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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, 1994
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 _______________
Commission file number 0-7181
ROCHESTER & PITTSBURGH COAL COMPANY
(Exact name of registrant as specified in its charter)
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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)
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Registrant's telephone number, including area code: 412-349-5800
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange
Title of each class on which registered
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None None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
(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. X
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As of March 3, 1995, the aggregate market value of the voting stock of
Registrant held by its non-affiliates was $56,533,072.
Indicate the number of shares of each of Registrant's classes of common stock
outstanding as of March 3, 1995: 3,439,275 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of Registrant's Annual Report to Shareholders for the year
ended December 31, 1994 in Parts I, II and IV.
2. Portions of Registrant's Proxy Statement for its 1995 Annual Meeting
of Shareholders in Part III.
EXHIBIT INDEX: Page 23 and Page 41.
Page 1 of 80.
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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. During
1994 sales to the utility customers of Registrant's subsidiaries were at
or near minimum contract requirements. In 1992, through a subsidiary,
Registrant acquired coal properties and an underground coal mine in southwest
Pennsylvania. Development and rehabilitation work continued at this mine in
1994. When such work is completed, which is anticipated in 1997, Registrant
will be engaged, as a material portion of its planned operations, in the
general eastern utility coal market in addition to the market described above.
(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 currently 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 1994 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 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 solid waste management facilities. To
date, Leatherwood has submitted a permit application to the Pennsylvania
Department of
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Environmental Resources (the "DER") for a 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 designate 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. The
regulatory review by DER is complete, and Registrant believes that the permit
will be issued during the first half of 1995. Because of regulatory and
short-term competitive changes which could impact the project, a re-assessment
of the timing of the development of the project will be undertaken before
construction work on the landfill commences.
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 account post-closing
adjustments.
Since February 1993, Eighty-Four has been engaged in the
renovation, rehabilitation, and replacement of key operating systems. Part of
this work, which included installation of a new five mile long, 6,700 ton per
hour underground belt conveyor system, a new portal and ventilating shaft and
other underground rehabilitation work, construction of new above-ground coal
storage and unit-train load out facilities, is completed. Other work,
including upgrading coal handling and preparation facilities and development
work to accommodate the installation of the first of the two planned longwall
mining units, is continuing. The first longwall unit is scheduled to commence
operations in the third quarter of 1995; the second unit in 1997. 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. In connection with the
development of the first longwall panels, Eighty-Four produced 288,588 tons of
coal which were sold in 1994 in the commercial market.
The properties acquired from Bethlehem are estimated to
contain approximately 175 million saleable(1) tons of high quality Pittsburgh
Seam steam and metallurgical coal. Of the approximate 175 million tons,
currently approximately 75 million tons are within Eighty-Four's current mine
plan which provides for mining through the year 2008. The 175 million ton
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
____________________
(1) Saleable means total coal mine output less tonnage rejected during
processing for market.
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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.
During 1994, efforts to secure arrangements or contracts for
the sale of coal by Eighty-Four continued. As a result of such efforts,
Eighty-Four expects to sell slightly over one million tons of coal from Mine
No. 84 in 1995 to utility customers, in either spot market sales or under
longer term contracts none of which is expected to extend beyond 1999. The
coal from Mine No. 84, however, is of such quality that it should position
Registrant to respond to the increased demand for coal that will meet the air
quality standards under Phase I of The Clean Air Act. 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 and, after initial tests by potential customers, favorable results have
been obtained. No sales to this segment of the market have been made, however.
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 on December 31, 2004, and
under the Keystone Agreement, 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. In 1994, KCMC delivered 2,891,850 tons to the
Keystone Station pursuant to the Keystone Agreement. Should the parties not
agree to an extension of the Keystone Agreement beyond 2004, 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
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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 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 million 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 ($18,842,130 at
December 31, 1994) or its net assets at book value, and to lease KCMC's coal
properties from Registrant. In such event, Registrant would receive a royalty
equal to approximately $1.03 per ton, a substantial portion of which would be
adjusted for changes in the GNP Deflator from December 1990. See Note C of the
Notes 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 1994, KCMC delivered 2,709,355 tons of coal from its
Keystone Mines and 196,624 tons of purchased coal to the Keystone Station,
compared with deliveries to the Keystone Station in 1993 of 2,301,690 tons of
deep-mined coal and 37,343 tons of purchased coal. The lower tonnage in 1993
was a result of the seven-month strike by the United Mine Workers of America
against KCMC's facilities.
Registrant's wholly-owned subsidiary, Helvetia Coal Company
("Helvetia"), has been 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. In
1994, Helvetia and the Homer City Owners entered into a 1995 Coal Sales
Agreement (the "1995 Homer City Agreement") effective January 1, 1995, and with
a term ending in 2003. The Homer City Agreement
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was amended to provide that the Homer City Owners fund certain costs incurred
but not paid in connection with the Homer City Agreement. Also, the Homer City
Owners' option to acquire Helvetia's assets at net book value and restrictions
on Helvetia's assets which existed under the Homer City Agreement were
terminated.
The 1995 Homer City Agreement provides that Helvetia will sell
and deliver to the Homer City Owners approximately 14 million tons of coal
through 2003 at an initial rate of 1.8 million tons of coal per year. Such
coal is leased from Registrant. Coal sold pursuant to the 1995 Homer City
Agreement is delivered to the Homer City Station by conveyor belts and trucks.
To enhance the quality of delivered coal and thereby gain the benefit of
premiums under the pricing structure of the 1995 Homer City Agreement, Helvetia
built a new coal cleaning plant which began operation in February 1995.
The price paid by the Homer City Owners to Helvetia pursuant
to the 1995 Homer City Agreement is a base price with escalation and
adjustments based on the quality of the coal delivered. The 1995 Homer City
Agreement also provides for early termination by either party under hardship
provisions as defined in the 1995 Homer City Agreement and further allows the
Homer City Owners to terminate the 1995 Homer City Agreement for their
convenience, in which event they are required to make certain payments to
Helvetia. See Note C of the Notes to the Consolidated Financial Statements
incorporated herein by reference.
In 1994, 1,786,239 tons of coal were delivered to the Homer
City Station from Helvetia's deep mines compared with deliveries of 839,750
tons in 1993. In addition, 27,283 tons of coal were delivered to the Homer
City Station as a result of development of a drift access to a new underground
mine. The lower tonnage in 1993 was a result of the seven-month strike by the
United Mine Workers of America against Helvetia's facilities.
In 1994, ten 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
currently sold pursuant to the Keystone and 1995 Homer City Agreements, because
of the nature of the power supply system in the Mid-Atlantic Region of the
United States,
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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
Keystone and Homer City Owners could reduce the amount of power produced by
those Stations and, consequently, the amount of coal purchased from Registrant
under the Keystone and 1995 Homer City Agreements could be reduced.
During 1994, Registrant's surface-mined coal was primarily
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.
Registrant's business is materially dependent on the two
long-term coal sales agreements, the Keystone Agreement and the 1995 Homer City
Agreement, described herein. See also Note C of the Notes to the Consolidated
Financial Statements incorporated herein by reference. Gross sales pursuant to
the Keystone Agreement and the Homer City Agreement accounted for approximately
57% and 33%, respectively, of Registrant's sales in the year ended December 31,
1994. 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.
Information concerning backlog is not considered material to
an understanding of Registrant's business.
At December 31, 1994, Registrant had an estimated
recoverable(2) reserve base(3) in leased or owned properties in Armstrong,
Indiana, Westmoreland, Washington, and other nearby Pennsylvania counties, of
approximately 723,000,000 tons of coal. During 1994, Registrant produced
approximately 4,976,165 tons of coal excluding coal produced from Mine No. 84.
Of the 723,000,000 tons of estimated recoverable reserve base, approximately
87,000,000 tons of coal (12%), are dedicated under
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(2) Those portions of the reserve base that are owned or leased by
Registrant that are potentially extractable using an appropriate recovery
factor(s) to account for coal lost-in-mining and dilution introduced
during the mining process.
(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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the Keystone and 1995 Homer City Agreements. With the exception of the
175,000,000 saleable tons of coal acquired from Bethlehem, recovery of the
remaining unassigned 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 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 Registrant's mining experience in the seams and
area of Registrant's present recoverable reserve base, and represent coal which
is recoverable on the basis of current mining practices and techniques.
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 investment in the Mine No. 84 project
of $100,000,000 (including the $53.6 million adjusted purchase price).
During 1994, and as reported in a Form 8-K Current Report dated June 16,
1994, Eighty-Four and Lucerne Land entered into agreements for $85,000,000
in long-term debt, $35,000,000 of which was outstanding at December 31, 1994.
In addition, a commitment for approximately $20,000,000 in capital leases
was attained. Over the life of the mine, additional capital and operating
leases to provide remaining funding requirements of the project are
anticipated. 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
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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 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 1995 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
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safety legislation. However, Registrant estimates such expenditures totalled
approximately $3,200,000 in the five years ended December 31, 1994, and it is
estimated that annual capital expenditures of approximately $1,300,000 per year
for the next several years will be attributable to environmental and safety
laws. Such legislation also adversely affected Registrant's deep mine
productivity. 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.
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 1,600 persons, of
whom 1,440 are engaged directly in the production and processing of coal for
sale and 160 are engaged in executive, administrative, engineering,
exploration, sales, and clerical capacities. Registrant has approximately
1,140 employees who are covered by the National Bituminous Coal Wage Agreement
of 1993 (the "1993 Agreement") with the UMWA, which, was ratified on December
16, 1993 after a seven-month strike against Bituminous Coal Operators'
Association ("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. While
Registrant's subsidiaries resigned from BCOA in 1994, they remain signatories
to 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, 1994, 1993, and 1992.
<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>
1994 $173,774 $10,765 $ 7,452 $191,991
1993 141,093 8,678 3,857 153,628
1992 183,881 10,610 4,011 198,502
</TABLE>
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(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES.
In the years ended December 31, 1994, 1993, and 1992,
Registrant's subsidiary, Rochester & Pittsburgh Coal Co. (Canada) Limited, had
sales of $10,985,434, $8,093,174, and $9,415,110, 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 in Canada. 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 $226,000.
These leases expire at various times over the next five 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, 1994, 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 723,000,000 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 twelve underground mines in 1994.
Information on the production of those mines and on the estimated recoverable
reserve base of these mines and the estimated recoverable reserve base of
Registrant is provided in the following table:
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Rochester & Pittsburgh Coal Company
Estimated Recoverable Reserve Base as of December 31, 1994
Production Tonnage
<TABLE>
<CAPTION>
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RECOVERABLE RESERVE BASE PRODUCTION IN TONS
(TONS X 1000)(1)
------------------------------------ ---------------------------------------
PROVEN PROBABLE TOTAL 1994 1993 1992
------------------------------------ ---------------------------------------
Underground
<S> <C> <C> <C> <C> <C> <C>
Keystone Coal Mining Corp.
