<PAGE>   1

                       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
For the fiscal year ended December 31, 1997
                                       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 number 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
incorporation or organization)                           Identification No.)

655 Church Street, Indiana, Pennsylvania                       15701
----------------------------------------                     ----------
(Address of principal executive offices)                     (Zip Code)

Registrant's telephone number, including area code:  724-349-5800
Securities registered pursuant to Section 12(b) of the Act:

                                                     Name of each exchange
                  Title of each class                 on which registered
                  -------------------                ---------------------
                         None                                 None

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 |_|. No |X|.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.

As of March 9, 1998, the aggregate market value of the voting stock of
Registrant held by its non-affiliates was $75,294,214.

Indicate the number of shares of each of Registrant's classes of common stock
outstanding as of March 9, 1998: 3,440,984 shares.

DOCUMENTS INCORPORATED BY REFERENCE:

                                      None.
<PAGE>   2

                                     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. From the mid-1960's until
1997, Registrant and its subsidiaries were principally engaged in the deep
mining of bituminous steam coal for sale to electric generating plants located
adjacent to or near Registrant's mines. During 1997, sales to two of the
utility customers of Registrant's subsidiaries were close to minimum contract
requirements and represented approximately 43% of Registrant's sales of
deep-mined coal. Deep-mined coal included coal produced by Eighty-Four Mining
Company during its development stage. In 1992, through a subsidiary,
Registrant acquired coal properties and an underground coal mine in
southwestern Pennsylvania. Development and rehabilitation work continued at
this mine through October 1997 when the mine completed its development stage.
As a result, Registrant is engaged, as a material portion of its operations, in
the eastern and midwestern utility coal markets in addition to the sales of
coal pursuant to long-term coal supply contracts.

            As publicly reported in December 1997, Registrant engaged J.P.
Morgan Securities, Inc. as Registrant's exclusive financial advisor to assist
Registrant in identifying the strategic alternatives available to Registrant for
maximizing shareholder value. J.P. Morgan Securities, Inc. advised Registrant
that one of the strategic alternatives available to Registrant for maximizing
shareholder value is to give consideration to a possible business combination
transaction. As a result, J.P. Morgan Securities, Inc. has solicited indications
of interest in purchasing Registrant and Registrant has made information
available to several potentially interested parties pursuant to confidentiality
agreements. Although Registrant anticipates that it may receive definitive
acquisition proposals, Registrant to date has received no definitive acquisition
proposal, and there can be no assurance that any definitive acquisition proposal
will be made to Registrant or, if made, that any such proposal would be
acceptable to Registrant.

            (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 minor extent, surface mining of bituminous coal in
Pennsylvania serving the eastern and midwestern coal markets. Sales by two of
Registrant's subsidiaries under their respective long-term coal supply
contracts, described herein, to the mine-mouth electric generating plants
adjacent to the subsidiaries' mines accounted for approximately 43% of
Registrant's deep-mined production in 1997. Deep-mined production included coal
produced by Eighty-Four Mining Company during its development stage.


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<PAGE>   3

            In 1992, Registrant established two wholly-owned subsidiaries,
Eighty-Four Mining Company ("Eighty-Four") and Lucerne Land Company ("Lucerne
Land"), which acquired coal properties and Mine No. 84 from Bethlehem Steel
Corporation and affiliated entities ("Bethlehem") on December 31, 1992. The
final purchase price of the coal properties and Mine No. 84 was $53.6 million
after taking into account post-closing adjustments.

            From February 1993 through October 1997 Eighty-Four was engaged in
the renovation, rehabilitation, and replacement of key operating systems at Mine
No. 84. This work 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, upgraded coal handling and
preparation facilities and development work to accommodate the installation of
two planned longwall mining units and is substantially completed. The first
longwall commenced operations in the third quarter of 1995 and the second unit
became operational in the fourth quarter of 1997. Eighty-Four facilities will
permit production of approximately 6.3 to 6.5 million tons of coal in 1998 and
approximately 7.0 million tons of coal per year thereafter. In connection with
the development of the longwall panels and the mining in longwall panels,
Eighty-Four produced 4,783,950 tons of coal in 1997, substantially all of which
were sold in the commercial market to eighteen customers which included
utilities, industrial coal users and, to a lesser degree, foreign customers.

            Since longwall operations commenced in 1995, Eighty-Four has
experienced problems in achieving continuous miner advance rates required for
economical longwall mining. A plan to enhance advance rates in the continuous
miner sections, developed with an independent consultant, was implemented during
1997 and advance rates improved in 1997 and have continued to improve in 1998.
However, the cumulative effect of past delays has increased the time required
for scheduled longwall moves in 1998. Future longwall delays cannot be avoided
without maintaining the improved advance rates in the continuous miner sections.
See Management's Discussion and Analysis of Financial Condition and Results of
Operations included herein.

            A citizens group has appealed various provisions of Eighty-Four's
Mining Activity Permits (the "Permits"). The appeals are pending before the
Pennsylvania Environmental Hearing Board. See also Item 3 hereof.

            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 which

----------
      (1)   Saleable means total coal mine output less tonnage rejected during
            processing for market.


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<PAGE>   4

approximately 80 million tons are within Eighty-Four's current mine plan which
provides for mining through 2008. The 175 million ton estimate, which was
developed by Registrant's Geology and Engineering personnel and which is subject
to continuing review and verification by them, 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 by Eighty-Four, and generally accepted mining practices in the Pittsburgh
Seam utilizing longwall mining techniques.

            Eighty-Four expects to sell between 6.3 and 6.5 million tons of coal
from Mine No. 84 in 1998 to utility and industrial customers, in either spot
market sales or under longer term contracts none of which, at present, extends
beyond 2002. Eighty-Four has been successful selling Mine No. 84 coal to
utilities that use the coal as blender with Western low sulphur coals. Based
upon the location of Mine No. 84, the quality of the coal produced from Mine No.
84, and the announced compliance strategies of its customers, Eighty-Four
believes its coal will continue to have a strong market because, after cleaning,
the coal will remain a cost-effective product for electric generating stations
utilizing scrubbers, emission allowances, or blending. Additionally, a
significant portion of the coal from Mine No. 84 has historically been sold on
the domestic and international metallurgical market. Marketing activities
undertaken by Eighty-Four are directed to a diverse geographic and customer
base, in order to reduce reliance upon a single customer, group of customers, or
type of market while enabling price escalation risks to be partially hedged due
to varying contract durations.

            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, which was amended
in 1995, has a term ending on December 31, 2004, and provides that KCMC will
sell and deliver 3,250,000 tons annually subject to increase or decrease by up
to 250,000 tons through 1999. In 1997, KCMC delivered 3,000,013 tons to the
Keystone Station pursuant to the Keystone Agreement. Should the parties not
agree prior to 2000 to an extension of the Keystone Agreement beyond 2004, as to
which no assurance can be given, 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. Coal sold pursuant to the Keystone Agreement is delivered by a
series of conveyor belts directly from KCMC's mines (the "Keystone Mines") or by
truck 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 its thermal value prior to delivery to the Keystone
Station.

            The price paid by the Keystone Owners to KCMC pursuant to the
Keystone Agreement consists of an amount, subject to a price cap, equal to all
costs of production incurred by KCMC in


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<PAGE>   5

mining, processing, and delivering the coal, 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 which coal cannot be mined for sale to
others without the Keystone Owners' consent. Substantially all of the dedicated
coal properties are leased or subleased by KCMC from Registrant. Under certain
limited 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 ($16,680,961 at December 31, 1997)
or KCMC's 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 included herein. 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 quality of the coal KCMC is able to
produce. The Keystone Owners also have the right to terminate the Keystone
Agreement if certain coal size and quality requirements are not met by KCMC.

            In 1997, KCMC delivered 1,938,546 tons of coal from its Keystone
Mines and 1,061,466 tons of purchased coal to the Keystone Station, compared
with deliveries to the Keystone Station in 1996 of 2,404,753 tons of coal from
its Keystone Mines and 777,827 tons of purchased coal.

            Registrant's wholly-owned subsidiary, Helvetia Coal Company
("Helvetia"), is a party to a coal sales agreement effective January 1, 1995
(the "Homer City Agreement") with the two public utilities (the "Homer City
Owners") that own the Homer City Steam Electric Station (the "Homer City
Station") near Homer City, Pennsylvania.

            The Homer City Agreement 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. Helvetia's coal
reserves are leased from Registrant. Coal sold pursuant to the Homer City
Agreement is delivered to the Homer City Station by conveyor belts and trucks.
To enhance the quality of delivered coal and


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<PAGE>   6

thereby gain the benefit of premiums under the pricing structure of the Homer
City Agreement, Helvetia built a new coal cleaning plant (the "Helvetia Cleaning
Plant") which began operation in February 1995.

            The price paid by the Homer City Owners to Helvetia pursuant to the
Homer City Agreement is a base price with escalation and adjustments based on
the quality of the coal delivered. The Homer City Agreement also provides for
early termination by either party under hardship provisions as defined in the
Homer City Agreement and further allows the Homer City Owners to terminate the
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 Consolidated
Financial Statements included herein.

            In 1997, Helvetia delivered 1,695,738 tons of coal from its deep
mines and 106,221 tons of purchased coal to the Homer City Station compared with
deliveries to the Homer City Station in 1996 of 1,822,792 tons of deep-mined
coal and 115,677 tons of purchased coal.

            In 1997, five deep mines of Registrant's subsidiaries supplied coal
to the Homer City and Keystone Stations (the "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, pursuant to agreement with the Keystone Owners, is not fully
insured for business interruption and property damage because it is able to
recover such losses in whole or in part under the Keystone 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 approximately 43% of Registrant's deep-mined coal production in 1997
was sold pursuant to the Keystone and Homer City Agreements (the "Agreements"),
because of the nature of the power supply system in the Mid-Atlantic Region of
the United States, Registrant remains subject to material competition from
other coal suppliers primarily as to price, coal quality, and environmental
considerations, and suppliers of other types of fuel, principally oil, natural
gas, hydroelectric power, and nuclear fuel. That system is operated as a pool
of electric power so that to the extent other sources of power within the
system, or available to it, are cheaper than the power produced at the
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 Agreements could be reduced. In addition, the deregulation
of the electric generating industry, the dimensions of which are not yet fully


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<PAGE>   7

apparent, could have a material effect on Registrant's business if the utilities
to which its subsidiaries supply coal are unable to compete effectively in a
deregulated environment.

            During 1997, a substantial portion of Registrant's surface-mined
coal was sold to Helvetia. 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 Agreements,
described herein. See also Note C of the Notes to the Consolidated Financial
Statements included herein. Gross sales pursuant to the Keystone Agreement and
the Homer City Agreement accounted for approximately 52% and 24%, respectively,
of Registrant's sales in the year ended December 31, 1997, excluding development
stage coal sales at Eighty-Four. If the Owners of the 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 Stations could decrease, and if such decrease were
significant, the change could materially adversely affect the business of
Registrant.

            United Eastern Coal Sales Corporation ("United Eastern"), a
wholly-owned subsidiary of Registrant, 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 ("R&P Canada"), is engaged in the sale of coal to customers in
Canada. United Eastern and R&P Canada serve customers principally in the
Mid-Atlantic states and the Province of Ontario, respectively.

            Leatherwood, Inc. ("Leatherwood"), a wholly-owned subsidiary of
Registrant, is engaged in developing solid waste management facilities. In 1995,
the Pennsylvania Department of Environmental Protection (the "DEP") issued a
permit to operate a 1,500 ton-per-day municipal solid waste landfill in
Jefferson County, Pennsylvania. In October 1996, Congress passed the Federal
Aviation Reauthorization Act of 1996 (the "Reauthorization Act"). Leatherwood
does not comply with a provision of the Reauthorization Act which addresses the
siting of landfills in relation to the location of a municipal airport. The DEP
subsequently suspended Leatherwood's permit until such time as Leatherwood is in
compliance with the Reauthorization Act. Leatherwood is not actively engaged in
efforts to challenge the suspension of its permit or to develop its business.

            Information concerning backlog is not considered material to an
understanding of Registrant's business.


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<PAGE>   8

            At December 31, 1997, 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 701 million tons of coal. During 1997, Registrant produced
approximately 4,985,000 tons of coal excluding coal produced from Mine No. 84
during the development stage. Of the 701 million tons of estimated recoverable
reserve base, approximately 66 million tons of coal (9%), are dedicated under
the Agreements. With the exception of approximately 80 million of the 175
million 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 might 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 represents 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 coal company. The leased reserves are near exhaustion.
Registrant also subleases coal lands in West Virginia to another coal company.

            Patents and licenses are not material to the operation of
Registrant's business.

            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 possible development of Leatherwood. While a substantial capital
investment may ultimately be made in development of Leatherwood's

----------
      (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, 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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<PAGE>   9

projects, the amount of such investment has not yet been determined. Through
December 31, 1997, Registrant has made an investment in the Mine No. 84 project
of $160 million in the form of equity and loans (including the $53.6 million
adjusted purchase price). In addition, Eighty-Four has entered into $36 million
of capital leases. Over the life of Mine No. 84, additional funding, including
capital and operating leases to provide remaining funding requirements of the
project will be necessary. See also Notes B and D of the Notes to the
Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations included herein.

            Registrant's business is subject to numerous state and federal
statutes which establish strict standards with respect to mining health and
safety and environmental consequences. In addition to prescribing civil and
criminal penalties for violations, both state and federal laws 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 of Registrant's subsidiaries.
Because of the inclusion of environmental-related elements in the normal
expenditures for mine development and operation, environmental-related costs
cannot be precisely isolated but Registrant does not believe such costs have
materially adversely affected Registrant's financial condition. See also Item 3
hereof.

            Both federal and state law and regulations impose sulphur emission
standards on uses of coal, which will increase in stringency during the next
several years. However, to the extent Registrant's coal is sold pursuant to the
Agreements, which contain no provisions warranting that the sulphur content of
the coal will meet emission standards when burned, such regulations will not
adversely affect Registrant. Should the cost of compliance as an element of
production costs become burdensome to the customers of Registrant's
subsidiaries, the competitive position and earnings of Registrant could be
adversely affected. The impact of recent legislation on Registrant's business,
especially the Clean Air Act Amendments of 1990, on Registrant's business
remains uncertain 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 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 quality of the coal KCMC
is able to produce. Moreover, in the


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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 generated less
electricity from these Stations. 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 included
herein, Registrant has made substantial capital investments in the past three
years in addition to the development of Mine No. 84. Inasmuch as a substantial
portion of these investments has been for several purposes, e.g., to extend mine
and equipment life, to increase productivity, and to comply with safety and/or
environmental legislation, Registrant cannot indicate with precision capital
investments required solely to comply with environmental and safety legislation.
However, Registrant estimates such expenditures totaled approximately $3.3
million in the five years ended December 31, 1997, and it is estimated that
annual capital expenditures of approximately $1.2 million per year for the next
several years will be attributable to environmental and safety laws. Such
legislation also has a negative effect on 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.

            Registrant currently employs approximately 1,800 persons, of whom
1,650 are engaged directly in the production and processing of coal for sale and
150 are engaged in executive, administrative, engineering, exploration, sales,
and clerical functions. Registrant's subsidiaries have approximately 1,365
employees who are covered by the National Bituminous Coal Wage Agreement of 1998
(the "1998 Agreement") with the United Mine Workers of America (the "UMWA"). The
1998 Agreement has a term from January 1, 1998, until December 31, 2002, and may
be terminated on or after December 31, 2002 by either party giving at least
sixty days written notice to the other party.

