTS - Unaudited
(in thousands)
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| Three Months | Three Months |
| Six Months | ||||||||||
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| Ended March 31, | Ended June 30, |
| Ended June 30, | ||||||||||
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| 2002 |
| 2001 | 2002 |
| 2001 |
| 2002 |
| 2001 | ||||
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Cash flow from operating activities: | Cash flow from operating activities: |
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Net Income | Net Income |
| $ 3,370 |
| $ 10,710 | $ 3,163 |
| $ 43,018 |
| $ 6,533 |
| $ 53,728 | |||
Adjustments to reconcile net income to net | Adjustments to reconcile net income to net |
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cash provided by operating activities: | cash provided by operating activities: |
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Depreciation, depletion, and amortization | Depreciation, depletion, and amortization |
| 6,602 |
| 3,287 | 7,035 |
| 3,474 |
| 13,637 |
| 6,761 | |||
Minority interest |
| 3,565 |
| - | |||||||||||
Minority interest in Penn Virginia Resource Partners, L.P. | 2,377 |
| - |
| 5,942 |
| - | ||||||||
Gain on sale of properties | Gain on sale of properties |
| - |
| (27) | (341) |
| (807) |
| (341) |
| (834) | |||
Gain on sale of securities | - |
| (54,688) |
| - |
| (54,688) | ||||||||
Deferred income taxes | Deferred income taxes |
| 357 |
| 2,183 | 1,523 |
| 840 |
| 1,880 |
| 3,023 | |||
Dry hole and unproved leasehold expense | Dry hole and unproved leasehold expense |
| 41 |
| 110 | 118 |
| 1,344 |
| 159 |
| 1,454 | |||
Tax benefit from stock option exercises | Tax benefit from stock option exercises |
| 70 |
| 1,568 | 150 |
| 1,148 |
| 220 |
| 2,716 | |||
Other |
| 328 |
| 48 | 508 |
| 36 |
| 836 |
| 84 | ||||
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| 14,323 |
| 17,879 | 14,533 |
| (5,635) |
| 28,866 |
| 12,244 | ||||
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Changes in operating assets and liabilities: | Changes in operating assets and liabilities: |
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Decrease in current assets |
| 1,109 |
| 1,108 | |||||||||||
Decrease in current liabilities |
| (4,308) |
| (3,076) | |||||||||||
Increase in other assets |
| (466) |
| (30) | |||||||||||
Increase in other liabilities |
| 242 |
| 40 | |||||||||||
Current assets | (719) |
| (3,446) |
| 390 |
| (2,338) | ||||||||
Current liabilities | (3,513) |
| 19,220 |
| (7,318) |
| 16,144 | ||||||||
Other assets | (226) |
| (6) |
| (672) |
| (36) | ||||||||
Other liabilities | 1,144 |
| 146 |
| 1,386 |
| 186 | ||||||||
Net cash flows provided by operating activities | Net cash flows provided by operating activities |
| 10,910 |
| 15,921 | 11,219 |
| 10,279 |
| 22,652 |
| 26,200 | |||
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Cash flows from investing activities: | Cash flows from investing activities: |
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Payments received on long-term notes receivable | Payments received on long-term notes receivable |
| 226 |
| 245 | 109 |
| 246 |
| 335 |
| 491 | |||
Proceeds from sale of property and equipment |
| 64 |
| 65 | |||||||||||
Capital expenditures |
| (8,972) |
| (7,224) | |||||||||||
Net cash flows used in investing activities |
| (8,682) |
| (6,914) | |||||||||||
Proceeds from sale of properties | 1,236 |
| 1,181 |
| 1,300 |
| 1,246 | ||||||||
Proceeds from sale of securities | - |
| 57,525 |
| - |
| 57,525 | ||||||||
Additions to property and equipment | (12,290) |
| (47,747) |
| (21,262) |
| (54,971) | ||||||||
Net cash flows provided by (used in) investing activities | (10,945) |
| 11,205 |
| (19,627) |
| 4,291 | ||||||||
|
|
|
|
|
|
|
|
| |||||||
Cash flows from financing activities | Cash flows from financing activities |
|
|
|
|
|
|
|
| ||||||
Dividends paid | Dividends paid |
| (2,005) |
| (1,935) | (2,010) |
| (1,997) |
| (4,015) |
| (3,932) | |||
Distributions paid to minority interest holders | (2,045) | - | |||||||||||||
Distributions paid to minority interest holders of subsidiary | (3,747) |
| - |
| (6,295) |
| - | ||||||||
Proceeds from (repayments of) borrowings | Proceeds from (repayments of) borrowings |
| 6,254 |
| (13,425) | 3,077 |
| (22,297) |
| 9,331 |
| (35,722) | |||
Purchase of units of Penn Virginia Resource Partners, L.P. | Purchase of units of Penn Virginia Resource Partners, L.P. | (1,047) | - | - |
| - |
| (1,067) |
| - | |||||
Purchase of treasury stock | Purchase of treasury stock |
| (36) |
| - | (521) |
| - |
| (557) |
| - | |||
Issuance of stock | Issuance of stock |
| 515 |
| 5,637 | 1,241 |
| 3,388 |
| 1,756 |
| 9,025 | |||
Net Cash provided by (used in) financing activities |
| 1,636 |
| (9,723) | |||||||||||
Net Cash used in financing activities | (1,960) |
| (20,906) |
| (847) |
| (30,629) | ||||||||
|
|
|
|
|
|
|
|
| |||||||
Net increase (decrease) in cash and cash equivalents | Net increase (decrease) in cash and cash equivalents | 3,864 |
| (716) | (1,686) |
| 578 |
| 2,178 |
| (138) | ||||
Cash and cash equivalents-beginning of period | Cash and cash equivalents-beginning of period |
| 9,621 |
| 735 | 13,485 |
| 19 |
| 9,621 |
| 735 | |||
Cash and cash equivalents-end of period | Cash and cash equivalents-end of period |
| $ 13,485 |
| $ 19 | $ 11,799 |
| $ 597 |
| $ 11,799 |
| $ 597 | |||
|
|
|
|
|
|
|
|
| |||||||
Supplemental disclosures of cash flow information: | Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
| ||||||
Cash paid during the quarter for: |
| ||||||||||||||
Cash paid during the periods for: |
|
|
|
|
|
|
| ||||||||
Interest |
| $ 259 |
| $ 823 | $ 563 |
| $ 188 |
| $ 822 |
| $ 1,011 | ||||
Income taxes | Income taxes |
| $ - |
| $ 5,000 | $ 75 |
| $ 4,411 |
| $ 75 |
| $ 9,978 | |||
Noncash financing activities | |||||||||||||||
Noncash financing activities: |
|
|
|
|
|
|
| ||||||||
Restricted subsidiary partnership units granted as unearned compensation | Restricted subsidiary partnership units granted as unearned compensation | $ 1,047 | $ - | $ - |
| $ - |
| $ 1,067 |
| $ - | |||||
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
PENN VIRGINIA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSMarch 31,
June 30, 2002
1. ACCOUNTING POLICIESINTRODUCTION
The accompanying unaudited condensed consolidated financial statements include the accounts of Penn Virginia Corporation ("Penn Virginia" or the "Company"), all wholly-owned subsidiaries, and Penn Virginia Resource Partners, L.P. (the "Partnership" or "PVR") in which we have an approximate 52 percent ownership interest. Penn Virginia Resource GP, LLC, a wholly-owned subsidiary of Penn Virginia, serves as the Partnership's sole general partner. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting and SEC regulations. These statements involve the use of estimates and judgments where appropriate. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. These financial statements should be read in conjunction with the Company's consolidated financial statements and footnotes included in the Company's December 31, 2001 Annual Report on Form 10-K. Operating results for the threesix months ended March 31,June 30, 2002 are not necessarily indicative of the results that may be expected for the year ended December 31, 2002. Certain reclassifications have been made to conform to the current period's presentation.
2. PRICE RISK MANAGEMENT ACTIVITIES
From time to time, we enter into derivative financial instruments to mitigate our exposure to natural gas and crude oil price volatility. The derivative financial instruments, which are placed with a major financial institution that we believe is a minimum credit risk, take the form of costless collars and swaps. All derivative financial instruments are recognized in the financial statements at fair value in accordance with SFASStatement of Financial Accounting Standards ("SFAS") No. 133 "AccountingAccounting for Derivative Instruments and Certain Hedging Activities"Activities, as amended by SFAS No. 137 and SFAS No. 138 "AccountingAccounting for Certain Derivative Instruments and Certain Hedging Activities, anand Amendment of FASB Statement No. 133."
All derivative instruments are recorded on the balance sheet at fair value. If the derivative does not qualify as a hedge or is not designated as a hedge, the gain or loss on the derivative is recognized currently in earnings. To qualify for hedge accounting, the derivative must qualify either as a fair value hedge, cash flow hedge or foreign currency hedge. Currently, we usethe Company is utilizing only cash flow hedges and the remaining discussion will relate exclusively to this type of derivative instrument. In aAll hedge transactions are subject to our risk management policy, approved by the Board of Directors.
We formally document all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as cash flow hedge, ifhedges to forecasted transactions. We also formally assess, both at the derivative qualifies for hedge accounting,hedge's inception and on an ongoing basis, whether the gain or loss on the derivative is deferredderivatives that are used in Other Comprehensive Income, a component of Shareholders' Equity, to the extent the hedge is effective.
The relationship between the hedging instrument and the hedged item must betransactions are highly effective in achieving the offset ofoffsetting changes in cash flows attributable to theof hedged risk both at the inception of the contract and on an ongoing basis.transactions. We measure hedge effectiveness on a period basis. HedgeWhen it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, we discontinue hedge accounting prospectively.
