Washington, D.C. 20549
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
[ ] 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 1-9148
THE PITTSTON COMPANY
(Exact name of registrant as specified in its charter)
VIRGINIA 54-1317776
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. BOX 120070
100 FIRST STAMFORD PLACE,
STAMFORD, CONNECTICUT 06912-0070
(Address of principal (Zip Code)
executive offices)
(203) 978-5200
(Registrant's telephone number, including area code)
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No __
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
8,383,333 shares of $1 par value Pittston Services Group Common Stock and
41,699,240 shares of $1 par value Pittston Minerals Group Common Stock as of
November 4, 1994.
<TABLE>
Part I - FINANCIAL INFORMATION
THE PITTSTON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<CAPTION>
Sep. 30, Dec. 31,
ASSETS 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C>
Current assets: (Unaudited)
Cash and cash equivalents $ 52,255 32,412
Short-term investments, at lower of cost or market 24,554 22,946
Accounts receivable (net of estimated amount
uncollectible: 1994 - $16,963; 1993 - $16,040) 353,110 296,543
Inventories, at lower of cost or market 34,930 24,155
Prepaid expenses 28,979 27,493
Deferred income taxes 53,637 53,642
- -------------------------------------------------------------------------------------
Total current assets 547,465 457,191
Property, plant and equipment, at cost (net of
accumulated depreciation, depletion and amortization:
1994 - $378,669; 1993 - $412,533) 430,787 369,821
Intangibles, net of amortization 294,617 215,042
Deferred pension assets 118,834 117,066
Deferred income taxes 94,701 59,846
Coal supply contracts 92,627 35,462
Other assets 106,452 107,073
- -------------------------------------------------------------------------------------
Total assets $1,685,483 1,361,501
=====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 14,871 9,546
Current maturities of long-term debt 8,027 7,908
Accounts payable 234,684 182,276
Accrued liabilities 291,548 237,714
- -------------------------------------------------------------------------------------
Total current liabilities 549,130 437,444
Long-term debt, less current maturities 128,314 58,388
Postretirement benefits other than pensions 220,040 212,218
Workers' compensation and other claims 139,406 127,545
Deferred income taxes 23,031 15,847
Other liabilities 206,249 156,547
Shareholders' equity:
Preferred stock, par value $10 per share:
Authorized: 2,000 shares
$31.25 Series C Cumulative Convertible Preferred Stock:
Issued: 1994 - 153 shares 1,526 -
Pittston Services Group common stock, par value $1
per share: Authorized: 100,000 shares
Issued: 1994 - 41,684 shares;
1993 - 41,429 shares 41,684 41,429
Pittston Minerals Group common stock, par value $1
per share: Authorized 20,000 shares
Issued: 1994 - 8,348 shares;
1993 - 8,281 shares 8,348 8,281
Capital in excess of par value 426,013 354,911
Retained earnings 81,590 98,290
Equity adjustment from foreign currency translation (14,463) (18,381)
Employee benefits trust, at market value (125,385) (131,018)
- -------------------------------------------------------------------------------------
Total shareholders' equity 419,313 353,512
- -------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,685,483 1,361,501
=====================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
THE PITTSTON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
- ------------------------------------------------------------------------------------------
1994 1993 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $210,142 169,040 589,033 511,488
Operating revenues 483,712 400,398 1,352,116 1,144,357
- -------------------------------------------------------------------------------------------
Net sales and operating revenues 693,854 569,438 1,941,149 1,655,845
- -------------------------------------------------------------------------------------------
Cost of sales 199,372 158,975 578,197 481,473
Operating expenses 395,659 327,538 1,111,838 952,434
Restructuring and other charges - - 90,806 -
Selling, general and administrative 59,573 55,317 177,729 164,275
- -------------------------------------------------------------------------------------------
Total costs and expenses 654,604 541,830 1,958,570 1,598,182
- -------------------------------------------------------------------------------------------
Other operating income 7,630 5,021 18,465 15,846
- -------------------------------------------------------------------------------------------
Operating profit 46,880 32,629 1,044 73,509
Interest income 430 591 1,638 1,873
Interest expense (2,745) (2,233) (7,954) (8,134)
Other income (expense), net (694) (1,415) (4,761) (2,838)
- -------------------------------------------------------------------------------------------
Income (loss) before income taxes 43,871 29,572 (10,033) 64,410
Provision (credit) for income taxes 12,661 8,327 (5,713) 20,869
- -------------------------------------------------------------------------------------------
Net income (loss) 31,210 21,245 (4,320) 43,541
Preferred stock dividends (541) - (2,804) -
- -------------------------------------------------------------------------------------------
Net income (loss) attributed
to common shares $ 30,669 21,245 (7,124) 43,541
===========================================================================================
Pittston Services Group:
Net income attributed to common shares $ 25,014 15,313 56,813 31,697
- -------------------------------------------------------------------------------------------
Net income per common share $ .66 .41 1.50 .86
- -------------------------------------------------------------------------------------------
Cash dividend per common share $ .05 .05 .15 .141
- -------------------------------------------------------------------------------------------
Pittston Minerals Group:
Net income (loss) attributed
to common shares $ 5,655 5,932 (63,937) 11,844
- -------------------------------------------------------------------------------------------
Net income (loss) per common share:
Primary $ .74 .80 (8.44) 1.61
- -------------------------------------------------------------------------------------------
Fully diluted $ .61 .79 (8.44) 1.60
- -------------------------------------------------------------------------------------------
Cash dividends per common share $ .1625 .1625 .4875 .4579
===========================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
THE PITTSTON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months
Ended September 30
- ----------------------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,320) 43,541
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Noncash charges and other write-offs 46,793 11
Depreciation, depletion and amortization 71,988 57,386
Provision (credit) for deferred income taxes (18,581) 2,834
Provision (credit) for pensions, noncurrent (829) (2,398)
Provision for uncollectible accounts receivable 3,150 4,953
Equity in earnings of unconsolidated affiliates, net
of dividends received (175) (3,781)
Other operating, net (973) 1,412
Change in operating assets and liabilities net
of effects of acquisitions and dispositions:
Increase in accounts receivable (60,543) (32,879)
Decrease (increase) in inventories (4,961) 601
Increase in prepaid expenses (3,797) (4,967)
Increase in accounts payable and accrued liabilities 58,899 12,957
Decrease (increase) in other assets 5,103 (6,819)
Increase (decrease) in other liabilities 453 (4,107)
Increase (decrease) in workers' compensation and
other claims, noncurrent 7,227 (10,281)
Other, net (413) 1,063
- ----------------------------------------------------------------------------------------
Net cash provided by operating activities 99,021 59,526
- ----------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (71,291) (74,351)
Property, plant and equipment pending lease financing 1,822 (7,412)
Disposal of property, plant and equipment 5,849 3,766
Acquisitions and related contingent payments (157,294) (755)
Other, net 5,304 10,230
- ----------------------------------------------------------------------------------------
Net cash used by investing activities (215,610) (68,522)
- ----------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 109,327 25,017
Reductions of debt (37,137) (11,461)
Repurchases of stock of the Company (7,191) (1,105)
Proceeds from exercise of stock options 6,459 6,465
Proceeds from preferred stock issuance, net
of cash expenses 77,359 -
Cost of Services Stock Proposal (4) (2,254)
Proceeds from the sale of stock to SIP - 264
Dividends paid (12,381) (8,538)
- ----------------------------------------------------------------------------------------
Net cash provided by financing activities 136,432 8,388
- ----------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 19,843 (608)
Cash and cash equivalents at beginning of period 32,412 30,340
- ----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 52,255 29,732
========================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
THE PITTSTON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
(1) On July 26, 1993, the shareholders of The Pittston Company (the
"Company") approved the Services Stock Proposal, as described in the
Company's proxy statement dated June 24, 1993, resulting in the
reclassification of the Company's common stock into shares of Pittston
Services Group Common Stock ("Services Stock") on a share-for-share
basis. In addition, a second class of common stock, designated as
Pittston Minerals Group Common Stock ("Minerals Stock") was distributed
on a basis of one-fifth of one share of Minerals Stock for each share of
the Company's previous common stock. The Pittston Services Group (the
"Services Group") consists of the Burlington Air Express Inc.
("Burlington"), Brink's, Incorporated ("Brink's") and Brink's Home
Security, Inc. ("BHS") operations of the Company. The Pittston Minerals
Group (the "Minerals Group") consists of the Coal and Mineral Ventures
operations of the Company. The approval of the Services Stock Proposal
did not result in any transfer of assets and liabilities of the Company
or any of its subsidiaries. The Company prepares separate financial
statements for the Minerals and Services Groups in addition to
consolidated financial information of the Company.
Due to the reclassification of the Company's common stock, all stock and
per share data in the accompanying financial statements for the period
prior to the reclassification have been restated from amounts previously
reported. The primary impacts of this restatement are as follows:
* Net income per common share has been restated in the Consolidated
Statements of Operations to reflect the two classes of stock, Services
Stock and Minerals Stock, as if they were outstanding for all periods
presented. For the purposes of computing net income per common share
of Services Stock and Minerals Stock, the number of shares of Services
Stock are assumed to be the same as the total corresponding number of
shares of the Company's common stock. The number of shares of
Minerals Stock are assumed to be one-fifth of the shares of the
Company's common stock.
* All financial impacts of purchases and issuances of the Company's
common stock prior to the effective date of the Services Stock
Proposal have been attributed to each Group in relation of their
respective common equity to the Company's common stock. Dividends
paid by the Company were attributed to the Services and Minerals
Groups in relation to the initial dividends paid on the Services Stock
and the Minerals Stock.
The Company, at any time, has the right to exchange each outstanding
share of Minerals Stock for shares of Services Stock having a fair market
value equal to 115% of the fair market value of one share of Minerals
Stock. In addition, upon the sale, transfer, assignment or other
disposition, whether by merger, consolidation, sale or contribution of
assets or stock or otherwise, of all or substantially all of the
properties and assets of the Minerals Group to any person, entity or
group (with certain exceptions), the Company is required to exchange each
outstanding share of Minerals Stock for shares of Services Stock having a
fair market value equal to 115% of the fair market value of one share of
Minerals Stock. Shares of Services Stock are not subject to either
optional or mandatory exchange.
Holders of Services Stock have one vote per share. Holders of Minerals
Stock have one vote per share subject to adjustment on January 1, 1996,
and on each January 1 every two years thereafter based upon the relative
fair market values of one share of Minerals Stock and one share of
Services Stock on each such date. Accordingly, beginning on January 1,
1996, each share of Minerals Stock may have more than, less than or
continue to have exactly one vote. Holders of Services Stock and
Minerals Stock vote together as a single voting group on all matters as
to which all common shareholders are entitled to vote. In addition, as
prescribed by Virginia law, certain amendments to the Company's Restated
Articles of Incorporation affecting, among other things, the designation,
rights, preferences or limitations of one class of common stock, or any
merger or statutory share exchange, must be approved by the holders of
such class of common stock, voting as a separate voting group, and, in
certain circumstances, may also have to be approved by the holders of the
other class of common stock, voting as a separate voting group.