            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. Excluding the sales of Eighty-Four during its
development stage, 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, 1997, 1996, and 1995.


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<PAGE>   11

<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>
   1997             $172,865        $27,390   $10,090    $210,345
   1996              185,841          7,450     8,974     202,265
   1995              198,394         10,730     7,562     216,686
</TABLE>

            (d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES.

            In the years ended December 31, 1997, 1996, and 1995, R&P Canada had
sales of $13,528,685, $7,235,578 and $10,268,032, 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. Registrant
also owns approximately 24,000 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
$294,000. 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, 1997, 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
properties acquired by Eighty-Four and Lucerne Land, 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 701 million 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.


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<PAGE>   12

            Registrant operated six underground mines in 1997. 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:

<TABLE>
<CAPTION>
                           ---------------------------------   ---------------------------------------
                               Recoverable Reserve Base                   Production in Tons
                                   (Tons x 1000)(1)
                           ---------------------------------   ---------------------------------------
                            Proven     Probable      Total       1997           1996           1995
                           ---------   ---------   ---------   ---------      ---------      ---------
<S>                          <C>         <C>         <C>       <C>            <C>            <C>
Underground

KCMC
  Assigned - Dedicated
    Emilie(3)                  2,007         862       2,869     996,162(4)   1,004,314(4)     843,104(4)
    Emilie #4(3)                   0           0           0           0(4)           0(4)     249,617(4)
    Jane(3)                        0           0           0           0(4)           0(4)     358,813(4)
    Margaret #11 - 2(3)            0           0           0           0(4)           0(4)     361,343(4)
    Plumcreek #1(3)            2,543       1,816       4,359     464,654(4)     440,942(4)     296,244(4)
    Urling #1(3)                   0       2,516       2,516     599,005(4)     865,027(4)     726,567(4)
Unassigned - Dedicated        35,508      12,417      47,925           0              0              0

Helvetia
  Assigned - Dedicated
    Lucerne #6 - E(2)          3,423       2,257       5,680     956,864(4)     999,245(4)     988,945(4)
    Marshall Run(2)            1,630         657       2,287     723,321(4)     819,850(4)     451,768(4)
  Unassigned - Dedicated           0           0           0           0              0              0
Lucerne Land
  Assigned
    Mine No. 84(5)            78,026           0      78,026   4,783,950(4)   3,026,551(4)   1,344,189(4)
  Unassigned                       0      92,166      92,166           0              0              0

Registrant
   Unassigned                192,086     270,331     462,416           0              0              0

   Total - Underground       315,223     383,022     698,245   8,523,956      7,155,929      5,620,590
                           ---------   ---------   ---------   ---------      ---------      ---------

Surface

   Assigned                      165          44         209          11        160,981        210,827
   Unassigned                    847       1,269       2,116           0              0              0
   Total - Surface             1,012       1,313       2,325          11        160,981        210,827
                           ---------   ---------   ---------   ---------      ---------      ---------

TOTAL                        316,235     384,334     700,569   8,637,951(4)   7,316,910(4)   5,831,417(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.


                                       12
<PAGE>   13

      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.
                    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. "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.

(3)   Operated by KCMC.

(4)   Tonnage figures represent clean coal after washing and preparation at the
      Keystone Cleaning Plant, the Helvetia Cleaning Plant or at Mine No. 84's
      preparation facilities. See also Item 1 hereof.

(5)   Operated by Eighty-Four.

            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: 1995--210,827 tons, 1996--160,982, and 1997--113,995 tons. All
surface-mined coal produced in 1997 was sold on the commercial market.
Registrant anticipates limited surface mining activity in the near future.
Therefore, 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 KCMC dedicated under the
Keystone Agreement are subject to a mortgage given as security for indebtedness
of KCMC. All of the properties of Eighty-Four and Lucerne Land are subject to a
mortgage given as security for their indebtedness. See Note D of Notes to
Consolidated Financial Statements included herein.

            Registrant has miscellaneous other non-coal mineral interests,
primarily natural gas, which it leases to unrelated parties. Registrant also
participates in gas well joint ventures in Pennsylvania and nearby states.


                                       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.

            Other than the matter discussed herein, 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.

            As noted in Item 1 hereof, a citizens group, People United To Save
Homes (the "Appellant") filed an appeal of the issuance by DEP of Eighty-Four's
Permit. The appeal is pending before the Pennsylvania Environmental Hearing
Board (the "EHB") at EHB Docket No. 95-233-R. Briefing has been completed and
the matter is pending before the entire EHB. During 1997, DEP issued a new
Mining Activity Permit (the "1997 Permit") to Eighty-Four, the previous one (the
subject of the appeal at EHB Docket No. 95- 233-R) having expired by its terms.
The Appellant has also filed an appeal to the issuance of the 1997 Permit. The
appeal, which addresses issues substantially identical to those raised in Docket
No. 95-233-R, is pending before the EHB at Docket No. 97- 262-R. Motions for
consolidation of the two appeals, incorporation of portions of the record from
Docket No. 95-233-R into the appeal at Docket No. 97-262-R, and Appellant's
Motion for Summary Judgment are pending. While Registrant believes that the
appeals of the Permit are not meritorious and will be denied by the EHB, the
outcome of such appeals cannot be determined at this time. In the event that the
Appellant were to prevail with respect to material provisions of the Permit
and/or the 1997 Permit, Eighty-Four might then be required to amend its mining
plan or to incur additional operating expenses which could have an adverse
financial effect on Registrant.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

            Registrant did not submit any matters to a vote of stockholders
during the fourth quarter of 1997.


                                       14
<PAGE>   15

EXECUTIVE OFFICERS OF REGISTRANT.

            Information on executive and other officers of Registrant as of
February 28, 1998, is as follows:

<TABLE>
<CAPTION>
                            Position                    Family
Name                   Age  With Registrant          Relationship
----                   ---  ---------------          ------------
<S>                    <C>  <C>                          <C>
Thomas W. Garges, Jr.  58   President and Chief
                               Executive Officer         None

W. Joseph Engler, Jr.  57   Vice President and
                               General Counsel           None

George M. Evans        50   Vice President and
                               Treasurer                 None

Peter Iselin           77   Vice President--Finance
                               and Secretary             (1)

Thomas M. Majcher      45   Vice President--Corporate
                               Development               None

A. W. Petzold          61   Vice President--Operations   None

Jeffrey A. Mack        40   Controller                   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 KCMC, Helvetia, and
Eighty-Four as of February 28, 1998, is as follows:

<TABLE>
<CAPTION>
                          Position With Registrant's      Family
Name                 Age  Subsidiaries                 Relationship
----                 ---  --------------------------   ------------
<S>                  <C>  <C>                             <C>
Robert D. Anderson   53   President -- Keystone           None
                              Coal Mining Corporation
                           President -- Helvetia Coal
                              Company

Robert A. MacGregor  55   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 or a
subsidiary for the past five years.


                                       15
<PAGE>   16

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET AND DIVIDEND INFORMATION

      The following tables show the quarterly cash dividends 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,
1997, the Company had approximately 570 shareholders of record.

<TABLE>
<CAPTION>
                                             1997
                          -----------------------------------------------------
                                         Market Price                Cash
                          ------------------------------------     Dividends
Quarter                   High Bid  Low Bid  High Ask  Low Ask   Declared(1)(2)
-------                   --------  -------  --------  -------   --------------
<S>                       <C>       <C>      <C>       <C>       <C>
First                     $  28.50  $ 25.25  $  30.50  $ 26.25   $     .15
Second                       43.00    28.25     48.50    30.00         .15
Third                        43.50    35.00     46.00    38.00         .15
Fourth                       43.00    35.00     46.50    37.50         .15
                                                                 ---------
                                                                 $     .60
                                                                 =========
</TABLE>

<TABLE>
<CAPTION>
                                             1996
                          -----------------------------------------------------
                                         Market Price                Cash
                          ------------------------------------     Dividends
Quarter                   High Bid  Low Bid  High Ask  Low Ask    Declared(1)
-------                   --------  -------  --------  -------   --------------
<S>                       <C>       <C>      <C>       <C>       <C>
First                     $  33.00  $ 28.00  $  34.50  $ 29.50   $     .15
Second                       33.00    31.50     34.50    32.50         .15
Third                        31.50    30.50     32.75    31.50         .15
Fourth                       32.25    25.00     33.25    27.00         .15
                                                                 ---------
                                                                 $     .60
                                                                 =========
</TABLE>

(1)   All dividends were declared and paid in the same period shown with the
      exception of the dividends declared in the fourth quarters of 1997 and
      1996 which were paid on January 2, 1998 and January 2, 1997, respectively,
      and the dividend declared on March 31, 1997 which was paid on May 1, 1997.

(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 dividends
      is dependent on consolidated earnings meeting criteria in the long-term
      debt agreements. 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 totaling
      $105,225,000 are restricted from being transferred to the Company.


                                       16
<PAGE>   17

ITEM 6. SELECTED FINANCIAL DATA

           (Amounts expressed in thousands, except per share amounts)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
                                            1997         1996        1995         1994        1993
                                       ---------    ---------   ---------    ---------   ---------
<S>                                    <C>          <C>         <C>          <C>         <C>
Results of Operations
 Tons of coal produced                     4,985        4,290       4,492        4,976       3,218
 Sales                                 $ 210,345    $ 202,265   $ 216,686    $ 191,991   $ 153,628
 Depreciation, depletion,
    and amortization                      17,765       11,795      13,285       12,215      10,406
 Provision (credit) for income taxes       1,493        3,969        (337)       1,838       1,502
 Net income (loss)(1)(2)                  (3,724)      11,261      (3,535)       2,466       7,083

--------------------------------------------------------------------------------------------------
Financial Position
 Working capital                       $  30,838    $  36,547   $  41,969    $  50,145   $  31,025
 Property, plant,
  and equipment - net                    355,446      356,625     322,363      230,169     183,009
 Net capital expenditures                 32,452       46,878      88,090       58,848      48,213
 Total assets                            518,134      531,398     491,407      410,994     356,884
 Long-term debt                           84,535      100,501     120,784       75,693      29,455
 Shareholders' equity                    205,515      211,185     203,114      207,450     210,794

--------------------------------------------------------------------------------------------------
Per Share Data
 Average shares outstanding                3,441        3,441       3,439        3,439       3,441
 Net income (loss)(1)(2)               $   (1.08)   $    3.27   $   (1.03)   $     .72   $    2.06
 Cash dividends declared                     .60          .60         .75         1.50        1.50
 Book value at year-end                    59.73        61.37       59.06        60.33       61.31
</TABLE>

----------
(l)   Net income (loss) and net income (loss) per share for 1997 was impacted by
      a $17,000,000 write-down of the property, plant, and equipment related to
      Helvetia, which was substantially offset by pretax gains on the sales of
      nonstrategic coal reserves and land of $14,000,000.
(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.

--------------------------------------------------------------------------------

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      As publicly reported in December 1997, Registrant engaged J.P. Morgan
Securities, Inc. as Registrant's exclusive financial advisor to assist
Registrant in identifying the strategic alternatives available to Registrant for
maximizing shareholder value. This matter is discussed in more detail in Item
1(a) of this document.

Results of Operations

      As discussed in Note B to the consolidated financial statements, the
second longwall mining system was installed at Eighty-Four Mining Company in
September, 1997. Major underground construction and development projects
necessary to prepare the


                                       17
<PAGE>   18

mine for two operating longwall mining systems were essentially complete as of
October 31, 1997 and, thus, the development phase accounting treatment in effect
since 1993 ended as of that date. A total of $161 million in cost of
development, net of sales revenue from coal produced incidental to development,
were capitalized during the development period. The results of the Eighty-Four
project, other than the provisions for income taxes, certain property taxes, and
certain general and administrative costs are not included in the Consolidated
Statements of Operations for prior periods through October 31, 1997. The project
recorded pretax losses of $4.2 million, $2.8 million, and $1.9 million for the
years 1997, 1996, and 1995, respectively. The inclusion of Eighty-Four's sales,
cost of sales, interest expense, and depreciation, depletion and amortization in
the consolidated operating results for the months of November and December, 1997
affect the comparison of 1997 amounts to those of prior years.

      As previously reported, the underground construction and development
projects reduced the efficiency, availability and advancement rates of the
continuous miner units resulting in advancement rates which continued to fall
short of levels necessary for economical operations of the mine. Projections for
1998 indicate that the first longwall, which completed mining a section of the
mine in early February 1998, will experience a delay of up to three and one-half
months in starting its next mining panel. This delay is due to the cumulative
effect of not attaining acceptable continuous miner advance rates over the last
several years. This delay, coupled with the idle capacity associated with the
scheduled outage for the movement of the second longwall unit to a new mining
section in April 1998, will result in sizeable losses at Eighty-Four for the
first and second quarters of 1998. Such losses are not expected to be offset by
profitable operations at Eighty-Four for the balance of the year. Current
projections indicate that the Eighty-Four Project will incur a pretax loss for
1998 of approximately $11 million after elimination of interest charges from
consolidated affiliates. Many factors influence this estimate. For example,
continued improvement in continuous miner advance rates, which have improved
thus far in 1998, could shorten the delay and reduce projected losses, while
lower advance rates would increase losses.

      Eighty-Four's profitability beyond 1998 will be dependent on improvements
in productivity, cost reductions, and overall better performance of all aspects
of its operations. In addition, sales price increases will be required to cover
cost increases resulting from inflation.


                                       18
<PAGE>   19

      KCMC had essentially break even operating results in 1997 after recording
a pretax profit of $750,000 in 1996 and a pretax loss of $8.4 million in 1995.
KCMC recorded profits of $1.1 million for the first nine months of 1997.
However, it shipped approximately 82% of its annual delivery obligations under
its coal supply agreement during that period. The consequent limitation on
fourth quarter deliveries and the normally fewer operating days in that quarter
compared to other quarters resulted in higher operating costs and losses for the
fourth quarter. Productivity at KCMC's deep mines increased slightly in 1997.
However, increased costs of coal purchased from third parties for resale
impaired profit margins.

      The closing of three of KCMC's six deep mines at the end of 1995, which is
discussed in Note C to the consolidated financial statements, and replacement of
this production with raw coal purchased from third parties improved KCMC's
operating costs in 1996. The remaining mines had productivity improvements in
1996 despite a major roof fall at one mine in the fourth quarter. Improvements
at KCMC's cleaning plant operations resulted in an enhanced quality of coal
sold. KCMC's 1996 results also benefitted from the favorable effect of
decreasing coal inventories under the pricing provisions of its coal supply
agreement and the effect of slightly improved market prices over 1995 on its
profit formula.

      In 1995, KCMC had experienced continuing problems in conjunction with
major modifications made to its coal cleaning plant in 1994, which caused
inventories of unprocessed coal to build to unusually high levels at the end of
1994 and in early 1995. As a result, production was idled for over a month and
further modifications to the cleaning plant were completed in mid-1995. In
addition, in 1995 KCMC continued to experience poor geological conditions, a
reduction in the market price index used to adjust its sales price, and
declining productivity levels. As a result of these factors, KCMC's operating
costs in 1995 were higher than its sales revenue, which, while determined under
a cost-plus pricing mechanism, is subject to a maximum price cap.