When hedge accounting is discontinued prospectively when a hedging relationship becomes ineffective. Gains and losses deferred in Accumulated Other Comprehensive Income related to cash flow hedges that become ineffective remain unchanged until the related production is delivered. If we determine thatbecause it is probable that a hedged forecasted transaction will not occur, deferred gains or lossesthe derivative will continue to be carried on the hedging instrument arebalance sheet at its fair value, and gains and losses that were accumulated in other comprehensive income will be recognized in earnings immediately. In all other situations in which hedge accounting is discontinued, the derivative will be a carried at its fair value on the balance sheet, with changes in its fair value recognized in earnings prospectively.
Gains and losses on hedging instruments when settled are included in natural gas or crude oil production revenues in the period that the related production is delivered.
6
The fair value of our hedging instruments areis determined based on a broker'sthird party forward price quote.quotes for NYMEX Henry Hub closing and West Texas intermediate price as of June 30, 2002. The following table sets forth our positions as of March 31,June 30, 2002:
| Notional | Fixed Price or |
| Notional | Fixed Price or |
|
Time Period | Quantities | Effective Floor/Ceiling Price | Fair Value | Quantities | Effective Floor/Ceiling Price | Fair Value |
|
|
| (in millions) |
|
| (in millions) |
Natural Gas | (MMBtu per Day) |
|
| (MMbtu per Day) |
|
|
Costless collars |
|
|
|
|
|
|
April 1 - October 31, 2002 | 5,000 | $2.75 / $3.00 | $ (0.3) | |||
April 1 - December 31, 2002 | 2,301 | $4.00 / $5.70 | 0.3 | |||
April 1 - December 31, 2002 | 1,315 | $4.00 / $6.25 | 0.2 | |||
April 1 - September 30, 2002 | 3,000 | $3.17 / $3.72 | (0.1) | |||
July 1 - October 31, 2002 | 5,000 | $2.75 / $3.00 | $ (0.2) | |||
July 1 - December 31, 2002 | 2,301 | $4.00 / $5.70 | 0.3 | |||
July 1 - December 31, 2002 | 1,315 | $4.00 / $6.25 | 0.2 | |||
July 1 - September 30, 2002 | 3,000 | $3.17 / $3.72 | - | |||
November 1 - December 31, 2002 | 4,000 | $3.05 / $5.05 | (0.1) | 8,000 | $2.96 / $5.05 | - |
November 1 - December 31, 2002 | 4,000 | $2.96 / $4.96 | (0.1) | |||
January 1 - March 31, 2003 | 5,000 | $3.05 / $5.05 | (0.1) | |||
January 1 - March 31, 2003 | 5,000 | $2.96 / $4.96 | (0.1) | 10,000 | $2.96 / $5.05 | (0.2) |
April 1 - October 31, 2003 | 5,000 | $2.92 / $4.42 | (0.1) | 5,000 | $2.92 / $4.42 | (0.3) |
Fixed price swap |
|
|
|
|
|
|
April1 - October 31, 2002 | 13,000 | $2.74 | (1.4) | |||
July 1 - October 31, 2002 | 13,000 | $2.74 | (0.6) | |||
|
|
|
|
|
|
|
Crude Oil | (Bbls per Day) |
|
| (Bbls per Day) |
|
|
Costless collars |
|
|
|
|
|
|
April 1 - December 31, 2002 | 263 | $20.00 / $24.50 | (0.2) | |||
April 1 - December 31, 2002 | 197 | $22.00 / $26.60 | (0.1) | |||
April 1 - December 31, 2002 | 303 | $22.00 / $26.20 | (0.1) | |||
July 1 - December 31, 2002 | 263 | $20.00 / $24.50 | (0.1) | |||
July 1 - December 31, 2002 | 197 | $22.00 / $26.60 | (0.1) | |||
July 1 - December 31, 2002 | 303 | $22.00 / $26.20 | (0.1) | |||
|
|
|
|
|
|
|
|
| Total | $ (2.2) |
| Total | $ (1.1) |
Based upon our assessment of our derivative contracts at March 31,June 30, 2002, we reported (i) aan approximate liability of $2.6$1.4 million and an asset of $0.4$0.3 million and (ii) a loss in accumulated other comprehensive income of $1.7$0.9 million, net of income taxes of $0.9$0.5 million. In connection with monthly settlements, we recognized net hedging gains in natural gas and oil revenues of $1.3$0.3 million for the quartersix months ended March 31,June 30, 2002. Based upon future oil and natural gas prices as of March 31,June 30, 2002, $2.2$1.1 million of hedging losses are expected to be realized within the next 1216 months. The amounts ultimately realized will vary due to changes in the fair value of the open derivative contracts prior to settlement.
All hedge transactions are subject to our risk management policy, approved by the Board of Directors. We formally document all relationships between hedging instruments and hedged items, as well as our risk management objectives and strategy for undertaking the hedge. This process includes specific identification of the hedging instrument and the hedge transaction, the nature of the risk being hedged and how the hedging instrument's effectiveness will be assessed. Both at the inception of the hedged and on an ongoing basis, we assess whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of the hedged items. Any hedge ineffectiveness is taken to earnings in the current period.
3. LEGALCONTINGENT LIABILITIES
We are involved in various legal proceedings arising in the ordinary course of business. While the ultimate results of these cannot be predicted with certainty, we believe these claims will not have a material effect on our financial position, liquidity or operations.
7
7
4. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominatorsamounts used in the calculation of basic and diluted earnings per share ("EPS") for income from continuing operations for the quarters ended March 31,and net income at June 30, 2002 and 2001 (in thousands, except share data.)data).
Three Months | Three Months |
| Six Months | |||||||
Ended March 31, | Ended June 30, |
| Ended June 30, | |||||||
| 2002 |
| 2001 | 2002 |
| 2001 |
| 2002 |
| 2001 |
|
|
|
|
|
|
|
|
|
| |
Income from continuing operations | $ 2,942 |
| $ 43,018 |
| $ 6,312 |
| $ 53,728 | |||
Income from discontinued operations | 221 |
| - |
| 221 |
| - | |||
Net income | $ 3,370 |
| $ 10,710 | $ 3,163 |
| $ 43,018 |
| $ 6,533 |
| $ 53,728 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares, basic | 8,909 |
| 8,549 | 8,927 |
| 8,820 |
| 8,918 |
| 8,679 |
Dilutive securities: |
|
|
|
|
|
|
|
|
|
|
Stock options | 98 |
| 206 | 57 |
| 162 |
| 50 |
| 148 |
Weighted average shares, diluted | 9,007 |
| 8,755 | 8,984 |
| 8,982 |
| 8,968 |
| 8,827 |
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations per share, basic | $ 0.33 |
| $ 4.88 |
| $ 0.71 |
| $ 6.19 | |||
Income from discontinued operations per share, basic | 0.02 |
| - |
| 0.02 |
| - | |||
Net income per share, basic | $ 0.38 |
| $ 1.25 | $ 0.35 |
| $ 4.88 |
| $ 0.73 |
| $ 6.19 |
|
|
|
|
|
|
|
| |||
Income from continuing operations per share, diluted | $ 0.33 |
| $ 4.79 |
| $ 0.70 |
| $ 6.09 | |||
Income from discontinued operations per share, diluted | 0.02 |
| - |
| 0.03 |
| - | |||
Net income per share, diluted | $ 0.37 |
| $ 1.22 | $ 0.35 |
| $ 4.79 |
| $ 0.73 |
| $ 6.09 |
5. COMPREHENSIVE INCOME
Comprehensive income represents all changes in equityretained earnings during the reporting period, including net income and charges directly to equity,retained earnings, which are excluded from net income. For the three monththree- and six-month periods ended March 31,June 30, 2002 and 2001, the components of comprehensive income are as follows (in thousands):
| Three Months | ||
| Ended March 31, | ||
| 2002 |
| 2001 |
|
|
|
|
Net income | $ 3,370 |
| $ 10,710 |
Unrealized holding gains on available-for-sale |
|
|
|
securities, net of tax of $0 and $3,981, respectively | - |
| 7,393 |
Unrealized holding gains (losses) on price risk |
|
|
|
management, net of tax benefit of $1,573 and tax expense of $74 respectively | (2,921) |
| 137 |
Reclassification adjustment for price risk management, |
|
|
|
net of tax benefit of $442 and $0 respectively | (822) |
| - |
Comprehensive income (loss) | $ (373) |
| $ 18,240 |
| Three Months |
| Six Months | ||||
| Ended June 30, |
| Ended June 30, | ||||
| 2002 |
| 2001 |
| 2002 |
| 2001 |
|
|
|
|
|
|
|
|
Net income | $ 3,163 |
| $ 43,018 |
| $ 6,533 |
| $ 53,728 |
|
|
|
|
|
|
|
|
Holding gains on available-for-sale securities |
|
|
|
|
|
|
|
during period, net of tax | - |
| 1,348 |
| - |
| 8,741 |
Unrealized gains (losses) on price risk |
|
|
|
|
|
|
|
management, net of tax | 219 |
| 512 |
| (2,702) |
| 649 |
Reclassification adjustment for available-for-sale |
|
|
|
|
|
|
|
securities, net of tax | - |
| (35,547) |
| - |
| (35,547) |
Reclassification adjustment for price risk management, |
|
|
|
|
|
|
|
net of tax | 629 |
| - |
| (193) |
| - |
| $ 4,011 |
| $ 9,331 |
| $ 3,638 |
| $ 27,571 |
8
6. LONG-TERM INCENTIVE PLAN
In January 2002, pursuant to the PVR long-term incentive plan detailed in its 2001 Form 10-K, we purchased and awarded PVR common units to certain directors and employees as restricted units. The units are restricted for a five-year period, with 25 percent vested by the end of 2004, another 25 percent vested by the end of 2005, and the remaining 50 percent vested during 2006. Amounts related to this transaction are reported in the Unearned Compensation balance in the Shareholder's Equity section of the Balance Sheet. Compensation expense will be amortized related to these awards will be amortized into earnings ratably over the vesting period, PVR reimburses us for the cost we incurr to purchase and reimbursed byaward the PVR in the same manner.common units.