Assigned - Dedicated
Emilie(3) 7,250 0 7,250 1,001,453(4) 855,237(4) 1,023,427(4)
Emilie #4 (3) 1,351 0 1,351 218,375(4) 216,179(4) 487,171(4)
Jane(3) 885 3,144 4,029 515,978(4) 565,980(4) 629,669(4)
Margaret #11 - 2(3) 491 160 651 361,700(4) 220,882(4) 473,492(4)
Margaret #11 - 3(3) 0 505 505 101,445(4) 20,691(4) 0
Plumcreek #1(3) 2,542 100 2,642 129,007(4) 0 0
Urling #1(3) 0 5,760 5,760 753,425(4) 452,353(4) 1,092,569(4)
Unassigned - Dedicated 36,957 13,005 49,962 0 0 0
Helvetia Coal Company
Assigned - Dedicated
Lucerne #6 - E(2) 7,005 3,473 10,478 1,089,693 377,946 806,861
Marshall Run(2) 3,785 453 4,238 531 0 0
Lucerne #8(2) 0 0 0 597,567 332,522 773,265
Lucerne #9(2) 0 0 0 559,391 271,178 578,657
Unassigned - Dedicated 0 0 0 0 0 0
Lucerne Land Co.
Assigned
Mine No. 84(5) 70,113 9,178 79,291 288,588(4) 71,559(4) 0
Unassigned 0 95,612 95,612 0 0 0
R & P Coal Co.
Unassigned 190,910 265,273 456,183 0 0 0
Total - Underground 321,793 396,158 717,951 5,617,153 3,384,527 5,865,111
Surface
Assigned 647 85 732 78,357 53,744 91,921
Unassigned 2,212 1,711 3,923 0 0 0
Total - Surface 2,882 1,802 4,685 78,357 53,744 91,921
TOTAL 324,148 398,459 722,607 5,695,510(4) 3,438,271(4) 5,957,032(4)
</TABLE>
Notes:
Recoverable - Those portions of the reserve base that are owned or
leased by Registrant that are potentially extractable
using an appropriate recovery factor(s) to account
for coal lost-in-mining and dilution introduced
during the mining process.
Assigned - Areas that can be mined through the use of existing
mine openings and coal handling and processing
facilities based on the Registrant's current mining
plans.
12
<PAGE> 13
Additional ventilation openings may be required
for underground mines due to normal mine
expansion.
Unassigned - Areas that would require substantial capital
expenditures for new mine openings and equipment
prior to any mining activity.
Dedicated - Areas committed under coal sales agreements
(1) These figures represent calculations based upon continuing evaluation
and refinement of estimates reflecting evaluation of new and existing
geologic data, improved computational methods, and the effects of
legal and environmental considerations, and are rounded to the nearest
thousand. "Proven" tonnage is estimated by projection of thickness
and quality data for a radius of 2,000 feet from a point of
measurement. "Probable" tonnage is estimated by projection of
thickness and quality data for a radius greater than 2,000 feet and
less than 5,000 feet from a point of measurement 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) Tonnage figures represent clean coal after washing and preparation at
the Keystone Cleaning Plant or at Mine No. 84's preparation
facilities. See also Item 1 hereof.
(5) Operated by Eighty-Four Mining Company
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: 1992--91,921 tons, 1993--53,744 tons and 1994--78,357 tons.
All surface-mined coal produced in 1994 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 Keystone
subsidiary dedicated under the Keystone Agreement are subject to a mortgage
given as security for indebtedness of Keystone. Also, all of the properties of
Eighty-Four and Lucerne Land are subject to a mortgage given as security for
their indebtedness. The debt of Eighty-Four and Lucerne Land is further
secured by certain investment securities of Registrant. See Note D of the
Notes 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.
13
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS.
As described in Item 1 hereof, 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 1994.
14
<PAGE> 15
EXECUTIVE OFFICERS OF REGISTRANT.
Information on executive and other officers of Registrant as
of February 28, 1995, is as follows:
<TABLE>
<CAPTION>
Position Family
Name Age With Registrant Relationship
---- --- --------------- ------------
<S> <C> <C> <C>
Thomas W. Garges, Jr. 55 President and Chief
Executive Officer None
W. Joseph Engler, Jr. 54 Vice President and
General Counsel None
George M. Evans 47 Vice President and
Treasurer None
Peter Iselin 74 Vice President--Finance
and Secretary (1)
Thomas M. Majcher 42 Vice President--Corporate
Development None
A. W. Petzold 58 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.
Significant Employees of Registrant's Subsidiaries.
Information on certain significant employees of Registrant's
subsidiaries as of February 28, 1995, is as follows:
<TABLE>
<CAPTION>
Position Family
Name Age With Registrant's Subsidiaries Relationship
---- --- ------------------------------ ------------
<S> <C> <C> <C>
Robert D. Anderson 50 President -- Keystone None
Coal Mining Corporation
President -- Helvetia Coal
Company
Robert A. McGregor 52 President -- Eighty-Four None
Mining Company
</TABLE>
Each of the officers of Registrant or significant employees of
Registrant's subsidiaries named above has held a position with Registrant on a
subsidiary for the past five years with the exception of: Mr. McGregor who
joined Registrant's subsidiary, Eighty-Four Mining Company, as President in
February 1993. Prior to 1993, he had been President of Oneida Coal Company
(1986-1991) and Shamrock Coal Company (1990-1993), both subsidiaries of Sun
Coal Company.
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 1994 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 1994 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 1994 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 1994 Annual Report to Shareholders, which is included as Exhibit
(13) to this Form 10-K Report, at page 6, Report of Ernst & Young LLP,
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
2, 1995. 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
2, 1995. 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 2, 1995. 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 2, 1995. 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, 1994, are incorporated herein by
reference in Item 8 (pages 7 through 23 and page 6):
Consolidated balance sheets--
December 31, 1994, 1993, and 1992
Statements of consolidated income--
Years ended December 31, 1994, 1993, and 1992
Statements of consolidated shareholders' equity--
Years ended December 31, 1994, 1993, and 1992
Statements of consolidated cash flows--
Years ended December 31, 1994, 1993, and 1992
Notes to consolidated financial statements--
December 31, 1994
Report of independent auditors
The following financial information for the years 1994, 1993,
and 1992 is submitted herewith.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consent of independent auditors--Ernst & Young LLP 27
</TABLE>
2. Financial Statement Schedules
Schedules for Rochester & Pittsburgh Coal Company and subsidiaries:
<TABLE>
<S> <C> <C>
Schedule I -- Condensed Financial
Information of Registrant 30
Schedule II -- Valuation and Qualifying
Accounts 35
</TABLE>
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.
18
<PAGE> 19
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
* Management contract or compensatory
plan or arrangement required to be filed
as an exhibit to this form pursuant to
Item 14(c) of this report.
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, with Registrant's
Annual Report on Form 10-K dated March 28,
1991, and with Registrant's Current Report
on Form 8-K, dated December 7, 1994. The
Agreement and amendments are incorporated
herein by reference.
19
<PAGE> 20
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.*
Amendments to Registrant's Pension Plan
[filed as Exhibit (10E) in the separate
binder herewith]. 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.
20
<PAGE> 21
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.
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.
21
<PAGE> 22
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.
M. 1995 Homer City Coal Sales Agreement.
The 1995 Homer City Coal Sales Agreement
was filed with Registrant's Current Report
on Form 8-K dated December 7, 1994. The
Agreement is incorporated herein by
reference.
(13) Annual Report To Security Holders
The following sections of the accompanying
Rochester & Pittsburgh Coal Company Annual Report
1994, [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 LLP,
Independent Auditors, and pages 7 through
23).
Except as expressly incorporated by reference,
the accompanying Rochester & Pittsburgh Coal
Company Annual Report 1994 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].
22
<PAGE> 23
(27) Financial Data Schedule
Registrant's financial data schedule [filed
electronically herewith as Exhibit (27) to this
Annual Report on Form 10-K].
(b) Reports on Form 8-K:
The following Current Report on Form 8-K was filed
during the quarter ended December 31, 1994.
On December 7, 1994, a Current Report on Form 8-K
was filed in connection with the amendment and
subsequent termination of a coal sales agreement,
dated December 22, 1966, between Registrant's
subsidiary, Helvetia Coal Company and its
customer and the announcement that a new coal
sales agreement had been executed to replace the
one terminated.
(c) Exhibits to this Form 10-K:
All of the following exhibits, except Exhibit (27)
which is filed electronically, are filed herewith in a
separate binder:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Exhibit (10E) -- Amendments to
Registrant's Pension
Plan 42
Exhibit (13) -- Annual Report to
Shareholders for 1994 47
Exhibit (21) -- Subsidiaries of Registrant 79
Exhibit (27) -- Financial Data Schedule X
</TABLE>
(d) Financial Statement Schedules
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedule I -- Condensed Financial
Information of Registrant 30
Schedule II -- Valuation and Qualifying
Accounts 35
</TABLE>
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: /s/ THOMAS W. GARGES, JR.
---------------------------------
Thomas W. Garges, Jr.,
President and Chief Executive
Officer
Date: March 23, 1995
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>
/s/THOMAS W. GARGES, JR. President and Chief March 23, 1995
-------------------------- Executive Officer
Thomas W. Garges, Jr. (Principal Executive Officer)
/s/GEORGE M. EVANS Vice President and March 23, 1995
-------------------------- Treasurer
George M. Evans (Principal Financial Officer)
(Principal Accounting Officer)
/s/WILLIAM G. KEGEL Chairman of the Board March 23, 1995
-------------------------- of Directors
William G. Kegel
/s/PETER ISELIN Vice President--Finance March 23, 1995
-------------------------- and Director
Peter Iselin
/s/DAVID H. DAVIS Director March 23, 1995
--------------------------
David H. Davis
Director March 23, 1995
--------------------------
Columbus O'D. Iselin, Jr.
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C> <C>
/s/NORMAN S. SMITH Director March 23, 1995
--------------------------
Norman S. Smith
/s/JOHN J. SCHRODER, JR. Director March 23, 1995
--------------------------
John L. Schroder, Jr.
Director March , 1995
--------------------------
O'Donnell Iselin II
/s/L. BLAINE GRUBE Director March 23, 1995
--------------------------
L. Blaine Grube
/s/GORDON B. WHELPLEY, JR. Director March 23, 1995
--------------------------
Gordon B. Whelpley, Jr.