      Helvetia, which recorded a pretax loss of $4.6 million in 1995 and pretax
income of $2.2 million in 1996, recorded a loss of $18.3 million in 1997. As
discussed in Note C to the consolidated financial statements, Helvetia reduced
the $17 million carrying value of its fixed assets to zero in the second quarter
of 1997 in accordance with Statement of Financial Accounting Standards No. 121.
This write down was based on the existence of continuing operating losses, net
of cash outflows, and forecasts which indicated that such adverse conditions
were expected to continue at its existing operations. In 1996, Helvetia
benefitted from a full year of production from its Marshall Run mine, which
commenced operations during 1995, and the favorable effect on operating profit
of the adjustment to


                                       19
<PAGE>   20

estimated workers' compensation liabilities for prior years which is discussed
more fully in Note H to the consolidated financial statements. While Marshall
Run has continued to be profitable, Helvetia's other mine, Lucerne 6E, has
experienced losses in each of the past three years. Efforts to improve its
productivity continue.

      Registrant's continuing program of selling certain nonstrategic coal and
surface properties resulted in pretax income of $14 million in 1997, $7.7
million in 1996, and $2.2 million in 1995.

      In 1997, Registrant's other operating subsidiaries recorded pretax income
of $1.9 million compared to $1.7 million and $1.9 million for 1996 and 1995,
respectively. These profits derive from surface mining operations and
reclamation contracts with the Commonwealth of Pennsylvania for the restoration
of abandoned mine lands.

      Interest and dividend income decreased in 1997 due to the liquidation of a
$35 million investment portfolio, the proceeds of which were utilized for the
Eighty-Four Project. The increases in interest and dividend income in 1996
compared to 1995 were due to higher amounts invested.

      Depreciation, depletion, and amortization was substantially higher in 1997
due to the inclusion of Eighty-Four's operating results since November 1, 1997.
This category was lower in 1996 from 1995 due to the recording of additional
amounts of depreciation relating to the closure of three KCMC mines in 1995.

      Interest expense reflects the inclusion of amounts relating to Eighty-Four
for the period beginning November 1, 1997. Interest on Eighty-Four's debt was
capitalized as mine development costs through October, 1997. Interest expense in
1996 was lower than in 1995 due to reductions in the amount borrowed to finance
KCMC's operations. KCMC required financing for certain strike costs in 1995,
which were deferred in accordance with its long-term coal sales agreement, and
to finance higher inventory levels in that year.

      Registrant's effective income tax rates are discussed in Note F to the
consolidated financial statements.

      Coal prices, which stabilized and then increased slightly in 1996, after
five years of steady decline, decreased slightly in 1997. The general downward
trend in prices has forced Registrant's subsidiaries, as well as its
competitors, to mitigate the effects of inflation on costs by endeavoring to
increase productivity and reduce overall operating costs. The change in market
prices is a significant element in the determination of sales prices under
KCMC's and Helvetia's long-


                                       20
<PAGE>   21

term coal sales agreements. Thus, as a result of lower market price indices, the
respective sales prices have not kept pace with cost inflation. While staff
reductions and operating efficiencies have been implemented over the past
several years by Registrant and its subsidiaries, these subsidiaries have not
been able to cover these inflationary effects and there can be no assurance that
they can do so in the future. Registrant expects market prices to remain highly
competitive. The profitability of these subsidiaries, including Eighty-Four,
will be highly dependent on their ability to maximize productivity and continue
to implement additional sustained cost reduction programs. In addition, market
prices and competition in the Eastern and Midwestern utility coal markets could
be affected by the pending breakup of Conrail, Eighty-Four's primary rail
carrier.

      Eighty-Four's initial coal mining Permit is the subject of litigation
before Pennsylvania's Environmental Hearing Board (EHB). In November, 1997, a
new Permit was issued upon the expiration of the initial Permit. A challenge to
the new Permit has also been filed and is concurrently pending before the EHB.
Both Eighty-Four and Pennsylvania's Department of Environmental Protection
(DEP), which issued the Permits, have vigorously defended DEP's actions and
believe that the Permits' issuance will be upheld in all material respects. This
litigation does not involve a contingent liability, but a final adverse decision
could have a material adverse effect on Registrant.

      There has been no activity on Leatherwood's permit to develop and operate
a solid waste landfill in Jefferson County, Pennsylvania. The permit was
suspended in 1996 pursuant to enactment of new Federal legislation which
purports to ban construction of Leatherwood's landfill. Even if successfully
pursued, completion of the Leatherwood project will be delayed indefinitely.
Leatherwood has previously expensed a substantial portion of the costs incurred
in securing its permit. Thus, if Leatherwood were to terminate development of
the landfill, the effect on Registrant's consolidated financial statements would
not be material.

      In 1997, Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" was issued which establishes new rules for the reporting
and display of comprehensive income and its components. Registrant intends to
adopt this statement for its 1998 fiscal year. Also in 1997, Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" was issued which changes the way segment
information is required to be reported. The standard is required to be adopted
in 1998 and the additional disclosure, if any, will be determined during 1998.


                                       21
<PAGE>   22

      Registrant is in the process of making modifications to a portion of its
computer programs that contain time sensitive software with limitation on
accepting dates after 1999. Registrant has made an assessment of which computer
programs require modification or replacement and has, in fact, been making such
modifications over the last several years. All systems are scheduled to be
complete within one year. The costs of making necessary modifications or
ultimately replacing the software, if necessary, is not material.

      All statements contained in this Form 10-K Annual Report that are not
historical facts are based on current expectations. Such statements are
forward-looking (as defined in the Private Securities Litigation Reform Act of
1995) in nature and involve a number of risks and uncertainties. Actual results
may vary materially. The factors that could cause actual results to vary
materially include: the ability of Registrant to maintain profitable operations,
general business and economic conditions in the coal mining industry,
Registrant's ability to maintain acceptable advance rates at Mine No. 84, labor
developments, the cost of coal compared to the cost of other fuels used by
Registrant's utility customers, the quality of the coal mined by Registrant and
other risks that may be described from time to time in reports Registrant files
with the Securities and Exchange Commission. Undue reliance should not be placed
on any such forward-looking statements.

Liquidity and Capital Resources

      As discussed in Notes B and D to the consolidated financial statements, as
of December 31, 1997, Registrant had contributed equity in the amount of $105
million and loaned $55 million through a consolidated affiliate to the
Eighty-Four Mining Project. In addition, long-term debt totaling $74.8 million
and operating leases of equipment have been utilized to provide the remaining
funding requirements of the Project.

      Eighty-Four, Lucerne Land, and Registrant, because of its guaranty, are
subject to numerous financial covenants and restrictions. At December 31, 1997,
Eighty-Four and Lucerne Land were in violation of certain covenants and were
projecting violations of several other covenants in the future. In January 1998,
the debt agreement was amended to waive the violations in existence at year end
and amend several other provisions affecting 1998 and future periods.

      Working capital was $31 million, $37 million, and $42 million at December
31, 1997, 1996, and 1995, respectively. Registrant's current ratio (ratio of
current assets to current liabilities) was 1.6 to 1 at December 31, 1997
compared to 1.6 to 1 and 2.2 to 1 at December 31, 1996 and 1995, respectively.
The decrease in working capital and current ratio in 1996 from 1995


                                       22
<PAGE>   23

was primarily due to reductions in KCMC's coal inventory and receivables to more
normal operating levels. The classification of a portion of Eighty-Four's debt,
which was prepaid in March, 1997 along with securities liquidated to provide for
the repayment, as current at December 31, 1996 also contributed to the lower
current ratio in 1996. An increase in scheduled debt repayment due within one
year caused the working capital to decline at December 31, 1997. As discussed
in Note D to the consolidated financial statements, the amount of subsidiaries'
net assets which are restricted from being transferred to the Registrant under
debt agreements totals $105,225,000.

      Despite the losses incurred in 1997 and the reduction of the amount of
long-term debt during the year, Registrant was able to maintain adequate levels
of cash and investments. The primary reason for this was that the sale of
nonstrategic coal and surface lands provided approximately $16 million in cash
flow. Efforts to improve liquidity by the sale of nonstrategic assets are
expected to continue in 1998.

      Even though losses are projected for Registrant in 1998, due principally
to Eighty-Four's losses, forecasts indicate the Registrant will maintain
adequate levels of cash flow. These projections indicate that present debt
facilities are adequate to provide funding for debt requirements, however,
leasing arrangements will continue to be utilized for acquiring equipment to
replace older equipment previously under lease agreement.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            PAGE
Report of Independent Auditors                                               24
Consolidated Balance Sheets, December 31, 1997, 1996
   and 1995                                                                  25
Statements of Consolidated Operations for the years
   ended December 31, 1997, 1996 and 1995                                    27
Statements of Consolidated Shareholders' Equity for
   the years ended December 31, 1997, 1996 and 1995                          28
Statements of Consolidated Cash Flows for the years
   ended December 31, 1997, 1996 and 1995                                    29
Notes to Consolidated Financial Statements,
   December 31, 1997                                                         30


                                       23
<PAGE>   24

                REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Shareholders
Rochester & Pittsburgh Coal Company
Indiana, Pennsylvania

      We have audited the accompanying consolidated balance sheets of Rochester
& Pittsburgh Coal Company and subsidiaries and the related statements of
consolidated operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules 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 consolidated 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, 1997, 1996,
and 1995, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, 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

Pittsburgh, Pennsylvania
March 12, 1998


                                       24
<PAGE>   25

CONSOLIDATED BALANCE SHEETS
ROCHESTER & PITTSBURGH COAL COMPANY
AND SUBSIDIARIES
(Dollars in thousands)

<TABLE>
<CAPTION>
ASSETS                                                     December 31
                                                  1997        1996        1995
                                                --------------------------------
<S>                                             <C>         <C>         <C>
CURRENT ASSETS
  Cash and cash equivalents                     $ 37,026    $ 34,466    $ 27,437
  Short-term investments and marketable
   securities                                         --      25,000       2,645
  Receivables                                     29,414      21,945      29,576
  Coal inventories                                 9,189       5,835       6,128
  Mine supply inventories                          1,792       1,579       1,532
  Prepaid expenses and other
  current assets                                   2,933       4,475       6,086
  Deferred income taxes                            4,714       2,093       2,166
                                                --------    --------    --------
      TOTAL CURRENT ASSETS                        85,068      95,393      75,570

OTHER ASSETS
  Investments in marketable securities            20,166      28,558      44,410
  Funding for:
    Workers' compensation benefits                12,950      14,229      16,915
    Mine closing reserves                         12,135      11,651      10,271
  Deferred income taxes                           14,894       8,839       7,712
  Prepaid royalties                                5,903       6,242       6,323
  Miscellaneous                                   11,572       9,861       7,843
                                                --------    --------    --------
                                                  77,620      79,380      93,474

PROPERTY, PLANT, AND EQUIPMENT
  Coal and surface lands                          85,159      87,640      87,638
  Plant and equipment                            333,125     291,125     294,815
  Mine development                               160,660     133,236     108,720
  Construction in progress                         6,412      29,543      20,452
                                                --------    --------    --------
                                                 585,356     541,544     511,625
  Less allowances for depreciation,
   depletion, and amortization                   229,910     184,919     189,262
                                                --------    --------    --------
                                                 355,446     356,625     322,363
                                                --------    --------    --------

                                                $518,134    $531,398    $491,407
                                                ========    ========    ========
</TABLE>


                                       25
<PAGE>   26


<TABLE>
<CAPTION>

LIABILITIES AND SHAREHOLDERS' EQUITY
                                                           December 31
                                                  1997        1996        1995
                                                --------------------------------
<S>                                             <C>         <C>         <C>
CURRENT LIABILITIES
  Accounts payable                              $ 16,264    $ 15,329    $ 14,809
  Accrued payrolls and related
   expenses                                        8,553       8,116       9,823
  Other accrued liabilities                       12,485       5,282       5,939
  Dividends payable                                  516         516         516
  Income taxes payable                             6,111       1,367          --
  Current portion of long-term
   debt                                           10,301      28,236       2,514
                                                --------    --------    --------
      TOTAL CURRENT LIABILITIES                   54,230      58,846      33,601

OTHER LIABILITIES
  Other postretirement benefits                   81,469      72,346      46,458
  Workers' compensation benefits                  42,006      40,384      40,292
  Mine closing reserves                           24,300      23,929      23,153
  Black lung benefits                              8,708       9,231      11,348
  Deferred income taxes                           13,853      11,079       8,169
  Miscellaneous                                    3,518       3,897       4,488
                                                --------    --------    --------
                                                 173,854     160,866     133,908

LONG-TERM DEBT (less current
 maturities)                                      84,535     100,501     120,784

LONG-TERM AGREEMENTS

COMMITMENTS and CONTINGENCIES

SHAREHOLDERS' EQUITY
  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              133,125     133,125     133,162
  Retained earnings                               40,358      46,028      38,007
                                                --------    --------    --------
                                                 233,320     238,990     231,006
  Less treasury stock at cost--
   548,137; 548,137; and
   549,846 shares                                 27,805      27,805      27,892
                                                --------    --------    --------
                                                 205,515     211,185     203,114
                                                --------    --------    --------

                                                $518,134    $531,398    $491,407
                                                ========    ========    ========
</TABLE>

See notes to consolidated financial statements.


                                       26
<PAGE>   27

STATEMENTS OF CONSOLIDATED OPERATIONS

ROCHESTER & PITTSBURGH COAL COMPANY
AND SUBSIDIARIES
(Dollars in thousands, except those
 stated on a per share basis)

<TABLE>
<CAPTION>
                                                   Years Ended December 31
                                                1997         1996        1995
                                             ----------------------------------
<S>                                          <C>          <C>         <C>
Sales                                        $ 210,345    $ 202,265   $ 216,686
Other Income
  Gain on sale of property                      13,955        7,678       2,164
  Interest and dividends                         3,299        4,723       3,917
  Net investment gains (losses)                   (165)         776       1,262
  Miscellaneous                                  1,594        1,840       1,850
                                             ---------    ---------   ---------
                                               229,028      217,282     225,879

Costs and Expenses
  Cost of sales                                185,344      180,302     205,283
  Depreciation, depletion, and
   amortization                                 17,765       11,795      13,285
  Selling, general, and administrative           5,911        6,589       6,321
  Interest                                       3,090        2,032       3,238
  Write-down of property, plant, and
   equipment                                    17,047           --          --
  Miscellaneous                                  2,102        1,334       1,624
                                             ---------    ---------   ---------
                                               231,259      202,052     229,751
                                             ---------    ---------   ---------

      Income (Loss) Before Income Taxes         (2,231)      15,230      (3,872)

Provision (Credit) for Income Taxes              1,493        3,969        (337)
                                             ---------    ---------   ---------

      Net Income (Loss)                      $  (3,724)   $  11,261   $  (3,535)
                                             =========    =========   =========

Net Income (Loss) Per Share                  $   (1.08)   $    3.27   $   (1.03)
                                             =========    =========   =========
</TABLE>

See notes to consolidated financial statements.