In the event of a dissolution, liquidation or winding up of the Company,
the holders of Services Stock and Minerals Stock will receive the funds
remaining for distribution, if any, to the common shareholders on a per
share basis in proportion to the total number of shares of Services Stock
and Minerals Stock, respectively, then outstanding to the total number of
shares of both classes of common stock then outstanding.
For 1993, all stock activity (including dividends) prior to the Services
Stock Proposal has been attributed to the Services Group and the Minerals
Group based on the methods described above.
(2) The number of shares used in the earnings per share computations were as
follows:
Third Quarter Nine Months
--------------------------------------------------------------------
1994 1993 1994 1993
--------------------------------------------------------------------
Services Stock: 37,840 36,948 37,757 36,722
Minerals Stock:
Primary 7,605 7,386 7,578 7,343
Fully diluted 10,080 7,544 7,578 7,424
Minerals Stock's fully diluted earnings per share computation for the
nine months ended September 30, 1994, is the same as primary earnings per
share because it is antidilutive, decreasing the loss per share. The
shares of Services Stock and Minerals Stock held in the Company's
Employee Benefits Trust which totalled 3,788 and 728, respectively, at
September 30, 1994, were evaluated for inclusion in the calculation of
net income (loss) per share under the treasury stock method and had no
dilutive effect.
(3) The amounts of depreciation, depletion and amortization of property,
plant and equipment in the 1994 third quarter and nine month periods were
$17,660 ($16,468 in 1993) and $52,278 ($47,160 in 1993), respectively.
(4) Cash payments made for interest and income taxes (net of refunds
received) were as follows:
Third Quarter Nine Months
-------------------------------------------------------
1994 1993 1994 1993
-------------------------------------------------------
Interest $2,966 3,030 8,782 8,965
=======================================================
Income taxes $2,933 4,118 14,447 21,231
=======================================================
During the nine months ended September 30, 1994, the Company acquired
one business for an aggregate purchase price of $157,231. See Note 5.
During the nine months ended September 30, 1994 and 1993, capital lease
obligations of $2,315 and $1,245 respectively, were incurred for leases
of property, plant and equipment.
In December 1993, the Company sold the majority of the assets of its
captive mine supply company. Cash proceeds of $8,400 from the sale were
received on January 2, 1994, and have been included in "Cash flow from
investing activities: Other, net".
During the nine month period ended September 30, 1993, the Company sold
a coal preparation plant and related interest in land, equipment and
facilities for mineral reserves with a fair market value of $13,300 and
cash of $10,700. The cash proceeds of $10,700 less $1,001 in expenses
related to the transaction have been included in "Cash flow from
investing activities: Other, net".
(5) On January 14, 1994, a wholly owned indirect subsidiary of the Company
completed the acquisition of substantially all of the coal mining
operations and coal sales contracts of Addington Resources, Inc. for
$157,231. The acquisition has been accounted for as a purchase;
accordingly, the purchase price has been allocated to the underlying
assets and liabilities based on their respective estimated fair values
at the date of acquisition. Based on preliminary estimates, subject to
finalization by year-end, the fair value of assets acquired was $180,017
and liabilities assumed was $107,174. The excess of the purchase price
over the fair value of the assets acquired and liabilities assumed was
$84,388 and is being amortized over a period of forty years. The
results of operations of the acquired company have been included in the
Company's results of operations since the date of acquisition.
The acquisition was financed by the issuance of $80,500 of a new series
of the Company's preferred stock, convertible into Minerals Stock, and
additional debt under existing credit facilities. This financing has
been attributed to the Minerals Group. In March 1994, the additional
debt incurred for this acquisition was refinanced with a five-year term
loan.
The following pro forma results, however, assume that the acquisition
and related financing had occurred at the beginning of the periods
presented. The unaudited pro forma data below are not necessarily
indicative of results that would have occurred if the transaction was in
effect for the nine month periods ended September 30, 1994 and 1993 and
the quarter ended September 30, 1993, nor are they indicative of the
future results of operations of the Company.
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
--------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------------------------------------------------
1993 1994 1993
--------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales and operating revenues $643,780 1,951,075 1,850,721
==========================================================================
Net income (loss) 30,269 (3,896) 58,007
Pittston Services Group:
Net income attributed to common
shares $ 15,313 56,813 31,697
----------------------------------------------------------------------------
Net income per common share $ .41 1.50 .86
----------------------------------------------------------------------------
Average common shares outstanding 36,948 37,757 36,722
==========================================================================
Pittston Minerals Group:
Net income (loss) attributed to
common shares: $ 13,699 (63,765) 22,537
--------------------------------------------------------------------------
Net income (loss) per common share:
Primary $ 1.85 (8.41) 3.07
--------------------------------------------------------------------------
Fully diluted $ 1.49 (8.41) 2.65
--------------------------------------------------------------------------
Average common shares outstanding:
Primary 7,386 7,578 7,343
--------------------------------------------------------------------------
Fully diluted 10,046 7,578 9,926
==========================================================================
</TABLE>
(6) The Company has authority to issue up to 2,000 shares of preferred
stock, par value $10 per share. In January 1994, the Company issued 161
shares of its $31.25 Series C Cumulative Convertible Preferred Stock,
par value $10 per share (the "Convertible Preferred Stock"). The
Convertible Preferred Stock pays an annual cumulative dividend of $31.25
per share payable quarterly, in cash, in arrears, out of all funds of
the Company legally available therefor, when, as and if declared by the
Board of Directors of the Company, and bears a liquidation preference of
$500 per share, plus an amount equal to accrued and unpaid dividends
thereon. Each share of the Convertible Preferred Stock is convertible
at the option of the holder at any time after March 11, 1994, unless
previously redeemed or, under certain circumstances, called for
redemption, into shares of Minerals Stock at a conversion price of
$32.175 per share of Minerals Stock, subject to adjustment in certain
circumstances. Except under certain circumstances, the Convertible
Preferred Stock is not redeemable prior to February 1, 1997. On and
after such date, the Company may at its option, redeem the Convertible
Preferred Stock, in whole or in part, for cash initially at a price of
$521.875 per share, and thereafter at prices declining ratably annually
on each February 1 to an amount equal to $500 per share on and after
February 1, 2004, plus in each case an amount equal to accrued and
unpaid dividends on the date of redemption. Except under certain
circumstances or as prescribed by Virginia law, shares of the
Convertible Preferred Stock are nonvoting. Other than the Convertible
Preferred Stock no shares of preferred stock are presently issued or
outstanding. In July 1994, the Company repurchased 8 shares of
Convertible Preferred Stock at a total cost of $3,366 under a repurchase
program that authorizes repurchases of up to $15,000. The excess of
the carrying value of the Convertible Preferred Stock over the purchase
price was $632 and reduced the amount of preferred dividends deducted
from net income to arrive at net income available to common
shareholders.
(7) As a result of the continuing long-term decline in the metallurgical
coal markets, which was evidenced by severe price reductions, the
Minerals Group accelerated its strategy of decreasing its exposure to
these markets by reducing its metallurgical coal production and
increasing its production and sales of lower cost surface mineable steam
coal. After a review of the economic viability of the remaining
metallurgical coal assets, management determined that four underground
mines were no longer economically viable and would be closed resulting
in significant economic impairment to three related preparation plants.
In addition, it was determined that one surface steam coal mine, the
Heartland mine, which provides coal to Alabama Power under a long-term
sales agreement, would be closed due to rising costs caused by
unfavorable geological conditions.
As a result of these decisions, the Minerals Group incurred pre-tax
charges of $90.8 million in the first quarter of 1994 which included a
reduction in the carrying value of these assets and related accruals for
mine closure costs. These charges included asset writedowns of $46.5
million which reduced the book carrying value of such assets to what
management believes to be their net realizable value based on either
estimated sales or leasing of such property to unrelated third parties.
In addition, the charges included $3.8 million for required lease
payments owed to lessors for machinery and equipment that would be idled
as a result of the mine and facility closures. The charges also
included $19.3 million for mine and plant closure costs which
represented estimates for reclamation and other environmental costs to
be incurred to bring the properties in compliance with federal and state
mining and environmental laws. This accrual is required due to the
premature closing of the mines. The accrual also included $21.2 million
in contractually or statutorily required employee severance and other
benefit costs associated with termination of employees at these
facilities and costs associated with inactive employees at these
facilities. Such employee benefits include severance payments, medical
insurance, workers' compensation and other benefits and have been
calculated in accordance with contractually (collective bargaining
agreements signed by certain coal subsidiaries included in the Minerals
Group) and legally required employee severance and other benefits. In
the 1994 third quarter, the Minerals Group paid $3.4 million of these
liabilities, of which $.9 million was for idled leased equipment; $1.2
million was for facility closure costs and $1.3 million was for
terminated employee costs. In the first nine months of 1994, $8.5
million was paid, of which $1.3 million was for leased equipment; $2.9
million was for facility closure costs, and $4.3 million was for
terminated employee costs.
Of the four underground mines, one has ceased coal production, one is
expected to cease coal production in the 1994 fourth quarter, while the
remaining two mines are expected to cease coal production next year.
During the second quarter of 1994 the Minerals Group reached agreement
with Alabama Power Company to transfer the coal sales contract currently
serviced by the Heartland mine to another location in West Virginia.
The Heartland mine ceased coal production during the 1994 third quarter
and final reclamation and environmental work has begun. As of the
beginning of this year, there were approximately 750 employees involved
in operations at these facilities and other administrative support. To
date, employment at these facilities has been reduced by 47% to
approximately 400 employees.
Although coal production has or will cease at these mines, the Minerals
Group will incur reclamation and environmental costs for several years
to bring these properties into compliance with federal and state
environmental laws. In addition, employee termination and medical
costs will continue to be incurred for several years after the
facilities have been closed. The significant portion of these employee
liabilities is for statutorily provided workers' compensation costs for
inactive employees. Such benefits include indemnity and medical costs
as required under state workers' compensation laws. The long maturities
are based on continued, and in some cases lifetime, indemnity and
medical payments to injured former employees and their surviving
spouses. Management believes that the charges incurred in the first
quarter of 1994 should be sufficient to provide for these future costs
and does not anticipate material additional future charges to operating
earnings for these facilities, although continual cash funding will be
required over the next several years.
(8) On April 15, 1994, the Company redeemed all of the $27,811 of 9.2%
Convertible Subordinated Debentures due July 1, 2004, at a premium of
$767. The premium and other charges related to the redemption have been
included in the Consolidated Statement of Operations in Other income
(expense), net.
(9) As of January 1, 1992, BHS elected to capitalize categories of costs not
previously capitalized for home security installations. The additional
costs not previously capitalized consisted of costs for installation
labor and related benefits for supervisory, installation scheduling,
equipment testing and other support personnel and costs incurred in
maintaining facilities and vehicles dedicated to the installation
process. The effect of this change in accounting principle was to
increase operating profit for the Company and the BHS segment for the
first nine months of 1994 and 1993 by $3,114 and $2,526, respectively,
and for the third quarter of 1994 and 1993 by $965 and $889, respective-
ly. The effect of this change increased net income per share of the
Services Group for the first nine months of 1994 and 1993 by $.05 and
$.04, respectively, and for the third quarter of 1994 and 1993 by $.02
and $.01, respectively.