/s/THOMAS M. HYNDMAN, JR. Director March 23, 1995
-------------------------
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, 1994
ROCHESTER & PITTSBURGH COAL COMPANY
INDIANA, PENNSYLVANIA
26
<PAGE> 27
ERNST & YOUNG LLP 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 10, 1995, included in the 1994 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 LLP
Ernst & Young LLP
March 10, 1995
27
<PAGE> 28
FINANCIAL STATEMENT SCHEDULES
ROCHESTER & PITTSBURGH COAL COMPANY
AND SUBSIDIARIES
DECEMBER 31, 1994
29
<PAGE> 29
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ROCHESTER & PITTSBURGH COAL COMPANY
CONDENSED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31
------------------------------------
ASSETS 1994 1993 1992
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,850 $ 8,662 $ 5,402
Receivables from subsidiaries 6,818 8,514 5,856
Prepaid expenses and other current assets 1,348 755 1,205
Income taxes receivable 3,864 3,078 855
-------- -------- -------
14,880 21,009 13,318
INVESTMENTS IN SUBSIDIARY COMPANIES
Equity method 203,813 198,887 198,430
OTHER ASSETS
Investment in marketable securities 856 711 711
Miscellaneous 9,372 9,658 9,581
------- -------- -------
10,228 10,369 10,292
PROPERTY, PLANT, AND EQUIPMENT 52,371 52,277 52,027
Less allowances for depreciation,
depletion, and amortization 24,623 23,500 22,392
-------- -------- -------
27,748 28,777 29,635
-------- -------- -------
$256,669 $259,042 $251,675
======== ======== ========
</TABLE>
30
<PAGE> 30
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ROCHESTER & PITTSBURGH COAL COMPANY
CONDENSED BALANCE SHEETS
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31
------------------------------------
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable:
Trade accounts................................. $ 1,050 $ 305 $ 881
Dividends...................................... 2,063 2,063 2,065
Subsidiaries................................... 8,313 7,168 439
Other current liabilities........................ 468 1,497 1,301
-------- ------- --------
11,894 11,033 4,686
OTHER LIABILITIES
Loan from subsidiary............................. 30,000 30,000 30,000
Payable to subsidiaries for federal income
taxes.......................................... 4,229 4,229 4,229
Miscellaneous.................................... 3,096 2,985 3,359
-------- -------- --------
37,325 37,214 37,588
SHAREHOLDERS' EQUITY
Common stock..................................... 59,837 59,837 59,837
Capital in excess of stated value................ 133,170 133,177 133,195
Retained earnings................................ 42,360 45,723 44,176
-------- -------- --------
235,367 238,737 237,208
Less treasury stock at cost...................... 27,917 27,942 27,807
-------- -------- --------
207,450 210,795 209,401
-------- -------- --------
$256,669 $259,042 $251,675
======== ======== ========
</TABLE>
31
<PAGE> 31
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ROCHESTER & PITTSBURGH COAL COMPANY
CONDENSED STATEMENTS OF INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------
1994 1993 1992
<S> <C> <C> <C>
Management fees and royalties
from subsidiaries.................................. $12,601 $12,724 $13,081
Interest, dividends, and other....................... 3,488 3,186 4,527
------- ------- -------
16,089 15,910 17,608
Costs and expenses
Selling, general and administrative................ 10,593 11,801 11,087
Interest on loan from subsidiary................... 2,109 1,765 20
Miscellaneous...................................... 3,413 3,776 4,453
------- ------- -------
16,115 17,342 15,560
------- ------- -------
(LOSS) INCOME BEFORE INCOME TAXES, CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING FOR INCOME
TAXES, AND EQUITY IN NET INCOME OF
SUBSIDIARIES................................... (26) (1,432) 2,048
Income taxes......................................... (101) (1,049) 295
------- ------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING FOR INCOME TAXES AND
EQUITY IN NET INCOME OF SUBSIDIARIES........... 75 (383) 1,753
Cumulative effect to January 1, 1993 of change
in accounting for income taxes..................... 0 283 0
------- ------- -------
INCOME (LOSS) BEFORE EQUITY IN NET INCOME
OF SUBSIDIARIES................................ 75 (100) 1,753
Equity in net income of subsidiaries................. 2,391 7,183 12,437
------- ------- -------
NET INCOME....................................... $2,466 $ 7,083 $14,190
====== ======= =======
</TABLE>
32
<PAGE> 32
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ROCHESTER & PITTSBURGH COAL COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31
---------------------------------------
1994 1993 1992
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,466 $ 7,083 $ 14,190
Adjustments for non-cash items 8,284 9,747 (5,206)
Changes in certain assets and
liabilities (using or
providing cash) 1,282 1,774 4,883
-------- -------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 12,032 18,604 13,867
-------- -------- --------
INVESTING ACTIVITIES
Investments in subsidiaries (40,000) (10,000) (59,589)
Return of subsidiary capital 27,000 0 500
Acquisition of property, plant,
and equipment (183) (312) (1,264)
Proceeds from sale of property,
plant, and equipment 479 284 106
Net sales (acquisitions) of
investments 0 0 13,288
-------- -------- --------
NET CASH USED IN INVESTING
ACTIVITIES (12,704) (10,028) (46,959)
-------- -------- --------
FINANCING ACTIVITIES
Loan from subsidiary 0 0 30,000
Cash dividends paid (5,158) (5,163) (5,173)
Acquisition of treasury stock-net 18 (153) (2,495)
-------- -------- --------
NET CASH (USED IN) PROVIDED
BY FINANCING ACTIVITIES (5,140) (5,316) 22,332
-------- -------- --------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (5,812) 3,260 (10,760)
Cash and cash equivalents at
beginning of year 8,662 5,402 16,162
-------- -------- --------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 2,850 $ 8,662 $ 5,402
======== ======== ========
</TABLE>
33
<PAGE> 33
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
ROCHESTER & PITTSBURGH COAL COMPANY
Notes to Condensed Financial Statements
Note A - Basis of Presentation
In the parent company -- only financial statements, the Company's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. Dividends received from
subsidiaries were $9,700,000 in 1994, $16,350,000 in 1993, and $7,000,000 in
1992. The parent company -- only financial statements should be read in
conjunction with the Company's consolidated financial statements.
Note B - Guarantees
Eighty-Four Mining Company and Lucerne Land Company, subsidiaries of the
Company, have $35,000,000 of long-term debt outstanding under senior fixed rate
construction rates and an additional $50,000,000 available for borrowing under
a revolving credit agreement as of December 31, 1994. Under the terms of these
debt agreements, the Company has guaranteed the payment of all principal and
interest. Of the amounts borrowed under the senior fixed rate construction
notes, $3,000,000 is due in 1999 and the remainder thereafter. The maximum
amounts available under the revolving credit agreement reduce to $44,500,000 in
1997, $22,500,000 in 1998, and $0 in 1999. In connection with the guaranty
agreement, the Company has pledged securities having a market value of
$26,354,000 which exceeds the loan covenant requirement of $25,000,000. Such
securities have been borrowed, for purposes of this pledge only, from its
subsidiary, Church Street Holdings, Inc.
Under the terms of certain of its self-insurance programs, the Company could be
liable for obligations of its subsidiaries arising under laws related to
occupational disease. The Company and these subsidiaries have established
irrevocable trusts for black lung benefit funding which have assets which are
sufficient to fund the related actuarial liability, except for the liability
for employees hired in connection with the acquisition by a subsidiary of the
Mine No. 84 properties which amounts to $6,222,000.
34
<PAGE> 34
SCHEDULE II -- 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 CHARGED CHARGED TO
AT TO COSTS OTHER BALANCE AT
BEGINNING AND ACCOUNTS- DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE -DESCRIBE PERIOD
------------ ------------- ------------ ------------ --------------- ----------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994:
Reserves:
Mine closing reserve $18,156 $ 754 $1,072(1) $164(2) $19,818
======= ====== ====== ==== =======
Surface mine reclamation
reserve $ 991 $ 165 $ -- $171(2) $ 985
======= ====== ======= ==== =======
Valuating allowance deducted
from asset accounts:
Deferred income tax
valuation allowance $ 4,498 $ (390) $ -- $ -- $ 4,108
======= ====== ====== ==== =======
Year ended December 31, 1993:
Reserves:
Mine closing reserve $17,124 $ 621 $1,051(1) $640(2) $18,156
======= ====== ====== ==== =======
Surface mine reclamation $ 569 $ 613 $ -- $191(2) $ 991
reserve ======= ====== ====== ==== =======
Valuating allowance 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(3) $ 47(2) $17,124
======= ====== ====== ==== =======
Surface mine reclamation
reserve $ 1,241 $ 133 $ -- $805(2) $ 569
======= ====== ====== ==== =======
</TABLE>
----------------
(1) Interest earned on funds invested to meet reserve requirements.
(2) Expense incurred to satisfy previously reserved requirements.
(3) 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.
35
<PAGE> 35
3. Exhibits
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(10E) Amendments to Registrant's Pension Plan 42
(13) Annual Report to Shareholders for 1994 47
(21) Subsidiaries of Registrant 79
(27) Financial Data Schedule -
(Filed Electronically) X
</TABLE>
41
<PAGE> 1
EXHIBIT (10E)
AMENDMENT TO
THE ROCHESTER & PITTSBURGH COAL COMPANY
PENSION PLAN
The Rochester & Pittsburgh Coal Company does hereby amend the
Rochester & Pittsburgh Coal Company Pension Plan, as amended and restated
effective July 1, 1987, and as thereafter amended by Amendments Nos. 1 through
18, as follows:
AMENDMENT NO. 19
Section 1.1 is hereby amended to add a new subsection (f) as follows:
(f) Accredited Service as of December 30, 1992 of any Employee who
was employed on such date or on layoff status on such date by BethEnergy Mines
Inc. at Mine 84 shall be equal to the service credit which he would have had
for purposes of computing the amount of his accrued benefit under the Prior
Plan as of December 30, 1992.
AMENDMENT NO. 20
Sections 1.34 and 1.35 are hereby amended to read as follows:
Section 1.34. Prior Plan shall mean The North American Coal Company
Pension Plan, maintained on September 30, 1984 by North American Coal Company,
The Florence Mining Company Pension Plan maintained by The Florence Mining
Company, the Pension Plan of Bethlehem Steel Corporation and Subsidiary
Companies (including the Bethlehem 1989 Salaried Pension Plan and the Bethlehem
1983 Salaried Pension Plan), maintained as of December 30, 1992 by Bethlehem
Steel Corporation, as the context requires, or any successor plan to any of
said plans.
Section 1.35. Prior Plan Benefit shall mean the Participant's benefit
accrued under the Prior Plan determined at the time of commencement of benefits
under this Plan but in accordance with the provisions of the Prior Plan in
effect as of the relevant date as described below, such provisions to be
applied as if the Prior Plan had continued unchanged from the
42
<PAGE> 2
relevant date until the date of commencement of benefits under this Plan
regardless of whether the Prior Plan remains in existence until such
commencement date and regardless of the amount, if any, actually paid to or on
behalf of the Participant under the Prior Plan. Specifically, the term Prior
Plan Benefit shall mean:
(a) the Participant's benefit accrued under The North American Coal
Company Pension Plan as of September 30, 1984 and/or the Participant's benefit
accrued under The Florence Mining Company Pension Plan, provided that:
(1) the Prior Plan Benefit attributable to coverage under The
Florence Mining Company Pension Plan in the case of a Participant hired for the
first time by an Employer after April 14, 1992 and on or before June 30, 1992
shall not include any benefit accrued under The Florence Mining Company Pension
Plan after October 29, 1991;
(2) the Prior Plan Benefit in the case of a Participant hired
for the first time by an Employer after June 30, 1992 shall be zero.
(b) the Participant's benefit accrued as of December 30, 1992, under
the provisions of the Pension Plan of Bethlehem Steel Corporation and
Subsidiary Companies (including the Bethlehem 1989 Salaried Pension Plan and
the Bethlehem 1983 Salaried Pension Plan) in effect on such date.
AMENDMENT NO. 21
Section 1.39 is hereby amended to add a new subsection (j) as follows:
(j) Service with the Company shall include all service credited for
vesting purposes under the Prior Plan as of December 30, 1992 to Employees who
were employed by BethEnergy Mines Inc. at Mine 84 on such date or on layoff
status on such date plus any service with Bethlehem Steel Corporation or its
affiliates which would have been so credited but for any minimum age limitation
on such credit under the Prior Plan.
43
<PAGE> 3
AMENDMENT NO. 22
The first sentence of Section 2.1 is hereby amended to read as follows:
An Employee shall be a Participant in the Plan if he is (a) a Management
Employee or (b) an Employee of Eighty-Four Mining Company who was employed by
BethEnergy Mines Inc. at Mine 84 on December 30, 1992 or on layoff status on
such date and not represented by the UMWA.
44
<PAGE> 4
EFFECTIVE DATE
The foregoing Amendments shall be effective December 30, 1992.