                                       27
<PAGE>   28

STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY

ROCHESTER & PITTSBURGH COAL COMPANY
AND SUBSIDIARIES
(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, 1995            $59,837    $133,170     $42,360   $27,917
  Net loss for the year                                        (3,535)
  Treasury stock issued                                (8)                  (25)
  Cash dividends -- $.75 per share                             (2,579)
  Change for the year in net
    unrealized securities gains, net
    of income tax of $878                                       1,701
   Foreign currency translation gain                               60
                                      -------    --------     -------   -------
Balance at December 31, 1995           59,837     133,162      38,007    27,892
  Net income for the year                                      11,261
  Treasury stock issued                               (37)                  (87)
  Cash dividends -- $.60 per share                             (2,065)
  Change for the year in net
   unrealized securities losses, net
   of income tax benefit of $598                               (1,160)
  Foreign currency translation loss                               (15)
                                      -------    --------     -------   -------
Balance at December 31, 1996           59,837     133,125      46,028    27,805
  Net loss for the year                                        (3,724)
  Cash dividends -- $.60 per share                             (2,065)
  Change for the year in net
   unrealized securities gains, net
   of income tax of $139                                          269
  Foreign currency translation loss                              (150)
                                      -------    --------     -------   -------
Balance at December 31, 1997          $59,837    $133,125     $40,358   $27,805
                                      =======    ========     =======   =======
</TABLE>

See notes to consolidated financial statements.


                                       28
<PAGE>   29

STATEMENTS OF CONSOLIDATED CASH FLOWS

ROCHESTER & PITTSBURGH COAL COMPANY
AND SUBSIDIARIES
(Dollars in thousands)

<TABLE>
<CAPTION>
                                                              Years Ended December 31
                                                           1997         1996         1995
                                                        -----------------------------------
<S>                                                     <C>          <C>          <C>
OPERATING ACTIVITIES
  Net income (loss)                                     $  (3,724)   $  11,261    $  (3,535)
  Adjustments to reconcile net income (loss) to
   net cash provided by operating activities:
     Depreciation, depletion, and amortization             17,765       11,795       13,285
     Write-down of property, plant, and equipment          17,047           --           --
     Gain on sale of property                             (13,955)      (7,678)      (2,164)
     Deferred income taxes                                 (6,040)       2,454        1,713
     Gain on investment activity                             (109)        (956)      (1,523)
     Loss on investment activity                              282          180          261
     Change in certain assets and liabilities
      (using) or providing cash:
       Receivables                                         (7,469)       7,631       (4,363)
       Inventories                                         (3,567)         246        9,255
       Income taxes payable                                 4,745        3,186        2,194
       Workers' compensation benefits and funding           2,321          661        4,471
       Mine closing reserves and funding                     (147)        (604)       2,267
       Other postretirement benefits                        9,123       25,888       13,648
       Accounts payable                                       935          520       (2,268)
       Accrued liabilities                                  7,638       (2,364)       4,278
       Other                                                  373       (1,901)         890
                                                        ---------    ---------    ---------
     NET CASH PROVIDED BY OPERATING ACTIVITIES             25,218       50,319       38,409
                                                        ---------    ---------    ---------

INVESTING ACTIVITIES
  Proceeds from available-for-sale securities              38,572       42,082       45,886
  Acquisition of available-for-sale securities             (2,775)     (48,740)     (43,077)
  Acquisition and development of property,
   plant, and equipment                                   (23,231)     (41,164)     (72,223)
  Proceeds from the sale of property, plant,
   and equipment                                           15,899        7,721        3,261
                                                        ---------    ---------    ---------
     NET CASH PROVIDED BY (USED IN)
      INVESTING ACTIVITIES                                 28,465      (40,101)     (66,153)
                                                        ---------    ---------    ---------

FINANCING ACTIVITIES
  Proceeds from borrowings                                124,425      109,925      151,790
  Payments on borrowings                                 (171,220)    (111,099)    (123,156)
  Debt issue costs                                         (2,263)          --           --
  Cash dividends paid                                      (2,065)      (2,065)      (4,126)
  Issuance of treasury stock                                   --           50           17
                                                        ---------    ---------    ---------
     NET CASH (USED IN) PROVIDED BY FINANCING
     ACTIVITIES                                           (51,123)      (3,189)      24,525
                                                        ---------    ---------    ---------

     INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS       2,560        7,029       (3,219)

Cash and cash equivalents at beginning of year             34,466       27,437       30,656
                                                        ---------    ---------    ---------
     CASH AND CASH EQUIVALENTS AT END OF YEAR           $  37,026    $  34,466    $  27,437
                                                        =========    =========    =========
</TABLE>

See notes to consolidated financial statements.


                                       29
<PAGE>   30

Rochester & Pittsburgh Coal Company
and Subsidiaries

December 31, 1997

NOTE A - OPERATIONS AND SUMMARY OF ACCOUNTING POLICIES

      Operations - Rochester & Pittsburgh Coal Company and its subsidiaries are
principally engaged in the deep mining of bituminous steam coal for sale to
electric generating plants in the eastern and midwestern United States. A
significant portion of these sales is made pursuant to long-term coal supply
contracts.

      A substantial portion of the employees of the Company's operating
subsidiaries are covered by the National Bituminous Coal Wage Agreement of 1998
(the "1998 Agreement") with the United Mine Workers of America (UMWA) which
became effective January 1, 1998 and expires December 31, 2002.

      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 accounts for investments in accordance with the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities".

      The appropriate classification of securities is determined at the time of
purchase. Marketable equity securities and debt securities for which the Company
does not have the intent or ability to hold 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 equity. The amortized cost of debt securities in this
category is adjusted for amortization of premiums and accretion of discounts.
Realized gains and losses, determined using specific cost identification, 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 capital 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.

      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 equity. 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, 1997, accumulated foreign currency translation losses charged to
equity amounted to $1,176,000.

      Per Share Amounts - Per share computations are based on the average number
of shares of common stock outstanding during the respective years.


                                       30
<PAGE>   31

      Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

      Newly Issued Accounting Statements -In the first quarter of 1997, the
Company adopted Statement of Position 96-1 "Environmental Remediation
Liabilities" which was issued by the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants. Statement of Financial
Accounting Standards No. 128 "Earnings Per Share" was also adopted by the
Company in 1997. The adoption of these statements had no effect on the
accompanying financial statements.

      In 1997, Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" was issued which establishes new rules for the reporting
and display of comprehensive income and its components. The Company intends to
adopt this statement for financial statements for the 1998 fiscal year. Also in
1997, Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information" was issued which changes the
way segment information is required to be reported. The standard is required to
be adopted in 1998 and the additional disclosure, if any, will be determined
during 1998.

      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.

      Development of the underground haulage system began in February, 1993 and
additional surface handling and preparation facilities have been upgraded.
Development mining commenced in the second quarter of 1994 to prepare for the
first longwall system which became operational in the third quarter of 1995. The
second longwall mining unit was installed in September, 1997, and became
operational in November. As a result, operations include mining activities of
Eighty-Four from this date. Costs of development, net of sales revenue from coal
produced incidental to development were capitalized through October, 1997.
Accordingly, the accompanying Statements of Consolidated Operations excluded all
revenues and expenses pertaining to the development period.

      The costs of rehabilitating and developing these facilities in 1997 and
cumulatively, amounted to $27,424,000 and $160,660,000, respectively, exclusive
of expenditures for plant and equipment of $20,520,000 and $125,562,000,
respectively. Eighty-Four has obtained the necessary permits to develop the mine
as planned; however, these permits have been appealed by several parties. The
Company believes that the issuance of these permits will be upheld. This
litigation does not involve a contingent liability, but a final adverse decision
could have a material adverse effect on the Company.

      The Company has made an equity investment of $105,000,000 in this project
and has loaned $55,000,000 to the project under a line of credit with a
consolidated affiliated company.

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 1995
Coal Sales Agreement for deliveries commencing January 1, 1995 and the Homer
City Coal Sales Agreement for deliveries through 1994 (Helvetia, Homer City
Station, 1995 Homer City Agreement, and Prior Homer City Agreement).


                                       31
<PAGE>   32

      Keystone - 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 which, if exceeded, can result in losses. Profitability also depends 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. The agreement, as well as debt agreements of
Keystone, includes certain restrictions on its net worth. Also, if Keystone is
in default under its loan agreements or the Keystone 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.

      In 1995, Keystone's costs exceeded the price cap which resulted in losses
before income taxes of $8,432,000 and a net loss of $5,045,000. On December 27,
1995, Keystone permanently closed its Jane, Emilie #4, and Margaret #11 mines.
Approximately $12 million in estimated costs associated with these mine closings
were accrued in 1995. Revenues increased by a similar amount as such costs were
recovered under terms of the Keystone Agreement. Keystone sales were
$110,282,000, $116,990,000, and $141,692,000, for 1997, 1996, and 1995,
respectively. At December 31, 1997, Keystone's net book value was $16,681,000.

      Helvetia - The 1995 Homer City Agreement provides 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. The 1995 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.

      In addition, the Prior Homer City Agreement was amended in November, 1994
to provide for the payment to Helvetia by the Homer City Station Owners for
certain costs including those for past service postretirement benefits not paid
pursuant to deliveries under that agreement. Substantially all of the costs
under this provision were settled and paid by the Homer City Station Owners in
1996 and 1997.

      In the second quarter of 1997, Helvetia Coal Company's operating losses
increased which prompted management to revise forecasts of Helvetia's future
operations. In light of Helvetia's anticipated future operating losses and
estimated discounted future cash flows, property, plant, and equipment relating
to Helvetia with a carrying value of $17,047,000 was reduced to fair market
value through a charge to operations of an equivalent amount.

      Sales to the Homer City Station were $51,251,000 in 1997, $68,859,000 in
1996, and $56,701,000 in 1995.

      While Keystone and Helvetia each sell primarily to one customer,
Eighty-Four Mining Company has sales agreements with a variety of customers the
duration of which varies from one to five years.


                                       32
<PAGE>   33

NOTE D - LONG-TERM DEBT AND COMMITMENTS

     Long-term debt consists of the following at December 31:

<TABLE>
<CAPTION>
                                                  1997        1996        1995
                                                --------    --------    --------
                                                         (In thousands)
<S>                                             <C>         <C>         <C>
Keystone:
  Revolving credit note                         $ 20,000    $ 20,000    $ 25,000
  Line of credit note                                 --       2,800      10,000
  Term note                                           --          --         640
Eighty-Four and Lucerne Land:
  Revolving credit notes                          20,000      50,000      36,000
  Term note                                       24,785          --          --
  Senior fixed rate construction notes                --      35,000      35,000
  Capitalized lease obligations                   30,051      20,937      16,658
                                                --------    --------    --------
                                                  94,836     128,737     123,298
Less current portion                              10,301      28,236       2,514
                                                --------    --------    --------
                                                $ 84,535    $100,501    $120,784
                                                ========    ========    ========
</TABLE>

      Interest paid (net of capitalized interest) in 1997, 1996, and 1995 was
$3,148,000, $2,120,000, and $3,712,000, respectively. Aggregate maturities on
long-term debt outstanding at December 31, 1997 for the next five years, are as
follows: 1998 - $10,301,000; 1999 - $23,548,000; 2000 - $44,532,000; 2001 -
$3,859,000; and 2002 - $4,113,000 .

      The amount of subsidiaries' net assets which are restricted from being
transferred to the Company under these debt agreements totals $105,225,000.

      Keystone - Keystone has a revolving credit agreement with two commercial
banks permitting maximum borrowings of $20,000,000 as of December 31, 1997. The
agreement terminates on December 31, 2000 and requires reductions in the amount
available of $5,000,000 in 1998 and $7,500,000 each in 1999 and 2000. Keystone
has a total of $10,000,000 available under a line of credit which expires March
31, 1999. The weighted-average interest rates on borrowings on the line of
credit were 8.5% in 1997, 8.4% in 1996, and 9.2% in 1995.

      These credit facilities provide for a commitment fee of 1/4 of 1% per
annum and interest at the prime rate (8.25% at December 31, 1997). Keystone, at
its option, can select fixed interest rates for periods up to six months based
on the CD rate plus 1.5% or LIBOR rates plus 1.5%. At December 31, 1997, all of
Keystone's borrowings on the revolver were at the CD rate, which was
approximately 7.5%. Borrowings are secured by the assignment of the Keystone
Agreement and by Keystone's assets including the noncurrent funding for workers'
compensation and mine closing obligations which has been pledged to secure these
borrowings.

      Eighty-Four and Lucerne Land - In March 1997, Eighty-Four and Lucerne Land
(borrowers) amended and restructured their long-term credit agreement with four
banks and an institutional lender which provided financing for the Mine No. 84
project. Investment securities of the Company having a market value of
$25,000,000, which had been pledged to secure the debt, were liquidated and the
proceeds, combined with additional cash amounts, were loaned by a consolidated
affiliate to Eighty-Four and used to repay the Senior Fixed Rate Notes to the
institutional lender. The amendment waived covenant violations in existence at
year-end and revised covenants and restrictions including limitations on the
payment of interest and principal on the amounts loaned from affiliate
companies.

      As of December 31, 1997, the amended facilities with the four banks
totaled $67,484,000 consisting of the following: 1) a senior secured term loan
totaling $24,785,000, 2) a revolving credit note totaling $34,699,000, and 3) a
working capital line of credit totaling $8,000,000. These credit facilities are
secured principally by all of the assets of the borrowers and are to be repaid
by June 30, 2000.

      The borrowers and the Company, as guarantor, are subject to various
financial covenants and restrictions regarding acquisitions, earnings, cash
flows, financial position, and dividends. At December 31, 1997, the borrowers
were in violation of certain terms of the agreement and forecasted noncompliance
with several covenants in subsequent


                                       33
<PAGE>   34

years. As a result, in January 1998, amendments to the credit agreement were
executed to waive the violations as of December 31, 1997 and reset several
covenants for future periods. The Company, as guarantor, is also required to
retain the proceeds from the disposals of properties since May 15, 1997, net of
costs of such sales and related income taxes, amounting to $6,228,000 as of
December 31, 1997.

      The new senior secured term note includes interest at prime rate plus 2%
or, at the option of the borrowers, at LIBOR plus 3.5%. The revolving credit
note is subject to mandatory reductions in the amount available of $7,000,000 in
1998, $20,000,000 in 1999, and $7,699,000 in 2000 and provides for interest
based on the prime rate plus an amount up to 1.5%, or, at the borrowers' option,
the LIBOR rate plus an amount from 2% to 2.5% for fixed periods. Commitment fees
of .5% per annum are payable on the unused portion of the line of credit and
revolving credit note.

      Eighty-Four has entered into capitalized lease agreements for longwall
mining equipment amounting to $12,894,000 in 1997, $6,616,000 in 1996, and
$16,963,000 in 1995 with payments commencing in August, 1995 and continuing
through July, 2005 with effective interest rates ranging from 7.0% to 7.66%. The
agreement includes buy out options during and at the end of the lease term.
Future minimum lease payments are $37,730,000 including imputed interest of
$7,679,000. These payments for the next five years are as follows: 1998 -
$7,358,000; 1999 - $5,748,000; 2000 - $5,629,000; 2001 - $4,946,000; and 2002 -
$4,908,000. The gross amount of capitalized lease assets and related accumulated
depreciation included in the Consolidated Balance Sheets was $36,473,000 and
$7,783,000, respectively, at December 31, 1997; $23,578,000 and $3,708,000,
respectively, at December 31, 1996; and $16,963,000 and $837,000, respectively,
at December 31, 1995.

