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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/ x / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition period from to
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Commission file number 0-7181
ROCHESTER & PITTSBURGH COAL COMPANY
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(Exact name of registrant as specified in its charter)
Pennsylvania 25-0761480
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
655 Church Street, Indiana, Pennsylvania 15701
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 412-349-5800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__. No_____.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. _____
As of March 4, 1994, the aggregate market value of the voting stock of
Registrant held by its non-affiliates was $62,227,050.
Indicate the number of shares of each of Registrant's classes of common stock
outstanding as of March 4, 1994: 3,438,775 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of Registrant's Annual Report to Shareholders for the year ended
December 31, 1993 in Parts I, II and IV.
2. Portions of Registrant's Proxy
Statement for its 1994 Annual Meeting of Shareholders in Part III.
EXHIBIT INDEX: Page 22 and Page 39.
Page 1 of 74
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PART I
ITEM 1. BUSINESS.
(a) GENERAL DEVELOPMENT OF BUSINESS.
Registrant and its predecessors have been engaged in the mining of
coal in central and western Pennsylvania since 1881. Since the mid-1960's,
Registrant and its subsidiaries have been principally engaged in the deep
mining of bituminous steam coal for sale to electric generating plants located
adjacent to or near Registrant's mines. Substantially all of these sales have
been made pursuant to long-term coal supply contracts. Because of the
continued availability of low priced coal from other sources, during 1993 the
utility customers of Registrant's subsidiaries continued to purchase coal at
near minimum contract requirements. In addition, during 1993, a seven-month
strike (May 25 through December 16, 1993) by the United Mine Workers of America
(the "UMWA") against members of the Bituminous Coal Operators Association (the
"BCOA"), including operations of two of Registrant's subsidiaries, had a
significant adverse impact on Registrant's operating results. Tonnage produced
and sold was reduced by approximately 42% in 1993 versus 1992. A partial
offset in volume and cost of sales, however, occurred because a substantial
portion of the costs incurred by the operations of Registrant on strike were
reimbursable under the terms of Registrant's subsidiaries long-term coal sales
agreements. In 1993, another subsidiary of Registrant commenced development
and rehabilitation work at the mine it acquired in 1992.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
Registrant is of the opinion that all of its material operations are
within one industry segment and that no information as to business segments is
required pursuant to Statement of Financial Accounting Standards No. 14 or
Regulation S-K.
(c) NARRATIVE DESCRIPTION OF BUSINESS.
Registrant, through its subsidiaries, is principally engaged in deep
and, to a very minor extent, surface mining of bituminous steam coal in
Pennsylvania. Substantially all of Registrant's deep-mined production in 1993
was sold pursuant to two long-term contracts, described below, to two
mine-mouth electric generating plants adjacent to or near its mines. Steam
coal is not suitable for metallurgical use because of excessive levels of ash
or sulphur.
United Eastern Coal Sales Corporation ("United Eastern"), a wholly-
owned subsidiary, is a coal broker and sales agent which buys and sells, either
as principal or agent, coal produced in the United States. Registrant's
wholly-owned subsidiary, Rochester & Pittsburgh Coal Co. (Canada) Limited, is
engaged in the sale of coal to customers in Canada. Each of Registrant's
subsidiaries which buys and sells coal produced by
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others serves customers principally in the Mid-Atlantic states and the Province
of Ontario.
Leatherwood, Inc. ("Leatherwood"), a wholly-owned subsidiary of
Registrant, is engaged in developing, owning, and managing solid waste
management facilities. To date, Leatherwood has submitted a permit
application to the Pennsylvania Department of Environmental Resources (the
"DER") for a new municipal solid waste landfill in Jefferson County,
Pennsylvania. This facility will also accept residual waste. Two Pennsylvania
counties have designated this landfill as a secondary disposal facility in
their statutorily-required county master plan for the disposal of solid waste
and, upon receipt of a permit by Leatherwood, will deem the landfill a primary
disposal facility. Discussions with other counties and waste collectors are
continuing. Two contracts with collection companies or brokers have been
executed contingent, however, upon a permit being issued. The permit
application is subject to stringent regulatory standards and is under review by
DER. An official response on the application, which will be subject to
administrative and judicial review, is expected early in 1994.
In 1992, Registrant established two wholly-owned subsidiaries,
Eighty-Four Mining Company ("Eighty-Four") and Lucerne Land Company ("Lucerne
Land") to acquire coal properties and Mine No. 84 from Bethlehem Steel
Corporation and affiliated entities ("Bethlehem"). The final purchase price of
Mine No. 84 was $53.6 million after taking into effect post-closing
adjustments.
Mine No. 84 was idled in February 1993 to permit renovation,
rehabilitation, and replacement of key operating systems. This work will
include replacement of the haulage system, by installing a new five mile long,
6,700 ton per hour underground belt conveyor system, upgrading of surface, coal
handling and preparation facilities, and installation of two longwall mining
units. When these renovations are fully completed and full capacity is
reached, which is expected to occur in 1997, Eighty-Four's facilities will
permit production of approximately 6.6 million tons of coal per year.
Development mining is expected to begin during the second quarter of 1994 in
preparation for installation of the first longwall unit in the third quarter of
1995.
The properties acquired are estimated to contain approximately 175
million saleable1 tons of high quality Pittsburgh Seam steam and metallurgical
coal. The reserve estimate, which was developed by Registrant's Geology and
Engineering personnel, is based upon review of data and test results provided
by Bethlehem, data available from outside sources, application of generally
accepted mining practices in the geographic area of mining, and generally
accepted mining practices in the Pittsburgh Seam utilizing longwall mining
techniques. This estimate is being further reviewed and verified by
Registrant's Geology and Engineering personnel.
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1 Saleable means total coal mine output less tonnage rejected during
processing for market.
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While no arrangements or contracts for the sale of coal by Eighty-Four
exist at present, extensive efforts to achieve such arrangements occurred in
1993 and are continuing. Written expressions of interest from potential
customers have been obtained. The coal from Mine No. 84, however, is of such
quality that it should position Registrant to respond to the increased demand
for coals that will meet the air quality standards under Phase I of The Clean
Air Act when it takes effect in 1995. Longer-term demand for this lower
sulphur coal should remain strong because, after cleaning, the coal will remain
a cost-effective product for electric generating stations utilizing scrubbers.
Additionally, a significant portion of the coal from Mine No. 84 has
historically been sold on the domestic and international metallurgical market.
Marketing activities undertaken by Eighty-Four have been directed to a diverse
geographic and customer base, thus reducing reliance upon a single customer,
group of customers, or type of market while enabling price escalation risks to
be hedged due to the varying contract durations anticipated.
Registrant's wholly-owned subsidiary, Keystone Coal Mining Corporation
("KCMC") is a party to a coal supply agreement effective as of January 1, 1991
(the "Keystone Agreement") with the seven public utilities (the "Keystone
Owners") that own the Keystone Steam Electric Station (the "Keystone Station")
near Shelocta, Pennsylvania. The Keystone Agreement amended, extended, and
restated an earlier agreement dated January 1, 1972, among the same parties
pursuant to which coal has been delivered to the Keystone Station by KCMC. The
Keystone Agreement has a term ending December 31, 2004, and under it KCMC was
to sell and deliver 3,900,000 tons to the Keystone Station in 1991, 3,700,000
tons in 1992 and, from 1993 through 1999, will sell and deliver 3,250,000 tons
annually subject to increase or decrease by up to 250,000 tons. As a direct
result of the strike by the UMWA against KCMC's facilities, in 1993, KCMC
delivered 2,339,033 tons to the Keystone Station pursuant to the Keystone
Agreement. Should the parties not agree to an extension of the Keystone
Agreement beyond its initial term, production and deliveries will decrease
between 2000 and 2004 with an aggregate of 6,500,000 tons to be delivered
during that five-year period. Substantially all of the coal sold pursuant to
the Keystone Agreement is delivered by a series of conveyor belts directly from
KCMC's mines (the "Keystone Mines") to the Keystone Station.
In connection with its Keystone Mines, KCMC also owns and operates a
coal handling and preparation facility (the "Keystone Cleaning Plant") which
processes coal to enhance the thermal value of the product delivered to the
Keystone Station.
The price paid by the Keystone Owners to KCMC pursuant to the Keystone
Agreement consists of an amount equal to all costs of production incurred by
KCMC in mining, processing, and delivering the coal, subject to a price cap,
including mine development costs and capital expenditures, mine closing costs,
general and administrative costs, interest costs, plus a profit
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that varies according to KCMC's ability to meet or exceed certain cost
standards, plus a royalty of $.25 per ton, with an annual minimum royalty
payment of $375,000. The profit calculation is subject to adjustment for
cumulative changes in the Gross National Product Implicit Price Deflator ("GNP
Deflator") based upon the Btu content of the coal delivered and KCMC's cost of
production compared to standard costs established in the Keystone Agreement.
The standard costs are adjusted according to various cost and market price
indices.
KCMC dedicated approximately 90,000,000 tons of coal at January 1,
1991 pursuant to the Keystone Agreement and said coal cannot be mined for sale
to others without the Keystone Owners' consent. KCMC has the option on and
after July 1, 1995, to remove certain coal properties from the area of
dedication if it determines that the same are not required to fulfill its
obligations under the Keystone Agreement. Substantially all of the dedicated
coal properties are leased or subleased by KCMC from Registrant. Under certain
conditions described in the Keystone Agreement, the Keystone Owners have the
option to purchase all of the capital stock of KCMC at the net book value
thereof at the time of exercising the option ($18,816,536 at December 31, 1993)
or its net assets at book value, and to lease KCMC's coal properties from
Registrant. In such event, Registrant would receive a royalty per ton equal to
approximately $1.03, a substantial portion of which would be adjusted for
changes in the GNP Deflator from December 1990. See Note C to the Consolidated
Financial Statements incorporated herein by reference. The Keystone Owners
also have the right to terminate the Keystone Agreement effective at the end of
1999 or any calendar year thereafter, upon five years prior notice, if the
Keystone Owners determine, in their sole discretion, that it is unlawful or
commercially impracticable, in light of the then applicable governmental
regulations, to operate the Keystone Station with the coal KCMC is able to
produce. The Keystone Owners, after a series of progressive steps, also have
the right to terminate the Keystone Agreement if certain size and quality
requirements are not met by KCMC.
In 1993, KCMC delivered 2,301,690 tons of coal from its Keystone
Mines and 37,343 tons of purchased coal to the Keystone Station, compared with
deliveries to the Keystone Station in 1992 of 3,700,086 tons of deep-mined coal
and 27,387 tons of purchased coal.
Registrant's wholly-owned subsidiary, Helvetia Coal Company
("Helvetia"), is a party to a coal sales agreement dated December 22, 1966, and
subsequently amended, (the "Homer City Agreement") with the two public
utilities (the "Homer City Owners") that own the Homer City Steam Electric
Station (the "Homer City Station") near Homer City, Pennsylvania. The Homer
City Agreement, which has a term extending until 2007, provides that Helvetia
will sell and deliver to the Homer City Owners annual amounts of coal as
specified therein and that the Homer City Owners will purchase from Helvetia
the lesser of 1,800,000
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tons or 50% of the coal requirements of the Homer City Station. Coal sold
pursuant to the Homer City Agreement is delivered to the Homer City Station by
conveyor belts and trucks. Under the Homer City Agreement, Helvetia is
required only to reduce raw coal to 1- 1/4 inches top size. In this process, a
Bradford Breaker, which removes some of the impurities from the coal, is used.
The price paid by the Homer City Owners to Helvetia pursuant to the
Homer City Agreement consists of an amount equal to all costs incurred by
Helvetia in mining, processing, and delivering the coal, including mine
development costs and capital expenditures, mine closing costs, general and
administrative costs, interest costs, a royalty of $.25 per ton and a
"standard" profit of $1.50 per ton subject to adjustment for cumulative changes
in a composite index from calendar year 1988, and also subject to adjustment if
certain costs of production are more or less than the standard costs as defined
in the Homer City Agreement and quality requirements are met. Additionally,
Helvetia is assured a minimum profit of $.60 per ton adjusted for cumulative
changes in the composite index so long as quality requirements are met. If
minimum quality requirements are not met, Helvetia's minimum profit is reduced
below $.60 per ton, depending on quality level, but will not be reduced below
zero.
Under the Homer City Agreement, Helvetia dedicated up to 85,000,000
tons of coal, all of which are leased from Registrant. Under certain
conditions described in the Homer City Agreement, the Homer City Owners have
the option to purchase all of the capital stock of Helvetia or its net assets
at the net book value thereof ($6,167,174 at December 31, 1993). In such
event, the royalty payable to Registrant would be increased from $.25 to $.35
per ton, unless the option were exercised by reason of the default of Helvetia
under the Homer City Agreement, in which case the royalty would remain at $.25
per ton. See Note C to the Consolidated Financial Statements incorporated
herein by reference.
As a direct result of the strike by the UMWA against Helvetia's
facilities, during 1993, 839,750 tons of coal were delivered to the Homer City
Station from Helvetia's deep mines compared with deliveries of 1,799,949 tons
in 1992. Projections provided by the Homer City Owners call for deliveries at
the average annual rate of approximately 1,800,000 tons per year through 1997.
Negotiations between the Homer City Owners and Helvetia regarding a
new fixed price, with escalation, contract for Helvetia to continue providing
approximately 1.8 million tons of coal per year to the Homer City Station are
continuing, and are anticipated to be concluded and effective before the end of
1994. If an agreement is concluded, it would require the opening of a new mine
by Helvetia.
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The Florence Mining Company, ("Florence"), formerly a wholly-owned
subsidiary of Registrant, was party to a Coal Supply Agreement (the "Conemaugh
Agreement") with nine public utilities (the "Conemaugh Owners") that own the
Conemaugh Steam Electric Station (the "Conemaugh Station") near New Florence,
Pennsylvania. In October 1991, the Conemaugh Owners notified Registrant that
they were electing to exercise their option, entered into simultaneously with
the Conemaugh Agreement, to acquire the capital stock of Florence and were
assigning the option to Quent, Inc., which would exercise it. On October 29,
1991, the capital stock of Florence was transferred to Quent, Inc.
In 1993, eight deep mines of Registrant's subsidiaries supplied coal
to the Homer City and Keystone Stations. The mines are described in Item 2, to
which reference is hereby made.
Registrant maintains comprehensive general liability and umbrella
liability, pollution liability, and boiler and machinery insurance for all of
its operations. Registrant also maintains business interruption and property
damage insurance for all of its subsidiaries operations and properties except
for KCMC. KCMC is not fully insured for business interruption and property
damage because it is able to recover such losses in whole or in part under its
long-term coal sales agreement. Registrant has self-insurance programs for
workers' compensation and has insurance coverage for catastrophic losses.
Registrant also has automobile liability, fiduciary liability, and fidelity
insurance.
The bituminous coal industry in general is intensely competitive.
Although substantially all of Registrant's coal production is sold pursuant to
the Keystone and Homer City Agreements, because of the nature of the power
supply system in the Mid-Atlantic Region of the United States, Registrant
remains subject to material competition from other coal suppliers primarily as
to price, coal quality, and environmental considerations, and other types of
fuel, principally oil, natural gas, hydroelectric power, and nuclear fuel.
That system is operated as a pool of electric power so to the extent that other
sources of power within the system, or available to it, are cheaper than the
power produced at the Keystone and Homer City Stations, the Owners could reduce
the amount of power produced by those Stations and, consequently, the amount of
coal purchased from Registrant under the Keystone and Homer City Agreements
could be reduced.