RATIFICATION
All terms and conditions of The Rochester & Pittsburgh Coal Company
Pension Plan which are not expressly changed herein are hereby ratified and
confirmed.
Approved this 25th day of January, 1995.
ROCHESTER & PITTSBURGH COAL COMPANY
By /s/GEORGE M. EVANS
---------------------------------
Vice President & Treasurer
ATTEST:
/s/JOYCE E. MILLER
-----------------------
Assistant Secretary
45
<PAGE> 1
[ROCHESTER LOGO]
ANNUAL
REPORT
- 1994 -
<PAGE> 2
ROCHESTER & PITTSBURGH COAL COMPANY
DIRECTORS
WILLIAM G. KEGEL
Chairman of the Board of the Company
DAVID H. DAVIS
Coal Consultant, Retired Division President and Corporate Vice President,
Consolidation Coal Company
THOMAS W. GARGES, JR.
President and Chief Executive Officer of the Company
L. BLAINE GRUBE
Retired Vice President and Treasurer of the Company
THOMAS M. HYNDMAN, JR.
Of Counsel, Duane, Morris & Heckscher,
Attorneys at Law
COLUMBUS O'D. ISELIN, JR.
Independent Consultant, Aerospace and Defense
O'DONNELL ISELIN II
Manager, Finance Staff, Hughes Aircraft Company
PETER ISELIN
Vice President -- Finance and Secretary of the Company
JOHN L. SCHRODER, JR.
Retired Dean, College of Mineral and Energy Resources, West Virginia
University
NORMAN S. SMITH
Professor Emeritus of Mining Engineering,
University of Missouri-Rolla
GORDON B. WHELPLEY, JR.
Project Manager, Louis E. Lee Co. Builders
OFFICERS
THOMAS W. GARGES, JR.
President and Chief Executive Officer
W. JOSEPH ENGLER, JR.
Vice President and General Counsel
GEORGE M. EVANS
Vice President and Treasurer
PETER ISELIN
Vice President -- Finance and Secretary
THOMAS M. MAJCHER
Vice President -- Corporate Development
ADOLPH W. PETZOLD
Vice President -- Operations
WILLIAM M. DARR
Assistant Secretary
WILLIAM J. GIULIANI
Assistant Treasurer
JEFFREY A. MACK
Assistant Controller
JOYCE E. MILLER
Assistant Secretary
------------------------------
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 LLP
<PAGE> 3
FINANCIAL HIGHLIGHTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
FOR THE YEAR
Production Tonnage(1)(2)....................... 4,976 3,218 5,584
Sales Tonnage(2)(3)............................ 5,042 3,435 5,835
Sales.......................................... $191,991 $153,628 $198,502
Income Before Income Taxes..................... $ 4,304 $ 3,876 $ 18,649
Net Income(4).................................. $ 2,466 $ 7,083 $ 14,190
Net Income Per Share(4)........................ $ .72 $ 2.06 $ 4.11
Cash Dividends Per Share....................... $ 1.50 $ 1.50 $ 1.50
Average Shares Outstanding..................... 3,439 3,441 3,449
AT YEAR END
Long-term Debt................................. $ 75,693 $ 29,455 $ 13,203
Shareholders' Equity........................... $207,450 $210,794 $209,401
Shares Issued and Outstanding.................. 3,439 3,438 3,442
Treasury Shares Held........................... 550 551 547
Shareholders' Equity Per Outstanding Share..... $ 60.33 $ 61.31 $ 60.84
</TABLE>
(1) Production tonnage does not include 420,000 tons in 1992 produced at
operations owned by others and managed by the Company.
(2) Production tonnage and sales tonnage exclude tons produced by Eighty-Four
Mining Company which is in the development stage.
(3) Sales tonnage includes coal purchased from others for resale.
(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 a
change in accounting for income taxes.
------------------------------
TO THE SHAREHOLDERS:
Unfavorable operating performance at the Company's Keystone Coal Mining
Corporation and the Helvetia Coal Company subsidiaries, resulted in a
disappointing 1994 net income of $2,466,000 or $0.72 per share compared to
$7,083,000 or $2.06 per share for 1993. Their performance was affected early in
1994 by high absenteeism and production outages resulting from the lengthy
duration of extremely cold weather and heavy snowfall. The effect of the UMWA
coal strike, which lasted from May 25, 1993 until December 16, 1993, continued
into 1994 by delaying the timely start-up of two new mines, development of new
areas in a third mine and the installation of a new portal facility in another
mine. At Keystone, productivity declined 13.4% causing a 12% loss of production
tonnage. In addition, Keystone's total 1994 production available for delivery
was reduced due to downtime experienced in conjunction with modifications to its
coal cleaning plant. Three major underground conveyor haulage-way roof collapses
and a storage bin failure also resulted in lost tonnage. Planned productivity
improvements were not realized on time due to unexpected mechanical design
problems with three new continuous haulage systems which were designed to
improve productivity by up to 50%. The improved systems are being installed
early in 1995. With the installation of these systems,
[1]
<PAGE> 4
Keystone will attain its projected goal of equipping 50% of its mining units
with mobile continuous haulage systems.
Entering 1995, Keystone continues to cope with the transition of mining
into thinner coal seams, which has resulted in higher costs and lower
productivity at three mines. Two older mines have encountered geological
problems which have reduced their productivity and increased costs. The
combination of these conditions has impacted the capacity and efficiency of the
cleaning plant by increasing both the amount of fine material to be processed
and material to be rejected. As a result, the cleaning plant has not been able
to process all of the daily raw coal production, and the large accumulation of
raw coal inventory to be processed necessitated the decision to idle production
from Keystone's six deep mines for a period of approximately five weeks
beginning March 11, 1995 to process the inventory. Plant modifications to
address these problems are being undertaken and are scheduled for completion
during the second quarter of this year.
Helvetia Coal Company failed to improve productivity in 1994 with costs
being adversely affected due to the gradual depletion of the reserves of the
Lucerne #8 and #9 mines and their closing in the fourth quarter. In 1994,
Helvetia concluded an agreement to supply an aggregate of 14 million tons to the
Homer City Generating Station through the year 2003. The initial delivery rate
will be at 1.8 million tons per year. The new base-price plus escalation
agreement commenced January, 1995 and replaced the old cost-plus agreement.
Deregulation of the electric generating industry and the Station Owners' option
to acquire Helvetia, or its assets at net book value, set the background for the
new agreement.
The agreement of Helvetia's UMWA employees to an alternate work schedule to
improve efficiency and reduce costs was essential to reaching a new coal supply
agreement with the Station Owners. The new work schedule will allow the mines to
operate six days per week with ten-hour shifts compared to the traditional
five-day, eight-hour shift schedule. To improve the recovery of raw coal and
improve the quality of coal deliveries for price premiums available under the
new pricing structure, the raw coal screening facility was replaced with a new
coarse coal cleaning plant in February, 1995.
To replace the production of the two mines that were closed, a new mine,
Marshall Run, commenced development in January of this year. The new mine, which
will exclusively employ continuous haulage systems, combined with the new coal
cleaning plant and the more productive work schedule, will provide the cost
improvements necessary to operate under the provisions of the new agreement.
The outlook for the future of Mine No. 84, which was acquired from
Bethlehem Steel Corporation in December, 1992, continues to be favorable. With
the completion of a five-mile long, 6,700 tons per hour coal haulage conveyor
system and the new portal and ventilating shaft, the underground rehabilitation
work necessary to accommodate mine development for two longwall mining units is
complete. Construction of the new above-ground coal storage and unit train
load-out facilities is complete. At the end of 1994, four continuous mining
units were operational and two additional continuous mining units are being
installed in early 1995. The first longwall mining unit is scheduled to start
during the third quarter of 1995 with initial operation of the second longwall
unit timed for 1997.
Considerable progress has been made in our efforts to develop a balanced
portfolio of customers for Eighty-Four coal. Eight utilities have committed to
purchase a significant portion of 1995 production and several more are
interested in the lower sulfur content of the coal to comply with the Phase I
provisions of the Clean Air Act. Coke producers have responded favorably to
initial coking characteristic tests. To further diversify market mix,
discussions are underway with non-utility generators and export customers.
[2]
<PAGE> 5
To date, including the purchase price of $53.6 million, your Company has
committed $100 million of equity to the project. In addition, financing in the
amount of $85 million and a commitment for the lease of the first longwall
mining system are now in place. Additional operating and capital leases will be
required throughout the mine life to bring the annual capacity of the mine to
6.6 million tons per year.
The regulatory review of Leatherwood, Inc.'s permit application for a
municipal solid waste landfill in western Pennsylvania is complete and bonding
is in place. It is expected that the permit will be issued in the second quarter
of 1995. Several contracts to supply the landfill with municipal waste are in
place. During the five years since the permitting process was begun, there have
been regulatory and short-term competitive changes which could impact the
project. A re-evaluation of the project's timing will be undertaken before
proceeding with the development of the project.
The immediate challenges being addressed by management are the reversal of
last year's productivity decline at the Keystone subsidiary, improving the
efficiency of the Keystone Cleaning Plant, the profitable transformation of the
Helvetia subsidiary from a cost-plus to a fixed price contract, and adherence to
the schedule and budget for bringing Mine No. 84 up to capacity.
As a result of the equipment modernization program initiated five years
ago, our mines are equipped with the most modern and productive equipment
available. To meet the Company's challenges, management and labor must
accelerate their efforts to work together and to improve communications.
Improved attitudes and the exchange of ideas will allow our operations to remain
competitive in meeting our customers' needs and in improving job security. The
first steps in the process were initiated in 1994 when your Company's
subsidiaries withdrew from the Bituminous Coal Operators' Association as its
representative for contract negotiations with the UMWA. This has permitted a
more flexible and independent relationship with the UMWA. This was instrumental
in Helvetia's ability to reach an agreement for a more cost-effective work
schedule.
While 1994 was a disappointing year, I am confident that our employees have
the ability, the resolve, and the commitment to overcome the problems of the
past year and build a strong Company for the future.
Submitted on behalf of the Board of Directors,
Thomas W. Garges, Jr.
President and
Chief Executive Officer
Indiana, Pennsylvania
March 10, 1995
------------------------------
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. On
December 31, 1994, the Company had approximately 850 shareholders of record and,
including its subsidiaries, had 1,600 employees. The Company controlled
estimated raw recoverable reserves of 723,000,000 tons at year end. A
description of the Company's major subsidiaries is provided below.
[3]
<PAGE> 6
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 1994, Keystone Coal Mining Corporation delivered 2,709,000 tons of coal
to the Keystone Station from its six deep mines, plus 197,000 tons from other
sources, compared to 2,302,000 tons and 37,000 tons, respectively, in 1993. The
lower tonnage delivered from the deep mines in 1993 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. The contract calls for
deliveries to be 3,500,000 tons in 1995. In the event the parties do not
negotiate a further extension, deliveries will gradually decrease from 2000
through 2004 with a maximum delivery of 6,500,000 tons during that five-year
period.