      In addition to interest expense shown on the Statements of Consolidated
Operations, the Company capitalized interest in the amount of $7,581,000 in
1997, $9,666,000 in 1996, and $5,965,000 in 1995 as part of mine development
costs.

      Eighty-Four has a commitment with a vendor who will provide rebuilt
longwall shearers under an exchange program in order to avoid delays during
longwall moves. The commitment is for ten exchanges at a cost of approximately
$500,000 each beginning in 1998 and is expected to be completed in 2000. The
exchange program is cancelable by Eighty-Four with a payment of approximately
$700,000, which would begin to decrease after the second exchange.

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
$5,145,000 in 1997 including $2,177,000 which was capitalized as mine
development, $6,169,000 in 1996 including $2,132,000 which was capitalized as
mine development, and $8,177,000 in 1995 including $1,217,000 which was
capitalized as mine development. Aggregate remaining rental payments on these
leases are $16,610,000 with the following minimum rentals over the next five
years: 1998 - $5,170,000; 1999 - $4,073,000; 2000 - $1,668,000; 2001 - $524,000;
and 2002 - $30,000.


                                       34
<PAGE>   35

NOTE F - INCOME TAXES

      The provision (credit) for income taxes consists of the following for the
years ended December 31:

<TABLE>
<CAPTION>
                                                  1997        1996        1995
                                                -------     -------     -------
                                                         (In thousands)
<S>                                             <C>         <C>         <C>
Provision (credit) for income taxes:
  Current:
    Federal                                     $ 5,423     $  (130)    $(3,146)
    State                                         1,762       1,298         524
    Canadian                                        348         347         572
                                                -------     -------     -------
                                                  7,533       1,515      (2,050)
                                                -------     -------     -------
  Deferred:
    Federal                                      (8,334)       (112)     (2,407)
    State                                         2,303       2,579       4,122
    Canadian                                         (9)        (13)         (2)
                                                -------     -------     -------
                                                 (6,040)      2,454       1,713
                                                -------     -------     -------
                                                $ 1,493     $ 3,969     $  (337)
                                                =======     =======     =======
</TABLE>

      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. 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. Significant
components of the Company's deferred tax assets and liabilities are as follows
at December 31:

<TABLE>
<CAPTION>
                                                 1997        1996        1995
                                               --------    --------    --------
                                                        (In thousands)
<S>                                            <C>         <C>         <C>
Deferred tax assets:
  Other postretirement benefits                $ 43,685    $ 34,182    $ 26,961
  Self-insurance                                 18,946      17,784      17,721
  Net operating loss
   (begins to expire in 2009)                    13,069      20,135      16,154
  Alternative minimum tax                        10,519       5,902       5,696
  Black lung                                      3,011       3,119       2,604
  Vacation pay                                    2,029       1,881       1,679
  Other deferred tax assets                       5,923       2,762       2,693
                                               --------    --------    --------
                                                 97,182      85,765      73,508
  Valuation allowance                            (9,835)     (7,375)     (6,585)
                                               --------    --------    --------
    Total deferred tax assets                    87,347      78,390      66,923

Deferred tax liabilities:
  Depreciation and related charges               75,714      73,567      59,840
  Pension                                         3,793       2,817       1,570
  Intangible drilling costs                         543         695         817
  Unrealized securities gains                       192          73         671
  Other deferred tax liabilities                  1,350       1,385       2,316
                                               --------    --------    --------
    Total deferred tax liabilities               81,592      78,537      65,214
                                               --------    --------    --------
      Net deferred tax (liabilities) assets    $  5,755    $   (147)   $  1,709
                                               ========    ========    ========
</TABLE>

      Income (loss) before income taxes includes income (losses) attributable to
United States operations of $(2,997,000) in 1997, $14,469,000 in 1996, and
$(5,140,000) in 1995 and income attributable to Canadian operations of $765,000
in 1997, $761,000 in 1996, and $1,268,000 in 1995.


                                       35
<PAGE>   36

      The reconciliations between income tax expense (credit) and the amount
computed by applying the statutory U.S. income tax rate to income (loss) before
income taxes are as follows for the years ended December 31:

<TABLE>
<CAPTION>
                                                 1997        1996        1995
                                                ------      ------      ------
<S>                                             <C>          <C>        <C>
Tax at U.S. statutory rates                      (35.0)%      35.0%      (35.0)%
Increase (decrease) resulting from:
  State taxes, net of federal benefits           118.4        16.6        76.8
  Depletion                                      (71.8)      (18.1)      (79.0)
  Prior year accruals                            (65.1)       (9.2)      (19.4)
  Canadian dividend withholding                     --          --         2.9
  Rates                                            3.2        (3.9)      (19.5)
  Valuation allowance                            110.3         5.2        63.9
  Other items                                      6.9          .5          .6
                                                ------      ------      ------
                                                  66.9%       26.1%       (8.7)%
                                                ======      ======      ======
</TABLE>

      The Company's effective income tax rates are impacted by credits for
certain prior year accruals and the inability to carry back or carry forward tax
deductions in excess of current year income for state income tax purposes. In
addition, these excess deductions which are created principally by Eighty-Four's
mine development expenditures cannot be offset against state taxable income of
affiliates. For federal income tax purposes, these expenditures are being
utilized to offset current year income and are being carried forward to affect
future taxable income. As of December 31, 1997 the federal net operating loss
approximates $37,000,000. Federal and state deferred tax liabilities are being
provided with respect to these expenditures even though no benefit is being
realized for state income tax purposes.

      Income taxes paid (refunds) in 1997, 1996, and 1995 were $3,251,000,
($1,672,000), and ($4,356,000), respectively.

NOTE G - PENSION AND BENEFIT PLANS

      Pensions - Non-UMWA Employees - The Company has a trusteed pension plan
which provides for monthly pensions and other benefits for substantially all
employees of the Company and its subsidiaries 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 the Employee
Retirement Income Security Act of 1974 (ERISA). Since plan assets are currently
in excess of the Internal Revenue Code full funding limitation, no contributions
were made to the plan in 1997, 1996, and 1995 nor are any expected to be made in
1998. The plan's assets at December 31, 1997 are comprised primarily of
government and corporate debt securities and equities.

      Amounts credited to expense relating to the pension plan include the
following components for the years ended December 31:

<TABLE>
<CAPTION>
                                                 1997        1996        1995
                                               --------    --------    --------
                                                        (In thousands)
<S>                                            <C>         <C>         <C>
Net periodic pension (credit) expense:
  Service cost--benefits earned
   during the period                           $  1,509    $  1,368    $  1,525
  Interest cost on projected
   benefit obligation                             3,292       3,085       3,056
  Actual (return) loss on plan assets           (17,720)     (9,470)    (15,902)
  Net amortization and deferral                  10,871       3,339      10,182
                                               --------    --------    --------
                                                 (2,048)     (1,678)     (1,139)
  Amounts capitalized as mine development           363         334         160
                                               --------    --------    --------
  Net periodic pension credit                  $ (2,411)   $ (2,012)   $ (1,299)
                                               ========    ========    ========
</TABLE>


                                       36
<PAGE>   37

      A curtailment gain of $1,671,000, and a charge of $640,000 for special
early retirement benefits relating to the closure of certain Keystone mines
discussed in Note C, were recorded in 1995. A substantial portion of these
amounts were included as revenues and cost of sales under terms of the Keystone
Agreement.

      The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets for the Company's defined benefit pension plan
at December 31:

<TABLE>
<CAPTION>
                                                     1997         1996         1995
                                                  ---------    ---------    ---------
                                                             (In thousands)
<S>                                               <C>          <C>          <C>
Actuarial present value of benefit obligations:
  Vested benefits                                 $  41,636    $  38,090    $  37,779
  Nonvested benefits                                  1,684        1,276        1,303
                                                  ---------    ---------    ---------
  Accumulated benefits                               43,320       39,366       39,082
  Effect of projected future salary
   increases                                          9,315        8,338        8,069
                                                  ---------    ---------    ---------
Total projected benefit obligation                   52,635       47,704       47,151
Plan assets at fair value                           100,406       85,460       78,795
                                                  ---------    ---------    ---------
Plan assets in excess of
 projected benefit obligation                        47,771       37,756       31,644
Unrecognized net gain                               (34,922)     (26,267)     (21,112)
Unrecognized prior service cost                       1,030        1,125        1,187
Unrecognized transition asset                        (7,370)      (8,153)      (8,936)
                                                  ---------    ---------    ---------
Prepaid pension asset                             $   6,509    $   4,461    $   2,783
                                                  =========    =========    =========
</TABLE>

      The weighted-average discount rates used in determining the actuarial
present value of the projected benefit obligation were 6.75% at December 31,
1997, 7.125% at December 31, 1996, and 6.75% at December 31, 1995 and the rates
of increase in future compensation levels were 4.75% for each year. The
weighted-average expected long-term rate of return on plan assets was 8% for
1997, and 1996, and 7.75% for 1995.

      In addition, the Company and its subsidiaries have a 401(k) Plan for
management employees. Company contributions and administrative costs
approximated $277,000 for 1997, $262,000 for 1996 and $288,000 for 1995.

      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 are required to pay amounts, based
principally on hours worked, to the UMWA Retirement Funds which are defined
benefit pension plans. Health benefits for the Company's UMWA employees who
retired prior to 1976 are provided by the United Mine Workers' of America
Combined Benefit Fund (Combined Fund). The Combined Fund and the 1992 Benefit
Plan (1992 Plan) which were created by the Coal Industry Retiree Health Benefit
Act of 1992 (The 1992 Coal Act) also provide benefits to retirees whose
employers are out of business. The companies' contributions to these health
plans are assessed primarily on the basis of the number of beneficiaries
assigned to each employer.

      Expense is being recognized as contributions are made to these plans.
Amounts charged to expense applicable to benefits administered by these various
multi-employer plans were $4,913,000 in 1997 including $1,846,000 which was
capitalized as mine development, $4,312,000 in 1996 including $1,574,000 which
was capitalized as mine development, and $5,459,000 in 1995 including $1,516,000
which was capitalized as mine development. The present value of the expected
future assessments from the Combined Fund and the 1992 Plan is estimated to be
in the range of $35,000,000. The Company's obligations for these funds could
increase if other companies become unable to fund their obligations. Certain of
the Company's subsidiaries would be required under federal law to contribute
additional amounts upon withdrawal from or termination of certain of the plans.

      Other Postretirement Benefits - The Company provides life insurance
benefits and certain self-insured health care benefits for substantially all
UMWA employees who retire after 1975 and all salaried retirees. In addition,
employees terminated due to layoff are


                                       37
<PAGE>   38

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.

      Certain of the Company's subsidiaries have guaranteed the benefits of
their UMWA employees who retired prior to October 1, 1994 and are required to
provide approximately $9,000,000 in security to the 1992 Plan for these
retirees. The Company's subsidiaries are discussing appropriate forms of
security with representatives of the 1992 Plan in light of the substantial
funding in place for postretirement benefits.

      The Company and its subsidiaries accrue retiree medical and life insurance
benefits over the employees' years of service to full eligibility in accordance
with Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits other than Pensions" (FASB 106). The Company is
amortizing past service liabilities at the date of adoption over the average
remaining service of the active employees.

      Postretirement benefit expense under FASB 106 includes the following
components for the years ended December 31:

<TABLE>
<CAPTION>
                                                         1997       1996       1995
                                                       --------   --------   --------
                                                               (In thousands)
<S>                                                    <C>        <C>        <C>
Net annual expense:
  Service cost - benefits earned during the period     $  2,729   $  3,636   $  2,914
  Interest cost on accumulated postretirement benefit
   obligation                                            13,422     12,926     11,315
  Actual return on plans' assets                        (13,080)    (4,573)    (9,659)
  Amortization of transition obligation                   4,175     19,012     11,723
  Net amortization and deferral                           5,910         82      3,614
                                                       --------   --------   --------
                                                         13,156     31,083     19,907
Amounts capitalized as mine development                  (2,830)    (2,912)  $ (2,247)
                                                       --------   --------   --------
Net annual expense                                     $ 10,326   $ 28,171   $ 17,660
                                                       ========   ========   ========
</TABLE>

      A curtailment loss of $578,000 relating to the closure of certain Keystone
mines as discussed in Note C was recorded in 1995.

      In 1995, Eighty-Four recorded the past service liability of $12,224,000
associated with the recall of UMWA miners at Mine No. 84 not previously employed
by the Company. This amount was recorded as an adjustment to the original
acquisition cost of Mine No. 84's assets.

      The unrecognized cost of postretirement benefits attributable to service
prior to January 1, 1995 of Helvetia employees is being reimbursed by the Homer
City Station Owners and recognized over a period of not more than three years
beginning in 1995. The amounts recognized in 1997, 1996, and 1995 and included
as a component of net amortization were $1,772,000, $16,720,000 and $8,843,000,
respectively.

      Charges for postretirement benefits at the Company's Keystone subsidiary
are being funded, net of estimated taxes, in custodial accounts and union and
salary VEBA trusts. The funding is comprised primarily of equity securities and
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 7.6% in 1997, 7.2% in
1996, and 7.2% in 1995.


                                       38
<PAGE>   39

      The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets for the Company's postretirement benefit plans
at December 31:

<TABLE>
<CAPTION>
                                                          1997        1996        1995
                                                       ---------   ---------   ---------
                                                                 (In thousands)
<S>                                                    <C>         <C>         <C>
Accumulated postretirement benefit obligation (APBO):
  Retirees                                             $  67,501   $  65,651   $  63,261
  Fully eligible active plan participants                 86,227      65,561      62,611
  Other active plan participants                          58,782      46,811      58,658
                                                       ---------   ---------   ---------
                                                         212,510     178,023     184,530
Plans' assets at fair value                              102,385      90,212      85,430
                                                       ---------   ---------   ---------
Accumulated postretirement benefit obligation in
 excess of plans' assets                                (110,125)    (87,811)    (99,100)
Unrecognized net loss                                     18,899       1,816      20,264
Unrecognized prior service cost (credit)                  (1,608)     (1,891)     (2,174)
Unrecognized transition obligation                        11,365      15,540      34,552
                                                       ---------   ---------   ---------
Accrued postretirement benefit cost                    $ (81,469)  $ (72,346)  $ (46,458)
                                                       =========   =========   =========
</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 9.1% for 1997
and is assumed to decrease gradually to 5.2% for 2006 and remain at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. For example, increasing the assumed health care cost
trend rates by one percentage point would increase the APBO as of December 31,
1997 by $42,896,000 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1997 by $3,420,000.

      The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation (APBO) was 6.88% at December 31, 1997, 7.38%
at December 31, 1996, and 7.12% at December 31, 1995. In 1997, the APBO
increased due to a decrease in the discount rate. In 1996, the APBO decreased
due to an increase in the discount rate.

