SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------------- -------------
Commission File No. 0-7181
ROCHESTER & PITTSBURGH COAL COMPANY
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0761480
(State or other jurisdiction of (I.R.S. Employer Iden-
incorporation or organization) tification No.)
655 Church Street, Indiana, Pennsylvania 15701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 412/349-5800
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report.)
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number
of shares outstanding of each of the issuer's classes of common
stock, as of October 31, 1996. 3,440,984 shares.
<PAGE> 2
<TABLE>
ROCHESTER & PITTSBURGH COAL COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except for outstanding shares and per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Production Tonnage 946 1,178 3,352 3,231
=========== =========== ========= ===========
Sales Tonnage 1,132 1,448 4,122 3,887
=========== =========== ========= ===========
Sales $ 43,809 $ 53,443 152,696 147,904
Other Income:
Gain on sale of property -- -- 6,575 --
Interest and dividends 1,261 1,030 3,471 2,879
Net investment gains 7 326 663 974
Miscellaneous 1,304 480 2,266 1,967
----------- ----------- --------- -----------
46,381 55,279 165,671 153,724
Costs and Expenses:
Cost of sales 40,704 49,858 136,775 145,081
Depreciation, depletion,
and amortization 2,580 2,360 8,791 7,381
Selling, general,
and administrative 1,189 1,365 4,735 4,617
Interest 475 802 1,669 2,550
Miscellaneous 295 389 1,005 1,006
----------- ----------- --------- -----------
45,243 54,774 152,975 160,635
----------- ----------- --------- -----------
Income (Loss) Before
Income Taxes 1,138 505 12,696 (6,911)
Provision (Credit) for
Income Taxes 345 437 5,288 (1,082)
----------- ----------- --------- -----------
Net Income (Loss) $ 793 $ 68 $ 7,408 $ (5,829)
=========== =========== ========= ===========
Net Income (Loss) Per
Share $ .23 $ .02 $ 2.15 $ (1.69)
=========== =========== ========= ===========
<PAGE> 3
Average shares outstanding
used in the computation
of per share amounts 3,440,984 3,439,275 3,440,834 3,439,231
Shares issued and
outstanding at
September 30 3,440,984 3,439,275 3,440,984 3,439,275
Cash dividends declared
per share $ .15 $ .15 $ .45 $ .60
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 4
<TABLE>
ROCHESTER & PITTSBURGH COAL COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
September 30 December 31
1996 1995
------------ -----------
ASSETS
------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 34,452 $ 27,437
Short-term investments 147 2,645
Receivables 25,013 29,576
Inventories and other current assets 10,033 13,746
Deferred income taxes 2,166 2,166
------------ -----------
Total Current Assets 71,811 75,570
Other Assets
Investments in marketable securities 49,956 33,454
Funding for:
Workers' compensation benefits 13,926 16,915
Mine closing reserves 10,339 10,271
Other postretirement benefits -- 10,956
Deferred income taxes 8,160 7,712
Miscellaneous 17,187 14,166
------------ -----------
99,568 93,474
Property, plant, and equipment 539,325 511,625
Less allowances for depreciation, depletion,
and amortization 184,754 189,262
------------ -----------
354,571 322,363
------------ -----------
$ 525,950 $ 491,407
============ ===========
<PAGE> 5
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable $ 13,297 $ 15,325
Accrued liabilities 20,951 15,762
Current maturities of long-term debt 3,439 2,514
------------ -----------
Total Current Liabilities 37,687 33,601
Other Liabilities and Long-Term Debt
Workers' compensation benefits 41,608 40,292
Mine closing reserves 23,983 23,153
Other postretirement benefits 59,920 46,458
Black lung benefits 12,181 11,348
Deferred income taxes 11,217 8,169
Miscellaneous 4,798 4,488
Long-term debt (less current maturities) 126,906 120,784
------------ -----------
280,613 254,692
Shareholders' Equity
Common stock issued, 3,989,121 shares 59,837 59,837
Capital in excess of stated value 133,125 133,162
Retained earnings 42,493 38,007
------------ -----------
235,455 231,006
Less treasury stock at cost - 548,137 and
549,846 shares 27,805 27,892
------------ -----------
207,650 203,114
------------ -----------
Total Liabilities & Shareholders' Equity $ 525,950 $ 491,407
============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 6
<TABLE>
ROCHESTER & PITTSBURGH COAL COMPANY
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
Nine Months Ended
September 30
----------------------
1996 1995
---- ----
<S> <S> <S>
OPERATING ACTIVITIES
Net income (loss) $ 7,408 $ (5,829)
Adjustments for non-cash items 3,579 7,198
Changes in certain assets and liabilities
(using) or providing cash 18,351 19,335
--------- ---------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 29,338 20,704
--------- ---------
INVESTING ACTIVITIES
Proceeds from investment activity 24,461 27,003
Acquisition of investments (18,209) (16,496)
Acquisition and development of
property, plant, and equipment (34,579) (63,554)
Proceeds from sale of property, plant, and
equipment 8,085 445
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (20,242) (52,602)
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings 96,100 105,478
Payments on borrowings (96,167) (81,507)
Cash dividends paid (2,064) (4,127)
Treasury stock issued 50 18
--------- ---------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (2,081) 19,862
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 7,015 (12,036)
Cash and cash equivalents at beginning of year 27,437 30,656
--------- ---------
CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 34,452 $ 18,620
========= =========
<PAGE> 7
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid (net of capitalized interest) $ 1,752 $ 2,570
========= =========
Income taxes paid (tax refunds received) $ (1,859) $ (4,408)
========= =========
Noncash financing and investing activities--
Capital leases $ 7,114 $ 16,963
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE> 8
ROCHESTER & PITTSBURGH COAL COMPANY
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
Note A - Basis for Presentation
- -------------------------------
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Certain
accounts in the condensed consolidated financial statements for prior
years have been reclassified to conform to the statement presentation for
the current year. These reclassifications have no effect on net income.