During 1993, Registrant's surface-mined coal was sold on the commercial
market. To the extent that Registrant is engaged in the wholesale and retail
sale of coal, it constitutes a minor competitive factor in such industry and is
in competition with other sellers of coal and other fuels, principally oil and
natural gas.
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Registrant's business is materially dependent on the two long-term coal
sales agreements, the Keystone Agreement and the Homer City Agreement,
described herein. See also Note C to the Consolidated Financial Statements
incorporated herein by reference. Gross sales pursuant to the Keystone
Agreement and the Homer City Agreement accounted for approximately 66% and 26%,
respectively, of Registrant's sales in the year ended December 31, 1993. If
the Owners of the Keystone and Homer City Stations were to use other stations
not served by Registrant to meet a greater percentage of their power generation
demand, or if power were procured from other sources, their requirements for
the Keystone and Homer City Stations could decrease, and if such decrease were
significant, the change could materially adversely affect the business of
Registrant. Registrant's business also was affected by the sale of Florence
since sales under the Conemaugh Agreement accounted for approximately 28% of
Registrant's sales in the year ended December 31, 1991. See also Note C of the
Notes to the Consolidated Financial Statements incorporated herein by
reference.
Information concerning backlog is not considered material to an
understanding of Registrant's business.
At December 31, 1993, Registrant had an estimated recoverable2 reserve
base3 in leased or owned properties in Armstrong, Indiana, Westmoreland,
Washington, and other nearby Pennsylvania counties, of approximately
738,000,000 tons of coal. During 1993, Registrant produced approximately
3,218,013 tons of coal excluding a small quantity of coal produced from Mine
No. 84. Of the 738,000,000 tons of estimated recoverable reserve base,
approximately 150,000,000 tons of coal (20%), are dedicated under the Keystone
and Homer City Agreements. With the exception of the 175,000,000 saleable tons
of coal acquired from Bethlehem, recovery of the remaining recoverable reserve
base would require new mines which would entail substantial capital
expenditures the amount of which cannot be estimated at this time. Registrant
has made no decision regarding any new mines and, depending upon Registrant's
continuing evaluation of economic conditions affecting the sale of coal in
Registrant's present area of operations and the effect of increasingly
stringent environmental requirements, Registrant may not open new mines to
access its
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2 Recoverable means those portions of the Reserve Base owned
or leased by the Registrant that are potentially
extractable using an appropriate factor to account for coal
lost-in-mining.
3 Reserve base means those parts of an identified resource,
proven and probable, that are currently economic,
marginally economic and some of those that are currently
sub-economic that have a reasonable potential for becoming
economically available within planning horizons beyond those
that assume proven technology and current economics.
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existing, undedicated coal. The estimated recoverable reserve base stated
herein was determined by Registrant's staff based upon the prior experience of
Registrant in mining in the area of its present recoverable reserve base and
upon data from tests conducted by Registrant, and represent coal which is
recoverable on the basis of current mining practices and techniques, and
Registrant's mining experience in the seams and area of Registrant's present
recoverable reserve base. Consequently, Registrant's estimates are subject to
continuing review and refinement.
Registrant also owns coal lands in West Virginia, some of which are
under lease to another, unrelated coal company. The leased reserves are near
exhaustion. Registrant also subleases coal lands in West Virginia to another
unrelated coal company.
Patents and licenses are not material to the operation of Registrant's
business.
In order to acquire, and to determine the location and extent of, new
sources of coal properties, Registrant has entered into option agreements with
owners of coal lands in various parts of Pennsylvania. Under these agreements,
Registrant obtains the right to explore for and, at its option, to acquire
title by lease or purchase to the coal.
Registrant has made no public announcement, nor has information
otherwise become public, about any new product or line of business which would
require the investment of a material amount of Registrant's total assets, other
than the development of Leatherwood and the acquisition and development of Mine
No. 84 and coal reserves as noted above. While a substantial capital
investment may ultimately be made in development of Leatherwood's projects, the
amount of such investment has not yet been determined. Registrant has made an
equity investment in Eighty-Four and Lucerne Land of $100,000,000 (including
the $53.6 million adjusted purchase price). Arrangements are in progress for
$85,000,000 in long-term debt and for capital and operating leases to provide
remaining funding requirements of the project. See also Notes B and D of the
Notes to the Consolidated Financial Statements incorporated herein by
reference.
Registrant's business is subject to numerous state and federal
statutes which establish strict standards with respect to mining health and
safety and environmental consequences. In addition to prescribing civil and
criminal penalties for violations, both the Federal Mine Safety and Health Act
of 1977 and the Surface Mining Control and Reclamation Act of 1977 authorize
the closure under certain circumstances of noncomplying operations.
Pennsylvania statutes applicable to Registrant's mining operations are both
more and less stringent than the federal statutes. Numerous federal and state
laws and regulations, pertaining to the discharge of materials into the
environment, impose requirements for capital expenditures in the normal course
of mine development and for subsequent events which
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cause adverse environmental effects, irrespective of fault or willfulness by
the mining company involved. These statutes have in the past and will in the
future require substantial capital investments and may adversely affect
productivity. Because of the inclusion of environmental related elements in
the normal expenditures for mine development and operation, their costs cannot
be precisely isolated but Registrant does not believe they have materially
adversely affected Registrant's financial condition. See also Item 3 hereof.
Both federal and state law and regulations impose sulphur emission
standards, which will increase in stringency during the next several years, on
uses of coal. However, substantially all of Registrant's coal is sold pursuant
to the Keystone and Homer City Agreements, which contain no provisions
warranting that the sulphur content of the coal will meet emission standards
when burned. The impact of recent legislation on Registrant's business,
especially the Clean Air Act Amendments of 1990, cannot be ascertained at this
time. Registrant believes that improvements in clean coal technologies or in
techniques to neutralize or treat emissions from generating stations are such
that, with the benefit of such technologies, its coal will meet standards under
currently enacted legislation. However, these amendments could have an adverse
effect on the sales of coal to the Keystone Station and the Homer City Station
(the "Stations"). Also, as described above, at the end of 1999 and any year
thereafter, the Keystone Owners have the right to terminate the Keystone
Agreement if it is unlawful or commercially impracticable, in light of then
applicable government regulations, to operate the Keystone Station with the
coal KCMC is able to produce. Moreover, in the event of the enactment of
legislation or regulations imposing more stringent environmental standards on
the Stations, Registrant could be adversely affected if the owners of the
Stations purchased more coal from others or generate less electricity from
these Stations. Fuel strategies adopted by utilities have yet to be announced.
Environmental legislation and regulation may have an adverse effect on
Registrant's ability to market its coal reserves not dedicated under existing
contracts and may require modifications to the marketing plans of Eighty-Four.
As indicated in the Consolidated Financial Statements incorporated
herein by reference, Registrant has made substantial capital investments in the
past three years. Inasmuch as a substantial portion of these investments has
been for several purposes, e.g., to extend mine and equipment life, to increase
productivity, and to comply with safety and/or environmental legislation,
Registrant cannot indicate with precision capital investments required solely
to comply with environmental and safety legislation. However, Registrant
estimates such expenditures totalled approximately $2,600,000 in the five years
ended December 31, 1993, and it is estimated that annual capital expenditures
of approximately $1,600,000 per year for the next several years will be
attributable to environmental and safety laws. Such legislation also adversely
affected Registrant's deep
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mine productivity. While no assurance can be given that additional, more
stringent mining and environmental legislation will not be enacted or that such
legislation, if enacted, would not have a material adverse effect upon
Registrant's operations, it should be noted that for coal sold under the
Keystone and Homer City Agreements, Registrant's cost of compliance with such
statutes is recovered from the Owners as a cost of production. However, should
the cost of compliance as an element of production costs become burdensome, the
competitive position and earnings of Registrant could be adversely affected.
Registrant currently employs approximately 1,555 persons, of whom
1,400 are engaged directly in the production and processing of coal for sale
and 155 are engaged in executive, administrative, engineering, exploration,
sales, and clerical capacities. Registrant has approximately 1,120 employees
who are covered by the National Bituminous Coal Wage Agreement of 1993 (the
"1993 Agreement") with the UMWA, which, as noted above, was ratified on
December 16, 1993 after a seven-month strike against BCOA member companies.
The 1993 Agreement will terminate on or after August 1, 1998 by either party
giving to the other party at least 60 days notice of the desired termination
date. Additionally, the 1993 Agreement may be reopened at the election of the
UMWA prior to the third and fourth anniversary dates for the sole purpose of
renegotiating changes in wage rates and pension benefits. The 1993 Agreement
may be reopened at the election of the UMWA or the BCOA prior to the third and
fourth anniversary dates for the sole purpose of renegotiating changes in the
health care bonus and annual health care deductible established under the 1993
Agreement.
Registrant's business is not seasonal in any material respect.
Registrant is engaged principally in a single line of business, the
mining and sale of coal. The following table sets forth the amount of
Registrant's sales contributed by each class of Registrant's products which
accounted for more than 10% of Registrant's total sales during each of
Registrant's three fiscal years ended December 31, 1993, 1992, and 1991.
<TABLE>
<CAPTION>
Sales of
Coal Under Other
Year Ended Long-Term Sales of
December 31 Contracts Coal Other Total Sales
----------- ----------- -------- ----- -----------
(Amounts expressed in thousands)
<S> <C> <C> <C> <C>
1993 $141,093 $ 8,678 $ 3,857 $153,628
1992 183,881 10,610 4,011 198,502
1991 289,939 14,715 6,778 311,432
</TABLE>
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(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES.
In the years ended December 31, 1993, 1992, and 1991, Registrant's
subsidiary, Rochester & Pittsburgh Coal Co. (Canada) Limited, had sales of
$8,093,174, $9,415,110, and $7,794,813, respectively, primarily to customers
located in Canada. Registrant does not consider its sales of coal in Canada to
be subject to any particular risks merely because its customers are located
there. However, foreign business in general can be subject to special risks,
including exchange controls, changes in currency valuations, restrictions on
the repatriation of funds, restrictions on the ownership of foreign
corporations or the composition of their boards of directors, export
restrictions, the imposition or increase of taxes and tariffs, and
international financial instability. No assurance can be given that any of
these factors might not have an adverse effect on Registrant's future foreign
operations.
ITEM 2. PROPERTIES.
Registrant's executive and administrative offices are located in a
76,309 square foot building in Indiana, Pennsylvania, which it owns and which
was extensively renovated and expanded in 1984. Registrant also owns
approximately 39,900 acres of surface land in Pennsylvania. Registrant's
subsidiaries lease various properties in the United States and Canada under
leases having a current annual aggregate rental of approximately $229,000.
These leases expire at various times over the next four years and the amount of
aggregate rental payable during that period will depend on the extent of
renewals.
As indicated in Item 1 hereof, as of December 31, 1993, based upon the
prior experience of Registrant in mining in the area of Registrant's operations
and data from tests conducted by it and, in the case of the coal acquired from
Bethlehem, a review of data provided by others and mining practices in the area
and seam acquired, Registrant had an estimated recoverable reserve base in
leased or owned properties in Indiana, Armstrong, Westmoreland, Washington and
other nearby Pennsylvania counties of approximately 738,000,000 tons of coal.
Substantially all of the coal leased by Registrant is leased until exhaustion.
Registrant has not conducted sufficient tests to determine the degree to which
reserves, if any, exist on its owned or leased properties located outside of
Indiana, Armstrong, Westmoreland, Washington and other nearby Pennsylvania
counties.
Registrant operated nine underground mines in 1993. Information on
the estimated recoverable reserves and production of these mines is as follows:
12
<PAGE> 13
<TABLE>
<CAPTION>
Tons of Estimated Production in Tons
Recoverable Under- Year Ended December 31
ground Reserves at ------------------------
Mine December 31, 1993(1) 1991 1992 1993
---- -------------------- ---- ---- ----
<S> <C> <C> <C> <C>
Lucerne #6 Ext.(2) 12,675,000 553,007 806,861 337,946
Lucerne #8(2) 314,000 752,346 773,625 332,522
Lucerne #9(2) 845,000 828,008 578,657 271,178
Margaret #11
#2 Portal(3) 1,661,000 486,567(5) 473,492(5) 220,882(5)
Margaret #11
#3 Portal(3) 680,000 --- --- 20,691(5)
Emilie(3) 8,350,000 860,703(5) 1,023,427(5) 855,237(5)
Emilie #4(3) 2,597,000 478,666(5) 487,171(5) 216,179(5)
Jane(3) 4,736,000 786,616(5) 629,669(5) 565,980(5)
Urling #1(3) 8,717,000 1,059,531(5) 1,092,569(5) 452,353(5)
Mine No. 84(7) 80,000,000 -- --- 71,559(5)
Florence #2(4) --- 424,026(5)(6) --- ---
Heshbon(4) --- 282,732(5) --- ---
----------- --------- --------- ---------
TOTAL 120,575,000 6,512,202(5) 5,865,471(5) 3,344,527(5)
</TABLE>
- ----------------------
(1) These estimated proven and probable reserves which can be
economically mined under current conditions are recoverable
through existing mine openings and plant facilities and
represent calculations based upon continuing refinement of
estimates, and are rounded to the nearest thousand. "Proven
Reserves" represent areas of the total reserve estimate which
are within approximately 2,000 feet of an exploration drill hole
or other known point. "Probable Reserves" represent areas of
the total reserve estimate which are greater than 2000 feet from
an exploration drill hole or other known point and when
consideration is made for other factors, such as mining
conditions, coal quality, and mine operating experience.
(2) Operated by Helvetia Coal Company.
(3) Operated by Keystone Coal Mining Corporation.
(4) Operated by The Florence Mining Company. The Florence #2 and
Heshbon Mines were transferred to the assignee of the Conemaugh
Owners on October 29, 1991.
(5) Tonnage figures represent clean coal after washing and
preparation at the Florence Preparation Plant, at the Keystone
Cleaning Plant or at Mine No. 84's preparation facilities. See
also Item 1 hereof.
(6) The 1991 figure represents production from "E" and "D" seam
facilities, 120,672 and 303,354 tons, respectively.
(7) Operated by Eighty-Four Mining Company
13
<PAGE> 14
Surface mining is also conducted by Registrant and by independent
contractors utilized by Registrant, who are obligated by law and by contract
with Registrant to restore the surface in accordance with Pennsylvania and
federal laws. Production from surface mining for the last three years has been
as follows: 1991--339,950 tons, 1992--91,921 tons and 1993--53,744 tons. All
surface-mined coal produced in 1993 was sold on the commercial market.
Registrant anticipates limited surface mining activity in the near future and,
therefore, while Registrant is continuing to acquire additional coal properties
suitable for surface mining, no assurance can be given that Registrant will be
able to maintain adequate resources for surface-mined coal in the future.
All of the properties of Registrant and its subsidiaries dedicated
under the Keystone and Homer City Agreements are subject to mortgages given as
security for indebtedness of Registrant's subsidiaries. See Note D to the
Consolidated Financial Statements incorporated by reference herein.
Registrant has miscellaneous other non-coal mineral interests,
primarily natural gas, which it leases to unrelated parties. Registrant has
expanded its role in the natural gas area by participating in joint ventures
for 95 natural gas wells in Pennsylvania and nearby states during the past
several years.
ITEM 3. LEGAL PROCEEDINGS.