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. In 1997 and
1996, the actuarial valuations of future payouts of prior years' workers'
compensation claims resulted in reductions of the recorded liabilities for those
years in the amount of $1,600,000 and $2,000,000, respectively. Since a portion
of these costs were recoverable under the Prior Homer City Agreement, the effect
on pretax income was $1,400,000 and $1,100,000, respectively. Insurance coverage
is maintained for catastrophic losses. These benefits are funded as accrued for
the Company's Keystone subsidiary. 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 the Company's
Keystone subsidiary. 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, except for Eighty-Four, 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


                                       39
<PAGE>   40

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. At December 31,
1997, the market value of trust assets, which are comprised of U.S. Government
notes and bonds, totaled $55,549,000, compared to an actuarial liability of
$29,000,000, of which $8,708,000 relating to employees of Eighty-Four is
recorded as a liability on the Consolidated Balance Sheets. Eighty-Four's
actuarial liabilities at December 31, 1997 and 1996 reflected reductions of
$1,350,000 and $3,230,000, respectively, due to changes in actuarial
assumptions, which were credited to mine development. Funding of the trusts has
ceased until such time that the actuaries determine additional provisions and
funding are required.

      In 1995, Eighty-Four recorded the past service liability of $4,156,000
associated with the recall of miners at Mine No. 84, not previously employed by
the Company. This amount was recorded as an adjustment to the original
acquisition cost of Mine No. 84's assets.

NOTE I - INVESTMENTS

      The following is a summary of available-for-sale securities (in
thousands):

<TABLE>
<CAPTION>
December 31, 1997
                                                                      Estimated
                                           Unrealized     Unrealized    Fair
                                 Cost         Gains         Losses      Value
                                ----------------------------------------------
<S>                             <C>          <C>            <C>       <C>
Available-for-sale securities
U.S. Government and agencies    $41,369      $  609         $   44    $ 41,934
Other debt securities               200          13             --         213
                                -------       -----         ------    --------
  Total debt securities          41,569         622             44      42,147
Equities                              9          45             --          54
                                -------      ------         ------    --------
                                 41,578         667             44      42,201
Cash equivalents included
  in noncurrent funding           3,050          --             --       3,050
                                -------      ------         ------    --------
                                $44,628      $  667         $   44    $ 45,251
                                =======      ======         ======    ========
Schedule of maturities
  One year or less              $ 6,985                               $  7,024
  One year through
   three years                   22,452                                 22,709
  After three years              12,132                                 12,414
                                -------                               --------
                                 41,569                                 42,147
Equities                              9                                     54
                                -------                               --------
                                $41,578                               $ 42,201
                                =======                               ========
</TABLE>

<TABLE>
<CAPTION>
December 31, 1996
                                                                      Estimated
                                           Unrealized     Unrealized    Fair
                                 Cost         Gains         Losses      Value
                                ----------------------------------------------
<S>                             <C>          <C>            <C>       <C>
Available-for-sale securities
U.S. Government and agencies    $57,039      $  488         $  299    $ 57,228
Corporate                        12,015          58             54      12,019
Other debt securities               250           3             --         253
                                -------       -----         ------    --------
  Total debt securities          69,304         549            353      69,500
Equities                              9          18             --          27
                                -------      ------         ------    --------
                                 69,313         567            353      69,527
Cash equivalents included
  in noncurrent funding           9,911          --             --       9,911
                                -------      ------         ------    --------
                                $79,224      $  567         $  353    $ 79,438
                                =======      ======         ======    ========
</TABLE>

December 31, 1995


                                       40
<PAGE>   41

<TABLE>
<CAPTION>
                                                                      Estimated
                                           Unrealized     Unrealized    Fair
                                 Cost         Gains         Losses      Value
                                ----------------------------------------------
<S>                             <C>          <C>            <C>       <C>
Available-for-sale securities
U.S. Government and agencies    $46,388      $1,470         $   17    $ 47,841
Corporate                        12,902         167             22      13,047
Other debt securities               250           3             --         253
                                -------       -----         ------    --------
  Total debt securities          59,540       1,640             39      61,141
Equities                          4,623         425             53       4,995
                                -------      ------         ------    --------
                                 64,163       2,065             92      66,136
Cash equivalents included
  in noncurrent funding           8,105          --             --       8,105
                                -------      ------         ------    --------
                                $72,268      $2,065         $   92    $ 74,241
                                =======      ======         ======    ========
</TABLE>

      The following balance sheet captions are comprised of the
available-for-sale securities at December 31, 1997: investments in marketable
securities and noncurrent funding for workers' compensation benefits and mine
closing reserves.

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.

      Short-term Investments and Marketable Securities - Fair values are based
on quoted market prices.

      Long-term Debt - Fair value of debt is based on the borrowing rates for
loans with similar terms and average maturities.

<TABLE>
<CAPTION>
                                          Carrying            Fair
                                           Value              Value
                                          --------            -----
Summary by Balance Sheet caption:              (In thousands)
<S>                                       <C>                <C>
Cash and cash equivalents                 $37,026            $37,026
Investments in
 marketable securities -
  available-for-sale                       20,166             20,166
Funding for workers'
  compensation - available-for-sale        12,950             12,950
Funding for mine closing
  reserves - available-for-sale            12,135             12,135
Long-term debt (excluding capitalized
 leases)                                   64,785             64,785
</TABLE>


                                       41
<PAGE>   42

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.


                                       42
<PAGE>   43

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

      The directors of Registrant are as follows:

                                CLASS A DIRECTORS

<TABLE>
<CAPTION>
                                                                         Year
                                                                         Term
                                                             Director    Will
         Name             Age      Principal Occupation       Since     Expire
         ----             ---      --------------------      --------   ------
<S>                       <C>   <C>                            <C>       <C>
L. Blaine Grube (3)(4...  81    Retired Vice President and     1986      2000
                                Treasurer of Registrant

Peter Iselin (1)(2).....  77    Vice President-Finance and     1954      2000
                                Secretary of Registrant
                                since 1965

William G. Kegel
(1)(3)..................  76    Chairman of the Board of       1973      2000
                                Registrant; Retired
                                President and Chief Execu-
                                tive Officer of Registrant

Gordon B. Whelpley, Jr.
 (2)(4).................  44    President since 1996 -         1987      2000
                                Goodnow & Whelpley, Inc.,
                                Residential Building
                                Company; Project Manager
                                1986-1996 - Louis E. Lee
                                Co. Builders, Commercial
                                and Residential Contractors
</TABLE>

                               CLASS B DIRECTORS
<TABLE>
<CAPTION>
                                                                         Year
                                                                         Term
                                                             Director    Will
         Name             Age      Principal Occupation       Since     Expire
         ----             ---      --------------------      --------   ------
<S>                       <C>   <C>                            <C>       <C>
Columbus O'D. Iselin, Jr.
 (1)(4).................   66   Independent Consultant-        1967      1998
                                Aerospace and Defense

David H. Davis (1)(4)....  86   Coal Consultant                1976      1998

John L. Schroder, Jr.
(1)......................  79   Retired Dean, College of       1983      1998
                                Mineral and Energy Resources,
                                West Virginia University

Thomas W. Garges, Jr.
(3)......................  58   President and Chief Execu-     1988      1998
                                tive Officer of Registrant
                                since October 1988
</TABLE>


                                       43
<PAGE>   44

                               CLASS C DIRECTORS
<TABLE>
<CAPTION>
                                                                         Year
                                                                         Term
                                                             Director    Will
         Name             Age      Principal Occupation       Since     Expire
         ----             ---      --------------------      --------   ------
<S>                       <C>   <C>                            <C>       <C>
Thomas M. Hyndman, Jr.
 (1)(3)(4).............   73    Of Counsel since 1993,         1972      1999
                                Partner(1957-1992),
                                Duane, Morris &
                                Heckscher LLP, Attorneys
                                at Law(5)

O'Donnell Iselin II
 (1)(2)(4).............   44    Manager, Finance Staff,        1983      1999
                                Hughes Electronics
                                Corporation since 1989
</TABLE>

----------------
(1)   Member, Compensation Committee. The Compensation Committee, composed of
      seven Directors, administers Registrant's Key Executives Incentive
      Compensation Plan (the "Incentive Plan"), recommends certain executives
      for participation in such plan and bonuses to be paid pursuant thereto,
      and considers and recommends compensation arrangements for executive
      personnel. See "Compensation Committee Interlocks and Insider
      Participation." During 1997, the Compensation Committee met three times.

(2)   Mr. Peter Iselin is the father of Mr. O'Donnell Iselin II and the uncle of
      Mr. Gordon B. Whelpley, Jr. Mr. O'Donnell Iselin II and Mr. Gordon B.
      Whelpley, Jr. are cousins.

(3)   Mr. Garges is a Director and Messrs. Grube and Kegel are Directors Emeriti
      of S&T Bancorp, Inc., Indiana, PA. Mr. Hyndman is a Director of Penn
      Engineering & Manufacturing Corp., Danboro, PA.

(4)   Member, Audit Committee. The Audit Committee, composed of six Directors,
      recommends the selection of independent auditors, reviews the regular
      annual audits, and performs such other functions related to accounting and
      auditing as determined by the Audit Committee or the Board of Directors.
      During 1997, the Audit Committee met twice.

(5)   The law firm to which Mr. Hyndman is Of Counsel rendered legal services to
      Registrant during 1997 and received its customary fees therefor.


                                       44
<PAGE>   45

      There is no Nominating Committee of the Board of Directors. During 1997,
the Board of Directors held ten meetings. During 1997, each Director attended
not less than 75% of the aggregate number of meetings of the Board of Directors
and meetings of all Committees on which he served, except Mr. Schroder who,
because of health reasons, attended 23% of the aggregate number of Board and
Committee meetings.

DIRECTOR COMPENSATION

      Registrant's non-employee Directors receive a fee of $1,200 per month. In
addition, all of Registrant's Directors receive a fee of $500 for each meeting
of the Board of Directors and each committee meeting attended.

      Pursuant to the terms of an Employment and Deferred Compensation
Agreement, as amended, with Mr. Kegel, effective December 31, 1988, Mr. Kegel
retired as an employee of Registrant. He continues to serve as a Director,
Chairman of the Board, and as an independent consultant to Registrant. In 1997,
he received remuneration of $25,000 for services to Registrant in addition to
fees received as a Director of Registrant. In addition, in 1997, under terms of
the Agreement, as amended, Mr. Kegel was paid, as deferred compensation, an
aggregate of $59,801. The Agreement, as amended, provides for aggregate payments
of $538,211 in 108 equal consecutive monthly installments which commenced in
January 1990, and will continue through December 1998.

                              SECTION 16 COMPLIANCE

      Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires Registrant's officers, directors, and persons who own more than 10% of
a class of Registrant's equity securities registered under the Exchange Act, to
file reports of their ownership of such securities as well as monthly statements
of any changes in such ownership with the SEC and Registrant. Based solely on
its review of the copies of the Section 16(a) reports received by it, and
written representations from Registrant's officers, directors, and greater than
10% shareholders, Registrant believes that during 1997 all filing requirements
applicable to its officers, directors, and greater than 10% shareholders were
met, except for Registrant's Controller, who failed to timely report on Form 3,
his ownership of 20 shares of Registrant's Common Stock upon his election as
Controller in January 1997.


                                       45
<PAGE>   46

ITEM 11. EXECUTIVE COMPENSATION

EXECUTIVE COMPENSATION

      The following table sets forth the compensation for the past three years
of each of Registrant's five most highly compensated executive officers,
including the Chief Executive Officer, (collectively the "Named Executive
Officers").

                           SUMMARY COMPENSATION TABLE

                              Annual Compensation

<TABLE>
<CAPTION>
     Name and                                         Other Annual      All Other
Principal Position       Year   Salary($)  Bonus($)  Compensation($)  Compensation($)
------------------       ----   ---------  --------  ---------------  ---------------
<S>                      <C>    <C>       <C>           <C>              <C>
Thomas W. Garges, Jr...  1997   334,430                                  7,804(5)
  President and Chief    1996   329,500   35,000(2)     40,710(4)        7,608(5)
  Executive Officer(1)   1995   319,900   50,000(3)                      7,805(5)

A. W. Petzold..........  1997   182,945                                    750(6)
  Vice President-        1996   180,250   18,025(2)                        750(6)
  Operations             1995   175,000    5,000(3)                        750(6)

George M. Evans........  1997   170,000                                  2,750(7)
  Vice President and     1996   167,500   16,750(2)                      2,750(7)
  Treasurer              1995   159,500   15,000(3)                      2,750(7)

W. Joseph Engler, Jr...  1997   155,800                                  2,750(7)
  Vice President and     1996   153,500   15,350(2)                      2,750(7)
  General Counsel        1995   146,200   15,000(3)                      2,750(7)

Thomas M. Majcher......  1997   151,430                                    750(6)
  Vice President-        1996   149,200   14,920(2)                        750(6)
  Corporate Development  1995   144,800   15,000(3)                        750(6)
</TABLE>


                                       46
<PAGE>   47

----------
(1)   Mr. Garges is employed pursuant to the terms of an Employment Agreement.
      See "Employment and Change in Control Agreements."

(2)   The 1996 figure represents cash bonuses.

(3)   The figure includes a bonus of 1,709 shares of the Registrant's Common
      Stock having a value of $50,000 on the date of issue to Mr. Garges. In
      February 1996, Mr. Garges received a cash payment of $40,710 to cover
      income taxes in respect of such issuance. Such amount is reported herein
      under the caption "Other Annual Compensation." The figure represents cash
      bonuses of $5,000 paid to Mr. Petzold and $15,000 paid to each of Messrs.
      Evans, Engler, and Majcher.

(4)   The figure represents an amount sufficient to pay income taxes due on
      bonus payments.

(5)   The 1997 figures include Registrant's $750 contribution to the Rochester &
      Pittsburgh Coal Company 401(k) Savings and Retirement Plan (the "401(k)
      Plan"), $564 in insurance premiums paid by Registrant for additional
      insurance on Mr. Garges's life and $6,490 in Directors' fees paid by
      Registrant and certain of its subsidiaries to Mr. Garges. The 1996 figures
      include Registrant's $750 contribution to the Rochester & Pittsburgh Coal
      Company 401(k) Savings and Retirement Plan (the "401(k) Plan"), $564 in
      insurance premiums paid by Registrant for additional insurance on Mr.
      Garges's life and $6,294 in Directors' fees paid by Registrant and certain
      of its subsidiaries to Mr. Garges. The 1995 figures include Registrant's
      $750 contribution to the 401(k) Plan, $564 in insurance premiums paid by
      Registrant for additional insurance on Mr. Garges's life and $6,491 in
      Directors' fees paid by Registrant and certain of its subsidiaries to Mr.
      Garges. See "Employment and Change in Control Agreements."

(6)   The figure represents Registrant's contribution to the 401(k) Plan.

(7)   The figures include Registrant's $750 contribution to the 401(k) Plan and
      $2,000 in Directors' fees paid by two of Registrant's subsidiaries to
      Messrs. Engler and Evans.


                                       47
<PAGE>   48

                   EMPLOYMENT AND CHANGE IN CONTROL AGREEMENTS

      In 1993, Registrant entered into an Employment Agreement with Mr. Garges,
effective as of May 1, 1992, (the "1992 Agreement"). Under the 1992 Agreement,
Mr. Garges's term of employment is for a period of three years and, until notice
of termination is given by either party, Mr. Garges's employment is extended
each day for one additional day so that at all times his term of employment is
for a period of three years. Under the 1992 Agreement, Mr. Garges is paid an
annual base salary of not less than $300,000, plus such additional compensation
as may be determined from time to time by the Board of Directors, in its sole
discretion.