HELVETIA COAL COMPANY
Helvetia Coal Company supplies bituminous coal 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 mines delivered 1,814,000 tons to the Homer City Station in 1994
compared to 840,000 tons delivered in 1993, which was adversely affected by the
seven-month United Mine Workers of America strike. These deliveries were made
under terms of a cost-plus agreement. Helvetia and the Homer City Station Owners
entered into agreements to terminate deliveries under the cost-plus agreement
and to provide for deliveries after January 1, 1995 under the terms of a new,
base-price plus escalation agreement. The 1995 coal sales agreement provides for
Helvetia to deliver in excess of 14,000,000 tons through 2003 at an initial rate
of 1,800,000 tons per year. Under certain circumstances, the agreement may be
terminated earlier by either party under hardship provisions. In addition, the
Station Owners may terminate the agreement for their convenience but would in
that event have to make certain payments to Helvetia. It is estimated that
Helvetia will supply approximately 1,800,000 tons in 1995.
EIGHTY-FOUR MINING COMPANY
Eighty-Four Mining Company was created in 1992 when it purchased Mine No.
84 and certain properties from Bethlehem Steel Corporation and its BethEnergy
Mines Inc. subsidiary. The mine is presently in the development stage. 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 annually utilizing two modern longwall mining units.
[4]
<PAGE> 7
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.
DIVIDENDS
The long-term debt agreements to finance the development of Mine No. 84
contain restrictions with respect to the payment of dividends by the Company.
The Company's ability to declare and pay dividends, without a waiver from the
lenders, is dependent on consolidated earnings meeting criteria in the long-term
debt agreements. The Company required a waiver from the lenders in order to
declare the dividend paid on January 3, 1995. The Company paid a 30 cents per
share dividend on March 1, 1995. Future dividends will be dependent on the
Company's performance and its ability to satisfy the applicable criteria in the
long-term debt agreements or to obtain a waiver of the dividend restriction. No
assurance can be given that such waiver will be granted.
[5]
<PAGE> 8
--------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, 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, 1994, 1993, and 1992, 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, 1994, 1993, and 1992,
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 A, F, and G, the Company changed its method of
accounting for investments in 1994 and income taxes and postretirement benefits
other than pensions in 1993.
/s/ Ernst & Young LLP
Pittsburgh, Pennsylvania
March 10, 1995
[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
----------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
SALES -- NOTE C............................... $191,991 $153,628 $198,502
OTHER INCOME
Interest and dividends...................... 2,852 4,450 8,296
Net investment (losses) gains............... (361) 1,850 1,359
Miscellaneous............................... 2,291 2,013 2,229
-------- -------- --------
196,773 161,941 210,386
COSTS AND EXPENSES
Cost of sales -- Note C..................... 171,038 134,390 170,804
Depreciation, depletion, and amortization... 12,215 10,406 10,967
Selling, general, and administrative........ 5,561 7,930 7,563
Interest -- Note D.......................... 2,480 1,167 1,005
Miscellaneous............................... 1,175 1,494 1,398
Postretirement benefit costs for certain
operations............................... -- 2,678 --
-------- -------- --------
192,469 158,065 191,737
-------- -------- --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING FOR INCOME
TAXES....................................... 4,304 3,876 18,649
INCOME TAXES -- NOTE F........................ 1,838 1,502 4,459
-------- -------- --------
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR INCOME TAXES.............. 2,466 2,374 14,190
CUMULATIVE EFFECT TO JANUARY 1, 1993 OF CHANGE
IN ACCOUNTING FOR INCOME TAXES -- NOTE F.... -- 4,709 --
-------- -------- --------
NET INCOME.................................... $ 2,466 $ 7,083 $ 14,190
========= ========= =========
INCOME PER SHARE:
NET INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING FOR INCOME TAXES.............. $ .72 $ .69 $ 4.11
CUMULATIVE EFFECT TO JANUARY 1, 1993 OF CHANGE
IN ACCOUNTING FOR INCOME TAXES.............. -- 1.37 --
-------- -------- --------
NET INCOME PER SHARE.......................... $ .72 $ 2.06 $ 4.11
========= ========= =========
</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
--------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents -- Note J............ $ 30,656 $ 23,737 $ 28,267
Receivables.................................... 25,213 20,704 22,214
Coal inventories............................... 15,096 2,919 3,353
Mine supply inventories........................ 1,819 2,263 2,828
Income taxes receivable........................ 4,013 4,466 2,151
Prepaid expenses and other current assets...... 4,347 2,958 5,557
Deferred income taxes.......................... 1,632 1,822 --
-------- -------- --------
TOTAL CURRENT ASSETS.................. 82,776 58,869 64,370
OTHER ASSETS
Investments in marketable securities -- Notes
D, I, and J................................. 46,838 42,731 56,731
Funding for -- Notes H, I, and J:
Workers' compensation benefits.............. 19,521 25,246 23,431
Mine closing reserves....................... 8,956 16,655 15,512
Noncurrent receivables......................... -- 6,710 --
Deferred income taxes.......................... 7,211 10,257 9,235
Prepaid royalties.............................. 6,322 6,394 6,275
Miscellaneous.................................. 9,201 7,013 7,051
-------- -------- --------
98,049 115,006 118,235
PROPERTY, PLANT, AND EQUIPMENT -- Notes B and D
Coal and surface lands......................... 87,503 87,408 87,431
Plant and equipment............................ 239,642 207,244 208,215
Mine development............................... 53,038 23,141 --
Construction in progress....................... 24,779 24,774 1,427
-------- -------- --------
404,962 342,567 297,073
Less allowances for depreciation, depletion,
and amortization............................ 174,793 159,558 152,099
-------- -------- --------
230,169 183,009 144,974
-------- -------- --------
$410,994 $356,884 $327,579
========= ========= =========
</TABLE>
[8]
<PAGE> 11
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable............................... $ 17,077 $ 11,682 $ 11,272
Accrued payrolls and related expenses.......... 7,283 7,209 5,845
Other accrued liabilities...................... 4,201 4,518 4,340
Dividends payable.............................. 2,063 2,063 2,065
Current maturities of long-term debt -- Note
D........................................... 2,007 2,372 1,515
-------- -------- --------
TOTAL CURRENT LIABILITIES............. 32,631 27,844 25,037
OTHER LIABILITIES
Workers' compensation benefits -- Note H....... 39,965 37,433 34,514
Mine closing reserves -- Note H................ 19,818 18,156 17,124
Other postretirement benefits -- Note G........ 20,586 20,500 18,522
Black lung benefits -- Note H.................. 6,222 5,862 5,392
Deferred income taxes.......................... 4,542 2,511 --
Miscellaneous.................................. 4,087 4,329 4,386
-------- -------- --------
95,220 88,791 79,938
LONG-TERM DEBT (less current maturities) -- Notes
B, D, and J.................................... 75,693 29,455 13,203
LONG-TERM 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.............. 133,170 133,176 133,195
Retained earnings.............................. 42,360 45,723 44,176
-------- -------- --------
235,367 238,736 237,208
Less treasury stock at cost -- 550,346;
550,846; and 547,213 shares................. 27,917 27,942 27,807
-------- -------- --------
207,450 210,794 209,401
-------- -------- --------
$410,994 $356,884 $327,579
========= ========= =========
</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, 1992........... $59,837 $133,195 $ 36,028 $ 24,865
Net income for the year............ 14,190
Treasury stock:
Purchased....................... 2,942
Cash dividends -- $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
Cash dividends -- $1.50 per
share........................... (5,161)
Foreign currency translation
(loss).......................... (375)
------- -------- --------- --------
Balance at December 31, 1993......... 59,837 133,176 45,723 27,942
Net income for the year............ 2,466
Treasury stock:
Issued.......................... (6) (25)
Cash dividends -- $1.50 per
share........................... (5,158)
Adjustment to January 1, 1994
balance for change in accounting
for net unrealized securities
gains, net of income taxes
of $619......................... 1,081
Change for the year in net
unrealized securities losses,
net of income tax benefit of
$826............................ (1,480)
Foreign currency translation
(loss).......................... (272)
------- -------- -------- --------
Balance at December 31, 1994......... $59,837 $133,170 $ 42,360 $ 27,917
======= ======== ======== ========
</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
-----------------------------------
1994 1993 1992
--------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................. $ 2,466 $ 7,083 $ 14,190
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion, and
amortization....................... 12,215 10,406 10,967
Deferred income taxes................. 5,476 4,382 277
Cumulative effect of change in
accounting for income taxes........ -- (4,709) --
Gain on investment activity........... (775) (2,480) (2,618)
Loss on investment activity........... 1,136 630 1,259
(Gain) loss on sale of property,
plant, and equipment............... (746) (264) 53
Change in certain assets and
liabilities (using) or providing
cash:
Receivables...................... 2,201 (5,200) (1,286)
Inventories...................... (11,733) 999 1,101
Workers' compensation benefits
and funding................... (662) 1,104 1,332
Mine closing reserves and
funding....................... 2,214 (111) 68
Other postretirement benefits and
funding....................... 86 1,978 (143)
Accounts payable................. 5,395 410 475
Accrued liabilities.............. (243) 1,542 (4,073)
Other............................ (1,186) (2,721) (1,524)
--------- -------- --------
NET CASH PROVIDED BY OPERATING
ACTIVITIES......................... 15,844 13,049 20,078
--------- -------- --------
INVESTING ACTIVITIES
Proceeds from investment activity........... -- 84,966 114,520
Proceeds from available-for-sale investment
activity................................. 43,860 -- --
Acquisition of investments.................. -- (69,116) (95,448)
Acquisition of available-for-sale
investments.............................. (32,868) -- --
Acquisition and development of property,
plant, and equipment..................... (60,815) (46,146) (65,362)
Other....................................... 2,713 923 (107)
--------- -------- --------
NET CASH USED IN INVESTING
ACTIVITIES......................... (47,110) (29,373) (46,397)
--------- -------- --------
FINANCING ACTIVITIES
Proceeds from borrowings.................... 174,025 93,725 87,550
Payments on borrowings...................... (128,512) (76,616) (88,535)
Debt issue costs............................ (2,189) -- --
Cash dividends paid......................... (5,158) (5,161) (5,022)
Issuance (acquisition) of treasury stock --
net...................................... 19 (154) (2,942)
--------- -------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES............... 38,185 11,794 (8,949)
--------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS........................ 6,919 (4,530) (35,268)
Cash and cash equivalents at beginning of
year..................................... 23,737 28,267 63,535
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF
YEAR............................... $ 30,656 $ 23,737 $ 28,267
========== ========= =========
</TABLE>
See notes to consolidated financial statements.
[11]
<PAGE> 14
ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994
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, which are primarily
maintained at three financial institutions, include highly liquid investments
that are readily convertible to known amounts of cash.
Investments -- The Company adopted the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (FASB 115) for investments held as of January 1, 1994 and
acquired thereafter. Upon adoption, shareholders' equity was increased by
$1,081,000 (net of $619,000 in deferred income taxes) to reflect the net
unrealized gains on securities classified as available-for-sale previously
carried at the lower of amortized cost or market.
The appropriate classification of securities is determined at the time of
purchase. Debt securities are classified as held-to-maturity when the Company
has the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities, which comprise funding for workers' compensation
benefits and mine closing reserves, are stated at cost, adjusted for
amortization of premiums and accretion of discounts.
Marketable equity securities and debt securities not classified as
held-to-maturity are classified as available-for-sale. Available-for-sale
securities are carried at fair value based on quoted market prices, with the
unrealized gains and losses, net of tax, reported as a component of retained
earnings. The amortized cost of debt securities in this category is adjusted for
amortization of premiums and accretion of discounts. The securities comprising
investments in marketable securities are classified as available-for-sale.
Realized gains and losses and declines in the value of held-to-maturity and
available-for-sale securities determined to be other-than-temporary are included
in investment income.