7. SEGMENT INFORMATION
Penn Virginia's operations are classified into two operating segments:
Oil and Gas - crude oil and natural gas exploration, development and production.
Coal Royalty and Land Management - the leasing of coal mineral rights and subsequent collection of coal royalties and the development and harvesting of timber. This segment's activities are conducted through Penn Virginia's ownership interest in Penn Virginia Resource Partners, L.P.
|
|
|
| Coal Royalty |
|
|
|
|
|
| and Land | All |
|
|
|
| Oil and Gas | Management | Other | Consolidated |
|
|
| (in thousands) | |||
March 31, 2002: |
|
|
|
|
|
|
Revenues |
|
| $ 13,378 | $ 10,755 | $ 250 | $ 24,383 |
Operating costs and expenses |
| 5,039 | 2,593 | 1,371 | 9,003 | |
Depreciation, depletion and amortization | 5,655 | 895 | 52 | 6,602 | ||
Operating income (loss) |
| 2,684 | 7,267 | (1,173) | 8,778 | |
Interest expense |
|
|
|
|
| (470) |
Interest income |
|
|
|
|
| 553 |
Income before minority interest |
|
|
|
|
| |
and taxes |
|
|
|
|
| $ 8,861 |
Identifiable assets |
|
| 289,053 | 164,931 | 8,037 | 462,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2001: |
|
|
|
|
|
|
Revenues |
|
| $ 17,176 | $ 9,547 | $ 398 | $ 27,121 |
Operating costs and expenses |
| 3,507 | 2,186 | 1,206 | 6,899 | |
Depreciation, depletion and amortization | 2,646 | 622 | 19 | 3,287 | ||
Operating income (loss) |
| 11,023 | 6,739 | (827) | 16,935 | |
Interest expense |
|
|
|
|
| (807) |
Interest income |
|
|
|
|
| 387 |
Income before taxes |
|
|
|
|
| $ 16,515 |
Identifiable assets |
|
| 145,103 | 80,631 | 56,320 | 282,054 |
All other - - primarily represents corporate assets and related expenses.
|
| Coal Royalty |
|
|
|
| |
|
| and Land |
| All |
|
| |
Oil and Gas |
| Management |
| Other |
| Consolidated | |
(in thousands) | |||||||
For the six months ended June 30, 2002: |
|
|
|
|
|
|
|
Revenues | $ 30,994 |
| $ 18,546 |
| $ 491 |
| $ 50,031 |
Operating costs and expenses | 12,263 |
| 4,837 |
| 3,626 |
| 20,726 |
Depreciation, depletion and amortization | 11,943 |
| 1,563 |
| 106 |
| 13,612 |
Operating income (loss) | $ 6,788 |
| $ 12,146 |
| $ ( 3,241) |
| $ 15,693 |
Interest expense |
|
|
|
|
|
| (959) |
Interest income |
|
|
|
|
|
| 1,075 |
Income from continuing operations |
|
|
|
|
|
|
|
before minority interest and taxes |
|
|
|
|
|
| $ 15,809 |
Identifiable assets | $ 294,585 |
| $ 165,344 |
| $ 6,762 |
| $ 466,691 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2001: |
|
|
|
|
|
|
|
Revenues | $ 32,636 |
| $ 18,444 |
| $ 782 |
| $ 51,862 |
Operating costs and expenses | 8,449 |
| 4,177 |
| 2,178 |
| 14,804 |
Depreciation, depletion and amortization | 5,450 |
| 1,271 |
| 40 |
| 6,761 |
Operating income (loss) | $ 18,737 |
| $ 12,996 |
| $ (1,436) |
| $ 30,297 |
Interest expense |
|
|
|
|
|
| (1,096) |
Gain on sale of securities |
|
|
|
|
|
| 54,688 |
Interest and other income |
|
|
|
|
|
| 844 |
Income before taxes |
|
|
|
|
|
| $ 84,733 |
Identifiable assets | $ 160,616 |
| $ 111,874 |
| $ 1,202 |
| $ 273,692 |
Identifiable assets are those assets used in the Company's operations in each segment. Corporate assets are principally cash and fixed assets.
9
8. DISCONTINUED OPERATIONS
8. NEW ACCOUNTING STANDARDS
In June 2001, During the Financial Accounting Standards Board issued Statementsecond quarter of Financial Accounting Standards ("SFAS") No. 143 Accounting for Asset Retirement Obligations. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred with the associated asset retirement costs being capitalized as a part of the carrying amount of the long-lived asset. SFAS No. 143 also includes disclosure requirements that provide a description of asset retirement obligations and reconciliation of changes in the components of those obligations. We currently record our plugging and abandoning costs (net of salvage value) with respect to our2002, we sold certain marginal oil and gas properties as additional depreciation and depletion expense usingthat were considered a component of the units-of-production method. This statement would require us to recognize a liability for the fair value of our plugging and abandoning liability (excluding salvage value) with the associated costs as part of our oil and gas property balance. We are evaluating the future financial reporting effect of adoptingCompany under SFAS No. 143 and will adopt the standard effective January 1, 2003.
Effective January 1, 2002 we adopted Statement of Financial Accounting Standards ("SFAS") No. 144 Accounting for the Impairment or Disposal of Long-Lived AssetsAssets.. This Statement supersedes The properties sold included various interests in South Texas properties acquired in the third quarter of last year. The net carrying amount of properties sold was $0.5 million. We adopted the provisions of SFAS No. 121, 144Accountingeffective January 1, 2002. Accordingly, the components of discontinued operations are as follows for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB No.three-months ended June 30, Reporting the Results of Operations -Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. There were no effects on the financial position,2002 (in thousands). The results of operations or liquidity infor the first quarter of 2002.2002 were insignificant.
Revenues | |
Natural gas | $ 48 |
Oil and condensate | 332 |
Total revenues | 380 |
Expenses | |
Operating expenses | 352 |
Depreciation, depletion and amortization | 25 |
Total expenses | 377 |
Income from discontinued operations | 3 |
Gain on sale of properties | 337 |
340 | |
Income taxes | (119) |
Net income from discontinued operations | $ 221 |
9. NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143 Accounting for Asset Retirement Obligations. This Statement requires companies to record a liability relating to the retirement and removal of assets used in their business. The liability is discounted to its present value, and the related asset value is increased by the amount of the resulting liability. Over the life of the asset, the liability will be accreted to its future value and eventually extinguished when the asset is taken out of service. The provisions of this Statement are effective for fiscal years beginning after June 15, 2002. We are currently evaluating the effects of this pronouncement.
9. CONSOLIDATING FINANCIAL STATEMENTS In April 2002, the FASB issued SFAS No. 145 Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This statement rescinds SFAS No. 4 Reporting Gains and Losses from Extinguishment of Debt, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item of debt to be aggregated and, if material, classified as an extraordinary item, net of income taxes. As a result, the criteria in Accounting Principles Board Opinion (APB) 30 will now be used to classify those gains and losses. Any gain or loss on the extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in APB 30 for classification as an extraordinary item shall be reclassified. The provisions of this Statement are effective for fiscal years beginning after January 1, 2003. We are currently evaluating the effects of this pronouncement.
In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This Statement requires the recognition of costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The following financial information presents consolidating financial statements, which include:
-- Corporate, Penn Virginia Oil & Gas and other wholly owned subsidiaries not included in Penn Virginia Resource Partners, L.P. ("Wholly Owned")
-- Penn Virginia Resource Partners, L.P. ("Partnership"provisions of this Statement are effective for exit or "PVR") in which we have an approximate 52 percent ownership interest
These statementsdisposal activities initiated after December 31, 2002. We are presented to illustratecurrently evaluating the consolidationeffects of Penn Virginia Corporation.this pronouncement.