The nature of Registrant's business subjects it to numerous state and
federal laws and regulations pertaining to environmental matters and
administrative and judicial proceedings involving alleged violations thereof
are considered incidental to Registrant's business.
Registrant is not a party to any pending litigation which it deems
material to its financial condition, although it is a party to litigation
incidental to the conduct of its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Registrant did not submit any matters to a vote of security holders
during the fourth quarter of 1993.
14
<PAGE> 15
EXECUTIVE OFFICERS OF REGISTRANT.
Information on executive and other officers of Registrant as of
February 28, 1994, is as follows:
<TABLE>
<CAPTION>
Position Family
Name Age With Registrant Relationship
- ---- --- --------------- ------------
<S> <C> <C> <C>
Thomas W. Garges, Jr. 54 President and Chief
Executive Officer None
W. Joseph Engler, Jr. 53 Vice President and
General Counsel None
George M. Evans 46 Vice President and
Treasurer None
Peter Iselin 73 Vice President--Finance
and Secretary (1)
Thomas M. Majcher 41 Vice President--Corporate
Development None
A. W. Petzold 57 Vice President--Operations None
</TABLE>
- --------------------
(1) Mr. Peter Iselin is the father of Mr. O'Donnell Iselin II, and the
uncle of Mr. Gordon B. Whelpley, Jr., Directors of Registrant.
Officers of Registrant are elected annually by the Board of Directors
at its organization meeting following the Annual Meeting of Shareholders.
Each of the officers of Registrant named above has held a position
with Registrant or a subsidiary for the past five years with the exception of:
Mr. Majcher who joined Registrant as Vice President--Corporate Development in
January 1990. Prior to 1990, he had been Director--Planning (1989) BP Coal
International, Director--Strategy Development (1988) BP America,
Manager--Acquisitions & Divestitures (1987) The Standard Oil Company (Ohio),
and Business Manager--Indiana Division (1986) Old Ben Coal Company, all
subsidiaries of The British Petroleum Company, P.L.C.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The answer to this Item is incorporated by reference to Registrant's
1993 Annual Report to Shareholders, which is included as Exhibit (13) to this
Form 10-K Report, at page 28.
ITEM 6. SELECTED FINANCIAL DATA.
The answer to this Item is incorporated by reference to Registrant's
1993 Annual Report to Shareholders, which is included as Exhibit (13) to this
Form 10-K Report, at pages 24 and 25.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The answer to this Item is incorporated by reference to Registrant's
1993 Annual Report to Shareholders, which is included as Exhibit (13) to this
Form 10-K Report, at pages 24 through 27.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The answer to this Item is incorporated by reference to Registrant's
1993 Annual Report to Shareholders, which is included as Exhibit (13) to this
Form 10-K Report, at page 6, Report of Ernst & Young, Independent Auditors, at
pages 7 through 23, and by reference to Item 14 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During applicable time periods, Registrant has not changed accountants
and has had no disagreements with its accountants on accounting and financial
disclosure matters.
16
<PAGE> 17
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Except for information concerning executive officers of Registrant
included as an unnumbered item in Part I above, information relating to the
Directors of the Registrant is set forth under the caption "Directors and
Nominees For Election as Director" in Registrant's definitive Proxy Statement
in connection with its Annual Meeting of Shareholders to be held May 3, 1994.
Such information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information relating to executive compensation is set forth under the
caption "Executive Compensation" in Registrant's definitive Proxy Statement in
connection with its Annual Meeting of Shareholders to be held May 3, 1994.
Such information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information relating to the ownership of equity securities of the
Registrant by certain beneficial owners and management is set forth under the
caption "Beneficial Ownership of Common Stock" in Registrant's definitive Proxy
Statement in connection with its Annual Meeting of Shareholders to be held May
3, 1994. Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information relating to certain relationships and certain related
transactions is set forth under the caption "Directors and Nominees For
Election as Director" in Registrant's definitive Proxy Statement in connection
with its Annual Meeting of Shareholders to be held May 3, 1994. Such
information is incorporated herein by reference.
17
<PAGE> 18
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) Financial Statements, Financial Statement Schedules and
Exhibits:
1. Financial Statements
The following consolidated financial statements of Rochester &
Pittsburgh Coal Company and subsidiaries, included in the Annual
Report of Registrant to its shareholders for the year ended December
31, 1993, are incorporated herein by reference in Item 8 (pages 7
through 23 and page 6):
Consolidated balance sheets--
December 31, 1993, 1992, and 1991
Statements of consolidated income--
Years ended December 31, 1993, 1992, and 1991
Statements of consolidated shareholders' equity--
Years ended December 31, 1993, 1992, and 1991
Statements of consolidated cash flows--
Years ended December 31, 1993, 1992, and 1991
Notes to consolidated financial statements--
December 31, 1993
Report of independent auditors
The following financial information for the years 1993, 1992, and 1991
is submitted herewith.
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Consent of independent auditors--Ernst & Young 27
2. Financial Statement Schedules
Schedules for Rochester & Pittsburgh Coal Company and subsidiaries:
Schedule I -- Marketable Securities-- 29
other investments
Schedule V -- Property, plant and equipment 30
Schedule VI -- Accumulated depreciation, depletion
and amortization of property, plant
and equipment 31
Schedule VIII -- Valuation and Qualifying Accounts 32
Schedule IX -- Short-Term Borrowing 33
Schedule X -- Supplementary income
statement information 34
</TABLE>
18
<PAGE> 19
All other schedules for Rochester & Pittsburgh Coal Company and
subsidiaries for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have
been omitted.
3. Exhibits
(3) Articles of Incorporation and By-laws
A. Articles of Incorporation, as Amended.
Registrant's Articles of Incorporation, as amended, were
filed with Registrant's Annual Report on Form 10-K dated
March 28, 1991. The Articles, as amended, are incorporated
herein by reference.
B. By-Laws of Registrant, as Amended.
Registrant's By-Laws, as amended, were filed with
Registrant's Annual Report on Form 10-K dated March 30,
1989. An Amendment to the By-Laws was filed with
Registrant's Annual Report on Form 10-K dated March 28,
1991. The By-Laws, as amended, are incorporated herein by
reference.
(10) Material Contracts
A. 1991 Keystone Coal Supply Agreement.
The 1991 Keystone Coal Supply Agreement was filed as an
exhibit to Registrant's Annual Report on Form 10-K dated
March 28, 1991. The Agreement is incorporated herein by
reference.
B. Homer City Coal Sales Agreement, as Amended.
The Homer City Coal Sales Agreement was filed with
Registrant's Form 10 Registration Statement dated April 26,
1973. Amendments to the Homer City Coal Sales Agreement
were filed with Registrant's Annual Report on Form 10-K
dated March 26, 1981, and with Registrant's Annual Report
on Form 10-K dated March 28, 1991. The Agreement and
amendments are incorporated herein by reference.
19
<PAGE> 20
Executive Compensation Plans and Arrangements
C. Employment and Deferred Compensation Agreement between
Registrant and W. G. Kegel, as Amended.
The Employment and Deferred Compensation Agreement between
Registrant and W. G. Kegel was filed with Registrant's
Annual Report on Form 10-K dated March 26, 1981.
Amendments to Employment and Deferred Compensation
Agreement were filed with Registrant's Annual Report on
Form 10-K dated March 30, 1989. The Agreement and
amendments are incorporated herein by reference.
D. Registrant's Key Executives Incentive Compensation Plan.
The Rochester & Pittsburgh Coal Company Key Executives
Incentive Compensation Plan was filed with Registrant's
Annual Report on Form 10-K dated March 26, 1992. The Plan
is incorporated herein by reference.
E. Registrant's Pension Plan, as Amended.
Registrant's Pension Plan was filed with Registrant's
Annual Report on Form 10-K dated February 25, 1988.
Amendments to the Pension Plan were filed with Registrant's
Annual Report on Form 10-K dated March 29, 1990, with
Registrant's Annual Report on Form 10-K dated March 28,
1991, with Registrant's Annual Report on Form 10-K dated
March 26, 1992, and with Registrant's Annual Report on Form
10-K dated March 25, 1993. The Plan and amendments are
incorporated herein by reference.
F. Employment Agreement between Registrant and T. W.
Garges, Jr.
Employment Agreement between Registrant and T. W. Garges,
Jr. was filed with Registrant's Annual Report on Form 10-K
dated March 30, 1989. The Agreement is incorporated
herein by reference.
G. Registrant's 401(k) Savings and Retirement Plan.
Registrant's 401(k) Savings and Retirement Plan was filed
with Registrant's Annual Report on Form 10-K dated March
28, 1991. The Plan is incorporated herein by reference.
20
<PAGE> 21
H. Employment Agreement between Registrant
and Thomas W. Garges, Jr.
Employment Agreement between Registrant and
Thomas W. Garges, Jr., dated as of May 1,
1992, was filed with Registrant's Annual
Report on Form 10-K dated March 25, 1993.
The Agreement is incorporated herein by
reference.
I. Asset Purchase Agreement Between
Bethlehem Steel Corporation and Lucerne
Land Company.
The Asset Purchase Agreement between
Bethlehem Steel Corporation and Lucerne Land
Company, dated December 20, 1992, was filed
with Registrant's Current Report on Form 8-K
dated January 13, 1993. The Agreement is
incorporated herein by reference.
J. Asset Purchase Agreement Between
BethEnergy Mines Inc. and Lucerne Land
Company.
The Asset Purchase Agreement between
BethEnergy Mines Inc. and Lucerne Land
Company dated December 10, 1992 was filed
with Registrant's Current Report on Form 8-K
dated January 13, 1993. The Agreement is
incorporated herein by reference.
K. Asset Purchase Agreement between
Bethlehem Steel Corporation and
Eighty-Four Mining Company.
The Asset Purchase Agreement between
Bethlehem Steel Corporation and Eighty-Four
Mining Company dated December 10, 1992 was
filed with Registrant's Current Report on
Form 8-K dated January 13, 1993. The
Agreement is incorporated herein by
reference.
L. Asset Purchase Agreement between
BethEnergy Mines Inc. and Eighty-Four
Mining Company.
The Asset Purchase Agreement between
BethEnergy Mines Inc. and Eighty-Four Mining
Company dated December 10, 1992 was filed
with Registrant's Current Report on Form 8-K
dated January 13, 1993. The Agreement is
incorporated herein by reference.
21
<PAGE> 22
(13) Annual Report To Security Holders
The following sections of the accompanying
Rochester & Pittsburgh Coal Company Annual Report
1993, [filed as Exhibit (13) to this Annual
Report on Form 10-K] comprising the respective
pages indicated in parentheses, are incorporated
herein by reference:
(i) Market for Registrant's Common Equity and
Related Stockholder Matters (page 28).
(ii) Selected Financial Data (pages 24 and 25).
(iii) Management's Discussion and Analysis of
Financial Condition and Results of
Operations (pages 24 through 27).
(iv) Financial Statements and Supplementary
Data (page 6, Report of Ernst & Young,
Independent Auditors, and pages 7 through
23).
Except as expressly incorporated by reference,
the accompanying Rochester & Pittsburgh Coal
Company Annual Report 1993 is not to be deemed
filed herewith.
(21) Subsidiaries of the Registrant
Registrant's list of subsidiaries [filed as
Exhibit (21) to this Annual Report on Form 10-K].
(b) Reports on Form 8-K:
None.
(c) Exhibits to this Form 10-K:
Page
----
Exhibit (13) -- Annual Report to
Shareholders for 1993 41
Exhibit (21) -- Subsidiaries of Registrant 73
22
<PAGE> 23
(d) Financial Statement Schedules
Page
----
Schedule I -- Marketable Securities--
other investments 29
Schedule V -- Property, plant and
equipment 30
Schedule VI -- Accumulated depreciation,
depletion and amortization
of property, plant and
equipment 31
Schedule VIII -- Valuation and Qualifying
Accounts 32
Schedule IX -- Short-term borrowing 33
Schedule X -- Supplementary income statement
information 34
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ROCHESTER & PITTSBURGH COAL COMPANY
By: THOMAS W. GARGES, JR.
Thomas W. Garges, Jr.,
President and Chief
Executive Officer
Date: March 24, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
THOMAS W. GARGES, JR. President and Chief March 24, 1994
Thomas W. Garges, Jr. Executive Officer
(Principal Executive Officer)
GEORGE M. EVANS Vice President and March 24, 1994
George M. Evans Treasurer
(Principal Financial Officer)
(Principal Accounting Officer)
WILLIAM G. KEGEL Chairman of the Board March 24, 1994
William G. Kegel of Directors
PETER ISELIN Vice President--Finance March 24, 1994
Peter Iselin and Director
DAVID H. DAVIS Director March 24, 1994
David H. Davis
COLUMBUS O'D. ISELIN, JR. Director March 24, 1994
Columbus O'D. Iselin, Jr.
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C> <C>
Norman S. Smith Director March 24, 1994
Norman S. Smith
JOHN J. SCHRODER, JR. Director March 24, 1994
John L. Schroder, Jr.
O'DONELL ISELIN II Director March 24, 1994
O'Donnell Iselin II
L. BLAINE GRUBE Director March 24, 1994
L. Blaine Grube
GORDON B. WHELPLEY, JR. Director March 24, 1994
Gordon B. Whelpley, Jr.
THOMAS M. HYNDMAN, JR. Director March 24, 1994
Thomas M. Hyndman, Jr.
</TABLE>
25
<PAGE> 26
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2) and ITEM 14(c) and (d)
FINANCIAL STATEMENTS AND FINANCIAL STATEMENTS SCHEDULES
YEAR ENDED DECEMBER 31, 1993
ROCHESTER & PITTSBURGH COAL COMPANY
INDIANA, PENNSYLVANIA
26
<PAGE> 27
ERNST & YOUNG One Oxford Centre Phone: 412-644-7800
Pittsburgh, Pennsylvania 15222
REPORT OF INDEPENDENT AUDITORS
To the Shareholders
Rochester & Pittsburgh Coal Company
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Rochester & Pittsburgh Coal Company and subsidiaries of our report dated
March 11, 1994, included in the 1993 Annual Report to Shareholders of Rochester
& Pittsburgh Coal Company and subsidiaries.
Our audits also included the financial statement schedules of Rochester &
Pittsburgh Coal Company listed in Item 14(a). These schedules are the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
ERNST & YOUNG
Ernst & Young
March 11, 1994
27
<PAGE> 28
FINANCIAL STATEMENT SCHEDULES
ROCHESTER & PITTSBURGH COAL COMPANY
AND SUBSIDIARIES
DECEMBER 31, 1993
28
<PAGE> 29
SCHEDULE I - MARKETABLE SECURITIES - OTHER INVESTMENTS
ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
December 31, 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
COL. A. COL. B. COL. C. COL. D. COL. E.
- -------------------------- ------------ ------------ ------------ -------------------
Number Amount at Which
of Shares Each Portfolio
or Units - Market of Equity Security
Principal Value of Issues and Each
Amount Each Issue Other Security
Name of Issuer of Bonds Cost of at Balance Issue Carried in
Title of Each Issue and Notes Each Issue Sheet Date the Balance Sheet
- -------------------------- ------------ ------------ ------------ -------------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS
Obligations of the U.S.