(10) Certain prior period amounts have been reclassified to conform to
current period financial statement presentation.
(11) All adjustments have been made which are, in the opinion of management,
necessary to a fair presentation of results of operations for the
periods reported herein. All such adjustments are of a normal recurring
nature.
<TABLE>
THE PITTSTON COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
- -----------------------------------------------------------------------------------------
1994 1993 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues: (In thousands)
Burlington $311,925 254,769 875,675 725,970
Brink's 143,879 123,026 395,827 353,418
BHS 27,908 22,603 80,614 64,969
Coal 205,831 165,790 577,627 500,106
Mineral Ventures 4,311 3,250 11,406 11,382
- ------------------------------------------------------------------------------------------
Consolidated revenues $693,854 569,438 1,941,149 1,655,845
==========================================================================================
Operating profit (loss):
Burlington $ 22,248 15,111 52,028 24,563
Brink's 11,132 9,594 27,481 24,680
BHS 8,216 6,662 23,679 19,493
Coal 8,488 6,017 (90,956) 17,306
Mineral Ventures 786 (461) 854 (148)
- ------------------------------------------------------------------------------------------
Segment operating profit 50,870 36,923 13,086 85,894
General corporate expense (3,990) (4,294) (12,042) (12,385)
- ------------------------------------------------------------------------------------------
Consolidated operating profit 46,880 32,629 1,044 73,509
Interest income 430 591 1,638 1,873
Interest expense (2,745) (2,233) (7,954) (8,134)
Other income (expense), net (694) (1,415) (4,761) (2,838)
- ------------------------------------------------------------------------------------------
Income (loss) before income taxes 43,871 29,572 (10,033) 64,410
Provision (credit) for income taxes 12,661 8,327 (5,713) 20,869
- ------------------------------------------------------------------------------------------
Net income (loss) $ 31,210 21,245 (4,320) 43,541
==========================================================================================
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
In the third quarter of 1994, The Pittston Company (the "Company") reported
net income of $31.2 million compared with $21.2 million in the third quarter
of 1993. Net income in the third quarter of 1994 was positively impacted by
increased results from each of the Company's business segments.
In the first nine months of 1994, the Company reported a net loss of $4.3
million compared with net income of $43.5 million in the first nine months of
1993. The decrease in 1994 was attributable to the Company's Coal segment,
whose results included charges for asset writedowns and accruals for costs
related to facilities which are being closed which in the aggregate reduced
operating profit and net income by $90.8 million and $58.1 million, respec-
tively. Net income in the first nine months of 1994 was positively impacted
by improved results from each of the Company's services businesses and from
the Company's mineral ventures business, partially offset by higher nonoperat-
ing expenses compared with the same period last year.
Burlington Air Express Inc. ("Burlington")
- ------------------------------------------
Operating profit in the third quarter of 1994 for Burlington aggregated $22.2
million, a $7.1 million increase compared with $15.1 million recorded in the
third quarter of 1993. Worldwide revenues rose 22% to $311.9 million from
$254.8 million in the prior year. The $57.1 million increase in revenues
resulted primarily from higher volume in both domestic and international
markets. Increased revenues from higher volumes were partially offset by
lower average yields (revenues per pound). Total weight shipped worldwide
increased 23% to 315.7 million pounds from 256.3 million pounds in the same
period a year earlier. Global average yield decreased 1% or $.01 to $.99 per
pound in the third quarter of 1994 compared with the same period a year
earlier, whereas, total cost decreased 2% or $.02 to $.92 per pound for the
same period. Operating expenses increased largely from the increased volume
of business, while selling, general and administrative expenses decreased
slightly compared to the same period last year.
Operating profit in the Americas' region benefitted from strong growth in the
North American market for heavy airfreight, increased market share and a shift
in mix towards Burlington's premium next-day service. Domestic weight shipped
increased 20% over the third quarter of 1993. Domestic pricing remains below
last year's level, but has stabilized partly as a result of the price increase
program which was instituted in the first quarter of 1994. Export volumes
also increased while pricing for U.S. exports continued to be negatively
impacted by a highly competitive pricing environment.
During the 1994 third quarter, Burlington implemented a 20% expansion of its
North American private fleet capacity, through the addition of five jet cargo
aircraft, including three DC8's and two B727's, under relatively short-term
leases. This expansion provides additional capacity in existing and new next
morning markets. During the quarter, Burlington began next morning service to
four new U.S. locations and increased service to fourteen other markets.
Foreign operating results in the current year quarter remained comparable with
the prior year quarter with results in the Pacific region decreasing slightly
and results in the Atlantic region increasing slightly. Although foreign
operations also benefitted from a 28% increase in international weight
shipped, the impact of increased volumes was more than offset by lower yields
and additional costs incurred in connection with providing complete global
logistics services. Decreased yields continue to reflect intense competition
with many freight forwarders seeking to maintain market share.
Operating profit in the first nine months of 1994 for Burlington was $52.0
million, a $27.4 million increase over the $24.6 million profit reported in
the first nine months of 1993. Worldwide revenues rose 21% to $875.7 million
in the current year period from $726.0 million in the first nine months of the
prior year. The $149.7 million increase in revenues resulted principally from
higher volume in both domestic and international markets. Increased revenues
from higher volumes were partially offset by lower average yields. Total
weight shipped worldwide increased 23% to 907.0 million pounds in the first
nine months of 1994 from 734.5 million pounds in the same period a year
earlier. Global average yield decreased 2% or $.02 to $.97 per pound in the
first nine months of 1994 compared with the same period a year earlier,
whereas, total cost decreased 5% or $.05 to $.91 per pound for the same
period. Operating expenses and selling, general and administrative expenses
also increased in the first nine months of 1994 compared with the first nine
months of 1993 largely resulting from the increased volume of business.
Operating profit in the Americas' region for the nine months of 1994 benefit-
ted from North American volume increases, a significant portion of which was
from strong shipping levels. Higher volume, in part, also reflects the impact
of the 24 day Teamsters strike which occurred during the second quarter of
1994. Export volumes also increased during the first nine months of 1994,
while pricing for U.S. exports has been impacted by competitors' aggressive
pricing on new business. Operating profit in the Americas region also
benefitted from increased capacity as a result of the fourth quarter 1993
expansion of Burlington's airfreight hub in Toledo, Ohio, which assisted in
increasing efficiency as well as the third quarter 1994 fleet expansion which
provided additional capacity in existing and new next morning markets. Gains
for Americas' operations from increased business volume and efficiencies were
partially offset by decreased average yields in the first nine months of 1994.
Average yields continue to reflect a highly competitive pricing environment.
Although domestic pricing remains slightly below last years level, pricing has
stabilized partly as a result of the price increase program which was insti-
tuted in the first quarter of 1994.
Foreign operating results in the first nine months of the current year
decreased from the 1993 level. The benefit of increased volumes was more than
offset by lower yields and additional costs incurred in connection with
offering complete global logistics services.
Brink's, Incorporated ("Brink's")
- ---------------------------------
Brink's operating profit increased $1.5 million to $11.1 million in the third
quarter of 1994 from $9.6 million in the third quarter of 1993 with an
increase in revenues of $20.9 million, partially offset by increases in
operating expenses and selling, general and administrative expenses of $18.6
million and a decrease in other operating income of $.8 million.
Operating results in North America continued at a strong pace in the 1994
third quarter, with revenue increasing $8.5 million or 11% to $85.7 million
and operating profit increasing $.5 million to $6.2 million or 10% over the
prior year's third quarter. The improvement principally reflected increased
earnings from the armored car and coin businesses.
Revenue from international subsidiaries increased $12.3 million or 27% to
$58.2 million in the third quarter of 1994, while operating earnings from
international subsidiaries and affiliates increased $1.0 million or 25% to
$5.0 million compared with the 1993 third quarter. The increase in interna-
tional operating earnings for the quarter was primarily due to improved
results reported by wholly-owned operations in Brazil. Brazil's increased
earnings were due in large part to the significant volume of special shipments
of the new Brazilian currency introduced on July 1, 1994. The large volume of
special shipments will not continue beyond the third quarter. The current
year third quarter also benefitted, to a lesser extent, from increased volume
due to the growth of money in circulation and price increases obtained earlier
in the year to defray the substantially higher security costs made necessary
by the dramatic increase in attacks on the armored car industry in Brazil. In
the 1994 third quarter operating profit from international subsidiaries and
affiliates also included increases for operations in Israel (70% owned),
Mexico (20% owned) and Colombia (46.5% owned), partially offset by lower
operating results in Holland (65% owned), France (38% owned), Ireland (50%
owned) and Chile (53.1% owned). Results for Brink's 20% owned Mexican
affiliate reflected the benefits of cost-cutting efforts implemented in late
1993 and early 1994.
Brink's operating profit increased $2.8 million to $27.5 million in the first
nine months of 1994 from $24.7 million in the first nine months of 1993 with
an increase in revenues of $42.4 million, partially offset by increases in
operating expenses and selling, general and administrative expenses of $37.5
million and a decrease in other operating income of $2.1 million.
The increase in revenues and operating profit in the first nine months of 1994
was largely due to North American operations. Revenue from North American
operations increased $27.8 million or 13% to $247.5 million and operating
profit increased $2.7 million or 21% to $15.6 million. The increase in
operating profit was largely attributable to increases from air courier and
armored car operations. Operating profit from North American based ATM, coin
wrapping and diamond and jewelry operations also increased compared with 1993
results, but were partially offset by decreased results for currency process-
ing operations.
Revenue from international subsidiaries increased $14.6 million or 11% to
$148.3 million, while operating earnings from international subsidiaries and
affiliates of $11.9 million remained comparable to earnings for the prior year
period. Operating profit in the first nine months of 1994 was positively
affected by increases for operations in Brazil, Israel and the United Kingdom,
partially offset by declines reported in Holland, France, Mexico and Chile.
Brazil's earnings were augmented by the large volume of special shipments of
the new Brazilian currency as well as increased volume due to the growth of
money in circulation during the third quarter of 1994. The nine month results
for Brazil also included price increases obtained during the second quarter to
defray the substantially higher security costs made necessary by the dramatic
increase in attacks on the armored car industry in Brazil. Results for
Brink's Mexican affiliate were impacted by the local economic recession,
restructuring costs which included employee severance costs, and strengthening
competition particularly during the first quarter of the year.
Brink's Home Security, Inc. ("BHS")
- -----------------------------------
BHS operating profit increased $1.5 million to $8.2 million in the third
quarter of 1994 from $6.7 million in the prior year quarter. In the first
nine months of 1994, operating profit increased $4.2 million to $23.7 million
from $19.5 million in the first nine months of 1993. The increase in operat-
ing profit for the third quarter and first nine months of 1994 compared to the
similar periods in 1993 reflected higher monitoring revenues due to an average
subscriber base that was 23% and 22% higher for the quarter and year to date
1994, respectively, compared to similar periods in 1993, slightly offset by
higher account servicing and administrative costs. Net new subscribers
totaled 13,500 and 43,600 in the third quarter and first nine months of 1994,
respectively, compared with 10,900 and 30,500 in the third quarter and first
nine months of 1993, respectively. Subscribers at September 30, 1994 totaled
303,200.