      Under the 1992 Agreement, in the event that Mr. Garges's employment
continues for such period of time as will entitle him to receive a pension under
Registrant's Pension Plan, Registrant will pay to Mr. Garges or his spouse, upon
the commencement of the payment of the pension benefits under the Pension Plan,
a monthly supplement consisting of the sum of (i) an amount equal to the monthly
pension benefit Mr. Garges or his spouse would have received pursuant to the
Pension Plan, without regard to certain limitations imposed by the Internal
Revenue Code of 1986 (the "Code"), and (ii) the difference between the monthly
pension benefits actually paid to Mr. Garges or his spouse under the Pension
Plan and the monthly pension benefit which would have been payable to Mr. Garges
or his spouse under the Pension Plan without application of said limitations.
The supplemental pension payments will terminate at the earlier of (i) the
expiration of ten years from the date of the first monthly supplemental pension
payment or (ii) the termination of pension payments under the Pension Plan to
Mr. Garges, his spouse or the survivor of them, if applicable. Should Mr. Garges
die prior to July 22, 2001, and his spouse become eligible to receive pension
benefits under the Pension Plan, no monthly supplement shall be paid to her. In
addition to life insurance under Registrant's existing benefit program, under
the 1992 Agreement, Registrant has agreed to pay the premium cost of life
insurance on Mr. Garges's life (payable to such beneficiaries as he may
designate) in such amount as is necessary to bring the total face amount of
insurance on Mr. Garges's life paid for by Registrant to $1,200,000. Upon Mr.
Garges reaching age 62, the face amount of life insurance shall be reduced to
$500,000.

      In February 1997, Registrant and Mr. Garges entered into an amendment (the
"Amendment") to the 1992 Agreement. The Amendment provides that (i) the
three-year term of the 1992 Agreement may be terminated by either Registrant or
Mr. Garges upon 90 days written notice following a change in control of
Registrant and that, in the event of a change in control of Registrant, (ii)
Registrant would pay Mr. Garges an amount equal to three times his then annual
salary upon the change in control without regard to whether Mr. Garges continues
in the employ of Registrant, (iii) Mr. Garges would be entitled to a
continuation of his medical benefits (as defined in the Amendment) for a period
of 36 months following the change in control and (iv) for the purposes of
computing the monthly pension supplement to which Mr. Garges is entitled Mr.
Garges would be


                                       48
<PAGE>   49

given credit for his actual years of service with Registrant plus three years.

      In February 1998, Registrant and Mr. Garges entered into a second
amendment to the 1992 Agreement (the "1998 Amendment"). The 1998 Amendment
provides, among other things, that (i) the three year term of Mr. Garges'
employment under the 1992 Agreement shall expire on the date of a change in
control of the Registrant; (ii) in the event of a change of control, Registrant
will pay Mr. Garges an amount equal to three times his annual salary, defined
under the 1998 Agreement to be not less than $339,600 per year, plus $55,255;
and (iii) Mr. Garges shall make himself reasonably available to provide
consulting services to Registrant for a period of 90 days after a change in
control of Registrant for which he will be paid a consulting fee of $1,000 per
day.

      In 1997, Registrant entered into change in control agreements (the
"Agreements") with the Named Executive Officers (other than Mr. Garges) and
certain other key employees (the "Executives"). The term of each of the
Agreements is until the earlier of (a) the termination of the Executive's
employment with Registrant for any reason prior to a change in control of
Registrant or (b) December 31, 1999, and the term is automatically extended for
successive one-year periods beginning on December 31, 1999. A change in control
occurs during the term of the Agreement if (i) any "person" or "group" (as such
items are used in Rule 13d-3 under the Securities Exchange Act of 1934) other
than the Executive or a group of which the Executive is a member acquires shares
of Registrant in a transaction or series of transactions that result in such
person or group directly or indirectly first owning beneficially more than 50%
of the outstanding shares of Registrant's Common Stock after the date of the
Agreement or (ii) as the result of or in connection with any cash tender offer
or exchange offer, merger or other business combination, sale of assets or
contested election of directors, or any combination of the foregoing
transactions (a "Transaction"), the persons who were the directors of Registrant
before the Transaction shall cease to constitute a majority of the Board of
Directors of Registrant or any successor to Registrant after the Transaction. In
the event of a change in control, and subject to the possibility of reduction
under certain enumerated circumstances, the Executive will receive varying
amounts depending upon the salary and length of service of such Executive,
payable over two or three year periods (depending on the amount received) and
medical benefits (as defined in the Agreements) for 24-month or 36-month periods
(consistent with the length of time payment is made under the Agreement), each
without regard to whether the Executive continues in the employ of Registrant or
any successor to Registrant following a change in control of Registrant.

      During 1998, the Agreements were amended to remove the provision for a
reduction in the amount payable and to provide for payment of any amount due to
the Executives in full on the date of the change in control of Registrant.


                                       49
<PAGE>   50

PENSION PLAN

      Under Registrant's Pension Plan covering officers and other management
employees, annual benefits are payable monthly upon retirement. Such benefits
are, in general, based upon an employee's (i) average monthly earnings during
the five highest four calendar quarter periods out of the last ten four calendar
quarter periods of management service prior to retirement and (ii) length of
management service, with a maximum of 35 years. Pension benefits are subject to
a deduction for 50% of Social Security benefits. The full cost of such pension
program is paid by Registrant. There is no requirement that employees retire at
a designated age. With some exceptions, benefits are payable on a reduced basis
upon retirement between the ages of 55 and 62.

      The amounts shown in the following table, before a deduction for 50% of
Social Security benefits, are those payable in the event of retirement at age 65
in 1997:

<TABLE>
<CAPTION>
   Average Annual Earnings
   During the Highest Five              Annual Benefits Upon Retirement
      of the Final Ten                  With Years of Service Indicated
Four Calendar Quarter Periods  ------------------------------------------------
    of Management Service      10 years  20 years  25 years  30 years  35 years
    ---------------------      --------  --------  --------  --------  --------
<S>                            <C>       <C>       <C>       <C>       <C>
         $150,000              $ 26,250  $ 52,500  $ 65,625  $ 78,750  $ 91,875
          200,000                35,000    70,000    87,500   105,000   122,500
          250,000                43,750    87,500   109,375   131,250   153,125
          300,000                52,500   105,000   131,250   157,500   183,750
          350,000                61,250   122,500   153,125   183,750   214,375
          400,000                70,000   140,000   175,000   210,000   245,000
          450,000                78,750   157,500   196,875   236,250   275,625
          500,000                87,500   175,000   218,750   262,500   306,250
</TABLE>

      The compensation utilized for determination of benefits under the Pension
Plan as summarized in the table above is salary and bonus. Of the individual
officers named in the Summary Compensation Table, assuming retirement at age 65,
Mr. Garges, Mr. Petzold, Mr. Evans, Mr. Engler, and Mr. Majcher, will have 17,
16, 36, 35 and 28 years of service, respectively.

      The information in the foregoing table does not reflect certain
limitations imposed on qualified plans by the Code. Beginning in 1994, the Code
prohibits the inclusion of earnings in excess of $160,000 per year (adjusted
periodically for cost-of-living increases) in the average earnings used to
calculate benefits. The Code also limits the maximum annual pension (currently
$125,000, but adjusted annually for cost-of-living increases) that can be
payable to each eligible employee at age 65.


                                       50
<PAGE>   51

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

      The following table sets forth, as of March 9, 1998, the amount and
percentage of Registrant's outstanding Common Stock beneficially owned by (i)
each person who is known by Registrant to own beneficially more than 5% of its
Common Stock, (ii) each Director, (iii) each executive officer named in the
Summary Compensation Table and (iv) all Directors and executive officers as a
group.

<TABLE>
<CAPTION>
                                   Shares              Percent of
 Name of Individual             Beneficially           Outstanding
or Identity of Group               Owned (1)         Common Stock (2)
--------------------            ------------         ----------------
<S>                           <C>                         <C>
5% Holders:

Peter Iselin                )
655 Church Street           )
Indiana, Pennsylvania  15701)
                            )
Emilie I. Wiggin            ) 1,749,665 shares(3)(4)      50.8%
106 Pear Tree Point Road    )
Darien, Connecticut 06820   )
                            )
O'Donnell Iselin II         )
655 Church Street           )
Indiana, Pennsylvania  15701)

Franklin Resources, Inc.         180,900 shares (5)        5.3%
777 Mariners Island Boulevard
San Mateo, CA  94404

Directors: (6)

David H. Davis . . . . . .         2,663
Thomas W. Garges, Jr.  . .         5,940
L. Blaine Grube. . . . . .         7,258
Thomas M. Hyndman, Jr. . .         1,260
Columbus O'D. Iselin, Jr..        14,908
William G. Kegel . . . . .         3,482
John L. Schroder, Jr.. . .         1,497
Gordon B. Whelpley, Jr.. .        21,796

Executive Officers: (7)

W. Joseph Engler, Jr.. . .         3,200
George M. Evans. . . . . .           812
A. W. Petzold. . . . . . .           250
Thomas M. Majcher. . . . .           250
All Directors and
executive officers
as a group (15 persons)  .     1,797,049                  52.2%
</TABLE>


                                       51
<PAGE>   52

----------
(1)   Information furnished by each individual. Includes shares that are owned
      jointly, in whole or in part, with the individual's spouse, or
      individually by his or her spouse.

(2)   Less than 1% unless otherwise indicated.

(3)   Under the rules of the Securities and Exchange Commission (the "SEC"), a
      person is deemed to be the beneficial owner of securities if he has, or
      shares, "voting power" (which includes the power to vote, or to direct the
      voting of, such securities) or "investment power" (which includes the
      power to dispose, or to direct the disposition, of such securities). Under
      these rules, more than one person may be deemed the beneficial owner of
      the same securities. The information set forth in the above table includes
      all shares of Common Stock of Registrant over which Peter Iselin, Emilie
      I. Wiggin, and O'Donnell Iselin II, individually or together, exercise
      voting power or investment power, adjusted, however, to eliminate repeated
      reporting of shares so as not to overstate the aggregate beneficial
      ownership of such persons.

(4)   Under the rules of the SEC, the maximum number of shares of Registrant's
      Common Stock that Peter Iselin, Emilie I. Wiggin, and O'Donnell Iselin II,
      individually could be deemed to beneficially own is 1,713,161 shares
      (49.8%), 1,646,633 shares (47.8%), and 909,050 shares (26.4%),
      respectively.

(5)   Based upon information as of December 31, 1997, and contained in a filing
      made with the SEC by Franklin Resources, Inc.

(6)   Excludes Directors listed under 5% Holders.

(7)   Excludes Executive Officers listed under Directors.


                                       52
<PAGE>   53

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      None, other than as reported in Items 10 and 12 hereof.

                                     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 Co. and subsidiaries, are included in Item 8:

                                                                            PAGE
            Report of Independent Auditors                                   24
            Consolidated balance sheets--December 31, 1997,
               1996, and 1995                                                25
            Statements of Consolidated Operations--
              Years ended December 31, 1997, 1996, and 1995                  27
            Statements of Consolidated Shareholders' Equity--
              Years ended December 31, 1997, 1996, and 1995                  28
            Statements of Consolidated Cash Flows--
              Years ended December 31, 1997, 1996, and 1995                  29
            Notes to Consolidated Financial Statements--
              December 31, 1997                                              30

            The following financial information for the years 1997, 1996, and
      1995 is submitted herewith.

                  2. Financial Statement Schedules

      The following Consolidated Financial Statement Schedules of Rochester &
      Pittsburgh Coal Co. and subsidiaries are included in Item 14(d):

                                                                            Page
                                                                            ----
      Schedule I  -- Condensed Financial Information of
                     Registrant                                              S-2
      Schedule II -- Valuation and Qualifying Accounts                       S-8


                                       53
<PAGE>   54

            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.

            (b)   Reports on Form 8-K:

                  None.

            (c)   Exhibits to this Form 10-K:

      EXHIBIT NUMBER

            (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. An Amendment to the 1991 Keystone
                        Coal Supply Agreement was filed with Registrant's Annual
                        Report on Form 10-K dated April 12, 1996. The Agreement
                        and Amendment are incorporated herein by reference.

                        B.    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.


                                       54
<PAGE>   55

                        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 the Employment and Deferred
                        Compensation Agreement were filed with Registrant's
                        Annual Report on Form 10-K dated March 30, 1989. The
                        Agreement and Amendments are incorporated herein by
                        reference.

                        D.    Registrant's Key Executives Incentive Compensation
                              Plan.*

                              The Rochester & Pittsburgh Coal Company Key
                        Executives Incentive Compensation Plan was filed with
                        Registrant's Annual Report on Form 10-K dated March 26,
                        1992. The Plan is incorporated herein by reference.

                        E.    Registrant's Pension Plan, as Amended.*

                              Registrant's Pension Plan and Amendments thereto
                        were filed with Registrant's Annual Report on Form 10-K
                        dated April 12, 1996. The Plan and Amendments are
                        incorporated herein by reference.

                        F.    Registrant's 401(k) Savings and Retirement Plan,
                              as Amended.*

                              Registrant's 401(k) Savings and Retirement Plan
                        was filed with Registrant's Annual Report on Form 10-K
                        dated March 28, 1991. Amendments to Registrant's 401(k)
                        Savings and Retirement Plan were filed with Registrant's
                        Annual Report on Form 10-K dated April 12, 1996, and
                        Registrant's Annual Report on Form 10-K dated April 11,
                        1997. Registrant's 401(k) Savings and Retirement Plan,
                        filed herewith. The Plan and Amendments are incorporated
                        herein by reference.

                        G.    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. Amendments to the Agreement were filed with
                        Registrant's Annual Report on Form 10-K dated April 11,
                        1997. The Agreement and Amendments are incorporated
                        herein by reference. Amendments to Employment Agreement,
                        filed herewith.


                                       55
<PAGE>   56

                        H.    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 30, 1992, was filed with Registrant's Current
                        Report on Form 8-K dated January 13, 1993. The Agreement
                        is incorporated herein by reference.

                        I.    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 30,
                        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 Bethlehem Steel
                              Corporation and Eighty-Four Mining Company.

                              The Asset Purchase Agreement between Bethlehem
                        Steel Corporation and Eighty-Four Mining Company dated
                        December 30, 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 BethEnergy Mines
                              Inc. and Eighty-Four Mining Company.

                              The Asset Purchase Agreement between BethEnergy
                        Mines Inc. and Eighty-Four Mining Company dated December
                        30, 1992, was filed with Registrant's Current Report on
                        Form 8-K dated January 13, 1993. The Agreement is
                        incorporated herein by reference.

                  (21)  Subsidiaries of the Registrant.

                        Registrant's list of subsidiaries, filed herewith.

                  (24)  Powers of Attorney.

                        Powers of Attorney of certain directors of Registrant,
                        filed herewith.

                  (27)  Financial Data Schedule.

                        Registrant's financial data schedule, filed herewith.


                                       56
<PAGE>   57

                                   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 26, 1998

            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.