Gov't. and its Agencies $ 1,000 $ 1,000 $ 1,016 $ 1000
INVESTMENT IN MARKETABLE SECURITIES
Obligations of the U.S. Gov't.
and its Agencies $ 20,741 $ 20,875 $ 21,716 $ 20,779
Corporate Bonds:
Industrials $ 2,500 2,609 2,625 2,587
Finance/Industrial $ 3,000 3,189 3,175 3,182
Finance/Institutional $ 4,500 4,719 4,643 4,694
Other $ 3,000 2,648 2,703 2,613
Stock:
Preferred 121,000 shs. 3,052 3,328 3,052
Common:
Finance/Utilities 53,000 shs. 1,595 1,666 1,595
Transportation 14,000 shs. 374 592 374
Consumer Staples 22,000 shs. 1,123 1,179 1,123
Health Care 37,000 shs. 1,595 1,533 1,595
Service 15,000 shs. 799 884 799
Other 1,000 shs. 38 58 38
Other $ 300 300 314 300
------------ ------------ ------------------
$ 42,916 $ 44,416 $ 42,731
============ ============ ==================
FUNDING FOR WORKERS' COMPENSATION (Balance sheet caption includes $4,729 in cash)
Obligations of the U.S. Gov't.
and its Agencies $ 19,750 $ 20,734 $ 21,538 $ 20,517
============ ============ ==================
FUNDING FOR MINE CLOSING RESERVES (Balance sheet caption includes $2,745 in cash)
Obligations of the U.S. Gov't.
and its Agencies $ 13,500 $ 14,091 $ 14,716 $ 13,910
============ ============ ==================
</TABLE>
29
<PAGE> 30
SCHEDULE V - PROPERTY, PLANT, AND EQUIPMENT
ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- ----------------------------- --------- --------- ----------- -------------- ---------
Balance at Other Changes- Balance
Beginning Additions Add (Deduct)- at End
Classification of Period at Cost Retirements Describe of Period
- ----------------------------- --------- --------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Coal and surface lands $ 87,431 $ 14 $ 37 $ -- $ 87,408
Plant and equipment 208,215 6,361 (1) 7,332 -- 207,244
Mine development -- 23,141 (3) -- -- 23,141
Construction in progress 1,427 23,347 (2) -- -- 24,774
--------- --------- ----------- ------------ ---------
$ 297,073 $ 52,863 $ 7,369 $ -- $ 342,567
========= ========= =========== ============ =========
Year ended December 31, 1992:
Coal and surface lands $ 39,431 $ 48,228 $ 228 $ -- $ 87,431
Plant and equipment 188,955 29,867 (1) 10,607 -- 208,215
Construction in progress 2,078 (651) (2) -- -- 1,427
--------- --------- ----------- ------------ ---------
$ 230,464 $ 77,444 $ 10,835 $ -- $ 297,073
========= ========= =========== ============ =========
Year ended December 31, 1991:
Coal and surface lands $ 39,858 $ 1,201 $ 2 $ (1,626) (4) $ 39,431
Plant and equipment 223,986 31,777 (1) 25,424 (43,484) (4) 188,955
Construction in progress 5,468 (3,308) (2) -- (82) (4) 2,078
--------- --------- ----------- ------------ ---------
$ 269,312 $ 29,670 $ 25,426 $ (41,384) $ 230,464
========= ========= =========== ============ =========
</TABLE>
(1) Additions related principally to the purchase of and expansion and
equipping of mines, and for the 1992 purchase of the Mine No. 84
properties.
(2) Represents net change for the year.
(3) Represents cost of development net of sales revenue from coal produced
incidental to development, and includes $3,993 of depreciation charged
to capitalized development.
(4) Property, plant, and equipment included in the sale of The Florence
Mining Company in October, 1991.
30
<PAGE> 31
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION, AND AMORTIZATION
OF PROPERTY, PLANT, AND EQUIPMENT
ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- ----------------------------- --------- ---------- ----------- ------------- ----------
Additions
Balance at Charged to Other Changes- Balance
Beginning Costs and Add (Deduct)- at End
Description of Period Expenses Retirements Describe of Period
- ----------------------------- --------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Allowances for depletion $ 14,522 $ 303 $ -- $ -- $ 14,825
Allowances for depreciation 134,572 13,830 (1) 6,678 -- 141,724
Accumulated amortization 3,005 4 -- -- 3,009
--------- ------------ --------- -------- ----------
$ 152,099 $ 14,137 $ 6,678 $ -- $ 159,558
========= ============ ========= ======== ==========
Year ended December 31, 1992:
Allowances for depletion $ 14,136 $ 386 $ -- $ -- $ 14,522
Allowances for depreciation 134,640 10,353 10,421 -- 134,572
Accumulated amortization 2,999 6 -- -- 3,005
--------- --------- --------- -------- ----------
$ 151,775 $ 10,745 $ 10,421 $ -- $ 152,099
========= ============ ========= ======== ==========
Year ended December 31, 1991:
Allowances for depletion $ 14,177 $ 501 $ -- $ (542) (2) $ 14,136
Allowances for depreciation 156,344 12,047 11,190 (22,561) (2) 134,640
Accumulated amortization 2,872 127 -- -- 2,999
--------- ------------ --------- -------- ----------
$ 173,393 $ 12,675 $ 11,190 $(23,103) $ 151,775
========= ============ ========= ======== ==========
</TABLE>
(1) Includes $3,993 of depreciation charged to Mine No. 84 capitalized
development costs.
(2) Accumulated depreciation and depletion included in the sale of The
Florence Mining Company in October, 1991.
31
<PAGE> 32
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ----------------------------- ------------ ---------------------------------- ------------- ----------
ADDITIONS
----------------------------------
Col. 1 Col. 2
Balance at Charged to Charged to Balance at
Beginning Costs and Other Accounts- Deductions- End of
Description of Period Expenses Describe Describe Period
- ----------------------------- ------------ ------------ --------------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Reserves:
Mine closing reserve $ 17,124 $ 621 $ 1,051 (1) $ 640 (2) $ 18,156
============ ============ =========== ======== =========
Surface mine reclamation
reserve $ 569 $ 613 $ -- $ 191 (2) $ 991
============ ============ =========== ======== =========
Deducted from asset accounts:
Deferred income tax valuation
allowance $ -- $ 4,498 $ -- $ -- $ 4,498
============ ============ =========== ======== =========
Year ended December 31, 1992:
Reserves:
Mine closing reserve $ 13,243 $ 1,371 $ 2,557 (4) $ 47 (2) $ 17,124
============ ============ =========== ======== =========
Surface mine reclamation
reserve $ 1,241 $ 133 $ -- $ 805 (2) $ 569
============ ============ =========== ======== =========
Year ended December 31, 1991:
Reserves:
Mine closing reserve $ 23,156 $ 782 $ 1,588 (1) $ 12,283 (3) $ 13,243
============ ============ =========== ======== =========
Surface mine reclamation
reserve $ 990 $ 1,012 $ -- $ 761 (2) $ 1,241
============ ============ =========== ======== =========
</TABLE>
(1) Interest earned on funds invested to meet reserve requirements.
(2) Expense incurred to satisfy previously reserved requirements.
(3) Deductions from the mine closing reserve in 1991 include $1,325 of
expenses incurred to satisfy previously reserved requirements and $10,958
related to the sale of The Florence Mining Company in October, 1991.
(4) Of this amount, $1,057 represents interest earned on funds invested to
meet reserve requirements, and $1,500 represents estimated mine closing
obligations assumed with the purchase of Mine No. 84 properties in
December 1992.
32
<PAGE> 33
SCHEDULE IX - SHORT-TERM BORROWINGS
ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E COL. F
- ---------------------------- --------- --------- -------------- ------------- -------------
Maximum Average Weighted
Weighted Amount Amount Average
Balance Average Outstanding Outstanding Interest Rate
Category of Aggregate at End of Interest During the During the During the
Short-term Borrowings Period Rate Period Period (2) Period (3)
- ---------------------------- --------- --------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993
Notes payable to bank (1) $ -0- -- $ 8,875,000 $ 3,934,000 6.0%
Year ended December 31, 1992
Notes payable to bank (1) -0- -- 8,950,000 3,160,000 6.3%
Year ended December 31, 1991
Notes to payable to bank (1) -0- -- 9,100,000 1,977,000 8.6%
</TABLE>
(1) Notes payable to bank represent borrowings under a line of credit
borrowing arrangement which is in effect until September 30, 1995.
Thereafter, annual extensions may be requested.
(2) The average amount outstanding during the period was computed by dividing
the total daily outstanding principal balances by 360.
(3) The weighted average interest rate during the period was computed by
dividing the actual interest expense by average short-term debt
outstanding.
33
<PAGE> 34
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
(Dollars in thousands)
<TABLE>
<CAPTION>
COL. A COL. B
- ------------------------------------------ --------------------------------------------
Item Charges to Costs and Expenses
- ------------------------------------------ --------------------------------------------
Year ended December
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Maintenance and repairs $ 10,186 $ 14,232 $ 16,994
Taxes other than payroll and income taxes
Federal black lung excise tax $ 3,292 $ 5,667 $ 6,446
Other $ 2,209 $ 2,240 $ 2,742
</TABLE>
Amounts for depreciation and amortization of intangible assets,
preoperating costs and similar deferrals, royalties, and advertising costs are
not presented as such amounts are less than 1% of total sales and revenues.
34
<PAGE> 35
SECURITIIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS
to
FORM 10-K
Annual Report
Under
The Securities Exchange Act of 1934
ROCHESTER & PITTSBURGH COAL COMPANY
(Exact name of registrant as specified in its charter)
<PAGE> 36
3. Exhibits Page
(13) Annual Report to Shareholders for 1993
(21) Subsidiaries of Registrant
<PAGE> 1
ROCHESTER & PITTSBURGH COAL COMPANY
ANNUAL
REPORT
- 1993 -
<PAGE> 2
ROCHESTER & PITTSBURGH COAL COMPANY
- --------------------------------------------------------------------------------
DIRECTORS OFFICERS
WILLIAM G. KEGEL
THOMAS W. GARGES, JR.
Chairman of the Board of the
Company President and Chief Executive
Officer
DAVID H. DAVIS
W. JOSEPH ENGLER, JR.
Coal Consultant, Retired Division
President and Corporate Vice Vice President and General
President, Counsel
Consolidation Coal Company
GEORGE M. EVANS
THOMAS W. GARGES, JR. Vice President and Treasurer
President and Chief Executive
Officer PETER ISELIN
of the Company
Vice President--Finance and
Secretary
L. BLAINE GRUBE
THOMAS M. MAJCHER
Retired Vice President and
Treasurer Vice President--Corporate
of the Company Development
THOMAS M. HYNDMAN, JR. ADOLPH W. PETZOLD
Of Counsel, Duane, Morris & Vice President--Operations
Heckscher,
Attorneys at Law
WILLIAM M. DARR
COLUMBUS O'D. ISELIN, JR. Assistant Secretary
Independent Consultant, Aerospace
and Defense WILLIAM J. GIULIANI
O'DONNELL ISELIN II Assistant Treasurer
Manager, Finance Staff,
Hughes Aircraft Company JEFFREY A. MACK
Assistant Controller
PETER ISELIN
Vice President--Finance and JOYCE E. MILLER
Secretary of the Company
Assistant Secretary
JOHN L. SCHRODER, JR.
Retired Dean, College of Mineral
and Energy Resources,
West Virginia University
NORMAN S. SMITH
Professor of Mining Engineering,
University of Missouri-Rolla
GORDON B. WHELPLEY, JR.
Project Manager, Louis E. Lee Co.
Builders
DIRECTOR EMERITUS
RICHARD C. YATES
------------------------------
<TABLE>
<S> <C>
PRINCIPAL OFFICE --655 CHURCH STREET, INDIANA, PA 15701 412/349-5800
TRANSFER AGENT AND REGISTRAR --FIRST CHICAGO TRUST COMPANY OF NEW YORK
AUDITORS --ERNST & YOUNG
</TABLE>
<PAGE> 3
FINANCIAL HIGHLIGHTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR 1993 1992 1991
- ----------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Production Tonnage(1).......................... 3,218 5,584 6,550
Sales Tonnage(2)............................... 3,435 5,835 8,601
Sales.......................................... $153,628 $198,502 $311,432
Income Before Income Taxes..................... $ 3,876 $ 18,649 $ 20,939
Net Income(4).................................. $ 7,083 $ 14,190 $ 16,306
Net Income Per Share(3)(4)..................... $ 2.06 $ 4.11 $ 4.60
Cash Dividends Per Share(3).................... $ 1.50 $ 1.50 $ 1.36
Average Shares Outstanding(3).................. 3,441 3,449 3,543
AT YEAR-END
Long-term Debt................................. $ 29,455 $ 13,203 $ 13,778
Shareholders' Equity........................... $210,794 $209,401 $204,195
Shares Issued and Outstanding.................. 3,438 3,442 3,511
Treasury Shares Held........................... 551 547 479
Shareholders' Equity Per Outstanding
Share(3)..................................... $ 61.31 $ 60.84 $ 58.17
</TABLE>
(1) Production tonnage does not include 420,000 tons in 1992 and 1,749,000 tons
in 1991 produced at operations owned by others and managed by the Company;
it also excludes tons produced by Eighty-Four Mining Company which is in the
development stage. Such tonnage is not included in sales tonnage.
(2) Sales tonnage includes coal purchased from others for resale.
(3) Amounts for 1991 have been adjusted for a 10% stock dividend paid in that
year.
(4) Net Income and Net Income Per Share for 1993 include a credit of $4,709,000
and $1.37, respectively, for the cumulative effect to January 1, 1993 of
change in accounting for income taxes.
------------------------------
TO THE SHAREHOLDERS:
The seven-month coal strike during 1993, by the United Mine Workers of
America (UMWA) against members of the Bituminous Coal Operators' Association,
reduced production by 42% to 3,218,000 tons compared to the prior year's
production of 5,584,000 tons. As a result, net income was $7,083,000 or $2.06
per share compared to $14,190,000 or $4.11 per share for 1992. Results were also
affected by the adoption of two accounting standards, effective January 1, 1993,
which had a combined favorable effect on net income of $2,942,000.
The year concluded with ratification of a new five-year labor agreement on
December 16, 1993 by rank and file membership of the UMWA. The new agreement
fairly addresses the Union's main concern of expanded job opportunities by
guaranteeing UMWA members 60% of all new jobs, by seniority, at all affiliated
existing, new or newly acquired non-signatory bituminous coal operations. Wage
increases totaling $1.30 per hour over the first three years of the contract are
granted along with enhanced pension benefits. The new agreement also contains
significant provisions designed to contain health care costs through the
establishment of preferred medical providers and modifications of deductibles
and co-payments for medical services. Of major importance are stipulations that
provide for alternative work schedules and the establishment of a Labor
Management Positive Change
[1]
<PAGE> 4
Program -- all designed to improve competitiveness and financial stability
through better job satisfaction and involvement. Management intends to take full
advantage of these opportunities to create a spirit of mutuality by focusing on
common ground rather than adversarial interests.
Discussions are continuing with the Owners of the Homer City Steam
Generating Station to convert Helvetia Coal Company's 1.8 million ton per year
cost-plus Coal Sales Agreement to a fixed price agreement. We expect that an
agreement to continue supplying 1.8 million tons per year to the Generating
Station will be concluded and be effective prior to the end of 1994. After
formal agreement is reached, a new mine will be brought on line to fulfill
production requirements.