10
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
PENN VIRGINIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENTS OF INCOME - Unaudited(in thousands)
|
|
| Three Months | ||||||
|
|
| Ended March 31, 2002 | ||||||
|
|
| Wholly Owned |
| Partnership |
| Eliminations |
| Consolidated |
Revenues: |
|
|
|
|
|
|
|
| |
Oil and condensate | $ 1,994 |
| - |
| - |
| $ 1,994 | ||
Natural gas |
| 11,337 |
| - |
| - |
| 11,337 | |
Coal royalties |
| - |
| 8,491 |
| - |
| 8,491 | |
Timber |
|
| - |
| 582 |
| - |
| 582 |
Other |
| 297 |
| 1,682 |
| - |
| 1,979 | |
Total revenues |
| 13,628 |
| 10,755 |
| - |
| 24,383 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
| |
Lease operating expenses | 1,938 |
| 876 |
| - |
| 2,814 | ||
Exploration expenses | 129 |
| 9 |
| - |
| 138 | ||
Taxes other than income | 1,351 |
| 161 |
| - |
| 1,512 | ||
General and administrative | 2,992 |
| 1,547 |
| - |
| 4,539 | ||
Depreciation, depletion, amortization | 5,707 |
| 895 |
| - |
| 6,602 | ||
Total expenses |
| 12,117 |
| 3,488 |
| - |
| 15,605 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income | 1,511 |
| 7,267 |
| - |
| 8,778 | ||
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
| ||
Interest expense |
| (87) |
| (383) |
| - |
| (470) | |
Interest income |
| 5 |
| 548 |
| - |
| 553 | |
Income before minority interest and income taxes | 1,429 |
| 7,432 |
| - |
| 8,861 | ||
Minority interest in Penn Virginia Resource Partners, L.P. | - |
| - |
| (3,565) |
| (3,565) | ||
Income tax expense | ( 1,926) |
| - |
| - |
| ( 1,926 ) | ||
Net income | $ (497) |
| $ 7,432 |
| $ (3,565) |
| $ 3,370 |
11
PENN VIRGINIA CORPORATION AND SUBSIDIARIES-UnauditedCONDENSED CONSOLIDATING BALANCE SHEETS (in thousands)March 31, 2002
|
|
|
|
| Wholly Owned |
| Partnership |
| Eliminations |
| Consolidated |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents |
|
| $ 2,822 |
| $ 10,663 |
| $ - |
| $ 13,485 | ||
Accounts receivable |
|
|
| 12,987 |
| 1,710 |
| (541) |
| 14,156 | |
Current portion of long-term notes receivable |
| - |
| 494 |
| - |
| 494 | |||
Price risk management assets | 427 | - | - | 427 | |||||||
Other |
|
|
|
| 1,186 |
| 57 |
| - |
| 1,243 |
Total current assets |
|
|
| 17,422 |
| 12,924 |
| (541) |
| 29,805 | |
|
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment |
|
|
|
|
|
|
|
|
| ||
Oil and gas properties (successful efforts method) | 343,518 |
| - |
| - |
| 343,518 | ||||
Other property and equipment |
|
| 2,154 |
| 116,479 |
| - |
| 118,633 | ||
Less: Accumulated depreciation, depletion and amortization | (66,331) |
| (12,366) |
| - |
| (78,697) | ||||
Total property and equipment |
|
| 279,341 |
| 104,113 |
| - |
| 383,454 | ||
|
|
|
|
|
|
|
|
|
|
|
|
Restricted U.S. Treasury Notes |
|
| - |
| 43,387 |
| - |
| 43,387 | ||
Other assets |
|
|
| 868 |
| 4,507 |
| - |
| 5,375 | |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
| $ 297,631 |
| 164,931 |
| (541) |
| 462,021 | |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
| ||||
Current liabilities |
|
|
|
|
|
|
|
|
|
| |
Current maturities of long-term debt |
| $ 2,989 |
| $ - |
| $ - |
| $ 2,989 | |||
Accounts payable |
|
|
| 4,470 |
| 2 |
| - |
| 4,472 | |
Accrued liabilities |
|
|
| 7,123 |
| 957 |
| (541) |
| 7,539 | |
Price risk management liabilities |
|
| 2,654 |
| - |
| - |
| 2,654 | ||
Taxes on income |
|
|
| 1,499 |
| - |
| - |
| 1,499 | |
Total current liabilities |
|
| 18,735 |
| 959 |
| (541) |
| 19,153 | ||
|
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
| 5,167 |
| 3,952 |
| - |
| 9,119 | |
Deferred income taxes |
|
|
| 54,202 |
| - |
| - |
| 54,202 | |
Long-term debt |
|
|
| 8,000 |
| - |
| - |
| 8,000 | |
Long-term loan |
|
|
| - |
| 43,387 |
| - |
| 43,387 | |
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest in Penn Virginia Resource Partners, L.P. | - |
| - |
| 145,559 |
| 145,559 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' equity |
|
|
|
|
|
|
|
|
| ||
Preferred stock of $100 par value- |
|
|
|
|
|
|
|
| |||
authorized 100,000 shares; none issued |
| - |
| - |
| - |
| - | |||
Common stock of $6.25 par value- |
|
|
|
|
|
|
|
| |||
16,000,000 shares authorized; 8,921,866 shares issued | 55,762 |
| - |
|
|
| 55,762 | ||||
Partners' capital |
|
|
| - |
| 116,633 |
| (116,633) |
| - | |
Other paid in capital |
|
|
| 35,296 |
| - |
| (25,361) |
| 9,935 | |
Retained earnings |
|
|
| 124,052 |
| - |
| (3,565) |
| 120,487 | |
Accumulated other comprehensive income |
| (1,987) |
| - |
| - |
| (1,987) | |||
|
|
|
|
| 213,123 |
| 116,633 |
| (145,559) |
| 184,197 |
Less: 6,339 shares in 2002 of common stock held |
|
|
|
|
|
|
| ||||
in treasury, at cost |
|
|
| 166 |
| - |
| - |
| 166 | |
Unearned compensation - ESOP |
|
| 1,430 |
| - |
| - |
| 1,430 | ||
Total shareholders' equity |
|
| 211,527 |
| 116,633 |
| (145,559) |
| 182,601 | ||
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' equity |
| $ 297,631 |
| $ 164,931 |
| $ (541) |
| $ 462,021 |
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
We operate in two business segments: oil and gas and coal royalty and land management. The oil and gas segment exploresincludes the exploration for, developsdevelopment and producesproduction of crude oil, condensate and natural gas in the eastern and southern portions of the United States. We also own mineral rights to oil and gas reserves. The coal royalty and land segment includes coal reserves, timber and other land assets owned by Penn Virginia Resource Partners, L.P. (the "Partnership" or "PVR") mineral rights to coal reserves, its timber assets and land assets.. The assets, liabilities and earnings of PVR are included in our consolidated financial statements, with the public unitholders' interest reflected as a minority interest. Selected operating and financial data by segment is presented below. Our critical accounting policies are disclosed in our 2001 Form 10-K report.
Results of Operations - FirstSecond Quarters of 2002 and 2001 Compared
We reported 2002 firstsecond quarter consolidated earningsnet income of $3.4$3.2 million or $0.37$0.35 per share (diluted), compared with $10.7$43.0 million or $1.22$4.79 per share (diluted) for the firstsecond quarter of 2001. On a consolidated basis, revenues decreased $2.7increased $1.0 million, primarily as a result of decreased natural gas prices, offset in part by increases inincreased natural gas and crude oil production, offset in part by a decrease in coal tons produced and coal royalties.a decrease in natural gas prices received. Expenses on a consolidated basis were $5.4$7.4 million higher than the 2001 comparable period, primarily due to our acquisition of Synergy Oil & Gas, Inc. ("Synergy")certain South Texas oil and gas properties in the third quarter of last year.
Interest expense. On a consolidated basis, interest expense was $0.5 million for the quarter ended March 31,June 30, 2002, compared with $0.8$0.3 million for the same period in 2001, a decreasean increase of $0.3$0.2 million or 3867 percent. The decreaseincrease is primarily due to the repayment of long-termadditional borrowings during the first six months of this year. The 2002 interest expense primarily relates to the $43.4 million PVR term loan secured by U.S. Treasury Notes.
Interest income. Interest income was approximately $0.5 million for both periods. The 2002 interest income was earned on the U.S Treasury Notes and a note receivable related to the sale of coal properties in 1986.
Minority interest. Minority interest for the quarter ended June 30, 2002 was $2.4 million, representing the public unitholders' 48 percent interest in PVR's net income of $5.0 million.
Results of Operations - Six Months of 2002 and 2001 Compared
We reported 2002 six months consolidated net income of $6.5 million, or $0.73 per share (diluted), compared with $53.7 million, or $6.09 per share (diluted) for the same period of 2001. On a consolidated basis, revenues decreased $1.8 million, primarily from a decrease in natural gas prices partially offset by increases in natural gas and crude oil production. Expenses on a consolidated basis were $12.8 million higher than the 2001 comparable period, primarily due to the acquisition of certain South Texas oil and gas properties in the third quarter of 2001.
Interest expense. Interest expense was $1.0 million for the six months ended June 30, 2002, compared with $1.1 million for the same period in 2001. The 2002 interest expense primarily relates to the $43.4 million PVR term loan secured by U.S. Treasury Notes.
Interest incomeincome:. Interest income was $0.5$1.1 million for the quarter ended March 31,first six months of 2002, compared with $0.4$0.8 million for the same period in 2001. 2002 interest was earned onThe increase is due to the U.S. Treasury Notes purchased in late 2001.
Selected operating and a note receivable related to the sale of coal properties in 1986.financial data by segment is presented below.
Minority Interest. Minority interest for the quarter ended March 31, 2002 was $3.6 million, representing the public unitholders' 48 percent interest in PVR's net income of $7.4 million.11
Income taxes. The effective tax rate for the three month period ended March 31, 2002 was 36 percent, compared to 35 percent for the comparable period in 2001. The effective tax was slightly greater than the statutory rate in 2002 as a result of state income taxes associated with the Synergy acquisition.