Coal
- ----
Coal Operations earned an operating profit of $8.5 million in the third
quarter of 1994, a $2.5 million increase over the $6.0 million recorded in the
year earlier quarter. The third quarter of 1994 included the operating
results from substantially all the coal mining operations and coal sales
contracts of Addington Resources, Inc. ("Addington"), which were acquired by
the Minerals Group on January 14, 1994. Operating profit in the current year
quarter benefitted from a $2.5 million gain on the sale of a natural gas
pipeline to a production company.
Sales volume of 7.5 million tons for the third quarter of 1994 was 37% or 2.0
million tons higher than sales volume in the third quarter of 1993. Virtually
all of the increased sales were attributable to steam coal with sales of 4.9
million tons (65% of total sales), up from 2.7 million tons (49% of total
sales) in the third quarter of 1993, while metallurgical coal sales decreased
7% from 2.8 million tons in the third quarter of 1993 to 2.6 million tons for
the third quarter of this year. Coal produced and purchased totaled 7.3
million tons in the 1994 third quarter, a 31% or 1.7 million ton increase over
the same period of 1993. The increase in coal sales and coal
produced/purchased in the third quarter of 1994 as compared with the third
quarter of 1993 is largely attributable to the Addington operations.
In the 1994 third quarter, 29% of total production was derived from deep mines
and 71% was derived from surface mines compared with 49% and 51% of deep and
surface mine production, respectively, in the 1993 third quarter. During the
1994 third quarter operations commenced at three new surface operations in
West Virginia, which are expected to produce low sulphur steam coal at a rate
of three million tons per annum.
Average coal margin (realization less current production costs of coal sold),
which was $2.09 per ton for the 1994 third quarter, decreased $.96 per ton
from the prior year third quarter with a 7% or $2.15 per ton decrease in
average realization partially offset by a 5% or $1.19 per ton decrease in
average current production costs of coal sold. The higher percentage of steam
coal sales and declines in export metallurgical coal prices contributed to the
decline in average realization. The decrease in average cost is largely due
to the shift to lower cost surface production.
Although average realization per ton in the 1994 third quarter was essentially
the same as the 1994 second quarter, average coal margin decreased $.53 per
ton on a quarter-to-quarter comparison due to higher average per ton costs.
In the 1994 third quarter, operating costs were adversely impacted by, among
other things, surface mine performance in Virginia due to the relocation of
equipment to a lower cost and more productive mine, the delay in obtaining a
mine permit and poor mining conditions at one mine as well as the continuing
integration of the Addington operations. Management is reviewing its options
of sources used to fulfill its coal sales agreements in order to prevent any
further declines in margins.
Coal Operations had an operating loss totaling $91.0 million in the first nine
months of 1994 compared with an operating profit of $17.3 million in the year
earlier nine month period. The Coal operating loss in the first nine months
of 1994 included $90.8 million of charges for asset writedowns and accruals
for costs related to facilities which are being closed (further discussed
below). In addition, the decrease compared with prior year's nine months
operating results reflected the adverse impact of the severe winter weather in
the 1994 first quarter which particularly hampered surface mine production and
river transportation. Operating profit in the first nine months of 1993 was
negatively impacted by a $1.8 million charge to settle litigation related to
the moisture content of tonnage used to compute royalty payments to the UMWA
pension and benefit funds during the period ending February 1, 1988.
Sales volume of 20.7 million tons for the first nine months of 1994 was 27% or
4.4 million tons higher than sales volume in the first nine months of 1993.
The increased sales were attributable to steam coal with sales of 13.3 million
tons (64% of total sales), up from 7.6 million tons (47% of total sales),
while metallurgical coal sales decreased 15% from 8.7 million tons to 7.4
million tons. Coal produced and purchased totaled 20.8 million tons for first
nine months of 1994, a 29% or 4.7 million ton increase over the first nine
months of 1993. The increase in coal sales and coal produced/purchased in the
first nine months of 1994 as compared with the first nine months of 1993 was
largely attributable to the Addington operations.
In the first nine months of 1994, 32% of total production was derived from
deep mines and 68% was derived from surface mines compared with 55% and 45% of
deep and surface mine production, respectively, in the first nine months of
1993.
Production in the first nine months of 1994 was adversely impacted by the
extreme cold weather and above-normal precipitation in the first quarter of
the year which resulted in a large number of lost production days and inter-
ruptions which limited output efficiencies during periods of performance.
Sales also suffered due to lost loading days and were impeded by restricted
road accessibility, particularly during the first quarter of the year. Sales
were further impacted by the lack of rail car availability and the disruption
of river barge service initially due to frozen waterways and subsequently due
to the heavy snow melt and rain, which raised the rivers above operational
levels. The severe weather during the first quarter also reduced output from
purchased coal suppliers, which hindered the ability to meet customer ship-
ments during the period. In addition to weather related difficulties,
operations in the 1994 first quarter were affected by lost business due to a
utility customer's plant closure and production shortfalls due to the with-
drawal of contract producers from the market.
Early in the year the metallurgical coal markets continued their long-term
decline with price reductions of $3.85 per ton negotiated between Canadian and
Australian producers and Japanese steel mills. During the 1994 second quarter
Coal Operations reached agreement with its major Japanese steel customers for
new three-year agreements (subject to annual price renegotiations) for
metallurgical coal shipments. Such agreements replaced sales contracts which
expired on March 31, 1994. Pricing under the new agreements for the coal year
beginning April 1, 1994 was impacted by the price reductions accepted by
foreign producers, but was largely offset by modifications in coal quality
specification which allows the Coal Operation flexibility in sourcing and
blending the coals. Sales of metallurgical coal are expected to continue to
decrease.
As a result of the continuing long-term decline in the metallurgical coal
markets, which was evidenced by the previously discussed severe price reduc-
tions, the Coal Operations accelerated its strategy of decreasing its exposure
to these markets by reducing its metallurgical coal production and increasing
its production and sales of lower cost surface mineable steam coal. After a
review of the economic viability of the remaining metallurgical coal assets
earlier this year, management determined that four underground mines were no
longer economically viable and would be closed resulting in significant
economic impairment to three related preparation plants. In addition, it was
determined that one surface steam coal mine, the Heartland mine, which
provides coal to Alabama Power under a long-term sales agreement, would be
closed due to rising costs caused by unfavorable geological conditions.
As a result of these decisions, the Coal Operations incurred pre-tax charges
of $90.8 million in the first quarter of 1994 which included a reduction in
the carrying value of these assets and related accruals for mine closure
costs. These charges included asset writedowns of $46.5 million which reduced
the book carrying value of such assets to what management believes to be their
net realizable value based on either estimated sales or leasing of such
property to unrelated third parties. In addition, the charges included $3.8
million for required lease payments owed to lessors for machinery and equip-
ment that would be idled as a result of the mine and facility closures. The
charges also included $19.3 million for mine and plant closure costs which
represented estimates for reclamation and other environmental costs to be
incurred to bring the properties in compliance with federal and state mining
and environmental laws. This accrual is required due to the premature closing
of the mines. The accrual also included $21.2 million in contractually or
statutorily required employee severance and other benefit costs associated
with termination of employees at these facilities and costs associated with
inactive employees at these facilities. Such employee benefits include
severance payments, medical insurance, workers' compensation and other
benefits and have been calculated in accordance with contractually (collective
bargaining agreements signed by certain coal subsidiaries included in the Coal
Operations) and legally required employee severance and other benefits. In
the 1994 third quarter, the Company paid $3.4 million of these liabilities, of
which $.9 million was for idled leased equipment; $1.2 million was for
facility closure costs and $1.3 million was for terminated employee costs. In
the first nine months of 1994, $8.5 million was paid, of which $1.3 million
was for leased equipment; $2.9 million was for facility closure costs, and
$4.3 million was for terminated employee costs.
Of the four underground mines, one has ceased coal production, one is expected
to cease coal production in the 1994 fourth quarter, while the remaining two
mines are expected to cease coal production next year. During the second
quarter of 1994 the Coal Operations reached agreement with Alabama Power
Company to transfer the coal sales contract currently serviced by the Heart-
land mine to another location in West Virginia. The Heartland mine ceased
coal production during the 1994 third quarter and final reclamation and
environmental work has begun. As of the beginning of this year, there were
approximately 750 employees involved in operations at these facilities and
other administrative support. To date, employment at these facilities has
been reduced by 47% to approximately 400 employees.
As discussed previously, the effects of this strategy have been to decrease
Coal Operations' exposure to the metallurgical coal markets and to increase
its production and sales of lower cost surface mineable steam coal. For the
third quarter and first nine months of 1994, steam coal sales have risen to
approximately 65% of total coal sales up from slightly less than 50% for the
comparable periods last year. In addition, production from surface mines has
increased to 71% for the first nine months of 1994 as compared to 45% for the
same period last year. Management expects this trend to continue due to the
previously mentioned three new surface mines, which are expected to produce 3
million tons on an annual basis, that commenced operations in the third
quarter of this year. In addition, on a year-to-date basis, metallurgical
coal production has decreased to 4.7 million tons versus 6.8 million tons when
comparing 1994 to 1993.
Although coal production has or will cease at these mines, the Coal Operations
will incur reclamation and environmental costs for several years to bring
these properties into compliance with federal and state environmental laws.
In addition, employee termination and medical costs will continue to be
incurred for several years after the facilities have been closed. The
significant portion of these employee liabilities is for statutorily provided
workers' compensation costs for inactive employees. Such benefits include
indemnity and medical costs as required under state workers' compensation
laws. The long maturities are based on continued, and in some cases lifetime,
indemnity and medical payments to injured former employees and their surviving
spouses. Management believes that the charges incurred in the first quarter
of 1994 should be sufficient to provide for these future costs and does not
anticipate material additional future charges to operating earnings for these
facilities, although continual cash funding will be required over the next
several years.
The following table analyzes the changes in liabilities during 1994 for closed
facilities and follows with a discussion of their estimated maturities:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Balance 1994 Balance
as of 1994 Cash as of
12/31/93 (a) Additions (b) Payments (c) 9/30/94
----------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Leased machinery and equipment 3.1 3.8 2.6 4.3
Mine and plant closure costs 28.4 19.3 6.1 41.6
Employee termination, medical
and severance costs 33.5 21.2 11.0 43.7
---------------------------------------------------------------------------------
Total 65.0 44.3 19.7 89.6
=================================================================================
</TABLE>
(a) These amounts represent the remaining liabilities for closed facilities
recorded in prior years. They relate principally to incremental
facility closing costs, including reclamation and employee benefit
costs, primarily workers' compensation, which will continue to be paid
for several years.
(b) These amounts represent the previously discussed accruals during the
first quarter of 1994.
(c) These amounts represent total cash payments made during the first nine
months of 1994 for all liabilities related to these facilities. Of the
total payments made, $11.2 million was for liabilities recorded in prior
years.