During the past year, Keystone Coal Mining Corporation opened one new mine
portal and completed construction of another mine portal to be operational
during the first quarter of 1994. To meet future air quality standards, a
thermal coal dryer was added at the Keystone Preparation Plant. The first mobile
conveyor continuous haulage system, which was jointly designed and built by a
major mining equipment manufacturer, was put into operation at the termination
of the strike. We have proven that this type of haulage system, properly applied
to our thinner coal seams which are not suitable for longwall mining methods, is
25% to 50% more productive than the intermittent shuttle car haulage systems
presently being used. Conversion of approximately 50% of the haulage systems to
continuous haulage at both the Helvetia and Keystone subsidiaries over the next
several years is progressing. This will result in further gains in productivity
and efficiency and enhance our ability to compete and meet customers'
expectations.
The underground rehabilitation of Mine No. 84, which was acquired from
Bethlehem Steel Corporation in December, 1992 for $53.6 million, is nearing
completion. A new five-mile long, 6,700 ton per hour underground coal haulage
belt conveyor system is scheduled to begin operating during the second quarter
of 1994. Concurrently, development mining will commence to prepare for the first
longwall system to be operational during the third quarter of 1995. Due to the
ability to install higher capacity longwall systems, the capacity of the mine
has been increased from 5.5 million to 6.6 million annual tons. This rate of
production is scheduled to be achieved in 1997 when the second longwall system
is operational.
Work is on schedule to install new raw and clean coal storage facilities,
additional coal preparation capacity and a state-of-the-art unit-train loading
system at Mine No. 84. Including the original purchase price, your Company has
committed $100 million of equity to the project. To finance construction and
development, total borrowing in the amount of $85 million has been arranged,
subject to the lenders' due diligence and final documentation, and negotiations
to lease the first longwall system are in progress. Additional capital and
operating leases will be utilized during the life of the project.
Efforts to secure sales agreements are progressing and numerous written
expressions of interest from a variety of coal users have been received. We
expect that there will be a growing market for the limited supply of Mine No. 84
type coal which will comply with Phase I of the Clean Air Act. Our marketing
strategy is to achieve a balanced portfolio of sales by market and duration,
which will also enable escalation risks to be hedged. Projected market mix has
been developed through an extensive evaluation of the market, personal contacts
with users and outside consulting studies. Plans are to sell a majority of the
coal to domestic utilities and the remainder to non-utility generators, coke
producers, manufacturers and export customers.
For the next three years, your Company will be in a period of transition
and will capitalize on the opportunity presented by the acquisition of Mine No.
84 to more than double the present annual production capacity of the Company. We
look forward to 1997 and beyond to new prospects for growth, profitability and
appreciation of shareholder value. In the interim, management will concentrate
on developing Mine No. 84 to its full profit potential while placing continued
emphasis on improving performance company-wide.
[2]
<PAGE> 5
The permit application for a municipal solid waste landfill in western
Pennsylvania remains under review by the regulatory agencies. The date that a
permit might be issued cannot be predicted.
During the past year, your Company reduced staff further by decentralizing
certain management functions. This new structure resulted in improved
efficiencies by placing emphasis on individual accountability. Our entire
organization is being called on to improve performance. Our employees are our
most important asset and only through their collective effort can we maintain
our ability to meet the demanding challenges that lie ahead. Their many
contributions continue to be greatly appreciated.
Submitted on behalf of the Board of Directors,
Thomas W. Garges, Jr.
President and
Chief Executive Officer
Indiana, Pennsylvania
February 17, 1994
------------------------------
THE COMPANY
Founded in 1881, Rochester & Pittsburgh Coal Company was formally
incorporated in Pennsylvania under its present name in 1927. The Company has
been engaged in the mining of bituminous coal in western Pennsylvania since
1882. The main office of the Company is located in Indiana, Pennsylvania, near
its mining facilities. On December 31, 1993, the Company had approximately 900
shareholders of record and, including its subsidiaries, had 1,555 employees. A
description of the Company's major subsidiaries is provided below.
KEYSTONE COAL MINING CORPORATION
Keystone Coal Mining Corporation supplies bituminous coal by way of a
conveyor belt system to the Keystone Steam Electric Station located in Armstrong
County, near Shelocta, Pennsylvania. This Station, having a nameplate capacity
of 1.8 million kilowatts, is owned by Atlantic City Electric Company, Baltimore
Gas and Electric Company, Delmarva Power & Light Company, Jersey Central Power &
Light Company, Pennsylvania Power & Light Company, PECO Energy Company, and
Public Service Electric and Gas Company.
In 1993, Keystone Coal Mining Corporation delivered 2,302,000 tons of coal
to the Keystone Station from its five deep mines, plus 37,000 tons from other
sources, compared to 3,700,000 tons and 27,000 tons, respectively, in 1992. The
decline in tonnage delivered from the deep mines was due to the seven-month
United Mine Workers of America strike.
The coal deliveries were made pursuant to the 1991 Keystone Coal Supply
Agreement, which became effective January 1, 1991, and has a term of fourteen
years. This agreement, which extended, amended, and restated the previous coal
sales agreement in effect since 1972, calls for deliveries of 3,250,000 tons
plus or minus 250,000 tons from 1993 through 1999. Deliveries for 1994 are
scheduled to be 3,500,000 tons. In the event the parties do not negotiate a
further extension, deliveries will gradually decrease through 2004 with a
maximum delivery of 6,500,000 tons during that five-year period.
[3]
<PAGE> 6
HELVETIA COAL COMPANY
Helvetia Coal Company supplies bituminous coal, under a long-term coal
sales agreement extending through 2007, to the Homer City Steam Electric Station
located near Homer City, Indiana County, Pennsylvania. This Station, having a
nameplate capacity of 2 million kilowatts, is owned jointly by New York State
Electric & Gas Corporation and Pennsylvania Electric Company.
Helvetia's three deep mines delivered 840,000 tons to the Homer City
Station in 1993 compared to 1,800,000 tons delivered in 1992. Helvetia's
operations were also adversely affected by the seven-month United Mine Workers
of America strike. It is estimated that Helvetia will supply approximately
1,800,000 tons in 1994.
EIGHTY-FOUR MINING COMPANY
Eighty-Four Mining Company was created in 1992 to purchase Mine No. 84 and
certain properties from Bethlehem Steel Corporation and its BethEnergy Mines
Inc. subsidiary. The mine was idled in February, 1993 to install a high-capacity
underground coal haulage belt conveyor system and upgrade surface coal handling
and preparation systems. At projected full production capacity, which is
scheduled to be attained in 1997, this mine will produce 6.6 million tons of
high quality steam and metallurgical coal utilizing two modern longwall mining
units.
UNITED EASTERN COAL SALES CORPORATION
United Eastern Coal Sales Corporation, which has its corporate sales office
in Indiana, Pennsylvania, serves as sales agent for your Company as well as for
other producers in the domestic and export markets.
ROCHESTER & PITTSBURGH COAL CO. (CANADA) LIMITED
This Company is engaged primarily in the sale of coal in Canada. Its main
office is located in Toronto. A subsidiary company, Cargo Dockers Limited,
manages a dock at Bowmanville, Ontario.
EXPLORATION
Your Company continued its exploration program in 1993 and at year-end
controlled estimated raw recoverable reserves of approximately 738,000,000 tons.
INDEBTEDNESS
The Company has no long-term debt except that owed by its operating
subsidiaries. The long-term agreements to supply coal to the Keystone and Homer
City Stations provide for repayment of existing and future debt by the
utilization of cash generated through depreciation and amortization. Interest,
depreciation, and amortization are considered part of the cost of production
under the long-term coal sales agreements and are fully recoverable.
The construction and development of Eighty-Four Mining Company's mine
requires significant funding. Eighty-Four Mining Company and its affiliates have
arranged for long-term debt totaling $85 million with a group of commercial
banks and an institutional investor and negotiations for the lease of the first
longwall system are in progress. These financing arrangements will be guaranteed
by the Company.
For specific information about this indebtedness, refer to Note D to the
consolidated financial statements.
[4]
<PAGE> 7
TREASURY STOCK
The Company from time to time purchases its stock for treasury in the
over-the-counter market and in private transactions. It purchased 5,333 shares
in 1993. Additional shares may be acquired in the future.
DIVIDENDS
In 1993, your Company declared regular quarterly dividends totaling $1.20
per share and an extra dividend of 30c per share. The regular quarterly dividend
of 30c per share and the extra dividend of 30c per share declared in the fourth
quarter were paid on January 3, 1994. The present dividend policy of the Board
of Directors is to declare at the January, May, July, and October board meetings
a regular quarterly dividend of 30c per share payable on or about the first day
of March, June, September, and January, respectively.
[5]
<PAGE> 8
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
------------------------------------------------------------------
To the Shareholders
ROCHESTER & PITTSBURGH COAL COMPANY
Indiana, Pennsylvania
We have audited the consolidated balance sheets of Rochester & Pittsburgh
Coal Company and subsidiaries as of December 31, 1993, 1992, and 1991, and the
related statements of consolidated income, shareholders' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Rochester &
Pittsburgh Coal Company and subsidiaries at December 31, 1993, 1992, and 1991,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
As discussed in Notes F and G, in 1993, the Company changed its method of
accounting for income taxes and postretirement benefits other than pensions.
/s/ ERNST & YOUNG
Ernst & Young
Pittsburgh, Pennsylvania
March 11, 1994
[6]
<PAGE> 9
ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(Dollars in thousands, except those stated on a per share basis)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
SALES--NOTE C................................. $153,628 $198,502 $311,432
OTHER INCOME
Interest and dividends...................... 4,450 8,296 8,006
Net investment gains........................ 1,850 1,359 362
Miscellaneous............................... 2,013 2,229 1,789
-------- -------- --------
161,941 210,386 321,589
COSTS AND EXPENSES
Cost of sales--Note C....................... 134,619 171,016 274,356
Depreciation, depletion, and amortization... 10,406 10,967 12,875
Selling, general, and administrative........ 7,701 7,351 8,538
Interest.................................... 1,167 1,005 2,205
Miscellaneous............................... 1,494 1,398 2,676
Postretirement benefit costs for certain
operations............................... 2,678 -- --
-------- -------- --------
158,065 191,737 300,650
-------- -------- --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING FOR INCOME
TAXES....................................... 3,876 18,649 20,939
INCOME TAXES--NOTE F.......................... 1,502 4,459 4,633
-------- -------- --------
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR INCOME TAXES.............. 2,374 14,190 16,306
CUMULATIVE EFFECT TO JANUARY 1, 1993 OF CHANGE
IN ACCOUNTING FOR INCOME TAXES -- NOTE F.... 4,709 -- --
-------- -------- --------
NET INCOME.................................... $ 7,083 $ 14,190 $ 16,306
-------- -------- --------
-------- -------- --------
INCOME PER SHARE:
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR INCOME TAXES.............. $ .69 $ 4.11 $ 4.60
CUMULATIVE EFFECT TO JANUARY 1, 1993 OF CHANGE
IN ACCOUNTING FOR INCOME TAXES.............. 1.37 -- --
-------- -------- --------
NET INCOME PER SHARE.......................... $ 2.06 $ 4.11 $ 4.60
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
[7]
<PAGE> 10
ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents -- Note I............ $ 22,737 $ 27,400 $ 63,535
Short-term investments -- Note I............... 1,000 867 7,749
Receivables.................................... 20,704 22,214 16,634
Inventories.................................... 5,182 6,181 4,417
Income taxes receivable........................ 4,466 2,151 --
Prepaid expenses and other current assets...... 2,958 5,557 4,928
Deferred income taxes.......................... 1,822 -- --
-------- -------- --------
TOTAL CURRENT ASSETS.................. 58,869 64,370 97,263
OTHER ASSETS
Investments in marketable securities -- Note
I........................................... 42,731 56,731 66,694
Funding for -- Notes G, H, and I:
Workers' compensation benefits.............. 25,246 23,431 16,098
Mine closing reserves....................... 16,655 15,512 13,199
Noncurrent receivables......................... 6,710 -- 7,970
Deferred income taxes.......................... 10,257 9,235 9,503
Miscellaneous.................................. 13,407 13,326 12,806
-------- -------- --------
115,006 118,235 126,270
PROPERTY, PLANT, AND EQUIPMENT -- Notes B, C, and D
Coal and surface lands....................... 87,408 87,431 39,431
Plant and equipment............................ 207,244 208,215 188,955
Mine development............................... 23,141 -- --
Construction in progress....................... 24,774 1,427 2,078
-------- -------- --------
342,567 297,073 230,464
Less allowances for depreciation, depletion,
and amortization............................ 159,558 152,099 151,775
-------- -------- --------
183,009 144,974 78,689
-------- -------- --------
$356,884 $327,579 $302,222
-------- -------- --------
-------- -------- --------
</TABLE>
[8]
<PAGE> 11
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable............................... $ 11,682 $ 11,272 $ 8,423
Accrued payrolls and related expenses.......... 7,209 5,845 7,942
Other accrued liabilities...................... 4,518 4,340 5,801
Dividends payable.............................. 2,063 2,065 1,916
Current maturities of long-term debt -- Note
D........................................... 2,372 1,515 1,925
-------- -------- --------
TOTAL CURRENT LIABILITIES............. 27,844 25,037 26,007
OTHER LIABILITIES
Workers' compensation benefits -- Note H....... 37,433 34,514 33,819
Mine closing reserves -- Note H................ 18,156 17,124 13,243
Black lung benefits -- Note H.................. 5,862 5,392 --
Other postretirement benefits -- Note G........ 20,500 18,522 6,968
Deferred income taxes.......................... 2,511 -- --
Miscellaneous.................................. 4,329 4,386 4,212
-------- -------- --------
88,791 79,938 58,242
LONG-TERM DEBT (less current maturities) -- Notes
B, D,
and I.......................................... 29,455 13,203 13,778
LONG-TERM COAL SALES AGREEMENTS -- NOTE C
COMMITMENTS -- Notes B and D
SHAREHOLDERS' EQUITY -- Note C
Common stock, no par value (stated value
$15) -- authorized 5,000,000 shares, issued
3,989,121 shares............................ 59,837 59,837 59,837
Capital in excess of stated value.............. 133,176 133,195 133,195
Retained earnings.............................. 45,723 44,176 36,028
-------- -------- --------
238,736 237,208 229,060
Less treasury stock at cost -- 550,846;
547,213; and 478,608 shares................. 27,942 27,807 24,865
-------- -------- --------
210,794 209,401 204,195
-------- -------- --------
$356,884 $327,579 $302,222
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
[9]
<PAGE> 12
ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(Dollars in thousands, except those stated on a per share basis)
<TABLE>
<CAPTION>
CAPITAL IN
COMMON EXCESS OF RETAINED TREASURY
STOCK STATED VALUE EARNINGS STOCK
------- ------------ -------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1991............... $55,054 $122,907 $39,612 $19,491
Net income for the year................ 16,306
Treasury stock......................... 5,374
Dividends:
Cash -- $1.36 per share............. (4,850)
Stock -- 318,817 shares............. 4,783 10,288 (15,071)
Foreign currency translation gain...... 31
------- -------- ------- -------
Balance at December 31, 1991............. 59,837 133,195 36,028 24,865
Net income for the year................ 14,190
Treasury stock......................... 2,942
Dividends:
Cash -- $1.50 per share............. (5,171)
Foreign currency translation (loss).... (871)
------- -------- ------- -------
Balance at December 31, 1992............. 59,837 133,195 44,176 27,807
Net income for the year................ 7,083
Treasury stock:
Issued.............................. (19) (86)
Purchased........................... 221
Dividends:
Cash -- $1.50 per share............. (5,161)
Foreign currency translation (loss).... (375)
------- -------- ------- -------
Balance at December 31, 1993............. $59,837 $133,176 $45,723 $27,942
------- -------- ------- -------
------- -------- ------- -------
</TABLE>
See notes to consolidated financial statements.