13
Oil and Gas Segment
Quarter Ended June 30, 2002 Compared to Quarter Ended June 30, 2001
Operating income for the oil and gas segment was $2.7$4.1 million for the firstsecond quarter of 2002, compared with $11.0$7.7 million for the firstsecond quarter of 2001. Operational and financial data for the Company's oil and gas segment for the first quarter of 2002 and 2001 is summarized as follows:
Operations and Financial Summary
|
|
|
| Three Months | Three Months | |||||||||||||
|
|
|
| Ended March 31, | Ended June 30, | |||||||||||||
Production | Production |
|
| 2002 |
| 2001 | 2002 |
| 2001 | |||||||||
Natural gas (MMcf) | Natural gas (MMcf) |
|
| 4,265 |
|
|
| 2,763 |
|
| 4,643* |
| 2,932 | |||||
Oil and condensate (MBbls) |
|
| 92 |
|
|
| 3 |
|
| |||||||||
Equivalent production, Mmcfe |
|
| 4,817 |
|
|
| 2,781 |
|
| |||||||||
Oil and condensate (Mbbls) | 76* |
| 4 | |||||||||||||||
Equivalent production, MMcfe | 5,099 |
| 2,956 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
| (in thousands, except unit cost) | (in thousands, except unit cost) | |||||||||||||
Revenues: | Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Oil and condensate (including $/Bbl) |
| $ 1,994 |
| $ 21.67 |
| $ 82 |
| $ 27.33 | ||||||||||
Natural gas (including $/Mcf) | Natural gas (including $/Mcf) |
|
| 11,337 |
| 2.66 |
| 17,041 |
| 6.17 | $ 15,683 |
| $ 3.38 |
| $ 14,506 |
| $ 4.95 | |
Oil and condensate (including $Bbl) | 1,875 |
| 24.67 |
| 77 |
| 19.25 | |||||||||||
Other income | Other income |
|
| 47 |
| - |
| 53 |
| - | 58 |
| - |
| 877 |
| - | |
Total revenues (including $/Mcfe) | Total revenues (including $/Mcfe) |
| 13,378 |
| 2.77 |
| 17,176 |
| 6.18 | 17,616 |
| 3.45 |
| 15,460 |
| 5.23 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Expenses (including $/Mcfe): | Expenses (including $/Mcfe): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Lease operating expenses | Lease operating expenses |
|
| 1,789 |
| 0.37 |
| 818 |
| 0.29 | 1,974 |
| 0.39 |
| 1,052 |
| 0.36 | |
Exploration expenses | Exploration expenses |
|
| 44 |
| 0.01 |
| 672 |
| 0.24 | 2,005 |
| 0.39 |
| 1,804 |
| 0.61 | |
Taxes other than income | Taxes other than income |
|
| 1,252 |
| 0.26 |
| 1,058 |
| 0.38 | 1,315 |
| 0.26 |
| 1,015 |
| 0.34 | |
General and administrative | General and administrative |
|
| 1,954 |
| 0.41 |
| 959 |
| 0.34 | 1,930 |
| 0.38 |
| 1,071 |
| 0.36 | |
Depreciation and depletion | Depreciation and depletion |
|
| 5,655 |
| 1.17 |
| 2,646 |
| 0.95 | 6,288 |
| 1.23 |
| 2,804 |
| 0.95 | |
Total expenses | Total expenses |
|
|
| 10,694 |
| 2.22 |
| 6,153 |
| 2.20 | 13,512 |
| 2.65 |
| 7,746 |
| 2.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Operating Income (including $/Mcfe) | Operating Income (including $/Mcfe) |
| $ 2,684 |
| $ 0.55 |
| $ 11,023 |
| $ 3.98 | $ 4,104 |
| $ 0.80 |
| $ 7,714 |
| $ 2.61 |
* Excludes 18 MMcf natural gas and 16 Mbbls oil and condensate production related to discontinued operations.
In the firstsecond quarter 2002, 4251 percent of our natural gas and crude oil production was sold at market prices. The remainder was sold subject to cash flow hedges at an average floor price of $2.92$2.96 per McfMMbtu and ceiling price of $3.41$3.36 per McfMMbtu for natural gas, and an average floor price of $21.36$21.33 per barrel and ceiling of $25.75$25.73 per barrel for crude oil. The effects of these hedges were to decrease the average natural gas prices received by $0.20 per Mcf and by $0.68 per barrel for crude oil.
See "Note. 2"Note 2. Price Risk Management Activities" in the Notes to the Condensed Consolidated Financial Statements for details of costless collars and a fixed price swap for the period AprilJuly 2002 through October 2003. We will continue, when circumstances warrant, hedging the price received for market-sensitive production through the use of fixedsimilar type transactions.
Natural gas. Natural gas sales increased $1.2 million, or 8 percent, in the first quarter of 2002,compared with the same period of 2001. The average natural gas price term contractsreceived was 32 percent lower in the second quarter of 2002, compared with the same quarter of the prior year. However, more than offsetting the price decrease was a production increase of 1,711 MMcf, or derivatives.58 percent, in the second quarter of 2002 compared with the same period in 2001. The production increase was due to the acquisition of certain South Texas properties in the third quarter of last year and to increased production from the Gwinville Field.
Oil and Condensate.condensate. Oil sales increased $1.9$1.8 million in the firstsecond quarter of 2002, compared with the same period of 2001. The increase was a direct result of increased production related to the Synergy acquisition of certain South Texas properties in the third quarter of 2001.last year.
12
Lease operating expenses. Operating expenses for the second quarter of 2002 were $2.0 million, compared with $1.1 million in the first quarter of 2001. The increase was primarily attributable to the third quarter 2001 acquisition of certain South Texas oil and gas properties.
Exploration expenses. Exploration expenses for the second quarter of 2002 increased to $2.0 million, compared with $1.8 million in the second quarter of 2001. This variance was a result of the timing and makeup of exploration activities between the two periods.
Taxes other than on income. Taxes other than on income increased to $1.3 million in the second quarter of 2002 from $1.0 million in 2001. The increase was primarily due to higher production. However, on a unit of production basis, severance and ad valorem taxes decreased due to the lower prices received for natural gas.
General and administrative. General and administrative expenses increased to $1.9 million in the second quarter of 2002 from $1.1 million in 2001. The increase was attributable to the acquisition of certain South Texas oil and gas properties in the third quarter of 2001 and personnel expenses related to our anticipated expansion in Gulf Coast region activity.
Depreciation and depletion. Depreciation and depletion increased to $6.3million in the second quarter of 2002 from $2.8 million in 2001. The increase was a result of higher production and the third quarter 2001 acquisition of South Texas oil and gas properties and its higher cost basis of related assets.
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
Operations and Financial Summary
| Six Months | ||||||
| Ended June 30, | ||||||
Production | 2002 |
| 2001 | ||||
Natural gas (MMcf) | 8,908 |
| 5,695 | ||||
Oil and condensate (Mbbls) | 168 |
| 7 | ||||
Equivalent production, MMcfe | 9,916 |
| 5,737 | ||||
|
|
|
|
|
|
|
|
| (in thousands, except unit cost) | ||||||
Revenues: |
|
|
|
|
|
|
|
Natural gas (including $/Mcf) | $ 27,020 |
| $ 3.03 |
| $ 31,547 |
| $ 5.54 |
Oil and condensate (including $Bbl) | 3,869 |
| 23.03 |
| 159 |
| 22.71 |
Other income | 105 |
| - |
| 930 |
| - |
Total revenues (including $/Mcfe) | 30,994 |
| 3.13 |
| 32,636 |
| 5.69 |
|
|
|
|
|
|
|
|
Expenses (including $/Mcfe): |
|
|
|
|
|
|
|
Lease operating expenses | 3,763 |
| 0.38 |
| 1,870 |
| 0.33 |
Exploration expenses | 2,049 |
| 0.21 |
| 2,476 |
| 0.43 |
Taxes other than income | 2,567 |
| 0.26 |
| 2,073 |
| 0.36 |
General and administrative | 3,884 |
| 0.39 |
| 2,030 |
| 0.35 |
Depreciation and depletion | 11,943 |
| 1.20 |
| 5,450 |
| 0.95 |
Total expenses | 24,206 |
| 2.44 |
| 13,899 |
| 2.42 |
|
|
|
|
|
|
|
|
Operating Income (including $/Mcfe) | $ 6,788 |
| $ 0.69 |
| $ 18,737 |
| $ 3.27 |
In the first half of 2002, 41 percent of our natural gas and crude oil production was sold at market prices. The remainder was sold subject to cash flow hedges at an average floor price of $2.94 per MMbtu and ceiling price of $3.39 per MMbtu for natural gas, and an average floor price of $21.35 per barrel and ceiling of $25.74 per barrel for crude oil. The effects of these hedges were to increase the average price received for natural gas by $0.03 per Mcf and by $0.42 per barrel for crude oil.
13
See "Note 2. Price Risk Management Activities" in the Notes to the Condensed Consolidated Financial Statements for details of costless collars and a fixed price swap for the period July 2002 through October 2003. We will continue, when circumstances warrant, hedging the price received for market-sensitive production through the use of similar type transactions.
Natural Gas.gas. Natural gas sales decreased $5.7$4.5 million, or 3314 percent, in the first quarterhalf of 2002,compared with the same period of 2001. The average natural gas price received was 5745 percent lower in the first quarterhalf of 2002, compared with the same quarter of the prior year. Offsetting the price decrease was a production increase of 1,5023,213 MMcf, or 5456 percent, in the first quarterhalf of 2002 compared with the same period in 2001. The production increase was due to the Synergy acquisition of certain South Texas oil and gas properties in the third quarter of last year and to increased production from the Gwinville Field.
Oil and condensate. Oil sales increased $3.7 million in the first half of 2002, compared with the same period of 2001. The increase was a direct result of increased production related to the acquisition of certain South Texas oil and gas properties in the third quarter of last year.
Lease operating Expenses.expenses. Operating expenses for the first quarterhalf of 2002 were $1.8$3.8 million, compared with $0.8$1.9 million in the first quarter of 2001. On a Mcfe basis, operating expenses increased to $0.37 in 2002 from $0.29 in 2001. The increase was primarily attributable to the acquisition of certain South Texas oil and gas properties in the third quarter 2001 Synergy acquisition.of last year.
14
Exploration Expenses.expenses. Exploration expenses for the first quartersix months of 2002 decreased to $44 thousand,$2.0 million, compared with $700 thousand$2.5 million in the first quartersix months of 2001. TimingThis variance is a result of when seismic expenditures associated with the Company'stiming and makeup of exploration activities will or have taken place isbetween the cause of the variance.two periods.
Taxes other than on Income.income. Taxes other than on income increased to $1.3$2.6 million in the first quarterhalf of 2002 from $1.1$2.1 million in 2001. On a Mcfe basis, taxes other than on income decreased to $0.26 in 2002 versus $0.38 in 2001. The decrease isincrease was primarily due to decreasedhigher production. However, on a unit of production basis severance and ad valorem taxes associated withdecreased due to the lower prices received for natural gas.
General and Administrative.administrative. General and administrative expenses increased to $2.0$3.9 million in the first quarterhalf of 2002 from $1.0$2.0 million in 2001. On a Mcfe basis, general and administrative expenses increased to $0.41$0.39 in 2002 versus $0.34as compared to $0.35 in 2001. The increase was attributable to the Synergy acquisition of South Texas oil and gas properties in the third quarter of last year and personnel expenses related personnel expenses.to our anticipated expansion in Gulf Coast region activity.