During the next twelve months, payment of liabilities related to these closed
facilities is expected to be approximately $21 million. The Coal Operations
estimate that the remaining liability for leased machinery and equipment will
be fully paid over the next two years. The liability for mine and plant
closure costs is expected to be satisfied over the next ten years of which
approximately 70% is expected to be paid over the first three years. The
liability for employee related costs which is primarily workers' compensation
is estimated to be 70% settled over the next five years with the balance paid
during the following five to ten years.
For the third quarter 1994, Coal Operations' closed facilities (including
those facilities for which the decision to close was made earlier this year)
increased operating profit by $.6 million, whereas for the first nine months
of 1994, these facilities incurred operating losses of $7.7 million. The
first nine months of 1994 included losses of $6.7 million incurred in the
first quarter of the year for the facilities designated for closure in 1994.
On June 21, 1994 a new collective bargaining agreement between the Coal
Operations' union companies and the UMWA was ratified by such companies' union
members. The new agreement, replaced the principal labor agreement which
expired on June 30, 1994 and will remain in effect until December 31, 1998.
This agreement continues the basic principles and provisions established in
the predecessor 1990 Agreement with respect to areas of job security, work
rules and scheduling. The new agreement provides, among other things, for
wage increases of $.40 per hour on December 15 of each of the years 1994 to
1997 and includes improvements in certain employee benefit programs.
Mineral Ventures
- ----------------
Operating profit of Mineral Ventures increased $1.2 million in the 1994 third
quarter to an operating profit of $.8 million, from an operating loss of $.4
million in the prior year third quarter. Operating profit in the 1994 third
quarter was positively impacted by a significant increase in production at the
Stawell gold mine. The Stawell gold mine in western Victoria, Australia, in
which Mineral Ventures has a 67% interest, produced 21,700 ounces in the
period compared to 16,900 ounces in the third quarter of 1993. The favorable
change in operating profit for the 1994 third quarter compared to the same
period of 1993 also reflected the fourth quarter 1993 closure of the Uley
graphite property in Australia.
In the first nine months of 1994, operating profit of Mineral Ventures
increased $1.0 million to $.9 million from a loss of $.1 million in the year
earlier nine months. Operating results in the first nine months of 1993
included costs related to the Uley graphite property which was closed in the
1994 fourth quarter. Although gold production at the Stawell gold mine
increased for the first nine months of 1994 compared with the same period a
year ago, Mineral Ventures operating results for the first nine months of 1994
were impacted by increased exploration costs in Nevada as well as higher
operating costs incurred during the 1994 first quarter as a result of an
operator accident at Stawell. The Stawell gold mine produced 57,500 ounces in
the first nine months of 1994 compared with 56,300 ounces in the comparable
period of 1993. Successful exploration efforts indicate an increase of
approximately 90,000 ounces of additional proven and probable gold reserves at
the Stawell gold mine. At September 30, 1994, remaining proven and probable
gold reserves are estimated at 307,300 ounces. Mineral Ventures is continuing
gold exploration projects in Nevada and Australia with its joint venture
partner.
Foreign Operations
- ------------------
A portion of the Company's financial results is derived from activities in
several foreign countries, each with a local currency other than the U.S.
dollar. Since the financial results of the Company are reported in U.S.
dollars, they are affected by the changes in the value of the various foreign
currencies in relation to the U.S. dollar. The Company's international
activity is not concentrated in any single currency, which limits the risks of
foreign rate fluctuations. In addition, foreign currency rate fluctuations
may adversely affect transactions which are denominated in currencies other
than the functional currency. The Company routinely enters into such trans-
actions in the normal course of its business. Although the diversity of its
foreign operations limits the risks associated with such transactions, the
Company uses foreign exchange forward contracts to hedge the risks associated
with certain transactions denominated in currencies other than the functional
currency. Realized and unrealized gains and losses on these contracts are
deferred and recognized as part of the specific transaction hedged. In
addition, cumulative translation adjustments relating to operations in
countries with highly inflationary economies are included in net income, along
with all transaction gains or losses for the period. Brink's subsidiaries in
Brazil and Israel operate in such highly inflationary economies.
Additionally, the Company is subject to other risks customarily associated
with doing business in foreign countries, including economic conditions,
controls on repatriation of earnings and capital, nationalization, expropria-
tion and other forms of restrictive action by local governments. The future
effects, if any, of such risks on the Company cannot be predicted.
Other Operating Income
- ----------------------
Other operating income was $7.6 million and $18.5 million for the third
quarter and first nine months of 1994, respectively, compared to other
operating income of $5.0 million and $15.8 million the year earlier third
quarter and nine months, respectively. Other operating income principally
includes the Company's share of net income of unconsolidated affiliates, which
are substantially attributable to equity affiliates of Brink's, and royalty
income from coal and natural gas properties. The increase in both the current
year quarter and nine month period compared to the same periods last year is
largely due to the $2.5 million gain recognized in the 1994 third quarter from
the sale of the natural gas pipeline. In addition, in both the quarter and
nine month periods of 1994 compared with the same periods a year ago, royalty
income from coal and natural gas properties increased, while income from
earnings of unconsolidated affiliates decreased.
Corporate Expenses
- ------------------
General corporate expenses decreased $.3 million to $4.0 million for the 1994
third quarter from $4.3 million for the 1993 third quarter. In the first nine
months of 1994, general corporate expenses decreased $.4 million to $12.0
million from $12.4 million in the year earlier nine months. Expenses in the
third quarter and first nine months of 1993 included costs incurred for the
Company's reclassification of its common stock into two classes.
Interest Expense
- ----------------
Interest expense for the third quarter of 1994 increased $.5 million to $2.7
million from $2.2 million the third quarter of 1993. In the first nine months
of 1994, interest expense decreased $.1 million to $8.0 million from $8.1
million in the first nine months of 1993. Interest expense for the third
quarter and first nine months of 1994 included increases due to higher average
borrowings under revolving credit and term loan facilities resulting from the
Addington acquisition and higher average interest rates, offset by a decrease
resulting from the Company's redemption of its 9.2% Convertible Subordinated
Debentures in April 1994. Interest expense in the first nine months of 1993
also included interest assessed on settlement of coal litigation related to
the moisture content of tonnage used to compute royalty payments to UMWA
pension and benefit funds.
Other Income (Expense), Net
- ---------------------------
Other net expense for the third quarter of 1994 decreased $.7 million to a net
expense of $.7 million from $1.4 million in the third quarter of 1993. In the
first nine months of 1994, other net expense increased $2.0 million to a net
expense of $4.8 million from $2.8 million in the first nine months of 1993.
The first nine months of 1994 included $1.2 million of expenses recognized on
the Company's redemption of its 9.2% Convertible Subordinated Debentures.
FINANCIAL CONDITION
- -------------------
Cash Provided by Operations
- ---------------------------
Cash provided by operating activities during the first nine months of 1994
totaled $99.0 million compared with $59.5 million in the first nine months of
1993. Operations provided more cash in the 1994 period despite the integra-
tion of operating activities of Addington which required cash to finance
initial working capital needs. Net income, noncash charges and changes in
operating assets and liabilities in the first nine months of 1994 were
significantly affected by after-tax special and other charges of $58.1 million
which used cash of approximately $8.5 million in the first nine months of
1994. In addition, in the first nine months of 1994, $11.2 million was paid
for facilities closed in prior periods. Of the total $90.8 million of 1994
pre-tax charges, $46.5 million was for noncash writedowns of assets and the
remainder represents liabilities which are expected to be paid over the next
several years. As discussed under Coal Operations, funding requirements for
closed facilities are expected to be approximately $21 million during the next
twelve months.
Capital Expenditures
- --------------------
Cash capital expenditures for the first nine months of 1994 totaled $71.3
million. Of that amount, $17.1 million was spent by Burlington, $11.3 million
was spent by Brink's, $25.2 million was spent by BHS, $16.4 million was spent
by Coal, $1.1 million was spent by Mineral Ventures and $.2 million was spent
by the Corporate office. Expenditures incurred by BHS in the first nine
months of 1994 were primarily for customer installations, representing the
expansion in the subscriber base. For the full year 1994, capital expendi-
tures are estimated to approximate $105 million. The foregoing amounts
exclude equipment expenditures that have been or are expected to be financed
through capital and operating leases, and any acquisition expenditures.
Other Investing Activities
- --------------------------
All other investing activities in the first nine months of 1994 used net cash
of $144.3 million. In January 1994, the Company paid approximately $157
million in cash for the acquisition of substantially all the coal mining
operations and coal sales contracts of Addington. The purchase price of the
acquisition was financed through the issuance of $80.5 million of a new series
of convertible preferred stock, which is convertible into Pittston Minerals
Group Common Stock, and additional debt under credit agreements. Other
investing activities also includes $8.4 million of cash received in 1994 from
the December 1993 sale of the majority of the assets of a captive mine supply
company.
Financing
- ---------
The Company intends to fund its capital expenditure requirements during the
remainder of 1994 primarily with anticipated cash flows from operating
activities and through operating leases if the latter are financially attrac-
tive. Shortfalls, if any, will be financed through the Company's revolving
credit agreements or short-term borrowing arrangements. In March 1994, the
Company entered into a $350 million revolving credit agreement with a syndi-
cate of banks (the "New Facility"), replacing the Company's previously
existing $250 million of revolving credit agreements. The New Facility
includes a $100 million five-year term loan, which matures in March 1999. The
New Facility also permits additional borrowings, repayments and reborrowings
of up to an aggregate of $250 million until March 1999. As of September 30,
1994, borrowings of $100 million were outstanding under the five-year term
loan portion of the New Facility and no additional borrowings were outstanding
under the remainder of the facility. In February 1994 the Company entered
into a standard three year variable to fixed interest rate swap agreement.
This agreement fixes the Company's interest rate at 5% on current borrowings
of $40 million in principal. The principal amount for which the 5% interest
rate is fixed declines periodically throughout the term of the agreement.
Debt
- ----
Outstanding debt, including borrowings under revolving credit agreements,
aggregated $151.2 million at September 30, 1994, up from $75.8 million at
year-end 1993. Cash generated from operating activities and net cash proceeds
from the issuance of preferred stock were not sufficient to fund capital
expenditures and the Addington acquisition, resulting in additional borrowings
under the Company's credit agreements.
On April 15, 1994, the Company redeemed all outstanding 9.2% Convertible
Subordinated Debentures due July 1, 2004. The principal amount outstanding
was $27.8 million and the premium paid to call the debt totaled $.8 million.
The Company used cash provided under its revolving credit agreements to redeem
the debentures. The premium paid in addition to other charges related to the
redemption are included in the Company's Consolidated Statement of Operations
for the nine months ended September 30, 1994.
Capitalization
- --------------
In January 1994, the Company issued $80.5 million (161,000 shares) of a new
series of cumulative preferred stock, convertible into Minerals Stock. The
cumulative convertible preferred stock, which is attributable to the Minerals
Group, pays an annual cumulative dividend of $31.25 per share payable quarter-
ly, in cash, in arrears, out of all funds of the Company legally available
therefor, when, as and if declared by the Board of Directors of the Company,
which commenced March 1, 1994, and bears a liquidation preference of $500 per
share, plus an amount equal to accrued and unpaid dividends thereon.