[10]
<PAGE> 13
ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................... $ 7,083 $ 14,190 $ 16,306
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion, and
amortization......................... 10,406 10,967 12,875
Deferred income taxes................... 4,382 277 (1,904)
Cumulative effect of change in
accounting for income taxes.......... (4,709) -- --
(Gain) loss on sale of:
Investments.......................... (1,850) (1,359) (362)
Property, plant, and equipment....... (264) 53 (91)
Change in certain assets and liabilities
(using) or providing cash:
Receivables.......................... (5,200) (1,286) 5,570
Inventories.......................... 999 1,101 3,155
Workers' compensation benefits and
funding............................ 1,104 1,332 9,078
Mine closing reserves and funding.... (111) 68 (336)
Other postretirement benefits and
funding............................ 1,978 (143) 2,468
Accounts payable..................... 410 475 (2,260)
Accrued liabilities.................. 1,542 (4,073) 3,224
Other................................ (2,721) (1,524) (8,325)
-------- -------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES........................... 13,049 20,078 39,398
-------- -------- --------
INVESTING ACTIVITIES
Proceeds from sale of investments............. 85,833 114,520 38,034
Acquisition of investments.................... (70,116) (96,315) (59,804)
Acquisition of mining assets (Note B)......... 2,726 (57,181) --
Acquisition and development of property,
plant, and equipment (Note B).............. (48,872) (8,181) (29,670)
Proceeds from sale of property, plant, and
equipment.................................. 923 272 14,237
Investment in gas well partnerships........... -- (379) (946)
Disposition of subsidiary, net of cash sold... -- -- 12,839
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES... (29,506) (47,264) (25,310)
-------- -------- --------
FINANCING ACTIVITIES
Proceeds from line of credit and long-term
borrowings................................. 93,725 87,550 66,825
Payments on line of credit and long-term
borrowings................................. (76,616) (88,535) (75,384)
Cash dividends paid........................... (5,161) (5,022) (4,735)
Acquisition of treasury stock -- net.......... (154) (2,942) (5,374)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES........................... 11,794 (8,949) (18,668)
-------- -------- --------
(DECREASE) IN CASH AND CASH
EQUIVALENTS.......................... (4,663) (36,135) (4,580)
Cash and cash equivalents at beginning of
year....................................... 27,400 63,535 68,115
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................. $ 22,737 $ 27,400 $ 63,535
-------- -------- --------
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
[11]
<PAGE> 14
ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1993
NOTE A -- SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries, all of
which are wholly owned. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Cash and Cash Equivalents -- Cash and cash equivalents include highly
liquid investments that are readily convertible to known amounts of cash and
have original purchase maturities of three months or less. Approximately
$16,000,000 of this balance as of December 31, 1993 was held by one financial
institution.
Investments -- Investments are stated at cost which approximates market
value.
Inventories -- Inventories, comprised of coal ($2,919,000 at December 31,
1993 and $3,353,000 at December 31, 1992) and mine supplies ($2,263,000 at
December 31, 1993 and $2,828,000 at December 31, 1992), are carried at lower of
average cost or market. In 1991, amounts were substantially comprised of coal
inventories.
Property, Plant, and Equipment -- Property, plant, and equipment is
recorded on the basis of cost including capitalized mine development costs and
the cost of equipment leased under capitalized financing leases. Depreciation is
computed principally at rates applied to tonnage produced. Such rates are based
on estimates of tons to be produced, the cost of property, plant, and equipment
employed, the estimated economic lives of the mines and equipment, and the
remaining lives of the long-term coal sales agreements referred to in Note C.
The rates are revised periodically to reflect operating experience and the
provisions of the long-term coal sales agreements. The resulting rates
approximate straight-line depreciation for annual periods. Depletion of coal
lands and amortization of mine development costs are computed on a tonnage basis
calculated to amortize their costs fully over the estimated recoverable
reserves.
Income Taxes -- Deferred income taxes are provided for temporary
differences between financial and tax accounting relating principally to
depreciation, mine development, other postretirement benefits, pension, vacation
pay, self-insurance costs, and alternative minimum tax. Effective January 1,
1993, the Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (FASB 109).
Foreign Currency Translation -- The Canadian subsidiary's balance sheet
accounts are translated at the year-end exchange rate and the resulting
adjustment is made directly to retained earnings. Income statement items are
translated at the average exchange rate for the year. Gains or losses resulting
from foreign currency transactions, which are not material, are reported in
income. As of December 31, 1993, accumulated foreign currency translation losses
charged to retained earnings amounted to $801,000.
Per Share Amounts -- Per share computations are based on the average number
of shares of common stock outstanding during the respective years, adjusted for
subsequent stock dividends paid.
Reclassifications -- Certain accounts in the consolidated financial
statements for prior years have been reclassified to conform to the statement
presentation for the current year. The reclassifications have no effect on net
income.
[12]
<PAGE> 15
NOTE B -- ACQUISITION AND DEVELOPMENT OF MINING ASSETS
In December 1992, the Company, through its wholly owned subsidiaries
Eighty-Four Mining Company and Lucerne Land Company, acquired Mine No. 84 and
approximately 175,000,000 tons of coal reserves in Washington County,
Pennsylvania, from Bethlehem Steel Corporation and its affiliates. The purchase
price adjusted for the results of a closing audit was $53,624,000. In addition,
Eighty-Four Mining Company assumed $19,284,000 in liabilities substantially
comprised of estimated employee benefit liabilities related to active employees
on the purchase date.
The mine was idled in February, 1993 for the installation of an underground
coal haulage belt conveyor system. In addition, surface handling and preparation
facilities are being upgraded to process the planned annual production of
approximately 6.6 million tons. This rate of production is scheduled to be
achieved in 1997 when the second longwall system is operational. Development
mining will commence in the second quarter of 1994 to prepare for the first
longwall system to be operational in the third quarter of 1995. The costs of
rehabilitating and developing these facilities in 1993 amounted to $23,141,000
exclusive of construction in progress for plant and equipment of $19,330,000.
The Company's investment in this project was $89,000,000 at December 31,
1993 and as of March 1, 1994, the Company had completed its equity contribution
totaling $100,000,000. Long-term debt and leases will be utilized to provide
remaining funding requirements of the project.
Eighty-Four Mining Company and Lucerne Land Company have arranged for
$85,000,000 in long-term debt consisting of $50,000,000 in a revolving credit
facility from four commercial banks and $35,000,000 in senior secured fixed rate
construction and term notes from an institutional investor, with final
documentation of the agreements expected to be completed in April 1994. In
addition, Eighty-Four Mining Company is near completion of negotiations on terms
for the capital lease of the $20,000,000 longwall mining system scheduled for
delivery in the third quarter of 1995. The long-term debt will be secured by all
of the revenue and assets of Eighty-Four Mining Company and Lucerne Land
Company. The Company will 1) unconditionally guarantee the debt issued by these
subsidiaries along with obligations under the longwall lease and 2) pledge
investments in marketable securities having a market value of at least
$25,000,000 as additional security for the long-term debt holders.
In addition to placing significant restrictions on Eighty-Four Mining
Company and Lucerne Land Company, the debt agreements will impose restrictions
on the Company with respect to such items as cash flow maintenance, capital
expenditures and acquisitions, dividends, limitations on additional indebtedness
and guarantees, and maintenance of 1) a minimum current ratio, 2) minimum net
worth levels, 3) a leverage ratio, and 4) an interest coverage ratio.
Since Eighty-Four Mining Company anticipates being in the development stage
into 1997, costs of development net of sales revenue from coal produced
incidental to development will continue to be capitalized. Accordingly, the
accompanying Statements of Consolidated Income exclude all revenues and expenses
pertaining to the development of this operation. These capitalized development
costs will be amortized over the life of the mine and operating results will be
included in consolidated net income when full production capacity is achieved.
NOTE C -- LONG-TERM COAL SALES AGREEMENTS
The Company and its domestic subsidiaries are principally engaged in deep
and surface mining of bituminous steam coal in Pennsylvania. Substantially all
deep mine production is currently performed by two subsidiaries and is sold to
two mine-mouth electric generating stations pursuant to separate long-term coal
sales agreements, as follows: Keystone Coal Mining Corporation to the Keystone
Steam Electric Station under the Keystone Coal Supply Agreement (Keystone,
Keystone Station, and
[13]
<PAGE> 16
Keystone Agreement) and Helvetia Coal Company to the Homer City Steam Electric
Station under the Homer City Coal Sales Agreement (Helvetia, Homer City Station,
and Homer City Agreement).
Under the terms of the long-term coal sales agreements, the price of coal
sold is based on the cost of production plus profit. The amount of profit
depends primarily on the quality of the coal sold, the ability to control costs
of production, and the ability to meet production and delivery schedules. A
significant portion of the Company's coal reserves is dedicated to the
production of coal for such agreements. Under the terms of these agreements, the
Station Owners have options to acquire the respective mining subsidiaries at
their net book value and to lease the related coal and surface lands. The
Keystone option can only be exercised if Keystone is in default under its loan
agreements (Note D) or the Keystone Agreement. The Helvetia option can be
exercised at any time. Helvetia is presently involved in negotiations with the
Homer City Station Owners to convert Helvetia's long-term coal sales agreement
to a fixed price agreement.
Sales, net income before cumulative effect of change in accounting for
income taxes, net income, and net book value of these subsidiaries were as
follows (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Keystone (net book value at December
31, 1993 -- $18,817)
Sales................................ $100,644 $130,035 $148,008
Net income before cumulative effect
of change in accounting for income
taxes............................. 752 5,077 3,989
Net income........................... 2,748 5,077 3,989
Helvetia (net book value at December
31, 1993 -- $6,167)
Sales................................ 40,449 53,846 56,671
Net income before cumulative effect
of change in accounting for income
taxes............................. 1,227 3,032 2,363
Net income........................... 3,537 3,032 2,363
</TABLE>
Sales in 1991 included $9,000,000 relating to contractual payments (Note G)
for retiree medical benefits at Keystone, which did not affect net income under
the provisions of the Keystone Agreement.
The Florence Mining Company, a wholly owned subsidiary which supplied coal
to the Conemaugh Generating Station under a long-term coal supply agreement, was
sold on October 29, 1991 at its book value. Florence's sales and net income
included in the Statement of Consolidated Income for 1991 were $88,424,000 and
$5,711,000.
Certain funds generated by these mining subsidiaries must be utilized
within the respective operations covered by the agreements. The agreements
require that investment earnings on funds so restricted be credited to the cost
of production. Of the net book value of these mining subsidiaries, $836,000 is
available for transfer to the Company as of December 31, 1993. The Keystone
Agreement, as well as debt agreements of that subsidiary, includes certain
restrictions on its net book value. The debt instruments for Helvetia do not
allow dividends to the Company in excess of Helvetia's retained earnings. The
amount of subsidiaries' net assets restricted as a result of these provisions
was $24,148,000.
[14]
<PAGE> 17
NOTE D -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Keystone:
Revolving credit note................... $24,500 $ 5,200 $ 7,000
Term note............................... 1,920 2,560 --
Helvetia:
Revolving credit note................... 3,325 4,000 7,000
Term note............................... 1,260 1,680 --
Capitalized lease obligations........... 822 1,278 1,703
------- ------- -------
31,827 14,718 15,703
Less current maturities................... 2,372 1,515 1,925
------- ------- -------
$29,455 $13,203 $13,778
------- ------- -------
------- ------- -------
</TABLE>
In 1993, Keystone amended its credit agreements to provide for the
following: 1) a revolving credit agreement with two commercial banks with
maximum borrowings thereunder of $30,000,000 due December 31, 1998 with
mandatory reductions in amounts available of $5,000,000 each in 1996 and 1997
and 2) a $10,000,000 line of credit agreement with the same institutions with an
expiration date of September 30, 1995. Keystone's term note payable to one of
these commercial banks remained unchanged with equal installments of $160,000
payable quarterly through December 31, 1995.
Helvetia has an agreement with a commercial bank providing for a revolving
credit facility. The maximum borrowing of $4,000,000 as of December 31, 1993 is
subject to mandatory reductions of $1,500,000 on December 31, 1994 and
$2,500,000 on December 31, 1995, the termination date of the agreement. The
credit agreement includes a term note payable in equal quarterly installments of
$105,000.
Under Keystone's line of credit and revolving credit facility, a commitment
fee of 1/4 of 1% per annum applies to the unused portion of the commitment,
while Helvetia's credit facility bears a 1/8 of 1% commitment fee per annum.
These credit facilities provide for interest at the prime rate (6% at December
31, 1993) and the subsidiaries, at their option, can elect to lock in a rate
below prime for a specified period of time. At December 31, 1993, Keystone
utilized this option whereby the interest rate was fixed at 5.15% through June
30, 1994. All of the related interest expense is recoverable as a cost of
production under the long-term coal sales agreements.
In connection with the development of the Eighty-Four Mining Company's
operation, that subsidiary and an affiliate, Lucerne Land Company, have arranged
for financing of $85,000,000 in long-term debt and are near completion of
negotiations on terms for the lease of the first longwall mining system
scheduled for delivery in the third quarter of 1995. Significant provisions of
the credit facilities which will be unconditionally guaranteed by the Company
are discussed in Note B.
Interest paid in 1993, 1992, and 1991 was $1,103,000, $1,064,000, and
$2,224,000, respectively. Aggregate maturities on long-term debt outstanding at
December 31, 1993 for the next five years are as follows: 1994 -- $2,372,000;
1995 -- $3,895,000; 1996 -- $1,060,000; 1997 -- $4,500,000; and
1998 -- $20,000,000.
[15]
<PAGE> 18
NOTE E -- OPERATING LEASES
The Company's deep mining subsidiaries are parties to operating lease
agreements for mining equipment. Rental expense under these leases was
$7,437,000 in 1993 including $471,000 which was capitalized as mine development,
$6,966,000 in 1992, and $5,743,000 in 1991. Aggregate remaining rental payments
on these leases are $17,582,000 with the following minimum rentals over the next
five years: 1994 -- $7,597,000; 1995 -- $5,305,000; 1996 -- $2,414,000; 1997 and
1998 -- $1,121,000.
NOTE F -- INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method in accordance with
its adoption of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (FASB 109). As permitted under the new rules, prior years'
financial statements have not been restated.
The cumulative effect of adopting this standard as of January 1, 1993 was
to increase net income by $4,709,000, which represents the net increase to the
deferred income tax asset as of that date. For the year ended December 31, 1993,
application of the new income tax rates increased net income by $222,000. A
valuation allowance has been recognized due to the effects of statutory
depletion and limited state tax loss utilization on certain of the Company's
operations.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets as of December 31, 1993 are as
follows (in thousands):
<TABLE>
<S> <C>
Deferred tax assets:
Self-insurance........................................... $ 17,272
Other postretirement benefits............................ 10,472
Alternative minimum tax.................................. 4,800
Vacation pay............................................. 1,956
Other deferred tax assets................................ 1,102
--------------
35,602
Valuation allowance...................................... (4,498)
--------------
Total deferred tax asset.............................. 31,104
Deferred tax liabilities:
Depreciation and related charges......................... 19,226
Intangible drilling costs................................ 877
Pension.................................................. 925
Other deferred tax liabilities........................... 508
--------------
Total deferred tax liabilities........................ 21,536
--------------
Net deferred tax assets............................... $ 9,568
--------------
--------------
</TABLE>
For financial reporting purposes, income before income taxes includes
income attributable to U.S. operations of $2,666,000 in 1993, $17,386,000 in
1992, and $20,229,000 in 1991 and income
[16]
<PAGE> 19
attributable to Canadian operations of $1,210,000 in 1993, $1,263,000 in 1992,
and $710,000 in 1991.