Depreciation and Depletion.depletion. On a Mcfe basis, depreciationDepreciation and depletion increased to $1.17 per Mcfe$11.9 million in the first quartersix months of 2002 from $0.95 per Mcfe$5.5 million in 2001. The increase iswas a result of the acquisition of South Texas oil and gas properties in the third quarter 2001 Synergy acquisitionof last year and its higher cost basis of related assets.
Coal Royalty and Land Management
The coal royalty and land management segment includes PVR's mineral rights to coal reserves, its timber assets and its land assets. The assets, liabilities and earnings of PVR are included in our consolidated financial statements, with the public unitholders' interest reflected as a minority interest.
In January and February 2002, two of PVR's significant lessees AEI Resources, Inc. ("AEI") and Pen Holdings, Inc. ("Pen Holdings"), filed for bankruptcy protection under Chapter 11 of the U.S.U. S. Bankruptcy Code. One of the lessees, Horizon Resources (formerly AEI Resources, Inc.) has continuedreorganized, is no longer in bankruptcy and has made all payments to makePVR as required under its lease on a timely basis. The other lessee, Pen Holdings, Inc. remains in bankruptcy and has paid all required post-petition minimum rental payments due under its leases since its bankruptcy filing. However, on March 4,through June 30, 2002, while deciding whether to accept or reject PVR's lease. Pen Holdings idled operation on its leased property. Minimum rentals undermust determine whether to accept or reject the Pen Holdings lease are $200,000 per month. At Marchby August 31, 2002, Pen Holdings' net receivable balance due us totaled $434,000. Subsequent2002. PVR continues to March 31, 2002, PVR has collected $314,505 from Pen Holdings against that balance. PVR is continuously evaluatingevaluate its business alternatives with respect to the AEI and Pen Holdings lessees and is aggressively pursuing our legal remedies in connection with Pen Holding's failure to pay amounts due under its lease. Although PVR believes that it will collect the amounts past due under the Pen Holdings lease during 2002, and that AEI will continue to make payments due under its leases with PVR,this lessee. PVR cannot be certain as to the timing or actual amount of revenues it will receive under any of these leases.from this lessee or whether the lease will be accepted or rejected. A reduction in 2002 revenuescash received from AEI and Pen Holdingsthese lessees will cause a reduction in cash available for distribution to ourPVR unitholders in 2002. In that event, however,However, PVR believes it would stillwill be able to pay all minimum quarterly distributions on all common and subordinated units in 2002.
1514
Operating income for the coal royalty and land management segment was $7.3 million for the first quarter of 2002, compared with $6.7 million for the first quarter of 2001. OperationalThe following table sets forth operational and financial data for the Company's coal segment for the second quarter ended June 30, 2002 and 2001 first quarter is summarizedcompared with the same period in the following tables:2001:
Operations and Financial Summary
|
| Three Months | Three Months | ||||||||||||||
|
| Ended March 31, | Ended June 30, | ||||||||||||||
|
| 2002 |
| 2001 | 2002 |
| 2001 | ||||||||||
Production |
| ||||||||||||||||
Production: |
|
|
| ||||||||||||||
Coal tons (000's) | Coal tons (000's) |
| 3,802 |
| 3,835 |
| 3,096 |
| 3,716 | ||||||||
Timber (Mbf) |
| 3,126 |
| 1,850 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| (in thousands, except unit cost) | (in thousands, except unit cost) | ||||||||||||||
Revenues: | Revenues: |
|
|
|
|
|
|
|
| ||||||||
Coal royalties (including $/ton) | Coal royalties (including $/ton) | $ 8,491 |
| $ 2.23 |
| $ 7,333 |
| $ 1.91 | $ 6,693 |
| $ 2.16 |
| $ 7,928 |
| $ 2.13 | ||
Timber sales (including $/Mbf) | 582 |
| 174.00 |
| 361 |
| 159.00 | ||||||||||
Timber sales | 499 |
| - |
| 397 |
| - | ||||||||||
Gain on sale of properties | Gain on sale of properties |
| - |
| - |
| 26 |
| - | - |
| - |
| - |
| - | |
Other income | Other income |
| 1,682 |
| - |
| 1,827 |
| - | 599 |
| - |
| 572 |
| - | |
Total revenues (including $/ton) | Total revenues (including $/ton) | 10,755 |
| 2.83 |
| 9,547 |
| 2.49 | 7,791 |
| 2.52 |
| 8,897 |
| 2.39 | ||
|
|
|
|
|
|
|
|
| |||||||||
Expenses (including $/ton): | Expenses (including $/ton): |
|
|
|
|
|
|
|
| ||||||||
Lease operating expenses | Lease operating expenses |
| 885 |
| 0.23 |
| 833 |
| 0.22 | 446 |
| 0.14 |
| 664 |
| 0.18 | |
Taxes other than income | Taxes other than income |
| 161 |
| 0.04 |
| 188 |
| 0.05 | 261 |
| 0.08 |
| 159 |
| 0.04 | |
General and administrative | General and administrative |
| 1,547 |
| 0.41 |
| 1,165 |
| 0.30 | 1,537 |
| 0.50 |
| 1,168 |
| 0.31 | |
Depreciation and depletion | Depreciation and depletion |
| 895 |
| 0.24 |
| 622 |
| 0.16 | 668 |
| 0.22 |
| 649 |
| 0.17 | |
Total expenses | Total expenses |
| 3,488 |
| 0.92 |
| 2,808 |
| 0.73 | 2,912 |
| 0.94 |
| 2,640 |
| 0.70 | |
|
|
|
|
|
|
|
|
| |||||||||
Operating Income (including $/ton) | Operating Income (including $/ton) | $ 7,267 |
| $ 1.91 |
| $ 6,739 |
| $ 1.76 | $ 4,879 |
| $ 1.58 |
| $ 6,257 |
| $ 1.69 |
Certain reclassifications have been made to conform toRevenues. Revenues in the currentsecond quarter of 2002 were $7.8 million compared with $8.9 million for the same period presentation.
Coal Royalties.in 2001, representing a 12 percent decrease. Coal royalty revenues for the quarterthree months ended March 31,June 30, 2002 were $8.5$6.7 million compared to $7.3$7.9 million for the same period in 2001, a decrease of $1.2 million, or 16 percent. While the average gross royalties per ton remained stable over the respective periods, the production from lessees decreased 17 percent. The 0.6 million tonnage decrease in lessee production was primarily due to a reduction in general market demand for coal. The majority of lessees experienced reduced production for the comparable periods.
Timber revenues increased to $0.5 million for the three months ended June 30, 2002 from $0.4 million for the same period in 2001, an increase of $1.2 million, or 1626 percent. While production remained stable over the respective periods, the average gross royalty per ton received from our lessees increased 17 percent, from $1.91 to $2.23. The economic conditions of the coal market in the latter half of 2001 were strong and many of our lessees entered into higher priced long-term contracts during that period.
Timber Sales.Timber sales increased to $0.6 million in the first quarter of 2002 from $0.4 million in the comparable 2001 period. Volume sold was 3,1262,676 Mbf in the firstsecond quarter of 2002, compared with 1,8502,124 Mbf for the same period in 2001. The average realized prices increased from $159$154 per Mbf in the firstsecond quarter of 2001 to $174$177 per Mbf in the comparable period of 2002. The increase in volume sold iswas due to the timing of parcel sales. Thesales and an increase in the average price received resultedresulting from slightly better geographic and economic conditions.
Other Income.Other income remained relatively constant at $1.7$0.6 million infor the first quarter ofthree months ended June 30, 2002 compared with $1.8 million in the comparable 2001 period.and 2001. The primary components of other income arewere fees generated from the Company'sPartnership's unit-train loadout andfacility, forfeited minimums received from the Partnership's lessees.lessees and miscellaneous land rentals.
Operating Costs and Expenses.Aggregate operating costs and expenses for the second quarter of 2002 were $2.9 million, compared with $2.6 million for the same period in 2001, an increase of $0.3 million, or 12 percent. The increase in operating costs and expenses related primarily to increases in general and administrative expenses.
Operating expenses slightly increased(including lease operating expenses and taxes other than income) decreased by 14 percent, to $0.7 million in the firstsecond quarter of 2002, compared with $0.8 million in the same period of 2001. The expenses incurred in both years arewere consistent with the amount of coal tons produced by the Partnership's lessees.our lessees at $0.22 per ton.
1615
Taxes other than Income. Taxes other than income decreased $27,000, or 14 percent, from $188,000 in the first quarter of 2001 to $161,000 in the first quarter of 2002. On a per ton basis, taxes other than income remained relatively constant at $0.04 in 2002 versus $0.05 in 2001.
General and Administrative.
General and administrative expenses increased $0.4 million, or 3332 percent, in the firstsecond quarter of 2002, compared with the same period of 2001. The increase iswas primarily attributable to recurring fees and expenses associated with being a public entity, such as director's fees, tax reporting byfor the Partnership.partnership and fees for professional services.
Depreciation and Depletion.Depreciation and depletion for the quarter ended March 31,June 30, 2002 was $0.9$0.7 million compared with $0.6 million for the same period of 2001, an increase of $0.3 million or 443 percent. The increase in depreciation and depletion resulted from a significantdownward revision of coal reserves in 2001 and depreciation related to coal services capital projects.