In July 1994, the Board of Directors of the Company authorized the repurchase
from time to time of up to $15 million of the new series of cumulative
convertible preferred stock. As of September 30, 1994, 8,350 shares at a
total cost of $3.4 million were repurchased.
As of September 30, 1994, debt as a percent of capitalization (total debt and
shareholders' equity) was 27%, compared with 18% at December 31, 1993. The
increase since December 1993 is largely due to the additional debt incurred
under the New Facility to finance the Addington acquisition. The increase in
equity as a result of the issuance of preferred stock was largely offset by
the net loss incurred for the nine months ended September 30, 1994.
In 1993, the Board of Directors of the Company authorized the repurchase of up
to 1,250,000 shares of Pittston Services Group Common Stock ("Services Stock")
and 250,000 shares of Pittston Minerals Group Common Stock ("Minerals Stock").
As of September 30, 1994, a total of 142,500 shares of Services Stock and
38,500 shares of Minerals Stock had been acquired pursuant to the authoriza-
tion. Of those amounts, 142,500 shares of Services Stock and 19,700 shares of
Minerals Stock were repurchased in the first nine months of 1994 at an
aggregate cost of $3.8 million.
Dividends
- ---------
The Board of Directors intends to declare and pay dividends on Services Stock
and Minerals Stock based on earnings, financial condition, cash flow and
business requirements of the Services Group and the Minerals Group, respec-
tively. Since the Company remains subject to Virginia law limitations on
dividends and to dividend restrictions in its public debt and bank credit
agreements, losses by one Group could affect the Company's ability to pay
dividends in respect of stock relating to the other Group. Dividends on
Minerals Stock are also limited by the Available Minerals Dividend Amount as
defined in the Company's Articles of Incorporation.
During the first nine months of 1994, the Board of Directors declared and the
Company paid cash dividends of 15 cents per share of Services Stock and 48.75
cents per share of Minerals Stock. On an equivalent basis, during the first
nine months of 1993 the Company paid dividends of 14.1 cents per share and
45.79 cents per share for Services Stock and Minerals Stock, respectively.
Dividends paid on the cumulative convertible preferred stock in the first nine
months of 1994 totaled $3.0 million.
<TABLE>
PITTSTON SERVICES GROUP
BALANCE SHEETS
(In thousands)
<CAPTION>
Sep. 30, Dec. 31,
ASSETS 1994 1993
- ---------------------------------------------------------------------------------
<S> <C> <C>
Current assets: (Unaudited)
Cash and cash equivalents $ 46,183 30,271
Short-term investments, at lower of cost or market 2,037 1,881
Accounts receivable (net of estimated amount
uncollectible: 1994 - $14,564; 1993 - $13,745) 254,221 211,565
Receivable - Pittston Minerals Group 10,930 -
Inventories, at lower of cost or market 4,095 3,235
Prepaid expenses 19,606 19,258
Deferred income taxes 25,064 22,919
- ---------------------------------------------------------------------------------
Total current assets 362,136 289,129
Property, plant and equipment, at cost (net of
accumulated depreciation and amortization:
1994 - $227,088; 1993 - $207,086) 210,469 188,076
Intangibles, net of amortization 210,246 213,634
Deferred pension assets 43,322 42,425
Deferred income taxes 1,869 839
Other assets 68,034 72,838
- ---------------------------------------------------------------------------------
Total assets $896,076 806,941
=================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings $ 14,871 9,546
Current maturities of long-term debt 7,668 7,878
Accounts payable 161,510 131,893
Payable - Pittston Minerals Group - 19,098
Accrued liabilities 138,444 113,293
- ---------------------------------------------------------------------------------
Total current liabilities 322,493 281,708
Long-term debt, less current maturities 50,882 58,109
Postretirement benefits other than pensions 5,721 4,802
Workers' compensation and other claims 9,015 9,043
Deferred income taxes 37,631 33,727
Payable - Pittston Minerals Group 7,927 14,709
Other liabilities 26,811 26,474
Shareholder's equity 435,596 378,369
- ---------------------------------------------------------------------------------
Total liabilities and shareholder's equity $896,076 806,941
=================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
PITTSTON SERVICES GROUP
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
- ------------------------------------------------------------------------------------------
1994 1993 1994 1993
- ------------------------------------------------------------------------------------------
<S> <S> <S> <S> <S>
Operating revenues $483,712 400,398 1,352,116 1,144,357
- -------------------------------------------------------------------------------------------
Operating expenses 395,659 327,538 1,111,838 952,434
Selling, general and administrative
expenses 50,264 46,503 150,185 138,376
- -------------------------------------------------------------------------------------------
Total costs and expenses 445,923 374,041 1,262,023 1,090,810
- -------------------------------------------------------------------------------------------
Other operating income 1,537 2,545 6,114 8,112
- -------------------------------------------------------------------------------------------
Operating profit 39,326 28,902 96,207 61,659
Interest income 818 470 2,030 1,318
Interest expense (1,488) (2,149) (4,663) (6,829)
Other income (expense), net (474) (1,270) (4,104) (2,426)
- -------------------------------------------------------------------------------------------
Income before income taxes 38,182 25,953 89,470 53,722
Provision for income taxes 13,168 10,640 32,657 22,025
- -------------------------------------------------------------------------------------------
Net income $ 25,014 15,313 56,813 31,697
===========================================================================================
Per Pittston Services Group common share:
Net income $ .66 .41 1.50 .86
===========================================================================================
Cash dividends $ .05 .05 .15 .141
===========================================================================================
Average shares outstanding of Pittston
Services Group Common Stock 37,840 36,948 37,757 36,722
===========================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
PITTSTON SERVICES GROUP
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30
- ----------------------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 56,813 31,697
Adjustments to reconcile net income to net cash provided
by operating activities:
Noncash charges and other write-offs 306 11
Depreciation and amortization 40,853 36,725
Provision for deferred income taxes 914 1
Provision (credit) for pensions, noncurrent 42 (477)
Provision for uncollectible accounts receivable 3,018 4,435
Equity in earnings of unconsolidated affiliates, net
of dividends received (45) (3,284)
Other operating, net 1,831 1,897
Change in operating assets and liabilities:
Increase in accounts receivable (45,674) (14,627)
Increase in inventories (860) (483)
Increase in prepaid expenses (2,338) (2,966)
Increase (decrease) in accounts payable and accrued
liabilities 60,142 (1,732)
Decrease (increase) in other assets 3,776 (5,535)
Decrease in other liabilities (20) (1,350)
Other, net (210) 1,473
- ----------------------------------------------------------------------------------------
Net cash provided by operating activities 118,548 45,785
- ----------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (53,677) (57,500)
Property, plant and equipment pending lease financing 2,047 (3,963)
Disposal of property, plant and equipment 1,664 1,734
Acquisitions and related contingent payments (63) (736)
Other, net (2,902) 295
- ----------------------------------------------------------------------------------------
Net cash used by investing activities (52,931) (60,170)
- ----------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 32,761 25,017
Reductions of debt (36,755) (11,461)
Payments (to) from - Minerals Group (42,196) 1,998
Repurchase of common stock (3,424) (920)
Proceeds from exercise of stock options 5,248 5,407
Proceeds from the sale of stock to SIP - 220
Proceeds from sale of stock to Minerals Group 322 128
Dividends paid (5,659) (5,177)
Cost of Services Stock Proposal (2) (1,109)
Net cash from the Company - 896
- ----------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (49,705) 14,999
- ----------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 15,912 614
Cash and cash equivalents at beginning of period 30,271 28,350
- ----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 46,183 28,964
========================================================================================
See accompanying notes to financial statements.
</TABLE>
PITTSTON SERVICES GROUP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
(1) The approval on July 26, 1993 (the "Effective Date"), by the shareholders
of The Pittston Company (the "Company") of the Services Stock Proposal,
as described in the Company's proxy statement dated June 24, 1993,
resulted in the reclassification of the Company's common stock. The
outstanding shares of Company common stock were redesignated as Pittston
Services Group Common Stock ("Services Stock") on a share-for-share basis
and a second class of common stock, designated as Pittston Minerals Group
Common Stock ("Minerals Stock"), was distributed on the basis of one-
fifth of one share of Minerals Stock for each share of the Company's
previous common stock held by shareholders of record on July 26, 1993.
Minerals Stock and Services Stock provide shareholders with separate
securities reflecting the performance of the Pittston Minerals Group (the
"Minerals Group") and the Pittston Services Group (the "Services Group")
respectively, without diminishing the benefits of remaining a single
corporation or precluding future transactions affecting either Group.
Accordingly, all stock and per share data prior to the reclassification
have been restated to reflect the reclassification. The primary impacts
of this restatement are as follows:
* Net income per common share has been included in the Statements of
Operations. For the purpose of computing net income per common share
of Services Stock, the number of shares of Services Stock prior to the
Effective Date are assumed to be the same as the total number of
shares of the Company's common stock.
* All financial impacts of purchases and issuances of the Company's
common stock have been attributed to each Group in relation of their
respective common equity to the Company's common stock. Dividends
paid by the Company were attributed to the Services and Minerals
Groups in relation to the initial dividends paid on the Services Stock
and the Minerals Stock.
The Company, at any time, has the right to exchange each outstanding
share of Minerals Stock for shares of Services Stock having a fair market
value equal to 115% of the fair market value of one share of Minerals
Stock. In addition, upon the sale, transfer, assignment or other
disposition, whether by merger, consolidation, sale or contribution of
assets or stock or otherwise, of all or substantially all of the proper-
ties and assets of the Minerals Group to any person, entity or group
(with certain exceptions), the Company is required to exchange each
outstanding share of Minerals Stock for shares of Services Stock having a
fair market value equal to 115% of the fair market value of one share of
Minerals Stock. Shares of Services Stock are not subject to either
optional or mandatory exchange.
Holders of Services Stock have one vote per share. Holders of Minerals
Stock have one vote per share subject to adjustment on January 1, 1996,
and on each January 1 every two years thereafter based upon the relative
fair market values of one share of Minerals Stock and one share of
Services Stock on each such date. Accordingly, beginning on January 1,
1996, each share of Minerals Stock may have more than, less than or
continue to have exactly one vote. Holders of Services Stock and
Minerals Stock vote together as a single voting group on all matters as
to which all common shareholders are entitled to vote. In addition, as
prescribed by Virginia law, certain amendments to the Company's Restated
Articles of Incorporation affecting, among other things, the designation,
rights, preferences or limitations of one class of common stock, or any
merger or statutory share exchange, must be approved by the holders of
such class of common stock, voting as a separate voting group, and, in
certain circumstances, may also have to be approved by the holders of the
other class of common stock, voting as a separate voting group.
In the event of a dissolution, liquidation or winding up of the Company,
the holders of Services Stock and Minerals Stock will receive the funds
remaining for distribution, if any, to the common shareholders on a per
share basis in proportion to the total number of shares of Services Stock
and Minerals Stock, respectively, then outstanding to the total number of
shares of both classes of common stock then outstanding.