<TABLE>
<CAPTION>
LIABILITY
METHOD DEFERRED METHOD
--------- -------------------
1993 1992 1991
--------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision (credit) for income taxes:
Current:
Federal...................................... $ (3,302) $ 3,471 $ 4,959
State........................................ (139) 165 1,247
Canadian..................................... 561 546 331
Deferred:
Federal...................................... 1,400 (256) (1,683)
State........................................ 3,021 508 (210)
Canadian..................................... (39) 25 (11)
-------- ------- -------
$ 1,502 $ 4,459 $ 4,633
-------- ------- -------
-------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
DEFERRED METHOD
-------------------
1992 1991
------- -------
(IN THOUSANDS)
<S> <C> <C>
Components of deferred income tax expense
(credit):
Alternative minimum tax......................... $(1,465) $ --
Depreciation and related charges................ (72) (862)
Accrued employee benefits....................... 1,480 (944)
Mine development costs.......................... 217 (25)
Other........................................... 117 (73)
------- -------
$ 277 $(1,904)
------- -------
------- -------
</TABLE>
[17]
<PAGE> 20
The reconciliations between income tax expense and the amount computed by
applying the statutory U.S. income tax rate to income before income taxes are as
follows:
<TABLE>
<CAPTION>
LIABILITY
METHOD DEFERRED METHOD
---------- ---------------
1993 1992 1991
---------- ----- -----
<S> <C> <C> <C>
Tax at U.S. statutory rates.................. 34.0% 34.0% 34.0%
Increase (decrease) resulting from:
State taxes, net of federal benefits....... 49.1 (0.5) 4.5
Depletion.................................. (21.5) (11.7) (11.4)
Prior year accruals........................ (12.1) (3.1) (6.5)
U.S. rate change........................... (5.7) -- --
Valuation allowance........................ (2.0) -- --
Higher Canadian rates...................... 2.8 0.6 0.3
Other items................................ (5.8) 4.6 1.2
----- ----- -----
38.8% 23.9% 22.1%
----- ----- -----
----- ----- -----
</TABLE>
Income taxes paid (refunds received) in 1993, 1992, and 1991 were
$(616,000), $5,716,000, and $12,358,000, respectively.
NOTE G -- PENSION AND BENEFIT PLANS
Pensions -- Non-UMWA Employees -- The Company and its subsidiaries have
trusteed pension plans which provide for monthly pensions and other benefits for
substantially all employees not covered by the retirement plans of the United
Mine Workers of America (UMWA). Benefits are determined based on years of
service and the employees' average earnings near the end of service. The
Company's funding policy is to contribute to the plans amounts which are
actuarially determined to provide assets sufficient to meet benefits to be paid
to plan members in accordance with the requirements of ERISA. Since plan assets
are currently in excess of the Internal Revenue Code full funding limitation, no
contributions were made to the plan in 1993 nor are expected to be made in 1994.
The plan assets at December 31, 1993 are comprised primarily of government
securities and corporate equity and debt securities.
Amounts credited to expense for 1993, 1992, and 1991 relating to the
pension plan include the following components:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net periodic pension (credit) expense:
Service cost -- benefits earned during the
period.................................... $ 1,810 $ 1,649 $ 1,782
Interest cost on projected benefit
obligation................................ 3,033 2,814 2,958
Actual return on plan assets................. (5,821) (6,092) (11,365)
Net amortization and deferral................ 586 1,141 6,293
-------- -------- --------
Net periodic pension (credit) including a
charge of $247,000 in 1993 which was
capitalized as mine development........ $ (392) $ (488) $ (332)
-------- -------- --------
-------- -------- --------
</TABLE>
[18]
<PAGE> 21
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets at December 31, 1993, 1992, and 1991 for the
Company's defined benefit pension plans:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits.............................. $ 35,699 $ 34,416 $ 32,694
Nonvested benefits........................... 1,254 1,263 1,050
-------- -------- --------
Accumulated benefits......................... 36,953 35,679 33,744
Effect of projected future salary
increases................................. 11,711 12,266 10,848
-------- -------- --------
Total projected benefit obligation............. 48,664 47,945 44,592
Plan assets at fair value...................... 68,177 64,932 61,424
-------- -------- --------
Plan assets in excess of projected benefit
obligation................................... 19,513 16,987 16,832
Unrecognized net gain.......................... (10,717) (8,323) (6,193)
Unrecognized prior service cost................ 1,793 2,317 2,461
Unrecognized transition asset.................. (10,503) (11,287) (12,070)
-------- -------- --------
Prepaid pension asset (Accrued pension
liability)................................... $ 86 $ (306) $ 1,030
-------- -------- --------
-------- -------- --------
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 6.5% and 4.75%, respectively, at December 31,
1993, and 6.5% and 5.0%, respectively, at December 31, 1992 and 1991. The
weighted-average expected long-term rate of return on plan assets was 8.0% for
1993 and 1992, and 8.25% for 1991.
In addition, the Company and its subsidiaries have a 401(k) Plan for its
management employees. Company contributions and administrative costs totaled
$287,000, $250,000, and $349,000 for 1993, 1992, and 1991, respectively.
UMWA Health and Retirement Funds -- In accordance with the collective
bargaining agreement between the Bituminous Coal Operators' Association and the
UMWA, the Company's mining subsidiaries were required through February 1, 1993
to pay amounts, based principally on hours worked, to the UMWA Health and
Retirement Funds (which includes a defined benefit pension plan). Effective
February 1, 1993, the obligations previously covered by the UMWA Health Funds
became the obligation of the United Mine Workers' of America Combined Benefit
Fund (Combined Fund) and 1992 Benefit Plan (1992 Plan) which were created by the
Coal Industry Retiree Health Benefit Act of 1992. The Company and certain mining
subsidiaries are required to make contributions to these new plans which are
assessed primarily on the basis of the number of beneficiaries assigned to each
employer. The payments to the UMWA Retirement Funds continue to be based on
hours worked.
Expense is being recognized as contributions are made to these plans.
Amounts charged to expense applicable to benefits administered by these various
multi-employer plans were $4,816,000 in 1993 including $839,000 which was
capitalized as mine development, $7,937,000 in 1992, and $10,646,000 in 1991.
The reduction in expense in 1993 reflects the new basis of contributions under
the plans established in 1992. The effect of the reduction in expense in 1993
did not have a material impact on net income due to the provisions of the
long-term coal sales agreements. The present value of the expected future
assessments from the Combined Fund is estimated to be in the range of
$30,000,000. Certain of the Company's subsidiaries would be required under
federal law and the
[19]
<PAGE> 22
previous collective bargaining agreement to contribute additional amounts upon
withdrawal from or termination of certain of the plans.
Other Postretirement Benefits -- The Company also provides certain health
care and life insurance benefits for substantially all retired employees not
covered by the health plan of the UMWA. This includes all UMWA employees who
retire after 1975. These, and similar benefits for active employees, are
provided through insurance companies whose premiums are based on the benefits
paid during the insured period. In addition, employees terminated due to layoff
are eligible for certain benefits for periods up to twelve months. These layoff
benefit costs are charged to expense in the month in which the layoff occurs. In
the past, the Company recognized the cost of providing postretirement benefits
by expensing annual insurance premiums.
In 1991, Keystone became contractually required to accrue its
postretirement benefit costs under the provisions of Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other than Pensions" (FASB 106) and in January 1993, the Company adopted FASB
106 for the remainder of its subsidiaries. FASB 106 requires accrual of retiree
medical and life insurance benefits, similar to pension accounting, rather than
recognition of costs as claims are paid. The Company has chosen to amortize past
service liabilities at the date of adoption over the average remaining service
of the active employees. Certain of the Company's non-contract subsidiaries have
limited activity projected beyond 1993. The past service liabilities for these
subsidiaries amounted to $2,678,000 which was charged to expense in the first
quarter of 1993. Due to the provisions of the long-term coal sales agreements,
the effect on pretax income of adopting the new accounting rules is
significantly mitigated. In 1993, pretax income was reduced by approximately
$2,853,000, due primarily to the recognition of past service liabilities for the
subsidiaries with limited projected activity.
Postretirement benefit expense for 1992 and 1991, which consisted of
contractually determined accruals for Keystone and pay-as-you-go charges for the
remainder of the Company's operations, were $9,028,000 and $18,477,000,
respectively. Postretirement benefit expense for 1993 was $15,549,000 and
includes the following components (in thousands):
<TABLE>
<S> <C>
Net annual expense:
Service cost -- benefits earned during the period.... $ 2,695
Interest cost on accumulated postretirement benefit
obligation........................................ 9,752
Actual return on plans' assets....................... (4,046)
Net amortization and deferral........................ 4,470
-------
12,871
Postretirement benefit costs for certain
operations........................................ 2,678
-------
Net annual expense including $940,000 which was
capitalized as mine development................ $15,549
-------
-------
</TABLE>
Charges under FASB 106 for postretirement benefits at the Company's
Keystone and Helvetia subsidiaries are being funded, net of estimated taxes in
custodial accounts and union and salary VEBA trusts. The funding is currently
comprised primarily of U.S. government and U.S. government agency securities.
Liabilities for the Company and its other subsidiaries are not currently being
funded. The weighted-average expected long-term rate of return on plan assets
assumption was 7.32%.
[20]
<PAGE> 23
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets at December 31, 1993 and 1992 for the Company's
postretirement benefit plans:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation
(APBO):
Retirees........................................ $ 55,973 $ 50,728
Fully eligible active plan participants......... 27,891 28,073
Other active plan participants.................. 60,540 55,101
-------- --------
144,404 133,902
Plans assets at fair value........................ 62,739 50,488
-------- --------
Accumulated postretirement benefit obligation in
excess of plans' assets......................... (81,665) (83,414)
Unrecognized net loss............................. 13,650 3,158
Unrecognized prior service cost................... (2,846) (2,044)
Unrecognized transition obligation................ 50,361 63,778
-------- --------
Accrued postretirement benefit cost............... $(20,500) $(18,522)
-------- --------
-------- --------
</TABLE>
The accrued postretirement benefit cost at December 31, 1992 was comprised
of $11,998,000 recorded for liabilities relating to the existing work force at
the time of the acquisition of the Mine No. 84 properties and $6,524,000 accrued
under Keystone's contractual requirements. For purposes of comparability, the
APBO and transition obligation of the subsidiaries adopting FASB 106 effective
January 1, 1993 are included in the 1992 table.
The weighted-average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) is 11.5% for 1994 and is
assumed to decrease gradually to 6% for 2003 and remain at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. For example, increasing the assumed health care cost
trend rates by one percentage point in each year would increase the APBO as of
December 31, 1993 and 1992 by $33,117,000 and $26,500,000, respectively, and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1993 by $2,742,000.
The weighted-average discount rate used in determining the APBO was 7% and
7.5% at December 31, 1993 and 1992, respectively. The increase in the APBO
primarily reflects the decrease in the discount rate used, offset by changes to
the union plan as amended by the 1993 wage agreement which decreased the APBO by
$7,039,000.
In 1994, the Company will adopt Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Postemployment Benefits." The adoption of
this statement is not expected to have a material impact on the Company.
NOTE H -- SELF-INSURANCE AND OTHER FUNDED LIABILITIES
Workers' Compensation Benefits -- The Company and its mining subsidiaries
have self-insurance programs for workers' compensation liabilities for which
provisions are made based upon actuarial evaluations of claims. Insurance
coverage is maintained for catastrophic losses. These benefits are generally
funded as accrued except for certain charges recorded in 1990 and funded through
1992. However, a portion of this funding is utilized to reimburse working
capital for the payment of income taxes directly attributable to the
nondeductibility of these liabilities for income tax reporting purposes until
payments on workers' compensation claims are made. In future years, when income
tax
[21]
<PAGE> 24
deductions for this item exceed book expenses, the Company intends to restore
funds from working capital. These funds are mainly comprised of U.S. Government
and agency securities.
Mine Closing Reserves -- The Company's mining subsidiaries provide for
projected costs of closing mine facilities. These costs are based on engineering
estimates, which consider the estimated economic lives of the facilities and the
remaining lives of the long-term sales agreements. The related reserves are
reviewed periodically to reflect operating experience and the provisions of the
long-term coal sales agreements and are generally funded as accrued. Funding
consists principally of U.S. Government Notes and Bonds.
Black Lung Benefits -- The Company and its mining subsidiaries have
self-insurance programs for coal workers' pneumoconiosis (black lung)
liabilities and have established black lung trusts under the provisions of the
Internal Revenue Code. The principal purpose of the trusts is to pay federal and
state black lung liabilities for miners covered by Company administered
self-insured programs. These liabilities are being accrued over the estimated
average working life of the subject employees based on annual actuarial
calculations. These calculations are based on various assumptions, among which
are future benefit levels, mortality, claim frequencies, and discount rates. The
Company also maintains escrowed insurance arrangements for certain liabilities
not covered by the trusts. The market value of trust assets at December 31,
1993, which are comprised of U.S. Government Notes and Bonds, totaled
$45,800,000, which approximates the related actuarial liability, except for the
liability for employees hired in connection with the acquisition of the Mine No.
84 properties (see Note B) which amounts to $5,862,000. Funding has ceased until
such time that the actuaries determine additional provisions and funding are
required.
NOTE I -- FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
disclosures for financial instruments:
Cash and Cash Equivalents -- The carrying amounts reported in the balance
sheets approximate fair value.
Short-term Investments (marketable notes, bonds, and certificates of
deposit) -- Carrying amounts approximate quoted market value which is believed
to be the appropriate measure of fair value.
[22]
<PAGE> 25
Investments in Marketable Securities and Other Noncurrent Funding -- Fair
values listed below by type of investment and by balance sheet caption are based
on quoted market prices and generally approximate carrying amounts as of
December 31, 1993:
<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
Common and preferred stocks........................ $ 8,576 $ 9,240
U.S. Government securities......................... 55,206 57,970
Corporate bonds.................................... 13,076 13,146
Other.............................................. 300 314
-------- --------
77,158 80,670
Cash equivalents included in noncurrent funding.... 7,474 7,474
-------- --------
$ 84,632 $ 88,144
-------- --------
-------- --------
Summary by balance sheet caption:
Investments in marketable securities............. $ 42,731 $ 44,416
Funding for workers' compensation benefits....... 25,246 26,267
Funding for mine closing reserves................ 16,655 17,461
-------- --------
$ 84,632 $ 88,144
-------- --------
-------- --------
</TABLE>
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" was issued in 1993 and is
effective for fiscal years beginning after December 15, 1993. The adoption of
this statement is not expected to have a material impact on the Company.
Long-term Debt -- Since interest rates are based on the prime rate and
other current base rates, carrying amounts approximate fair values.