Six Months Ended June 30, 2002 Compared to Six Months Ended June 30, 2001
The following table sets forth operational and financial data for the Company's coal segment for the six months ended June 30, 2002 compared with the same period in 2001:
Operations and Financial Summary
| Six Months | ||||||
| Ended June 30, | ||||||
| 2002 |
| 2001 | ||||
Production: |
|
|
| ||||
Coal tons (000's) | 6,898 |
| 7,551 | ||||
|
|
|
|
|
|
|
|
| (in thousands, except unit cost) | ||||||
Revenues: |
|
|
|
|
|
|
|
Coal royalties (including $/ton) | $ 15,184 |
| $ 2.20 |
| $ 15,261 |
| $ 2.02 |
Timber sales | 1,081 |
| - |
| 758 |
| - |
Gain on sale of properties | - |
| - |
| 26 |
| - |
Other income | 2,281 |
| - |
| 2,399 |
| - |
Total revenues (including $/ton) | 18,546 |
| 2.69 |
| 18,444 |
| 2.44 |
|
|
|
|
|
|
|
|
Expenses (including $/ton): |
|
|
|
|
|
|
|
Lease operating expenses | 1,331 |
| 0.19 |
| 1,497 |
| 0.20 |
Taxes other than income | 422 |
| 0.06 |
| 347 |
| 0.05 |
General and administrative | 3,084 |
| 0.45 |
| 2,333 |
| 0.31 |
Depreciation and depletion | 1,563 |
| 0.23 |
| 1,271 |
| 0.17 |
Total expenses | 6,400 |
| 0.93 |
| 5,448 |
| 0.73 |
|
|
|
|
|
|
|
|
Operating Income (including $/ton) | $ 12,146 |
| $ 1.76 |
| $ 12,996 |
| $ 1.71 |
Revenues. Revenues for the six months ended June 30, 2002 were $18.5 million compared with $18.4 million for the same period in 2001, a 1 percent increase. Coal royalty revenues for the first half of 2002 were $15.2 million compared to $15.3 million for the same period in 2001, a decrease of $0.1 million, or 1 percent. While the average gross royalties per ton increased by 9 percent over the respective periods, the production from lessees decreased 9 percent. The majority of lessees experienced reduced production for the comparable periods, which accounted for the 0.7 million tonnage decrease. Although lessee production decreased due to a reduction in general market demand for coal, the average gross royalty received was higher because many lessees entered into higher priced long-term contracts in the last half of 2001.
Timber revenues increased to $1.1 million for the six months ended June 30, 2002 from $0.8 million for the same period in 2001, an increase of 43 percent. Volume sold was 5,802 Mbf in the first half of 2002, compared with 3,974 Mbf for the same period in 2001. The increase in volume sold was due to the timing of parcel sales.
16
Other income remained relatively constant at $2.3 million compared to $2.4 million for the six months ended June 30, 2002 and 2001, respectively. The primary components of other income were fees generated from the Partnership's unit-train loadout facility (coal services), forfeited minimums received from the Partnership's lessees and miscellaneous land rentals. Coal services revenue decreased to $0.9 million in the first half of 2002 from $1.0 million for the comparable period of 2001, representing a 14 percent decrease. The decrease related primarily to one of our lessees entering into industrial contracts, which allows a portion of their production to be hauled by truck and by-pass our unit-train loadout facility.
Operating Costs and Expenses. Aggregate operating costs and expenses for the first half of 2002 were $6.4 million, compared with $5.4 million for the same period in 2001, an increase of $1.0 million, or 17 percent. The increase in operating costs and expenses primarily related to increases in general and administrative expenses.
Operating expenses (including lease operating expenses and taxes other than income) remained relatively stable at $1.8 million for the six months ended June 30, 2002 and 2001. The expenses incurred in both years were consistent with the amount of coal tons produced by our lessees at $0.25 per ton.
General and administrative expenses increased $0.8 million, or 32 percent, in the first half of 2002, compared with the same period of 2001. The increase was primarily attributable to recurring fees and expenses associated with being a public entity, such as director's fees, tax reporting for the partnership and fees for professional services.
Depreciation and depletion for the six months ended June 30, 2002 was $1.6 million compared with $1.3 million for the same period of 2001, an increase of 23 percent. The increase in depreciation and depletion resulted from a downward revision of coal reserves in 2001 and depreciation related to coal services capital projects.
Capital Expenditures, Capital Resources and Liquidity
Cash Flows from Operating Activities
Funding for our activities has historically been provided by operating cash flows and bank borrowings. Net cash provided by operating activities was $10.9$22.7 million in the first quartersix months of 2002, compared with $15.9$26.2 million in the first quartersix months of 2001.The decrease was mostlyprimarily due to lower natural gas prices and crudeincreased expenses due to the acquisition of certain South Texas oil prices.and gas properties in the third quarter of 2001.
17
During the first quarterhalf of 2002, we used $8.7$19.6 million in investing activities, compared with $6.9$4.3 million provided by investing activities in the first half of 2001. Additions to property and equipment totaled $21.3 million in the first quarter of 2001. Capital expenditures totaled $9.0 million in the first quarterhalf of 2002, compared with $7.2$55.0 million in the same period in 2001. The following table sets forth capital expendituresadditions to property and equipment made during the periods indicated.
|
| Three Months | Six Months | ||||
|
| Ended March 31, | Ended June 30, | ||||
|
| 2002 |
| 2001 | 2002 |
| 2001 |
|
| (in thousands) | (in thousands) | ||||
Oil and gas |
|
|
|
| |||
Development drilling | $ 17,130 |
| $ 13,986 | ||||
Exploratory drilling | 554 |
| 1,575 | ||||
Lease acquisitions |
| $ 809 |
| $ 119 | 1,531 |
| 5,675 |
Development |
| 6,455 |
| 6,216 | |||
Exploration |
| 630 |
| 722 | |||
Support equipment and facilities |
| 235 |
| 32 | 998 |
| 137 |
Seismic | 1,789 |
| 905 | ||||
Oil and gas capital expenditures | 22,002 |
| 22,278 | ||||
|
|
|
| ||||
Coal royalty and land management |
|
|
|
| |||
Lease acquisitions |
| 98 |
| 1 | 80 |
| 33,257 |
Support equipment and facilities |
| 416 |
| 107 | 701 |
| 300 |
Coal royalty and land management capital expenditures | 781 |
| 33,557 | ||||
|
|
|
| ||||
Other |
| 329 |
| 27 | 268 |
| 41 |
|
| $ 8,972 |
| $ 7,224 |
|
|
|
Total capital expenditures | 23,051 |
| 55,876 | ||||
Less: Seismic | (1,789) |
| (905) | ||||
Additions to property and equipment | $ 21,262 |
| $ 54,971 |
17
We drilled 3363 gross (27.5 net)(48.6) wells in the first quartersix months of 2002, compared to 3777 gross (29.9(61.6 net) in the same period in 2001. Capital expenditures for the remainder of fiscal year 2002, before lease and proved property acquisitions, are expected to be $35$24 to $40$28 million predominantly for the drilling of exploration and the development of wells in the oil and gas segment with approximately $1$0.2 million allocated to the coal royalty and land management segment. In addition, we plan to invest $5$4 to $6$5 million in the acquisition and evaluation of seismic data. We plan to drill approximately 8045 to 9055 gross (45(18 to 5527 net) wells during the remainder of 2002. We continually review drilling expenditures and may increase, decrease or reallocate amounts based on industry conditions. We believe our cash flow from operations and sources of debt financing are sufficient to fund our total 2002 planned capital expenditure program.
Cash Flows from Financing Activities
Net cash provided byused in financing activities totaled $1.6$0.8 million in the first quartersix months of 2002, compared to $9.7$30.6 million net cash used in financing activities in the same period in 2001. We paid $2.0 million of dividends inIn addition to cash flow from operating activities, for the first quartersix months of 2002, $2.0we received $9.3 million in proceeds from borrowing, which was used to finance capital expenditures. Dividends to our shareholders and distributions were paid by PVR to minority interest holders $1.0 million was paid to purchase units ofin PVR offset by net draw downs on the debt facilities totaling $6.2 million.were also paid.
Penn Virginia has a $150 million secured revolving credit facility (the "Revolver") with a final maturity of October 2004. The Revolver currently has a borrowing base of $140 million and had $14.0 million borrowed against it as of June 30, 2002. We have the option to elect interest at (i) LIBOR plus a Eurodollar margin ranging from 1.375 to 1.875 percent, based on the percentage of the borrowing base outstanding or (ii) the greater of the prime rate or federal funds rate plus a margin ranging from 0.375 to 0.875 percent. The Revolver contains financial covenants requiring the Company to maintain certain levels of net worth and to comply with certain debt-to-capitalization and dividend limitation restrictions, among other requirements. The revolver has a borrowing baseWe are currently in compliance with all of $140 million and had borrowing of $8.0 million against it as of March 31, 2002.the covenants in the Revolver. We also currently have a $5 million line of credit with a financial institution due in December 2002, renewable annually. We have the option to elect either a fixed rate LIBOR loan, floating rate LIBOR loan or base rate loan. We are in compliance with all the aforementioned covenants as of March 31, 2002.
18
The Partnership has a credit agreement expiring in October 2004 comprised of a $50 million unsecured revolving credit facility,loan (the "Partnership Revolver"), which was undrawn as of March 31, 2002. As part of the credit facility the Partnership had also borrowed an additional $43.4 million in the form ofJune 30, 2002, and a term loan as of March 31, 2002. The term loan expires in October 2004 and is secured by restricted U.S. Treasury Notes.Notes, which was fully drawn in the amount of $43.4 million as of June 30, 2002. The Partnership Revolver includes the option to elect interest at (i) LIBOR plus a Euro-rate margin ranging from 1.25 percent to 1.75 percent, based on certain financial data or (ii) the greater of the prime rate or federal funds rate plus 0.5 percent. The Partnership has the option to elect interest on the term loan at (i) LIBOR plus a Euro-rate margin of 0.5 percent, based on certain financial data or (ii) the greater of the prime rate or federal funds rate plus .050.5 percent. The financial covenants of the term loanPartnership's credit agreement include, but are not limited to, maintaining certain levelsmaintaining: (i) a ratio of financial leverage, interest coveragenot more than 2.5:1.0 of total debt to consolidated EBITDA (as defined by the credit agreements) and cash flow. We are(ii) a ratio of not less than 4.00:1.00 of consolidated EBITDA to fixed charges. The Partnership is currently in compliance with all the aforementioned covenants as of March 31, 2002.its covenants.