Operating results for the nine month period ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the
year ending December 31, 1996. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
Results for the Company's subsidiary, Eighty-Four Mining Company,
other than its provision for income taxes, are not included in the
accompanying Condensed Consolidated Statements of Income because
Eighty-Four is in the development stage.
Certain accounts previously reflected in the Consolidated Balance
Sheet as of December 31, 1995 as "Funding for other postretirement
benefits" are included in "Investments in marketable securities" at
September 30, 1996. Until such funding is deposited into restricted
plan assets, the funding is available for general corporate cash
requirements.
Note B - Status of Eighty-Four Mining Company
- ---------------------------------------------
As previously reported, the Company's subsidiary, Eighty-Four Mining
Company (Eighty-Four), is in the process of developing Mine No. 84 in
Washington County, Pennsylvania. The mine had been scheduled to be fully
operational by mid-1997 upon the installation of a second longwall mining
system. As of September 30, 1996, the Company has invested $105 million
in this project and has guaranteed its subsidiary's long-term debt
totaling $107 million. In addition, $25 million in investment securities
are pledged by the Company to secure a portion of the long-term debt.
Because Eighty-Four is in the development stage, $130 million in costs of
development, net of sales revenue from coal produced incidental to
development, have been capitalized through September 30, 1996.
Consequently, all revenues and expenses relating to the development of
Mine No. 84 are excluded from the Condensed Consolidated Statements of
Income in this report.
<PAGE> 9
Since the inception of longwall operations in the third quarter of
1995, Eighty-Four has experienced problems in achieving continuous miner
advance rates required for the commencement of new longwall panels on a
timely basis. Geological conditions and associated roof control problems
have contributed to the less-than-projected continuous miner advance
rates. While mining practices have been modified to minimize the adverse
effect of unfavorable conditions, the continuous miner advance rates
remain at levels significantly below those required for economical
longwall mining. Management, with the aid of an independent consultant,
has commenced an intensive study to assess this situation and to develop
a plan to increase advance rates and, thus, improve productivity. This
study is expected to be completed in December of this year. However,
the continuous miner shortfalls are expected to delay the installation
of the second longwall. The extent of such delay will depend on the
time required to achieve acceptable advance rates.
Once the aforementioned study is complete and revised forecasts
are prepared, management will be in a position to better assess the
future economics of the project. If, at that time, significant
shortfalls in continuous miner advance rates are projected to continue,
or if the long-term advance rate previously forecast is determined to
be no longer achievable, there would be a material adverse effect on
the project. Such determination could have a material effect on the
recoverability of previously capitalized development costs, as well as
other project assets, which would necessitate a write-down in an amount
which is uncertain at this time and a review of the capitalization of
future net development costs.
The difficulty in sustaining acceptable advance rates, combined with
various financial covenants in Eighty-Four's loan agreements and the
Company's Guaranty Agreement, may, in the absence of waivers from the
lenders, place Eighty-Four and the Company in noncompliance with
provisions of those agreements. In the first quarter of 1996, revised
operating projections indicated that the Mine No. 84 project required
approximately $30 million in additional funding in order to complete
development. As a result of those projections, the Company contributed
$5 million in additional equity to the project, a $13 million line of
credit was established with an affiliate company in order to meet
short-term funding requirements, and Eighty-Four's credit agreements
were amended in April, 1996. Under those agreements, Eighty-Four is
required, among other things, including satisfying certain financial
conditions, to secure additional permanent financing, or make an
additional capital contribution, by year-end. The arrangement of
such financing has been delayed until the continuous miner advance
rate study and resulting revisions to Eighty-Four's forecast,
including revisions to cash flow and funding requirements, are
completed. In the event that the study indicates that significant
shortfalls in miner advance rates are likely to continue, funding
requirements of the project would be substantially in excess of those
previously forecast. No assurance can be given that Eighty-Four will
be able to obtain required financing or that waivers will be obtained
from the lenders.