[23]
<PAGE> 26
ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
TEN YEAR SELECTED FINANCIAL DATA
(Amounts expressed in thousands, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
RESULTS OF OPERATIONS
Tons of coal produced.......................... 3,218 5,584 6,550
Sales.......................................... $153,628 $198,502 $311,432
Depreciation, depletion, and amortization...... 10,406 10,967 12,875
Taxes on income................................ 1,502 4,459 4,633
Net income (2)................................. 7,083 14,190 16,306
- ---------------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital................................ $ 31,025 $ 39,333 $ 71,256
Property, plant, and equipment -- net.......... 183,009 144,974 78,689
Net capital expenditures....................... 47,685 77,119 15,524
Total assets................................... 356,884 327,579 302,222
Long-term debt................................. 29,455 13,203 13,778
Shareholders' equity........................... 210,794 209,401 204,195
- ---------------------------------------------------------------------------------------
PER SHARE DATA (1)
Average shares outstanding..................... 3,441 3,449 3,543
Net income (2)................................. $ 2.06 $ 4.11 $ 4.60
Cash dividends declared........................ 1.50 1.50 1.36
Book value at year-end......................... 61.31 60.84 58.17
</TABLE>
- ---------------
(1) Adjusted for 10% stock dividends paid annually from 1974 through 1991.
(2) Net income and Net income per share for 1993 include a credit of $4,709,000
and $1.37, respectively, for the cumulative effect to January 1, 1993 of
change in accounting for income taxes.
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
A substantial portion of the Company's operating revenues are derived from
sales by subsidiaries under long-term coal sales contracts. Prices under those
contracts are based on the cost of production plus a profit determined under
formulas providing incentives to lower costs.
The seven-month strike by the United Mine Workers of America against
members of the Bituminous Coal Operators' Association due to the expiration of
the National Bituminous Coal Wage Agreement of 1988 had a significant adverse
impact on 1993's operating results. All operations of Helvetia Coal Company and
three operations of Keystone Coal Mining Corporation were struck from May 25th
through December 16th when a new five-year labor agreement was ratified. In
addition to providing wage increases and expanding job opportunities for UMWA
members, the new agreement contains provisions designed to contain health care
costs and provide for alternative work schedules to improve competitiveness. As
a result of the strike, both tons produced and tons sold were approximately 42%
lower in 1993 than in 1992 while sales and cost of sales declined 23% and 21%,
respectively. The effect of the reduced volume on sales and cost of sales was
partially offset by the fact that a substantial portion of the costs incurred by
the
[24]
<PAGE> 27
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1990 1989 1988 1987 1986 1985 1984
- -------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
7,254 6,883 8,370 9,473 9,183 9,184 7,998
$387,965 $297,260 $375,945 $392,935 $420,217 $404,328 $289,963
14,112 14,150 16,696 16,356 17,012 20,291 15,730
6,325 8,058 5,196 5,712 6,900 6,024 6,317
18,505 20,113 15,652 16,559 18,564 18,702 17,047
- --------------------------------------------------------------------------------------------
$ 70,447 $ 73,443 $ 88,288 $ 66,427 $ 59,499 $ 60,205 $ 49,875
95,919 100,112 106,834 123,376 122,649 118,380 116,804
12,754 7,725 7,118 17,083 21,281 21,867 24,423
358,117 303,281 302,707 295,022 282,442 265,638 266,319
20,754 22,039 36,077 44,118 52,462 58,632 60,193
198,082 187,918 172,198 163,469 150,871 136,698 122,291
- --------------------------------------------------------------------------------------------
3,659 3,711 3,735 3,826 3,843 3,869 3,911
$ 5.06 $ 5.42 $ 4.19 $ 4.33 $ 4.83 $ 4.83 $ 4.36
1.24 1.13 1.02 .93 .85 .77 .70
54.69 50.71 46.33 42.88 39.40 35.44 31.50
</TABLE>
- --------------------------------------------------------------------------------
operations on strike were reimbursable under the terms of the long-term coal
sales agreements discussed in Note C to the consolidated financial statements.
As discussed more fully in Note B to the consolidated financial statements,
the rehabilitation and development of Eighty-Four Mining Company operations,
which will more than double the present annual production capacity of the
Company, are projected to continue into 1997. Thus, costs incurred net of sales
revenue from coal produced incidental to development will continue to be
capitalized. Such amounts are projected to total $100 million through 1996.
Development mining will commence in the second quarter of 1994. Efforts to
secure sales agreements are progressing and it is expected that there will be a
growing market for the type of coal to be produced by Eighty-Four Mining Company
which will comply with Phase I of the Clean Air Act. Plans are to sell a
substantial amount of this coal to domestic utilities and the remainder to
non-utility generators, coke producers, manufacturers, and export customers.
As discussed in Note C, the sale of The Florence Mining Company subsidiary
in October, 1991 resulted in significant decreases in consolidated production,
sales volume, cost of sales, depreciation, and net income in 1992. In addition,
in March 1992, Pennsylvania Mines Corporation closed its Greenwich Mine and the
Company's agreement to manage this operation terminated. Gross revenues and net
income attributable to these two operations included in the consolidated
financial statements were $675,000 and $210,000 in 1992 and $92.9 million and
$7.2 million in 1991, respectively. The remaining sales reductions
[25]
<PAGE> 28
in 1992 were primarily the result of lower sales tonnage and cost improvements
that were passed through to the utilities in the form of lower prices under the
terms of the Keystone and Homer City Agreements.
Discussions are continuing with the Owners of the Homer City Steam
Generating Station to convert Helvetia Coal Company's long-term coal sales
agreement, discussed more fully in Note C to the consolidated financial
statements, to a fixed-price agreement. It is anticipated that a satisfactory
agreement to continue supplying 1.8 million tons per year to the Homer City
Station will be reached in 1994.
Interest and dividend income decreased in 1993 due to lower interest rates
and lower average amounts invested as a result of the utilization of internally
generated funds to 1) purchase Mine No. 84 and the related coal reserves in
December, 1992 and 2) rehabilitate the mine in 1993. The increase in net
investment gains in each of the last two years was primarily due to the sale of
marketable securities to provide cash for the purchase and rehabilitation of
Mine No. 84.
Miscellaneous income declined in 1993 due to lower coal royalty income and
the reduction in foreign exchange gains experienced at the Company's Canadian
subsidiary. The increase in 1992 amounts compared to 1991 was primarily due to
foreign exchange gains.
Depreciation expense continued to decrease in 1993 due to the utilization
of operating leases for certain mining equipment requirements in recent years.
The decrease in 1992 depreciation, depletion, and amortization expense was
primarily due to the sale of The Florence Mining Company. Interest expense was
higher in 1993 than in 1992 due to increased amounts borrowed, while 1992
interest expense was lower than in 1991 due to the sale of The Florence Mining
Company and a reduction in interest rates. Selling, general, and administrative
and miscellaneous expenses declined in 1992 as a result of cost reduction
programs initiated with the sale of The Florence Mining Company in 1991.
As more fully discussed in Note G to the accompanying consolidated
financial statements, on January 1, 1993 the Company adopted FASB Statement No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"
(OPEB) and elected to amortize past service liabilities as of that date over the
average remaining service lives of active employees. However, upon adoption,
past service liabilities for certain subsidiaries with limited projected
activity were recognized and $2,678,000 was charged to expense. Due to
provisions of the long-term coal sales agreements, the effect on pretax income
of annual OPEB charges is significantly mitigated.
The adoption of FASB Statement No. 109, "Accounting for Income Taxes,"
effective January 1, 1993, resulted in an increase to net income of $4,709,000,
which represented the net increase to the deferred income tax asset as of that
date. The Company's effective income tax rate for 1993, excluding this one-time
credit, was 39% compared to 24% and 22% for 1992 and 1991, respectively. The
increase in the 1993 effective tax rate results from the temporary differences
between financial and income tax reporting created principally by Eighty-Four
Mining Company's mine development expenditures and the inability to carryback or
carryforward tax deductions in excess of current year income for Pennsylvania
income tax reporting purposes. In addition, these excess deductions cannot be
offset against state taxable income of other subsidiaries. For federal income
tax purposes, these expenditures are being utilized to offset current year
income and then carried back to recover taxes paid in certain prior years.
Federal and Pennsylvania deferred tax liabilities are required to be provided
for these expenditures even though no benefit is being realized for Pennsylvania
income tax reporting. These higher effective income tax rates are expected to
increase and continue through 1996 when Eighty-Four Mining Company's mine
development will be substantially completed.
The long-term coal sales agreements of the operating subsidiaries contain
provisions which have enabled the Company to maintain relative profitability in
periods of inflation as long as cost increases
[26]
<PAGE> 29
are in line with applicable inflation and market indices contained in such
agreements. While the Company does not expect market price indices to increase
or to exceed general inflation indices, it believes that it can minimize the
profit impact through cost controls and productivity enhancements.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1993 was $31 million compared to $39.3
million at December 31, 1992 and $71.3 million at December 31, 1991. The
Company's current ratio (ratio of current assets to current liabilities) was 2.1
to 1 at December 31, 1993 compared to 2.6 to 1 at December 31, 1992 and 3.7 to 1
at December 31, 1991. The decline in working capital and the current ratio in
1992 from 1991 amounts was due to the acquisition of Mine No. 84 and additional
coal reserves in December, 1992 which is more fully discussed in Note B to the
consolidated financial statements. This acquisition also resulted in increases
in 1992 to receivables, inventories, property, plant, and equipment, as well as
increases to liabilities for mine closing, black lung, and other postretirement
benefits. The reduction in working capital and the lower current ratio at
December 31, 1993 were due to the utilization of internally generated funds and
investments for the rehabilitation and development of these newly acquired
properties. The seven-month UMWA strike in 1993 also had a significant adverse
effect on cash flow from operations. Despite the decreases in working capital
over the last two years, the Company's financial position remains strong.
The development of Mine No. 84 will require significant capital
expenditures. As discussed in Note B to the consolidated financial statements,
as of March 1, 1994, the Company has contributed equity in the amount of $100
million to this project and has arranged for long-term debt and a capital lease
which will total approximately $105 million. Additional capital and operating
leases will be utilized to meet future funding requirements. The Eighty-Four
Mining Company and Lucerne Land Company debt agreements, which are near
completion, will limit the amount of the debt the Company, Eighty-Four Mining
Company, and Lucerne Land Company can incur or guarantee and the amount of
capital expenditures and acquisitions the Company can make. These limitations
will not apply to the Company's other operating subsidiaries.
As discussed in Note D to the consolidated financial statements, in 1993,
Keystone amended its credit agreements to increase its borrowing limits to $40
million. Approximately $13 million of this capacity has been utilized to fund
receivables which were deferred during the strike in accordance with the terms
of Keystone's long-term coal supply agreement. The receivable will be collected
ratably through 1995. Keystone may finance these receivables through a separate
debt facility should it require its existing debt capacity for operations. Under
terms of their existing long-term coal sales agreements, Keystone's and
Helvetia's debt is to be repaid from funds generated by depreciation and
amortization. As of December 31, 1993, a combined total of $16.2 million of
additional funds were available under the respective debt agreements. Helvetia
Coal Company will require increased debt in the near future to fund both
existing and planned operations. It is expected that amendments to Helvetia's
existing debt agreements will be made to increase amounts available for
borrowing once negotiations with its customers for a new fixed-price sales
agreement conclude successfully.
[27]
<PAGE> 30
MARKET AND DIVIDEND INFORMATION
The following tables show the quarterly cash dividends paid and the range
of bid and ask prices of the Company's stock which is traded in the
over-the-counter market. The quotations, taken from daily newspapers, represent
prices between dealers and do not include retail mark-up, mark-down, or
commission and do not necessarily represent actual transactions. On December 31,
1993, the Company had approximately 900 shareholders of record.
<TABLE>
<CAPTION>
1993
----------------------------------------------------
MARKET PRICE CASH
---------------------------------------- DIVIDENDS
QUARTER HIGH BID LOW BID HIGH ASK LOW ASK DECLARED*
- ---------------------------------- -------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
First............................. $42.50 $38.00 $44.50 $40.00 $ .30
Second............................ 44.00 41.00 45.00 42.50 .30
Third............................. 41.50 41.00 43.75 42.50 .30
Fourth............................ 41.00 38.00 43.50 40.75 .60
------
$ 1.50
------
------
</TABLE>
<TABLE>
<CAPTION>
1992
----------------------------------------------------
MARKET PRICE CASH
---------------------------------------- DIVIDENDS
QUARTER HIGH BID LOW BID HIGH ASK LOW ASK DECLARED*
- ---------------------------------- -------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
First............................. $43.00 $42.00 $47.00 $45.00 $ .30
Second............................ 42.50 42.00 45.00 44.00 .30
Third............................. 42.00 41.00 44.00 43.00 .30
Fourth............................ 42.00 37.00 44.00 40.00 .60
-------
$ 1.50
-------
-------
</TABLE>
* All dividends were declared and paid in the same period shown with the
exception of the 60c dividends declared in the fourth quarter of 1993 and 1992
which were paid on January 3, 1994 and January 4, 1993, respectively.
[28]
<PAGE> 31
ROCHESTER & PITTSBURGH COAL COMPANY
SALES SUBSIDIARIES
UNITED EASTERN COAL SALES CORPORATION
CORPORATE AND GENERAL SALES OFFICE
655 Church Street, Indiana, PA 15701 412/349-6254
MARK A. STEFANOV, Vice President
ROCHESTER & PITTSBURGH COAL CO. (CANADA) LIMITED
CORPORATE AND GENERAL SALES OFFICE
130 Adelaide Street West, Toronto, Ontario M5H 3P5 416/362-2791
GARY F. WHITE, President
<PAGE> 1
Exhibit 21
SUBSIDIARIES
State or Jurisdiction
Name of Subsidiary (1) of Incorporation
- ------------------ ---------------------
Helvetia Coal Company Pennsylvania
Keystone Coal Mining Corporation Pennsylvania
Rochester & Pittsburgh Coal Co.
(Canada) Limited Canada
Cargo Dockers Ltd. (2) Canada
Cordin Ltd. (3) Canada
United Eastern Coal Sales Corporation Pennsylvania
The White Star Coal Co., Inc. (4) New York
RFC Fuel Corporation New York
Leatherwood, Inc. Pennsylvania
Westco Coal Company Pennsylvania
Kent Coal Mining Company (5) Pennsylvania
O'Donnell Coal Company (5) Pennsylvania
Pyrra Mining Company (5) Pennsylvania
Jeffco Coal Company Pennsylvania
DSB Company (6) Pennsylvania
Maud Mining Company (6) Pennsylvania
Mary Margaret Mining Company (6) Pennsylvania
Subco, Incorporated Pennsylvania
Church Street Holdings, Inc. (7) Delaware
Allegheny Highlands Realty Company (7) Pennsylvania
Cowanshannock Coal Company, Inc. (8) Pennsylvania
Young Township Coal Company, Inc. (8) Pennsylvania
New Century Holdings, Inc. Delaware
Eighty-Four Mining Company (9) Pennsylvania
Lucerne Land Company (9) Pennsylvania
73
<PAGE> 2
- --------------------
(1) All subsidiaries do business under the name as listed.
(2) Subsidiary of Rochester & Pittsburgh Coal Co. (Canada)
Limited.
(3) This corporation is a nonoperating subsidiary of Rochester &
Pittsburgh Coal Co. (Canada) Limited.
(4) Subsidiary of United Eastern Coal Sales Corporation.
(5) Subsidiary of Westco Coal Company.
(6) Subsidiary of Jeffco Coal Company.
(7) Subsidiary of Subco, Incorporated.
(8) These corporations are nonoperating subsidiaries of Subco,
Incorporated.
(9) Subsidiary of New Century Holdings, Inc.
74