Management believes its sources of funding are sufficient to meet short and long-term liquidity needs not funded by cash flows from operations.
OtherLegal and Environmental
Effective January 1,On May 8, 2002, we adopted Statementthe United States District Court for the Southern District of West Virginia ruled that Section 404 of the Clean Water Act does not permit placement of coal overburden, which the Court described as "waste," in waters of the United States. This decision currently makes it virtually impossible for coal mining operators to obtain permits for valley fills in West Virginia. While PVR is not a party to this litigation, virtually all mining operators, including PVR's lessees, use valley fills to dispose of excess mining materials. Accordingly, the coal mining industry, including the mining operations of PVR's lessees, could be significantly adversely affected if this ruling is not overturned or legislation is not passed which limits its impact. The ruling has been appealed to the United States Fourth Circuit Court of Appeals.
Upon receiving a report and recommendations from the Truck Safety Task Force, West Virginia Governor Wise called a special session of the legislature in July 2002 to approve legislation addressing the weight limits of trucks transporting coal. After four days of debate and the adoption of an amendment to the Governor's proposed bill which would have lowered the proposed 120,000 pound weight limit back to the current 80,000 pound limit, the legislature adjourned without taking any action on the matter. This issue remains controversial in West Virginia and will most likely be the subject of future legislative proposals. If trucking weight limits are not increased, PVR's lessees' costs of transportation will increase, which could have an adverse effect on PVR's revenues and its lessees' ability to increase production on PVR's properties.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("SFAS"FASB") issued SFAS No. 144,143 Accounting for Asset Retirement Obligations. This Statement requires companies to record a liability relating to the Impairmentretirement and removal of assets used in their business. The liability is discounted to its present value, and the related asset value is increased by the amount of the resulting liability. Over the life of the asset, the liability will be accreted to its future value and eventually extinguished when the asset is taken out of service. The provisions of this Statement are effective for fiscal years beginning after June 15, 2002. We are currently evaluating the effects of this pronouncement.
In April 2002, the FASB issued SFAS No. 145 Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. This statement rescinds SFAS No. 4 Reporting Gains and Losses from Extinguishment of Debt, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item of debt to be aggregated and, if material, classified as an extraordinary item, net of income taxes. As a result, the criteria in Accounting Principles Board Opinion (APB) 30 will now be used to classify those gains and losses. Any gain or loss on the extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in APB 30 for classification as an extraordinary item shall be reclassified. The provisions of this Statement are effective for fiscal years beginning after January 1, 2003. We are currently evaluating the effects of this pronouncement.
19
In June 2002, the FASB issued SFAS No. 146 Accounting for Costs Associated with Exit or Disposal of Long-Lived AssetsActivities. This Statement supersedesrequires the recognition of costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The provisions of this Statement are effective for exit or disposal activities initiated after December 31, 2002. We are currently evaluating the effects of this pronouncement.
Quantitative and Qualitative Disclosures about Market Risk
Our price risk management program permits the utilization of fixed-price contracts and financial instruments (such as futures, forward and option contracts and swaps) to mitigate the price risks associated with fluctuations in natural gas prices as they relate to our anticipated production. These contracts and financial instruments are designed as cash flow hedges and accounted for in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of APB No. 30, Reporting the Results of Operations -Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business.133, as amended by SFAS No. 144 addresses137 and SFAS No. 138. The derivative financial accountinginstruments are placed with major financial institutions that we believe are of minimum credit risk. The fair value of our price risk management assets and reporting forliabilities are significantly affected by energy price fluctuations.
Market risk is the impairmentrisk of disposal of long-lived assets. There were no effects on the financial position, results of operations or liquidityloss arising from adverse changes in market rates and prices. The principal market risks to which PVR is exposed are interest rate risk and coal price risks. PVR's current term loan debt is secured by U.S. Treasury notes and has limited interest risk exposure. However, debt incurred in the first quarter of 2002.future under the current credit facility will bear variable interest at either the applicable base rate or a rate based on LIBOR.
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 our representatives may from time to time make other oral or written statements that are also forward-looking statements.
18
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 oil and natural gas production, projected quantities of future oil and natural gas production by Penn Virginia, expected commencement dates and projected quantities of future coal production by lessees producing coal from reserves leased from PVR and costs and expenditures as well as projected demand or supply for coal and oil and natural gas, all of which willmay affect sales levels, prices and royalties realized by Penn Virginia and PVR.
These forward-looking statements are made based upon management's current plans, expectations, estimates, assumptions and beliefs concerning future events impacting Penn Virginia and PVR and therefore involve a number of risks and uncertainties. Penn Virginia cautions that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements.
Important factors that could cause the actual results of operations or financial condition of Penn Virginia to differ materially from those expressed or implied in the forward-looking statements include, but are not necessarily limited to: the cost of finding and successfully developing oil and natural gas reserves; the cost to PVR of finding new coal reserves; the ability of Penn Virginia to acquire new oil and natural gas reserves and of PVR to acquire new coal reserves on satisfactory terms; the price for which such reserves can be sold; the volatility of commodity prices for oil and natural gas and coal; the risks associated with having or not having price risk management programs; PVR's ability to lease new and existing coal reserves; the ability of PVR's lessees to produce sufficient quantities of coal on an economic basis from PVR's reserves; the ability of lessees to obtain favorable contracts for coal produced from PVRPVR's reserves; Penn Virginia's ability to obtain adequate pipeline transportation capacity for its oil and natural gas production; competition among producers in the oil and natural gas industries generally and in the coal industry generally and in Appalachia in particular; the extent to which the amount and quality of actual production differs from estimated recoverable coal reserves and proved oil and natural gas reserves; unanticipated geological problems; availability of required
20
materials and equipment; the occurrence of unusual weather or operating conditions including force majeure events; the failure of equipment or processes to operate in accordance with specifications or expectations; delays in anticipated start-up dates of PVR's lessees' mining operations and Penn Virginia's oil and natural gas production ;production; environmental risks affecting the drilling and producing of oil and natural gas wells or the mining of coal reserves; the timing of receipt of necessary governmental permits by Penn Virginia and PVR's lessees; 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; and the experience and financial condition of the lessees of PVR's coal reserves, including their ability to satisfy their royalty, environmental, reclamation and other obligations to PVR and others. 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 intendundertake any obligation to publicly review or update any particular forward-looking statement, whether as a result of new information, future events or otherwise.
19
21
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of shareholders of Penn Virginia Corporation was held on May 7, 2002.
(b) All director nominees were elected as described in Item 4(c).
(c) The shareholders approved a proposal to amend the Company's 1999 Employee Stock Incentive Plan to increase the number of shares of the Company's Common Stock issuable thereunder from 250,000 to 800,000 and voted upon the election of directors as follows:
Management Proposal to Amend Plan
Votes Cast |
|
| |
For | Against | Abstain | Broker |
|
|
|
|
5,291,312 | 1,253,760 | 216,102 | 1,314,190 |
Election of Directors
Director | Votes Received |
| Votes Withheld |
Richard A. Bachmann |
7,521,823 |
|
553,541 |
Edward B. Cloues, II | 7,528,295 |
| 547,069 |
A. James Dearlove | 7,186,119 |
| 889,245 |
Robert Garrett | 7,529,821 |
| 545,543 |
Keith D. Horton | 7,532,185 |
| 543,179 |
Peter B. Lilly | 7,522,327 |
| 553,037 |
Marsha R. Perelman | 7,524,578 |
| 550,786 |
Joe T. Rye | 7,532,025 |
| 543,339 |
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Change99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Control Severance Agreement dated May 7,the Sarbanes-Oxley Act of 2002 between Penn Virginia Corporation and A. James Dearlove
10.2 Change99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of Control Severance Agreement dated May 7,the Sarbanes-Oxley Act of 2002 between Penn Virginia Corporation and Frank A. Pici
10.3 Change of Control Severance Agreement dated May 7, 2002 between Penn Virginia Corporation Nancy M. Snyder
10.4 Change of Control Severance Agreement dated May 7, 2002 between Penn Virginia Corporation and H. Baird Whitehead
10.5 Change of Control Severance Agreement dated May 7, 2002 between Penn Virginia Corporation and Keith D. Horton
(b) Reports on Form 8-K
On March 28,May 3, 2002, Penn Virginia filed a report on Form 8-K. The report involved certain amendments to Penn Virginia's Shareholder Rights Planthe dismissal of Arthur Andersen LLC, and Bylaws andthe engagement of KPMLG LLP, as the Company's independent public accountants for the year ending December 31, 2002. The Form 8-K was filed under "Item 5. Other Events.4. Changes in Registrant's Certifying Accountants."
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SIGNATURES |
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant | |||||||||
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. | |||||||||
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PENN VIRGINIA CORPORATION |
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| By: | /s/ Frank A. Pici |
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| Frank A. Pici |
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| Executive Vice President and |
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Date: |
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| Principal Accounting Officer |
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2123
PENN VIRGINIA CORPORATION
INDEX
PART I Financial Information | PAGE |
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Item 1. Financial Statements |
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Condensed Consolidated Statements of Income for the | 2 |
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Condensed Consolidated Balance Sheets as of | 3 |
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Condensed | 5 |
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Notes to Condensed Consolidated Financial Statements | 6 |
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Item 2. Management's Discussion and Analysis of Financial |
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PART II Other Information |
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Item 4. Submission of Matters to a Vote of Security Holders | 22 |
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Item 6. Exhibits and Reports on Form 8-K |
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