<PAGE> 10
ROCHESTER & PITTSBURGH COAL COMPANY
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL POSITION
September 30, 1996
The following is Management's discussion and analysis of certain
significant factors which have affected the Company's (1) results of
operations during the periods included in the accompanying Condensed
Consolidated Statements of Income and (2) financial position since
December 31, 1995:
Results of Operations
- ---------------------
As previously reported, the Company's subsidiary, Eighty-Four
Mining Company (Eighty-Four), is in the process of developing Mine
No. 84 in Washington County, Pennsylvania. The mine had been scheduled
to be fully operational by mid-1997 upon the installation of a second
longwall mining system. As of September 30, 1996, the Company has
invested $105 million in this project and has guaranteed its subsidiary's
long-term debt totaling $107 million. In addition, $25 million in
investment securities are pledged by the Company to secure a portion of
the long-term debt. Because Eighty-Four is in the development stage,
$130 million in costs of development, net of sales revenue from coal
produced incidental to development, have been capitalized through
September 30, 1996. Consequently, all revenues and expenses relating to
the development of Mine No. 84 are excluded from the Condensed
Consolidated Statements of Income in this report.
Since the inception of longwall operations in the third quarter of
1995, Eighty-Four has experienced problems in achieving continuous miner
advance rates required for the commencement of new longwall panels on a
timely basis. Geological conditions and associated roof control
problems have contributed to the less-than-projected continuous miner
advance rates. While mining practices have been modified to minimize the
adverse effect of unfavorable conditions, the continuous miner advance
rates remain at levels significantly below those required for economical
longwall mining. Management, with the aid of an independent consultant,
has commenced an intensive study to assess this situation and to develop
a plan to increase advance rates and, thus, improve productivity. This
study is expected to be completed in December of this year. However,
the continuous miner shortfalls are expected to delay the installation
of the second longwall. The extent of such delay will depend on the
time required to achieve acceptable advance rates.
Once the aforementioned study is complete and revised forecasts are
prepared, management will be in a position to better assess the future
economics of the project. If, at that time, significant shortfalls in
continuous miner advance rates are projected to continue, or if the
long-term advance rate previously forecast is determined to be no
longer achievable, there would be a material adverse effect on the
project. Such determination could have a material effect on the
recoverability of previously capitalized development costs, as well
<PAGE> 11
as other project assets, which would necessitate a write-down in an
amount which is uncertain at this time and a review of the
capitalization of future net development costs.
The Company's subsidiary, Keystone Coal Mining Corporation (Keystone),
recorded a $360,000 loss before income taxes in the third quarter of
1996 which was slightly more than the loss recorded in the third quarter
of 1995. The annual two-week vacation period falls in the third quarter.
For the nine months ended September 30, 1996, Keystone's income before
income taxes was $2.3 million compared to a $9.8 million pretax loss for
the same period in 1995. As previously reported, in 1995 the Keystone
operations were adversely affected by problems encountered with major
modifications to its coal cleaning plant, poor geological conditions,
and low productivity at several of its mines. Keystone closed three of
its low productivity mines at the end of 1995 and each of its remaining
three mines has had productivity improvements in 1996. Keystone's 1996
results have also benefitted from the favorable effect of decreasing coal
inventories under the pricing provisions of its coal supply agreement and
its ability to purchase coal from third party suppliers for delivery to
its customer.
The Company's subsidiary, Helvetia Coal Company (Helvetia), has
continued to experience losses although at reduced amounts from those
incurred in 1995. For the nine months ended September 30, 1996,
Helvetia's losses before income taxes were $900,000 compared to pretax
losses of $2.9 million for the same period of 1995. The loss for the
third quarter of 1996 of approximately $500,000 compares to a
$1.2 million pretax loss for the third quarter of 1995. Helvetia's
operations were also affected by the two-week vacation shutdown period
in the third quarter. Despite being in a loss position, Helvetia has
benefitted from the performance of its Marshall Run mine which did not
become operational until June, 1995. Efforts to improve production at
Helvetia's other mine, Lucerne #6, are continuing.
The results for the nine months ended September 30, 1996 were
favorably affected by the completion of the sale of two refuse piles
in February, 1996 which resulted in a gain before taxes of $6.575
million. In addition, the sale of certain surplus coal and surface
properties and higher royalty income has resulted in an increase in
miscellaneous income in the third quarter of 1996 compared to the
third quarter of 1995.