Inventories -- Inventories are carried at the lower of average cost or
market.
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 normal 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,
[12]
<PAGE> 15
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, 1994, accumulated foreign currency translation losses
charged to retained earnings amounted to $1,073,000.
Per Share Amounts -- Per share computations are based on the average number
of shares of common stock outstanding during the respective years.
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 had no effect on net
income.
NOTE B -- ACQUISITION AND DEVELOPMENT OF MINING ASSETS
In December 1992, the Company, through its wholly owned subsidiaries
Eighty-Four Mining Company (Eighty-Four) and Lucerne Land Company (Lucerne
Land), acquired Mine No. 84 and approximately 175,000,000 tons of coal reserves
in Washington County, Pennsylvania for a purchase price of $53,624,000. In
addition, Eighty-Four 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 commenced 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 1994 and cumulatively,
amounted to $29,897,000 and $53,038,000, respectively, exclusive of expenditures
for plant and equipment of $17,840,000 and $37,512,000, respectively.
Through December 31, 1994, the Company had made an equity investment of
$100,000,000 in this project. Long-term debt and equipment leases are being
utilized to provide remaining funding requirements of the project (Note D).
Since Eighty-Four 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
Two of the Company's subsidiaries have long-term contracts to supply coal
to two mine-mouth electric generating stations, as follows: Keystone Coal Mining
Corporation to the Keystone Steam Electric Station under the Keystone Coal
Supply Agreement (Keystone, Keystone Station, and Keystone Agreement) and
Helvetia Coal Company to the Homer City Steam Electric Station under the Homer
City Coal Sales Agreement for deliveries through 1994 and the 1995 Coal Sales
Agreement for deliveries commencing January 1, 1995 (Helvetia, Homer City
Station, prior Homer
[13]
<PAGE> 16
City Agreement, and new Homer City Agreement). A substantial portion of the
Company's coal reserves, other than those of Lucerne Land Company, is dedicated
to the production of coal for such agreements.
Under the terms of the Keystone Agreement, the price of coal sold is based
on the cost of production plus profit subject to an annual price cap. The amount
of profit depends primarily on the quality of the coal sold and the ability to
control costs of production. Certain funds generated by Keystone must be
utilized within the operations covered by the Keystone Agreement. This agreement
requires that investment earnings on funds so restricted be credited to the cost
of production. The agreement, as well as debt agreements of Keystone, includes
certain restrictions on its net book value. Also under the terms of the
agreement, the Keystone Station Owners have an option to acquire Keystone at its
net book value and to lease the related coal and surface lands. The option can
only be exercised if Keystone is in default under its loan agreements (Note D)
or the Keystone Agreement. At December 31, 1994, Keystone's net book value was
$18,842,000 and for the year then ended, Keystone had a loss before income taxes
of $1,045,000 and net income of $26,000. Keystone sales were $109,971,000,
$100,644,000, and $130,035,000 for 1994, 1993, and 1992, respectively.
In November 1994, the new Homer City Agreement was signed to provide for
deliveries in excess of 14 million tons from January 1, 1995 through 2003 at an
initial rate of 1.8 million tons per year. The price to be paid by the Homer
City Station is a base price with escalation and adjustment based on quality of
the coal delivered and replaces the cost-plus pricing arrangement under the
prior contract. The new Homer City Agreement also provides for early termination
by either party under hardship provisions and further allows the Homer City
Station Owners to terminate the agreement for their convenience, in which event
they would have to make certain payments to Helvetia.
The prior Homer City Agreement was amended to provide for the payment to
Helvetia by the Homer City Station Owners for certain costs not paid pursuant to
deliveries under that agreement, including past service postretirement benefit
costs (Note G). In addition, the Homer City Station Owners option to acquire
Helvetia's assets at net book value was terminated. Sales to the Homer City
Station were $63,803,000 in 1994, $40,449,000 in 1993, and $53,846,000 in 1992.
NOTE D -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Keystone:
Revolving credit note................... $30,000 $24,500 $ 5,200
Term note............................... 1,280 1,920 2,560
Line of credit note..................... 10,725 -- --
Eighty-Four and Lucerne Land:
Senior fixed rate construction notes.... 35,000 -- --
Capitalized lease obligations........... 360 -- --
Helvetia:
Revolving credit note................... -- 3,325 4,000
Term note............................... -- 1,260 1,680
Capitalized lease obligations........... 335 822 1,278
------- ------- -------
77,700 31,827 14,718
Less current maturities................... 2,007 2,372 1,515
------- ------- -------
$75,693 $29,455 $13,203
======= ======= =======
</TABLE>
[14]
<PAGE> 17
Keystone -- Keystone has 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. Keystone has a line of credit agreement which expires March 31, 1996 with
the same institutions in the amount of $16,900,000 as of December 31, 1994. The
amount available under the line of credit decreases quarterly to $10,000,000 on
December 31, 1995. The weighted-average interest rate on borrowings on the line
of credit were 8.2% in 1994, 6% in 1993, and 6.3% in 1992.
These credit facilities provide for a commitment fee of 1/4 of 1% per annum
and interest at the prime rate (8.5% at December 31, 1994). Keystone, at its
option, can elect to lock in a rate for a specified period of time. Keystone
elected an option to lock in interest rates on $17,500,000 of the outstanding
balance with a rate of 8.08% through March 20, 1995, and on the remaining
$12,500,000 with a rate of 8.5% through June 27, 1995.
Eighty-Four and Lucerne Land -- In 1994, Eighty-Four and Lucerne Land
entered into a credit agreement with four banks to provide for revolving credit
notes totaling $50,000,000 and a note agreement with institutional lenders to
provide for $35,000,000 in senior fixed rate construction notes in order to
finance the project costs of rehabilitating, constructing, and developing Mine
No. 84. Eighty-Four also has a commitment for the lease of the first longwall
mining system scheduled for delivery in the third quarter of 1995.
Debt issuance costs totalling $2,189,000 were incurred in connection with
these loans and are being amortized utilizing the interest method. In 1994,
$150,000 was amortized and is being capitalized as part of mine development
costs.
The notes are secured by all of the properties of Eighty-Four and Lucerne
Land and investment securities of the Company having a market value of
$26,354,000 which exceeds the loan covenant requirement of $25,000,000. The
Company has guaranteed the indebtedness. Eighty-Four, Lucerne Land, and the
Company are subject to numerous financial covenants and restrictions regarding
acquisitions, earnings, cash flows, financial position, and dividends. The
Company required a waiver from the lenders in order to declare the dividend paid
on January 3, 1995.
As of December 31, 1994, $35,000,000 had been borrowed under the senior
fixed rate construction notes, at a fixed rate of 10.37%. These notes will
convert to term notes by September 30, 1997 and will be payable at $750,000 per
quarter in 1999 and $2,000,000 per quarter in 2000 through 2003. Interest would
be increased in the event of default. In 1994, interest on these borrowings was
$1,851,000 which was capitalized as part of the mine development costs. In
connection with this note, a project letter of credit of $8,800,000 was
outstanding as of December 31, 1994.
The revolving credit notes provide for quarterly mandatory reductions in
available borrowings of $5,500,000 beginning December 31, 1997 through September
30, 1999, with the final payment due on December 31, 1999. The revolving credit
notes provide for interest based on the banks' prime rate plus an amount up to
.75%, or at the option of Eighty-Four and Lucerne Land on the LIBOR rate plus an
amount from 1.75% to 2.5%. In addition, commitment fees of .375% to .5% per
annum are payable on the unused portion of the commitment. As of December 31,
1994, no amounts have been borrowed under the revolving credit notes.
The amount of subsidiaries' net assets which are restricted from being
transferred to the Company under these debt agreements totals $113,000,000 at
December 31, 1994.
Interest paid in 1994, 1993, and 1992 was $3,637,000, $1,103,000, and
$1,064,200, respectively. Aggregate maturities on long-term debt outstanding at
December 31, 1994 for the next
[15]
<PAGE> 18
five years are as follows: 1995 -- $2,007,000; 1996 -- $15,693,000;
1997 -- $5,000,000; 1998 -- $20,000,000; and 1999 -- $3,000,000.
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
$7,597,000 in 1994 including $118,000 which was capitalized as mine development,
$7,437,000 in 1993 including $471,000 which was capitalized as mine development,
and $6,966,000 in 1992. Aggregate remaining rental payments on these leases are
$21,131,000 with the following minimum rentals over the next five years:
1995 -- $7,534,000; 1996 -- $4,643,000; 1997 and 1998 -- $3,350,000; and
1999 -- $2,254,000.
NOTE F -- INCOME TAXES
Effective January 1, 1993, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (FASB
109). As permitted under FASB 109, 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.
The application of new federal and state income tax rates decreased net
income by $142,000 in 1994 and increased net income by $222,000 in 1993. A
valuation allowance has been recognized due to the effects of statutory
depletion and limited state operating loss utilization on certain of the
Company's operations.
The provision (credit) for income taxes consists of the following:
<TABLE>
<CAPTION>
DEFERRED
LIABILITY METHOD METHOD
------------------- ------
1994 1993 1992
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Provision (credit) for income taxes:
Current:
Federal....................................... $(4,281) $(3,302) $3,471
State......................................... (9) (139) 165
Canadian...................................... 652 561 546
Deferred:
Federal....................................... 2,304 1,400 (256)
State......................................... 3,187 3,021 508
Canadian...................................... (15) (39) 25
------- ------- ------
$ 1,838 $ 1,502 $4,459
======= ======= ======
</TABLE>
[16]
<PAGE> 19
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 assets and liabilities as of December 31, 1994 and
1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Self-insurance.................................... $17,735 $17,272
Other postretirement benefits..................... 8,931 10,472
Alternative minimum tax........................... 8,785 4,800
Net operating loss (expires 2009)................. 3,875 --
Vacation pay...................................... 1,632 1,956
Other deferred tax assets......................... 2,562 1,102
------- -------
43,520 35,602
Valuation allowance............................... (4,108) (4,498)
------- -------
Total deferred tax assets...................... 39,412 31,104
Deferred tax liabilities:
Depreciation and related charges.................. 31,295 19,226
Pension........................................... 1,032 925
Intangible drilling costs......................... 881 877
Other deferred tax liabilities.................... 1,903 508
------- -------
Total deferred tax liabilities................. 35,111 21,536
------- -------
Net deferred tax assets........................ $ 4,301 $ 9,568
======= =======
</TABLE>
Income before income taxes includes income attributable to United States
operations of $2,852,000 in 1994, $2,666,000 in 1993, and $17,386,000 in 1992
and income attributable to Canadian operations of $1,452,000 in 1994, $1,210,000
in 1993, and $1,263,000 in 1992.
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 DEFERRED
METHOD METHOD
--------------- ---------
1994 1993 1992
----- ----- ---------
<S> <C> <C> <C>
Tax at U.S. statutory rates.......................... 35.0% 34.0% 34.0%
Increase (decrease) resulting from:
State taxes, net of federal benefits............... 45.9 49.1 (0.5)
Depletion.......................................... (39.5) (21.5) (11.7)
Prior year accruals................................ (24.3) (12.1) (3.1)
Canadian dividend withholding...................... 15.6 -- --
Rates.............................................. 18.4 (2.9) 0.6
Valuation allowance................................ (9.1) (2.0) --
Other items........................................ .7 (5.8) 4.6
----- ----- ---------
42.7% 38.8% 23.9%
===== ===== ========
</TABLE>
[17]
<PAGE> 20
Income (tax refunds received) taxes paid in 1994, 1993, and 1992 were
$(2,623,000), $(616,000), and $5,716,000, respectively.