      SIGNATURE                      TITLE                           DATE
      ---------                      -----                           ----


/s/ THOMAS W. GARGES, JR.    President and Chief                March 26, 1998
------------------------       Executive Officer
Thomas W. Garges, Jr.          (Principal Executive Officer)


/s/ GEORGE M. EVANS          Vice President and                 March 26, 1998
------------------------       Treasurer
George M. Evans                (Principal Financial Officer)


/s/ JEFFREY A. MACK          Controller                         March 26, 1998
------------------------       (Principal Accounting Officer)
Jeffrey A. Mack


/s/ WILLIAM G. KEGEL         Chairman of the Board              March 26, 1998
------------------------        of Directors
William G. Kegel


/s/ PETER ISELIN             Vice President--Finance            March 26, 1998
------------------------        and Director
Peter Iselin


/s/ DAVID H. DAVIS              Director                        March 26, 1998
------------------------
David H. Davis


                                       57
<PAGE>   58

/s/ COLUMBUS O'D. ISELIN, JR.   Director                        March 26, 1998
-----------------------------
Columbus O'D. Iselin, Jr.


    *                           Director                        March 26, 1998
-----------------------------
John L. Schroder, Jr.


/s/ O'DONNELL ISELIN II         Director                        March 26, 1998
-----------------------------
O'Donnell Iselin II


/s/ L. BLAINE GRUBE             Director                        March 26, 1998
-----------------------------
L. Blaine Grube


/s/ GORDAN B. WHELPLEY, JR.     Director                        March 26, 1998
-----------------------------
Gordon B. Whelpley, Jr.


    *                           Director                        March 26, 1998
-----------------------------
Thomas M. Hyndman, Jr.


                                             *By /s/ W. JOSEPH ENGLER, JR.
                                             -------------------------------
                                                     W. Joseph Engler, Jr.
                                                     Attorney-in-Fact
                                                     pursuant to Powers of
                                                     Attorney filed herewith


                                       58
<PAGE>   59

                          FINANCIAL STATEMENT SCHEDULES

                       ROCHESTER & PITTSBURGH COAL COMPANY
                                AND SUBSIDIARIES

                                DECEMBER 31, 1997


                                       S-1
<PAGE>   60

           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                       ROCHESTER & PITTSBURGH COAL COMPANY

                            CONDENSED BALANCE SHEETS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
ASSETS
                                                           December 31
                                                --------------------------------
                                                  1997        1996        1995
<S>                                             <C>         <C>         <C>
CURRENT ASSETS
  Cash and cash equivalents                     $ 12,818    $  3,485    $  3,542
  Receivables from subsidiaries                   15,363       6,727       6,736
  Prepaid expenses and other
   current assets                                  1,062       1,455         782
  Income taxes receivable                              0           0       2,036
                                                --------    --------    --------
     Total Current Assets                         29,243      11,667      13,096

INVESTMENTS IN SUBSIDIARY COMPANIES
  Equity method                                  196,602     207,982     198,386

OTHER ASSETS
  Investment in marketable securities                266         280         281
  Miscellaneous                                   10,189       9,768       9,516
                                                --------    --------    --------
                                                  10,455      10,048       9,797

PROPERTY, PLANT, AND EQUIPMENT                    50,077      52,577      52,555
  Less allowances for depreciation,
   depletion, and amortization                    27,127      26,750      25,764
                                                --------    --------    --------
                                                  22,950      25,827      26,791
                                                --------    --------    --------

                                                $259,250    $255,524    $248,070
                                                ========    ========    ========
</TABLE>


                                       S-2
<PAGE>   61

           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                       ROCHESTER & PITTSBURGH COAL COMPANY

                            CONDENSED BALANCE SHEETS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
                                                           December 31
                                                --------------------------------
                                                  1997        1996        1995
<S>                                             <C>         <C>         <C>
CURRENT LIABILITIES Accounts payable:
   Trade accounts                               $  1,338    $  1,460    $    383
   Dividends                                         516         516         516
   Subsidiaries                                    7,873       3,100       5,817
  Other current liabilities                          367         862         861
  Income taxes payable                             6,135         708           0
                                                --------    --------    --------
    Total Current Liabilities                     16,229       6,646       7,577

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                                    3,276       3,464       3,150
                                                --------    --------    --------
                                                  37,505      37,693      37,379

SHAREHOLDERS' EQUITY
  Common stock                                    59,837      59,837      59,837
  Capital in excess of stated value              133,125     133,125     133,162
  Retained earnings                               40,359      46,028      38,007
                                                --------    --------    --------
                                                 233,321     238,990     231,006
  Less treasury stock at cost                     27,805      27,805      27,892
                                                --------    --------    --------
                                                 205,516     211,185     203,114
                                                --------    --------    --------

                                                $259,250    $255,524    $248,070
                                                ========    ========    ========
</TABLE>


                                       S-3
<PAGE>   62

           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                       ROCHESTER & PITTSBURGH COAL COMPANY

                       CONDENSED STATEMENTS OF OPERATIONS
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                    Years Ended December 31
                                                -------------------------------
                                                  1997        1996       1995
<S>                                             <C>         <C>        <C>
Management fees and royalties
  from subsidiaries                             $ 11,064    $ 12,078   $ 13,668
Gain on sale of property                          13,955       7,678      2,164
Forestry sales                                     2,872       1,687      1,757
Interest, dividends, and other                     1,684       1,782      1,651
                                                --------    --------   --------
                                                  29,575      23,225     19,240
Costs and expenses
  Selling, general, and administrative             9,833      10,280     11,211
  Interest on loan from subsidiary                 2,532       2,525      2,649
  Miscellaneous                                    3,447       3,887      4,120
                                                --------    --------   --------
                                                  15,812      16,692     17,980
                                                --------    --------   --------

  INCOME (LOSS) BEFORE INCOME TAXES,
   AND EQUITY IN NET INCOME OF
   SUBSIDIARIES                                   13,763       6,533      1,260

Provision (credit) for income taxes                6,507       1,543        (99)
                                                --------    --------   --------
                                                   7,256       4,990      1,359

Equity in net income (loss) of
 subsidiaries                                    (10,980)      6,271     (4,894)
                                                --------    --------   --------

        NET INCOME (LOSS)                       $ (3,724)   $ 11,261   $ (3,535)
                                                ========    ========   ========
</TABLE>


                                       S-4
<PAGE>   63

           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
                                             ----------------------------------
                                               1997         1996         1995
<S>                                          <C>          <C>          <C>
OPERATING ACTIVITIES
  Net income                                 $ (3,724)    $ 11,261     $ (3,535)
  Adjustments for non-cash items                2,958      (12,484)       4,645
  Changes in certain assets and
   liabilities (using or
   providing cash)                                411          511           84
                                             --------     --------     --------
     NET CASH (USED IN) PROVIDED
      BY OPERATING ACTIVITIES                    (355)        (712)       1,194
                                             --------     --------     --------

INVESTING ACTIVITIES
  Investments in subsidiaries                  (3,800)      (5,000)           0
  Return of subsidiary capital                      0            0        1,000
  Acquisition of property, plant,
   and equipment                                  (90)         (92)        (204)
  Proceeds from sale of property,
   plant, and equipment                        15,643        7,763        2,184
  Proceeds from sales of
   investments                                      0            0          626
                                             --------     --------     --------
     NET CASH PROVIDED BY (USED IN)
      INVESTING ACTIVITIES                     11,753        2,671        3,606
                                             --------     --------     --------

FINANCING ACTIVITIES
  Cash dividends paid                          (2,065)      (2,065)      (4,126)
  Acquisition of treasury stock                     0           49           18
                                             --------     --------     --------
     NET CASH USED IN
     FINANCING ACTIVITIES                      (2,065)      (2,016)      (4,108)
                                             --------     --------     --------

     INCREASE (DECREASE) IN CASH
     AND CASH EQUIVALENTS                       9,333          (57)         692

  Cash and cash equivalents at
   beginning of year                            3,485        3,542        2,850
                                             --------     --------     --------

     CASH AND CASH EQUIVALENTS AT
        END OF YEAR                          $ 12,818     $  3,485     $  3,542
                                             ========     ========     ========
</TABLE>


                                       S-5
<PAGE>   64

           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                       ROCHESTER & PITTSBURGH COAL COMPANY

ROCHESTER & PITTSBURGH COAL COMPANY

Parent Company Only

Notes to Financial Statements

Note A - Basis of Presentation

      In the parent company - only financial statements, the Registrant'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 $4,300,000 in 1997, $500,000 in 1996, and $1,375,000 in 1995.
The parent company - only financial statements should be read in conjunction
with the Registrant's consolidated financial statements.

Note B - Guarantees and Obligations

      Eighty-Four Mining Company and Lucerne Land Company, subsidiaries of the
Registrant, had $44,800,000 outstanding under credit agreements which provide
for a total of $67,484,000 available for borrowings. Under the terms of the debt
agreement, the Registrant has guaranteed payment of all principal and interest
on these notes. The Registrant, as guarantor, is required to retain the proceeds
from the disposal of properties since May 15, 1997, net of costs of such sales
and related income taxes, amounting to $6,228,000 as of December 31, 1997.

      The Registrant has guaranteed title to property leased to a subsidiary in
connection with its financing agreements and coal supply agreement. The
Registrant has guaranteed obligations of Lucerne Land and Eighty-Four Mining
Company in connection with the acquisition of assets from BethEnergy Mines Inc.
and Bethlehem Steel Corporation which occurred in 1992.

      Under the terms of certain of its self-insurance programs, the Registrant
could be liable for obligations of its subsidiaries arising under laws related
to occupational disease (black lung). At December 31, 1997, the Registrant and
these subsidiaries have irrevocable trusts for black lung benefit funding which
have assets totaling $55,549,000, compared to an actuarial liability of
$29,000,000. The Company also guarantees certain of its subsidiaries self-
insurance obligations for workers' compensation.

      The Registrant's wholly-owned subsidiary, Helvetia Coal Company,
(Helvetia) has indemnified its customers, the Homer City Station Owners, for
certain liabilities related to its operations under its previous coal supply
agreement. In connection with the indemnification agreement, the Registrant is
currently discussing guarantees of certain of the indemnifications with the
Homer City Station Owners.


                                       S-6
<PAGE>   65

      Health benefits for the Registrant's UMWA employees who retired prior to
1976 are provided by the United Mine Workers' of America Combined Benefit Fund
(Combined Fund) which was created by the Coal Industry Retiree Health Benefit
Act of 1992. The Combined Fund also provides benefits to retirees whose
employers are out of business. The Registrant's contributions to this plan are
assessed primarily on the basis of the number of beneficiaries assigned to it.
The Registrant allocates these charges to its mining subsidiaries. The present
value of the expected future assessments from the Combined Fund is estimated to
be in the range of $30,000,000. In addition, as a "related person" or as part of
a "control group" under UMWA Benefit Plans and under ERISA, the Registrant may
have joint and several liability and hence be deemed a guarantor of affiliated
companies.


                                       S-7
<PAGE>   66

                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
--------------------------------------------------------------------------------------------------
Description                       Balance at          ADDITIONS           Deductions-    Balance
                                  Beginning of  ---------------------     Describe       at End of
                                  Period        COL. 1       COL. 2                      Period
                                                Charged      Charged
                                                to Costs     to Other
                                                and          Accounts
                                                Expenses     -
                                                             Describe
--------------------------------------------------------------------------------------------------
<S>                                <C>          <C>          <C>           <C>           <C>
Year ended December 31, 1997:

Reserves:
 Mine closing reserve              $23,929      $   652      $    708(1)   $    989(2)   $24,300
                                   =======      =======      ========      ========      =======
 Surface mine reclamation
  reserve                          $ 1,246      $   195      $     --      $    186(2)   $ 1,255
                                   =======      =======      ========      ========      =======
Valuation allowance deducted
  from asset accounts:
 Deferred income tax
  valuation allowance              $ 7,375      $ 2,460      $     --      $     --      $ 9,835
                                   =======      =======      ========      ========      =======

Year ended December 31, 1996:

Reserves:
 Mine closing reserve              $23,153      $ 1,298      $    630(1)   $  1,152(2)   $23,929
                                   =======      =======      ========      ========      =======
 Surface mine reclamation
  reserve                          $ 1,179      $   274      $     --      $    207(2)   $ 1,246
                                   =======      =======      ========      ========      =======
Valuation allowance deducted
  from asset accounts:
 Deferred income tax
  valuation allowance              $ 6,585      $   790      $     --      $     --      $ 7,375
                                   =======      =======      ========      ========      =======

Year ended December 31, 1995:

Reserves:
 Mine closing reserve              $19,818      $ 3,052      $    609(1)   $    326(2)   $23,153
                                   =======      =======      ========      ========      =======
 Surface mine reclamation
  reserve                          $   985      $   351      $     --      $    157(2)   $ 1,179
                                   =======      =======      ========      ========      =======
Valuation allowance deducted
  from asset accounts:
  Deferred income tax
  valuation allowance              $ 4,108      $ 2,477      $     --      $     --      $ 6,585
                                   =======      =======      ========      ========      =======
</TABLE>

(1)   Interest earned on funds invested to meet reserve requirements.

(2)   Expense incurred to satisfy previously reserved requirements.


                                       S-8
<PAGE>   67

                                  EXHIBIT INDEX

      Exhibit Number

            (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. An Amendment to the 1991 Keystone Coal
                        Supply Agreement was filed with Registrant's Annual
                        Report on Form 10-K dated April 12, 1996. The Agreement
                        and Amendment are incorporated herein by reference.

                  B.    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.

                  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 the 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.
<PAGE>   68

                  E.    Registrant's Pension Plan, as Amended.*
                        Registrant's Pension Plan and Amendments thereto were
                        filed with Registrant's Annual Report on Form 10-K dated
                        April 12, 1996. The Plan and Amendments are incorporated
                        herein by reference.

                  F.    Registrant's 401(k) Savings and Retirement Plan, as
                        Amended.*
                        Registrant's 401(k) Savings and Retirement Plan was
                        filed with Registrant's Annual Report on Form 10-K dated
                        March 28, 1991. Amendments to Registrant's 401(k)
                        Savings and Retirement Plan were filed with Registrant's
                        Annual Report on Form 10-K dated April 12, 1996, and
                        Registrant's Annual Report on Form 10-K dated April 11,
                        1997. Registrant's 401(k) Savings and Retirement Plan,
                        filed herewith. The Plan and Amendments are incorporated
                        herein by reference.

                  G.    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. Amendments to the Agreement were filed with
                        Registrant's Annual Report on Form 10-K dated April 11,
                        1997. The Agreement and Amendments are incorporated
                        herein by reference. Amendment to Employment Agreement,
                        filed herewith.

                  H.    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 30,
                        1992, was filed with Registrant's Current Report on Form
                        8-K dated January 13, 1993. The Agreement is
                        incorporated herein by reference.

                  I.    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 30, 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 Bethlehem Steel
                        Corporation and Eighty-Four Mining Company.
                        The Asset Purchase Agreement between Bethlehem Steel
                        Corporation and Eighty-Four Mining Company dated
                        December 30, 1992, was filed with Registrant's Current
                        Report on Form 8-K dated January 13, 1993. The Agreement
                        is incorporated herein by reference.
<PAGE>   69

                  K.    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 30,
                        1992, was filed with Registrant's Current Report on Form
                        8-K dated January 13, 1993. The Agreement is
                        incorporated herein by reference.

            (21)  Subsidiaries of the Registrant.
                  Registrant's list of subsidiaries, filed herewith.

            (24)  Powers of Attorney.
                  Powers of Attorney of certain directors of Registrant, filed
                  herewith.

            (27)  Financial Data Schedule.
                  Registrant's financial data schedule, filed herewith.