Interest and dividend income was higher in the third quarter of
1996 and year to date compared to similar periods in 1995 due to
increased amounts invested.
Depreciation, depletion, and amortization expenses have been higher
in 1996 when compared to 1995 principally due to the inclusion of
depreciation expense for Helvetia's Marshall Run mine which was in
development through May 1995 and was operational for the entire nine
month period in 1996.
Selling, general, and administrative expenses were lower in the third
quarter of 1996 compared to the third quarter of 1995 due, in part, to a
favorable adjustment in the third quarter of 1996 for state tax accruals.
<PAGE> 12
Interest expense has continued to be lower in 1996 than in the
prior year due to lower interest rates and decreased amounts borrowed
by Keystone as a result of the reduction of its coal inventories to
normal levels and positive cash flow from its operations. Interest
expense incurred by Eighty-Four is being capitalized as it is in the
development stage.
The Company's effective income tax rates for 1996 and 1995 vary
from the normally expected rates due to higher income tax provisions
being recorded for Eighty-Four. The higher effective income tax rates
are expected to continue through 1996.
The Company's subsidiary, Leatherwood, Inc. (Leatherwood), has
received notification that its permit to develop a solid waste landfill
in Jefferson County, Pennsylvania, has been suspended by Pennsylvania's
Department of Environmental Protection. The action follows enactment
of a new provision in the Federal Aviation Act which purports to bar
construction of Leatherwood's landfill. The suspension, by its terms,
will remain in effect until Leatherwood is in compliance with the Act.
Leatherwood is examining possible legal initiatives including
challenges to both the Federal law and the DEP's action. Because of
the lengthy process of such legal actions, if undertaken, development
of the Leatherwood project will be delayed indefinitely. Leatherwood
has previously expensed a substantial portion of the costs incurred
in securing this permit. Thus, if Leatherwood were to permanently
terminate development of the landfill, the effect on the Company's
financial statements would not be material.
Liquidity and Capital Resources
- -------------------------------
Working capital at September 30, 1996 was $34 million compared to
$42 million at December 31, 1995 and the current ratio's were 1.9 to
1 and 2.25 to 1, respectively.
Eighty-Four's difficulty in sustaining acceptable advance rates
discussed in the Results of Operations above, combined with various
financial covenants in Eighty-Four's loan agreements and the Company's
Guaranty Agreement, may, in the absence of waivers from the lenders,
place Eighty-Four and the Company in noncompliance with provisions of
those agreements. In the first quarter of 1996, revised operating
projections indicated that the Mine No. 84 project required
approximately $30 million in additional funding in order to complete
development. As a result of those projections, the Company contributed
$5 million in additional equity to the project, a $13 million line of
credit was established with an affiliate company in order to meet short-
term funding requirements, and Eighty-Four's credit agreements were
amended in April, 1996. Under those agreements, Eighty-Four is required,
among other things, including satisfying certain financial conditions,
to secure additional permanent financing, or make an additional capital
contribution, by year-end. The arrangement of such financing has been
delayed until the continuous miner advance rate study and resulting
revisions to Eighty-Four's forecast, including revisions to cash flow
and funding requirements, are completed. In the event that the study
<PAGE> 13
indicates that significant shortfalls in miner advance rates are
likely to continue, funding requirements of the project would be
substantially in excess of those previously forecast. No assurance
can be given that Eighty-Four will be able to obtain required financing
or that waivers will be obtained from the lenders.
Eighty-Four contemplates entering into a lease for its second
longwall system to be delivered in 1997, but it has not yet commenced
negotiations of such lease.
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ROCHESTER & PITTSBURGH COAL COMPANY
THOMAS W. GARGES, JR.
Thomas W. Garges, Jr.
President and Chief Executive Officer
GEORGE M. EVANS
George M. Evans
Vice President and Treasurer
Date: November 14, 1996
<PAGE> 15
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 34,452
<SECURITIES> 147
<RECEIVABLES> 25,013
<ALLOWANCES> 0
<INVENTORY> 4,843
<CURRENT-ASSETS> 71,811
<PP&E> 539,325
<DEPRECIATION> 184,754
<TOTAL-ASSETS> 525,950
<CURRENT-LIABILITIES> 37,687
<BONDS> 126,906
<COMMON> 59,837
0
0
<OTHER-SE> 147,813
<TOTAL-LIABILITY-AND-EQUITY> 525,950
<SALES> 152,696
<TOTAL-REVENUES> 165,671
<CGS> 136,775
<TOTAL-COSTS> 136,775
<OTHER-EXPENSES> 14,531
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,669
<INCOME-PRETAX> 12,696
<INCOME-TAX> 5,288
<INCOME-CONTINUING> 7,408
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,408
<EPS-PRIMARY> 2.15
<EPS-DILUTED> 2.15
</TABLE>