The financial statements of the Services Group include the balance
sheets, results of operations and cash flows of the Burlington Air
Express Inc. ("Burlington"), Brink's, Incorporated ("Brink's") and
Brink's Home Security, Inc. ("BHS") operations of the Company, and a
portion of the Company's corporate assets and liabilities and related
transactions which are not separately identified with operations of a
specific segment. The Services Group's financial statements are prepared
using the amounts included in the Company's consolidated financial
statements. Corporate allocations reflected in these financial state-
ments are determined based upon methods which management believes to be
an equitable allocation of such expenses and credits.
The Company provides holders of Services Stock separate financial
statements, financial reviews, descriptions of business and other
relevant information for the Services Group in addition to consolidated
financial information of the Company. Notwithstanding the attribution of
assets and liabilities (including contingent liabilities) between the
Minerals Group and the Services Group for the purpose of preparing their
financial statements, this attribution and the change in the capital
structure of the Company as a result of the approval of the Services
Stock Proposal did not result in any transfer of assets and liabilities
of the Company or any of its subsidiaries. Holders of Services Stock are
shareholders of the Company, which continues to be responsible for all
its liabilities. Therefore, financial developments affecting the
Minerals Group or the Services Group that affect the Company's financial
condition could affect the results of operations and financial condition
of both Groups. Accordingly, the Company's consolidated financial
statements must be read in connection with the Services Group's financial
statements.
(2) As of January 1, 1992, BHS elected to capitalize categories of costs not
previously capitalized for home security installations. The additional
costs not previously capitalized consisted of costs for installation
labor and related benefits for supervisory, installation scheduling,
equipment testing and other support personnel and costs incurred in
maintaining facilities and vehicles dedicated to the installation
process. The effect of this change in accounting principle was to
increase operating profit for the Services Group and the BHS segment for
the first nine months of 1994 and 1993 by $3,114 and $2,526,
respectively, and for the third quarter of 1994 and 1993 by $965 and
$889, respectively. The effect of this change increased net income per
share of the Services Group for the first nine months of 1994 and 1993 by
$.05 and $.04, respectively and for the third quarter of 1994 and 1993 by
$.02 and $.01, respectively.
(3) The amounts of depreciation and amortization of property, plant and
equipment in the 1994 third quarter and nine month periods totaled
$11,770 ($10,038 in 1993) and $34,076 ($29,746 in 1993), respectively.
(4) Cash payments made for interest and income taxes (net of refunds re-
ceived) were as follows:
Third Quarter Nine Months
-------------------------------------------------------
1994 1993 1994 1993
-------------------------------------------------------
Interest $1,564 2,276 5,968 6,865
=======================================================
Income taxes $8,430 2,592 27,317 21,354
=======================================================
In accordance with the tax allocation policy, cash income taxes included
amounts paid to the Minerals Group for utilization of tax benefits
generated by the Minerals Group totalling $5,689 and $13,489 for the
quarter and nine months ended September 30, 1994, respectively. There
were no such payments made to the Minerals Group for the quarter ended
September 30, 1993, and for the nine months ended September 30, 1993,
payments totalled $2,161.
During the nine month periods ended September 30, 1994 and 1993, capital
lease obligations of $1,569 and $1,245, respectively, were incurred for
leases of property, plant and equipment.
(5) On April 15, 1994, the Company redeemed all of the $27,811 9.2% Convert-
ible Subordinated Debentures due July 1, 2004, at a premium of $767.
This debt had been attributed to the Services Group. The premium and
other charges related to the redemption have been included in the
Services Group Statement of Operations in Other income (expense), net.
(6) In January 1994, 161 shares of convertible preferred stock (convertible
into Minerals Stock) were issued to finance a portion of the acquisition
of substantially all of the coal mining operations and coal sales
contracts of Addington Resources, Inc. While the issuance of the
preferred stock had no effect on the capitalization of the Services
Group, commencing March 1, 1994, annual cumulative dividends of $31.25
per share of convertible preferred stock are payable quarterly, in cash,
in arrears, from the date of original issue out of all funds of the
Company legally available therefor, when, as and if declared by the
Company's Board. A portion of the acquisition was also financed with
additional debt under existing credit facilities. In March 1994, the
additional debt incurred for this acquisition was refinanced with a five-
year term loan. The acquisition and related financing have been attrib-
uted to the Minerals Group. In July 1994, the Company repurchased 8
shares of Convertible Preferred Stock at a total cost of $3,366 under a
repurchase program that authorizes repurchases of up to $15,000.
(7) Certain prior period amounts have been reclassified to conform to current
period financial statement presentation.
(8) All adjustments have been made which are, in the opinion of management,
necessary to a fair presentation of results of operations for the periods
reported herein. All such adjustments are of a normal recurring nature.
PITTSTON SERVICES GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The financial statements of the Pittston Services Group (the "Services Group")
include the balance sheets, results of operations and cash flows of Burlington
Air Express Inc. ("Burlington"), Brink's, Incorporated ("Brink's") and Brink's
Home Security, Inc. ("BHS"), and a portion of The Pittston Company's (the
"Company") corporate assets and liabilities and related transactions which are
not separately identified with operations of a specific segment. The Services
Group's financial statements are prepared using the amounts included in the
Company's consolidated financial statements. Corporate allocations reflected
in these financial statements are determined based upon methods which manage-
ment believes to be an equitable allocation of such expenses and credits. The
accounting policies applicable to the preparation of the Services Group's
financial statements may be modified or rescinded at the sole discretion of
the Company's Board of Directors (the "Board") without the approval of the
shareholders, although there is no intention to do so.
The Company provides holders of Pittston Services Group Common Stock ("Servic-
es Stock") separate financial statements, financial reviews, descriptions of
business and other relevant information for the Services Group in addition to
consolidated financial information of the Company. Notwithstanding the
attribution of assets and liabilities (including contingent liabilities)
between the Pittston Minerals Group (the "Minerals Group") and the Services
Group for the purpose of preparing their financial statements, this attribu-
tion and the change in the capital structure of the Company as a result of the
approval of the Services Stock Proposal, as described in the Company's proxy
statement dated June 24, 1993, did not result in any transfer of assets and
liabilities of the Company or any of its subsidiaries. Holders of Services
Stock are shareholders of the Company, which continues to be responsible for
all its liabilities. Therefore, financial developments affecting the Minerals
Group or the Services Group that affect the Company's financial condition
could affect the results of operations and financial condition of both Groups.
Accordingly, the Company's consolidated financial statements must be read in
connection with the Services Group's financial statements.
The following discussion is a summary of the key factors management considers
necessary in reviewing the Services Group's results of operations, liquidity
and capital resources. This discussion should be read in conjunction with the
financial statements and related notes of the Company.
<TABLE>
SEGMENT INFORMATION
(In thousands)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
- --------------------------------------------------------------------------------------
1994 1993 1994 1993
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Burlington $311,925 254,769 875,675 725,970
Brink's 143,879 123,026 395,827 353,418
BHS 27,908 22,603 80,614 64,969
- ---------------------------------------------------------------------------------------
Revenues $483,712 400,398 1,352,116 1,144,357
=======================================================================================
Operating profit:
Burlington $ 22,248 15,111 52,028 24,563
Brink's 11,132 9,594 27,481 24,680
BHS 8,216 6,662 23,679 19,493
- ---------------------------------------------------------------------------------------
Segment operating profit 41,596 31,367 103,188 68,736
General corporate expense (2,270) (2,465) (6,981) (7,077)
- ---------------------------------------------------------------------------------------
Operating profit 39,326 28,902 96,207 61,659
Interest income 818 470 2,030 1,318
Interest expense (1,488) (2,149) (4,663) (6,829)
Other income (expense), net (474) (1,270) (4,104) (2,426)
- ---------------------------------------------------------------------------------------
Income before income taxes 38,182 25,953 89,470 53,722
Provision for income taxes 13,168 10,640 32,657 22,025
- ---------------------------------------------------------------------------------------
Net income $ 25,014 15,313 56,813 31,697
=======================================================================================
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
Net income totaled $25.0 million or $.66 per share in the third quarter of
1994 compared with $15.3 million or $.41 per share in the third quarter of
1993. Operating profit for the 1994 third quarter increased to $39.3 million
from $28.9 million in the prior year quarter. The increase in net income and
operating profit for the 1994 third quarter compared with the same period of
1993 was largely attributable to improved earnings for each of the services
segments. In addition, net income for the 1994 third quarter was positively
affected by lower net interest expense and lower other nonoperating expenses
compared with the same period last year. The current year quarter also
benefitted from a lower effective tax rate due to increased utilization of tax
credits.
Revenues for the 1994 third quarter increased $83.3 million compared with the
1993 third quarter, of which $57.2 million was from Burlington, $20.8 million
was from Brink's and $5.3 million was from BHS. Operating expenses and
selling general and administrative expenses for the 1994 third quarter
increased $71.9 million compared with the same period last year, of which
$49.7 million was from Burlington, $18.6 million was from Brink's and $3.8
million was from BHS, partially offset by a $.2 million decrease in general
corporate expenses.
Net income totaled $56.8 million or $1.50 per share in the first nine months
of 1994 compared with $31.7 million or $.86 per share in the same period of
1993. Operating profit for the first nine months of 1994 increased to $96.2
million from $61.7 million in the prior year nine month period. The increase
in net income and operating profit for the first nine months of 1994 compared
with the same period of 1993 was largely attributable to improved earnings for
each of the services segments. Net income also benefitted from lower net
interest expense and a lower effective tax rate due to increased utilization
of tax credits, partially offset by higher other nonoperating expenses
compared with the same period last year.
Revenues for the first nine months of 1994 increased $207.8 million compared
with the first nine months of 1993, of which $149.7 million was from
Burlington, $42.4 million was from Brink's and $15.7 million was from BHS.
Operating expenses and selling general and administrative expenses for the
first nine months of 1994 increased $171.2 million compared with the same
period last year, of which $122.4 million was from Burlington, $37.4 million
was from Brink's and $11.5 million was from BHS, partially offset by a $.2
million decrease in general corporate expenses.
Burlington Air Express Inc. ("Burlington")
- ------------------------------------------
Operating profit in the third quarter of 1994 for Burlington aggregated $22.2
million, a $7.1 million increase compared with $15.1 million recorded in the
third quarter of 1993. Worldwide revenues rose 22% to $311.9 million from
$254.8 million in the prior year. The $57.1 million increase in revenues
resulted primarily from higher volume in both domestic and international
markets. Increased revenues from higher volumes were partially offset by
lower average yields (revenues per pound). Total weight shipped worldwide
increased 23% to 315.7 million pounds from 256.3 million pounds in the same
period a year earlier. Global average yield decreased 1% or $.01 to $.99 per
pound in the third quarter of 1994 compared with the same period a year
earlier, whereas, total cost decreased 2% or $.02 to $.92 per pound for the
same period. Operating expenses increased largely from the increased volume
of business, while selling, general and administrative expenses decreased
slightly compared to the same period last year.
Operating profit in the Americas' region benefitted from strong growth in the
North American market for heavy airfreight, increased market share and a shift
in mix towards Burlington's premium next-day service. Domestic weight shipped
increased 20% over the third quarter of 1993. Domestic pricing remains below
last year's level, but has stabilized partly as a result of the price increase
program which was instituted in the first quarter of 1994. Export volumes
also increased while pricing for U.S. exports continued to be negatively
impacted by a highly competitive pricing environment.