NOTE G -- PENSION AND BENEFIT PLANS
Pensions -- Non-UMWA Employees -- The Company and its subsidiaries have a
trusteed pension plan which provides 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 plan 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 1994 nor are any expected to be made in
1995. The plan's assets at December 31, 1994 are comprised primarily of
government and corporate debt securities and equities.
Amounts credited to expense for 1994, 1993, and 1992 relating to the
pension plan include the following components:
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net periodic pension (credit) expense:
Service cost -- benefits earned during the
period....................................... $ 1,792 $ 1,810 $ 1,649
Interest cost on projected benefit obligation... 3,074 3,033 2,814
Actual return on plan assets.................... 245 (5,821) (6,092)
Net amortization and deferral................... (5,637) 586 1,141
------- ------- -------
Net periodic pension (credit) including
charges of $170,000 in 1994 and $247,000
in 1993 which were capitalized as mine
development............................... $ (526) $ (392) $ (488)
======= ======= =======
</TABLE>
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets at December 31, 1994, 1993, and 1992 for the
Company's defined benefit pension plan:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits.............................. $ 34,679 $ 35,699 $ 34,416
Nonvested benefits........................... 1,260 1,254 1,263
-------- -------- --------
Accumulated benefits......................... 35,939 36,953 35,679
Effect of projected future salary
increases................................. 9,047 11,711 12,266
-------- -------- --------
Total projected benefit obligation............. 44,986 48,664 47,945
Plan assets at fair value...................... 65,401 68,177 64,932
-------- -------- --------
Plan assets in excess of projected benefit
obligation................................... 20,415 19,513 16,987
Unrecognized net gain.......................... (11,727) (10,717) (8,323)
Unrecognized prior service cost................ 1,645 1,793 2,317
Unrecognized transition asset.................. (9,720) (10,503) (11,287)
-------- -------- --------
Prepaid pension asset (accrued pension
liability)................................... $ 613 $ 86 $ (306)
========= ========= =========
</TABLE>
[18]
<PAGE> 21
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 7% and 4.75%, respectively, at December 31,
1994; 6.5% and 4.75%, respectively, at December 31, 1993; and 6.5% and 5.0%,
respectively, at December 31, 1992. The weighted-average expected long-term rate
of return on plan assets was 7.75% for 1994, 8.0% for 1993, and 8.0% for 1992.
In addition, the Company and its subsidiaries have a 401(k) Plan for its
management employees. Company contributions and administrative costs totaled
$287,000, $287,000, and $250,000 for 1994, 1993, and 1992, 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 companies' contributions
to these new plans 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 $5,695,000 in 1994 including $930,000 which was
capitalized as mine development, $4,816,000 in 1993 including $839,000 which was
capitalized as mine development, and $7,937,000 in 1992. 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 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, which includes all UMWA employees who
retire after 1975. These, and similar benefits for active employees, are
provided through insurance companies whose premiums have been based on the
benefits paid during the insured period. In January 1995, the Company became
self-insured for a substantial portion of these benefits. 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 January 1993, the Company and its subsidiaries other than Keystone
adopted the provisions of Statement of Accounting Standards No. 106, "Employees'
Accounting for Postretirement Benefits other than Pensions" (FASB 106). Keystone
became contractually required to accrue its postretirement benefit costs under
the provisions of FASB 106 beginning in 1991. 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 and were 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
[19]
<PAGE> 22
$2,853,000, due primarily to the recognition of past service liabilities for the
subsidiaries with limited projected activity.
Postretirement benefit expense for 1994 and 1993 under FASB 106 includes
the following components:
<TABLE>
<CAPTION>
1994 1993
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net annual expense:
Service cost -- benefits earned during the period......... $ 2,877 $ 2,695
Interest cost on accumulated postretirement benefit
obligation............................................. 10,804 9,752
Actual return on plans' assets............................ 907 (4,046)
Net amortization and deferral............................. (690) 4,470
------- -------
13,898 12,871
Postretirement benefit costs for certain operations....... -- 2,678
------- -------
Net annual expense including $1,278,000 in 1994 and
$940,000 in 1993 which was capitalized as mine
development.......................................... $13,898 $15,549
======= =======
</TABLE>
Postretirement benefit expense for 1992, which consisted of contractually
determined accruals for Keystone and pay-as-you-go charges for the remainder of
the Company's operations, was $9,028,000.
In connection with the new Homer City Agreement (Note C), the unrecognized
cost of postretirement benefits attributable to service prior to January 1, 1995
of Helvetia employees will be reimbursed by the Homer City Station Owners over
three years beginning in 1995.
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 comprised
primarily of government and 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 plans' assets assumption
was 7.1% in 1994 and 7.32% in 1993.
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets at December 31, 1994, 1993, and 1992 for the
Company's postretirement benefit plans:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Accumulated postretirement benefit obligation
(APBO):
Retirees..................................... $ 58,577 $ 55,973 $ 50,728
Fully eligible active plan participants...... 38,135 27,891 28,073
Other active plan participants............... 60,447 60,540 55,101
-------- -------- --------
157,159 144,404 133,902
Plans' assets at fair value.................... 72,291 62,739 50,488
-------- -------- --------
APBO in excess of plans' assets................ (84,868) (81,665) (83,414)
Unrecognized net loss.......................... 20,464 13,650 3,158
Unrecognized prior service cost................ (2,457) (2,846) (2,044)
Unrecognized transition obligation............. 46,275 50,361 63,778
-------- -------- --------
Accrued postretirement benefit cost............ $(20,586) $(20,500) $(18,522)
========= ========= =========
</TABLE>
[20]
<PAGE> 23
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 10.8% for 1995 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 rate by one percentage point would increase the APBO as of December 31,
1994 by $32,768,000 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1994 by $3,231,000.
The weighted-average discount rate used in determining the APBO was 7.75%
at December 31, 1994 and 7% at December 31, 1993. In 1994, the APBO increased
due to a change in demographic assumptions and variances of actual experience
from assumptions, offset by the increase in the discount rate. The increase in
the APBO from 1992 to 1993 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.
NOTE H -- SELF-INSURANCE AND OTHER 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 for certain subsidiaries. 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 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 funded as accrued for certain
subsidiaries. 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,
1994, which are comprised of U.S. Government Notes and Bonds, totaled
$43,700,000. These assets are sufficient to fund 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)
[21]
<PAGE> 24
which amounts to $6,222,000. Funding has ceased until such time as the Company's
actuaries determine additional provisions and funding are required.
NOTE I -- INVESTMENTS
The following is a summary of available-for-sale securities and
held-to-maturity securities (in thousands):
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE SECURITIES
---------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1994
U.S. Government and agencies.......... $ 6,591 $ -- $ 147 $ 6,444
Corporate............................. 32,141 5 745 31,401
Other debt securities................. 300 2 -- 302
------- ---------- ---------- ---------
Total debt securities............... 39,032 7 892 38,147
Equities.............................. 8,412 630 351 8,691
------- ---------- ---------- ---------
$47,444 $637 $1,243 $46,838
======= ======== ======== =======
Schedule of maturities
One year or less.................... $15,866 $15,876
One year through three years........ 16,253 15,674
After three years................... 6,913 6,597
------- ---------
39,032 38,147
Equities............................ 8,412 8,691
------- ---------
$47,444 $46,838
======= =======
</TABLE>
<TABLE>
<CAPTION>
HELD-TO-MATURITY SECURITIES
---------------------------------------------------
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
December 31, 1994
U.S. Government and agency............ $20,846 $ 9 $700 $20,155
Cash equivalents included in
noncurrent funding.................. 7,631 -- -- 7,631
------- ----- ---------- ---------
$28,477 $ 9 $700 $27,786
======= ======== ======== =======
Schedule of maturities
One year or less.................... $ 1,209 $ 1,193
One year through three years........ 5,567 5,483
After three years................... 14,070 13,479
------- ---------
$20,846 $20,155
======= =======
</TABLE>
The $20,846,000 represents amounts funded for Keystone's workers'
compensation and mine closing liabilities. Helvetia historically funded similar
liabilities when accrued in accordance with its prior long-term coal sales
agreement and classified $15,388,000 in held-to-maturity categories at January
1, 1994. In the process of negotiating the new Homer City Agreement and the
termination of deliveries under the prior Homer City Agreement, the restrictions
over the use of these held-to-maturity securities was eliminated. Accordingly,
the Company determined that its original classification as held-to-maturity made
earlier in the year was not appropriate. The effect of the reclassification
[22]
<PAGE> 25
of these funds to available-for-sale was not material to shareholders' equity.
Helvetia sold these securities and recorded a loss of $525,000 in December,
1994.
NOTE J -- 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 approximate fair
value.
Investments in Marketable Securities -- Fair values are based on quoted
market prices.
Long-term Debt -- Fair value of debt is based on the borrowing rates for
bank loans with similar terms and average maturities.
<TABLE>
<CAPTION>
CARRYING FAIR
VALUE VALUE
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Summary by Balance Sheet caption:
Cash and cash equivalents......................... $ 30,656 $30,656
Investments in marketable
securities -- available-for-sale............... 46,838 46,838
Funding for workers'
compensation -- held-to-maturity............... 19,521 19,045
Funding for mine closing
reserves -- held-to-maturity................... 8,956 8,741
Long-term debt.................................... 77,700 76,425
</TABLE>
[23]
<PAGE> 26
ROCHESTER & PITTSBURGH COAL COMPANY AND SUBSIDIARIES
TEN YEAR SELECTED FINANCIAL DATA
(Amounts expressed in thousands, except per share amounts)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
RESULTS OF OPERATIONS
Tons of coal produced.......................... 4,976 3,218 5,584
Sales.......................................... $191,991 $153,628 $198,502
Depreciation, depletion, and amortization...... 12,215 10,406 10,967
Taxes on income................................ 1,838 1,502 4,459
Net income(2).................................. 2,466 7,083 14,190
---------------------------------------------------------------------------------------
FINANCIAL POSITION
Working capital................................ $ 50,145 $ 31,025 $ 39,333
Property, plant, and equipment -- net.......... 230,169 183,009 144,974
Net capital expenditures....................... 58,848 48,213 77,119
Total assets................................... 410,994 356,884 327,579
Long-term debt................................. 75,693 29,455 13,203
Shareholders' equity........................... 207,450 210,794 209,401
---------------------------------------------------------------------------------------
PER SHARE DATA (1)
Average shares outstanding..................... 3,439 3,441 3,449
Net income(2).................................. $ .72 $ 2.06 $ 4.11
Cash dividends declared........................ 1.50 1.50 1.50
Book value at year-end......................... 60.33 61.31 60.84
</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 a
change in accounting for income taxes.
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Operating results for 1993 were adversely impacted by a seven-month strike
by the United Mine Workers of America. All operations of Helvetia Coal Company
and three operations of Keystone Coal Mining Corporation were on strike from May
25 through December 16, 1993 when a new five-year labor agreement was ratified.
Although production and sales tonnages for 1994 increased from 1993 amounts, the
effect of the strike continued into 1994 by delaying the timely start-up of two
new mines, development of new areas in a third mine, and the installation of a
portal facility at a third mine. The companies' operations also were adversely
affected by high absenteeism and production outages resulting from the lengthy
duration of extremely cold weather and heavy snowfall in early 1994. In
addition, during 1994 Keystone's production was affected by three major
underground conveyor haulage-way roof collapses, a storage bin failure, and
delays in receiving three new continuous haulage systems which are being
installed in 1995. Keystone's shipments of clean coal in 1994 were substantially
lower than forecast and a corresponding build up of raw coal inventory occurred
due to problems encountered with modifying its coal cleaning facility. The
cleaning plant continued to experience problems in early 1995, and management
decided to idle production at
[24]
<PAGE> 27
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1991 1990 1989 1988 1987 1986 1985
-------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
6,550 7,254 6,883 8,370 9,473 9,183 9,184
$311,432 $387,965 $297,260 $375,945 $392,935 $420,217 $404,328
12,875 14,112 14,150 16,696 16,356 17,012 20,291
4,633 6,325 8,058 5,196 5,712 6,900 6,024
16,306 18,505 20,113 15,652 16,559 18,564 18,702
--------------------------------------------------------------------------------------------
$ 71,256 $ 70,447 $ 73,443 $ 88,288 $ 66,427 $ 59,499 $ 60,205
78,689 95,919 100,112 106,834 123,376 122,649 118,380
15,524 12,754 7,725 7,118 17,083 21,281 21,867
302,222 358,117 303,281 302,707 295,022 282,442 265,638
13,778 20,754 22,039 36,077 44,118 52,462 58,632
204,195 198,082 187,918 172,198 163,469 150,871 136,698
--------------------------------------------------------------------------------------------
3,543 3,659 3,711 3,735 3,826 3,843 3,869
$ 4.60 $ 5.06 $ 5.42 $ 4.19 $ 4.33 $ 4.83 $ 4.83
1.36 1.24 1.13 1.02 .93 .85 .77
58.17 54.69 50.71 46.33 42.88 39.40 35.44
</TABLE>
--------------------------------------------------------------------------------
Keystone's six deep mines for approximately five weeks commencing March 11,
1995. With the deep mines idled and the coal cleaning plant continuing to
operate, raw coal inventories are expected to decline to more manageable levels.
In addition, further modifications to the cleaning plant are being undertaken
and are scheduled for completion prior to June 30, 1995. This situation will
have a negative impact on results of operations for the first half of 1995.
Deliveries under the new long-term coal sales agreement to supply the Homer
City Station, discussed in Note C to the consolidated financial statements,
commenced January 1, 1995. Helvetia closed its Lucerne #8 and Lucerne #9 mines
in the fourth quarter of 1994 due to depletion of reserves and is presently
developing a new mine. Helvetia was able to reach agreement with the United Mine
Workers of America for a new work schedule at its Lucerne #6 mine. Increased
productivity, as a result of this new schedule, is essential to reduce costs and
to operate profitably under the new coal sales agreement.
To retire bank debt and to provide funds for capital expenditures and mine
development, as discussed in Note I to the consolidated financial statements,
Helvetia sold its investment securities in the fourth quarter of 1994 and
recorded a pretax loss of $525,000. In prior years, the Company realized net
investment gains on marketable securities sales, the proceeds from which
provided cash for the purchase and rehabilitation of Mine No. 84.
[25]
<PAGE> 28
Internally generated funds were utilized for the acquisition of Mine No. 84
and the related coal reserves in December, 1992 and subsequent development of
Mine No. 84 through May, 1994 when project financing was closed. As a result,
interest and dividend income in 1994 and 1993 were lower than in prior years.
Selling, general, and administrative expenses and miscellaneous expenses
were lower in 1994 than in prior years due to cost reduction programs
implemented in 1993, while favorable settlement of prior years' and reductions
in current years' state capital stock taxes also resulted in lower selling,
general, and administrative expenses in 1994.
Interest expense was higher in 1994 than in 1993 and 1992 due to: (1)
higher prime interest rates; and (2) increased amounts borrowed by Keystone to
fund certain receivables, which were deferred during the 1993 strike in
accordance with the terms of Keystone's long-term coal supply agreement, and to
finance the coal inventory discussed above. Interest on Eighty-Four Mining
Company's borrowings are being capitalized as mine development costs.
As discussed in Note G to the consolidated financial statements,
simultaneous with the adoption of FASB Statement No. 106, "Employers' Accounting
for Postretirement Benefits Other than Pensions," in 1993, the Company recorded
a charge for the entire past service liability for retiree medical and life
insurance benefits for certain operations with limited projected future
activity.
The adoption of FASB Statement No. 109, "Accounting for Income Taxes,"
effective January 1, 1993, resulted in an increase to net income of $4.7 million
which represented the net increase to the deferred income tax asset as of that
date. The Company's effective income tax rate was 43% for 1994 compared to 39%
in 1993 and 24% in 1992. The increases in these effective income tax rates in
1993 and 1994 result in part from decreases in income before income taxes and
its relationship to 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 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 prior years. Federal and Pennsylvania deferred tax liabilities are being
provided with respect to 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.
As discussed in Note B to the consolidated financial statements,
rehabilitation and development of Eighty-Four Mining Company's operations, which
are expected to 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.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1994 was $50 million compared to $31
million at December 31, 1993 and $39 million at December 31, 1992. The Company's
current ratio (ratio of current assets to current liabilities) was 2.5 to 1 at
year end 1994 versus 2.1 to 1 and 2.6 to 1 at year end 1993 and 1992,
respectively. The increase in working capital and the current ratio in 1994 is
primarily due to: (1) a $12 million increase in Keystone's coal inventory which
has been financed with long-term debt; and, (2) a $7 million increase in
Helvetia's cash position. Helvetia no longer segregates funding for workers'
compensation and mine closing liabilities, which was required under its previous
long-term coal sales agreement. At December 31, 1994, approximately $12 million
of Helvetia's cash and cash equivalents are included as part of investments in
marketable securities, a noncurrent asset category in the Consolidated Balance
Sheets,
[26]
<PAGE> 29
since these funds will be utilized for plant and equipment and mine development
in 1995. In conjunction with these funding decisions, Helvetia repaid its
revolving credit loans and terminated its credit agreement with a commercial
bank. The decline in working capital and the lower current ratio in 1993 were
due to the utilization of internally generated funds and investment for the
rehabilitation and development of Mine No. 84 and the reduction in certain
current asset categories due to the strike.
In order to provide funding for the increase in coal inventory, Keystone
amended its line of credit agreement in the fourth quarter of 1994 to increase
the amounts available thereunder by $7.5 million. As more fully discussed in
Note D to the consolidated financial statements, Keystone had approximately $6.2
million available for borrowing as of December 31, 1994.
As discussed in Notes B and D to the consolidated financial statements, the
Company has contributed equity in the amount of $100 million for the
acquisition, rehabilitation, and development of Mine No. 84 and the related coal
properties. The long-term debt agreements, which are in place, and the
commitment for the lease of the first longwall mining system scheduled for
delivery in the third quarter of 1995, make up a substantial portion of the
funding requirements to meet the development and operating schedule. Operating
leases will be utilized for certain underground mining equipment to be acquired,
and a capital lease will be employed for the second longwall mining system
scheduled for delivery in 1997. In conjunction with its guarantee of the
indebtedness of the Eighty-Four project, the Company and the borrowers, Eighty-
Four and Lucerne Land, are subject to numerous financial covenants and
restrictions. As a result of the problems encountered at Keystone and the
related impact on the Company's consolidated results of operations, the Company
obtained waivers for and amendments to certain provisions in the debt
agreements. The Company required a waiver from the lenders in order to declare
the dividend paid on January 3, 1995. Present projections indicate that the
Company will not be able to declare dividends in 1995 equal to previous annual
levels without obtaining an additional waiver from the lenders. No assurance can
be given that such waivers will be granted in the future.
Leatherwood, Inc. believes it will receive a permit for a municipal solid
waste landfill in western Pennsylvania in the second quarter of 1995. Due to
several regulatory and competitive changes which have occurred during the
permitting process, a re-evaluation of the project's timing will be undertaken
before proceeding with development.
Until 1997, when the development of Mine No. 84 is scheduled for
completion, the Company will focus on existing operations and will not add
significantly to its coal reserves or mining operations.
[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,
1994, the Company had approximately 850 shareholders of record.
<TABLE>
<CAPTION>
1994
---------------------------------------------------------
MARKET PRICE CASH
---------------------------------------- DIVIDENDS
QUARTER HIGH BID LOW BID HIGH ASK LOW ASK DECLARED(1)(2)
------------------------------ -------- ------- -------- ------- --------------
<S> <C> <C> <C> <C> <C>
First......................... $38.25 $36.00 $40.75 $37.50 $ .30
Second........................ 36.25 34.25 38.50 37.00 .30
Third......................... 35.50 34.00 37.00 36.00 .30
Fourth........................ 34.50 34.00 37.00 35.50 .60
-------
$ 1.50
==============
</TABLE>
<TABLE>
<CAPTION>
1993
---------------------------------------------------------
MARKET PRICE CASH
---------------------------------------- DIVIDENDS
QUARTER HIGH BID LOW BID HIGH ASK LOW ASK DECLARED(1)
------------------------------ -------- ------- -------- ------- --------------
<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>
(1) All dividends were declared and paid in the same period shown with the
exception of the 60c dividends declared in the fourth quarter of 1994 and
1993 which were paid on January 3, 1995 and January 3, 1994, respectively.
(2) The long-term debt agreements to finance the development of Mine No. 84
limit additional indebtedness, acquisitions, and investments and require
that the Company comply with certain other covenants and maintain certain
financial ratios. In addition, the Company's ability to declare and pay
dividends is dependent on consolidated earnings meeting criteria in the
long-term debt agreements. The Company required a waiver from the lenders in
order to declare the dividend paid on January 3, 1995. The Company paid a
30 cents per share dividend on March 1, 1995. Future dividends will be
dependent on the Company's performance and its ability either to satisfy the
applicable criteria in the long-term debt agreements or to obtain a waiver
of the dividend restriction. No assurance can be given that such waiver will
be granted. In accordance with the subsidiaries' debt agreements, net assets
totalling $113,000,000 are restricted from being transferred to the Company.
[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
1 City Centre Drive, Mississauga, Ontario L5B 1M2 905/277-2665
GARY F. WHITE, President
<PAGE> 1
EXHIBIT (21)
SUBSIDIARIES
<TABLE>
<CAPTION>
State or Jurisdiction
Name of Subsidiary(1) of Incorporation
------------------ ----------------------
<S> <C>
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
</TABLE>
79
<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.
80
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANTS
1994 ANNUAL REPORT TO SHAREHOLDERS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 30,656
<SECURITIES> 0
<RECEIVABLES> 25,213
<ALLOWANCES> 0
<INVENTORY> 16,915
<CURRENT-ASSETS> 82,776
<PP&E> 404,962
<DEPRECIATION> 174,793
<TOTAL-ASSETS> 410,994
<CURRENT-LIABILITIES> 32,631
<BONDS> 75,693
<COMMON> 59,837
0
0
<OTHER-SE> 147,613
<TOTAL-LIABILITY-AND-EQUITY> 410,994
<SALES> 191,991
<TOTAL-REVENUES> 196,773
<CGS> 171,038
<TOTAL-COSTS> 171,038
<OTHER-EXPENSES> 18,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,480
<INCOME-PRETAX> 4,304
<INCOME-TAX> 1,838
<INCOME-CONTINUING> 2,466
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,466
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.72
</TABLE>