During the 1994 third quarter, Burlington implemented a 20% expansion of its
North American private fleet capacity, through the addition of five jet cargo
aircraft, including three DC8's and two B727's, under relatively short-term
leases. This expansion provides additional capacity in existing and new next
morning markets. During the quarter, Burlington began next morning service to
four new U.S. locations and increased service to fourteen other markets.
Foreign operating results in the current year quarter remained comparable with
the prior year quarter with results in the Pacific region decreasing slightly
and results in the Atlantic region increasing slightly. Although foreign
operations also benefitted from a 28% increase in international weight
shipped, the impact of increased volumes was more than offset by lower yields
and additional costs incurred in connection with providing complete global
logistics services. Decreased yields continue to reflect intense competition
with many freight forwarders seeking to maintain market share.
Operating profit in the first nine months of 1994 for Burlington was $52.0
million, a $27.4 million increase over the $24.6 million profit reported in
the first nine months of 1993. Worldwide revenues rose 21% to $875.7 million
in the current year period from $726.0 million in the first nine months of the
prior year. The $149.7 million increase in revenues resulted principally from
higher volume in both domestic and international markets. Increased revenues
from higher volumes were partially offset by lower average yields. Total
weight shipped worldwide increased 23% to 907.0 million pounds in the first
nine months of 1994 from 734.5 million pounds in the same period a year
earlier. Global average yield decreased 2% or $.02 to $.97 per pound in the
first nine months of 1994 compared with the same period a year earlier,
whereas, total cost decreased 5% or $.05 to $.91 per pound for the same
period. Operating expenses and selling, general and administrative expenses
also increased in the first nine months of 1994 compared with the first nine
months of 1993 largely resulting from the increased volume of business.
Operating profit in the Americas' region for the nine months of 1994 benefit-
ted from North American volume increases, a significant portion of which was
from strong shipping levels. Higher volume, in part, also reflects the impact
of the 24 day Teamsters strike which occurred during the second quarter of
1994. Export volumes also increased during the first nine months of 1994,
while pricing for U.S. exports has been impacted by competitors' aggressive
pricing on new business. Operating profit in the Americas region also
benefitted from increased capacity as a result of the fourth quarter 1993
expansion of Burlington's airfreight hub in Toledo, Ohio, which assisted in
increasing efficiency as well as the third quarter 1994 fleet expansion which
provided additional capacity in existing and new next morning markets. Gains
for Americas' operations from increased business volume and efficiencies were
partially offset by decreased average yields in the first nine months of 1994.
Average yields continue to reflect a highly competitive pricing environment.
Although domestic pricing remains slightly below last years level, pricing has
stabilized partly as a result of the price increase program which was insti-
tuted in the first quarter of 1994.
Foreign operating results in the first nine months of the current year
decreased from the 1993 level. The benefit of increased volumes was more than
offset by lower yields and additional costs incurred in connection with
offering complete global logistics services.
Brink's, Incorporated ("Brink's")
- ---------------------------------
Brink's operating profit increased $1.5 million to $11.1 million in the third
quarter of 1994 from $9.6 million in the third quarter of 1993 with an
increase in revenues of $20.9 million, partially offset by increases in
operating expenses and selling, general and administrative expenses of $18.6
million and a decrease in other operating income of $.8 million.
Operating results in North America continued at a strong pace in the 1994
third quarter, with revenue increasing $8.5 million or 11% to $85.7 million
and operating profit increasing $.5 million to $6.2 million or 10% over the
prior year's third quarter. The improvement principally reflected increased
earnings from the armored car and coin businesses.
Revenue from international subsidiaries increased $12.3 million or 27% to
$58.2 million in the third quarter of 1994, while operating earnings from
international subsidiaries and affiliates increased $1.0 million or 25% to
$5.0 million compared with the 1993 third quarter. The increase in interna-
tional operating earnings for the quarter was primarily due to improved
results reported by wholly-owned operations in Brazil. Brazil's increased
earnings were due in large part to the significant volume of special shipments
of the new Brazilian currency introduced on July 1, 1994. The large volume of
special shipments will not continue beyond the third quarter. The current
year third quarter also benefitted, to a lesser extent, from increased volume
due to the growth of money in circulation and price increases obtained earlier
in the year to defray the substantially higher security costs made necessary
by the dramatic increase in attacks on the armored car industry in Brazil. In
the 1994 third quarter operating profit from international subsidiaries and
affiliates also included increases for operations in Israel (70% owned),
Mexico (20% owned) and Colombia (46.5% owned), partially offset by lower
operating results in Holland (65% owned), France (38% owned), Ireland (50%
owned) and Chile (53.1% owned). Results for Brink's 20% owned Mexican
affiliate reflected the benefits of cost-cutting efforts implemented in late
1993 and early 1994.
Brink's operating profit increased $2.8 million to $27.5 million in the first
nine months of 1994 from $24.7 million in the first nine months of 1993 with
an increase in revenues of $42.4 million, partially offset by increases in
operating expenses and selling, general and administrative expenses of $37.5
million and a decrease in other operating income of $2.1 million.
The increase in revenues and operating profit in the first nine months of 1994
was largely due to North American operations. Revenue from North American
operations increased $27.8 million or 13% to $247.5 million and operating
profit increased $2.7 million or 21% to $15.6 million. The increase in
operating profit was largely attributable to increases from air courier and
armored car operations. Operating profit from North American based ATM, coin
wrapping and diamond and jewelry operations also increased compared with 1993
results, but were partially offset by decreased results for currency process-
ing operations.
Revenue from international subsidiaries increased $14.6 million or 11% to
$148.3 million, while operating earnings from international subsidiaries and
affiliates of $11.9 million remained comparable to earnings for the prior year
period. Operating profit in the first nine months of 1994 was positively
affected by increases for operations in Brazil, Israel and the United Kingdom,
partially offset by declines reported in Holland, France, Mexico and Chile.
Brazil's earnings were augmented by the large volume of special shipments of
the new Brazilian currency as well as increased volume due to the growth of
money in circulation during the third quarter of 1994. The nine month results
for Brazil also included price increases obtained during the second quarter to
defray the substantially higher security costs made necessary by the dramatic
increase in attacks on the armored car industry in Brazil. Results for
Brink's Mexican affiliate were impacted by the local economic recession,
restructuring costs which included employee severance costs, and strengthening
competition particularly during the first quarter of the year.
Brink's Home Security, Inc. ("BHS")
- -----------------------------------
BHS operating profit increased $1.5 million to $8.2 million in the third
quarter of 1994 from $6.7 million in the prior year quarter. In the first
nine months of 1994, operating profit increased $4.2 million to $23.7 million
from $19.5 million in the first nine months of 1993. The increase in operat-
ing profit for the third quarter and first nine months of 1994 compared to the
similar periods in 1993 reflected higher monitoring revenues due to an average
subscriber base that was 23% and 22% higher for the quarter and year to date
1994, respectively, compared to similar periods in 1993, slightly offset by
higher account servicing and administrative costs. Net new subscribers
totaled 13,500 and 43,600 in the third quarter and first nine months of 1994,
respectively, compared with 10,900 and 30,500 in the third quarter and first
nine months of 1993, respectively. Subscribers at September 30, 1994 totaled
303,200.
Foreign Operations
- ------------------
A portion of the Services Group's financial results is derived from activities
in several foreign countries, each with a local currency other than the U.S.
dollar. Since the financial results of the Services Group are reported in
U.S. dollars, they are affected by the changes in the value of the various
foreign currencies in relation to the U.S. dollar. The Services Group's
international activity is not concentrated in any single currency, which
limits the risks of foreign rate fluctuations. In addition, foreign currency
rate fluctuations may adversely affect transactions which are denominated in
currencies other than the functional currency. The Services Group routinely
enters into such transactions in the normal course of its business. Although
the diversity of its foreign operations limits the risks associated with such
transactions, the Company, on behalf of the Services Group, uses foreign
exchange forward contracts to hedge the risks associated with certain transac-
tions denominated in currencies other than the functional currency. Realized
and unrealized gains and losses on these contracts are deferred and recognized
as part of the specific transaction hedged. In addition, cumulative transla-
tion adjustments relating to operations in countries with highly inflationary
economies are included in net income, along with all transaction gains or
losses for the period. Brink's subsidiaries in Brazil and Israel operate in
such highly inflationary economies.
Additionally, the Services Group is subject to other risks customarily
associated with doing business in foreign countries, including economic
conditions, controls on repatriation of earnings and capital, nationalization,
expropriation and other forms of restrictive action by local governments. The
future effects, if any, of such risks on the Services Group cannot be predict-
ed.
Corporate Expenses
- ------------------
A portion of the Company's corporate general and administrative expenses and
other shared services has been allocated to the Services Group based on
utilization and other methods and criteria which management believes to be
equitable and a reasonable estimate of such expenses as if the Services Group
operated on a stand alone basis. These allocations were $2.3 million and $2.5
million for the third quarter of 1994 and 1993, respectively, and $7.0 million
and $7.1 million for the first nine months of 1994 and 1993, respectively.
General corporate expenses in the 1993 third quarter and nine month periods
included costs incurred for the Company's reclassification of its common stock
into two classes.
Other Operating Income
- ----------------------
Other operating income decreased $1.0 million to $1.5 million in the 1994
third quarter from $2.5 million in the 1993 third quarter and decreased $2.0
million to $6.1 million in the first nine months of 1994 from $8.1 million in
the first nine months of 1993. Other operating income consists primarily of
equity earnings of foreign affiliates. These earnings, which are primarily
attributable to equity affiliates of Brink's, amounted to $.8 million and $1.6
million for the third quarter of 1994 and 1993, respectively, and $4.2 million
and $6.3 million for the first nine months of 1994 and 1993, respectively.
Interest Expense
- ----------------
Interest expense for the third quarter of 1994 decreased $.7 million to $1.5
million from $2.2 million in the third quarter of 1993 and decreased $2.1
million to $4.7 million in the first nine months of 1994 from $6.8 million in
the first nine months of 1993. The decreases were primarily due to signifi-
cantly lower average borrowings, a portion of which resulted from the redemp-
tion in April 1994 of the Company's 9.2% Convertible Subordinated Debentures.
Other Income (Expense), Net
- ---------------------------
Other net expense for the third quarter of 1994 decreased $.8 million to a net
expense of $.5 million from $1.3 million in the third quarter of 1993 and for
the first nine months of 1994 increased $1.7 million to a net expense of $4.1
million from $2.4 million in the first nine months of 1993. Other operating
expense in the first nine months of 1994 included expenses of $1.2 million
recognized in the 1994 first quarter on the Company's redemption of its 9.2%
Convertible Subordinated Debentures.
FINANCIAL CONDITION
- -------------------
A portion of the Company's corporate assets and liabilities has been attribut-
ed to the Services Group based upon utilization of the shared services from
which assets and liabilities are generated, which management believes to be
equitable and a reasonable estimate of the asset and liabilities which would
be generated if the Services Group operated on a stand alone basis.
Cash Provided by Operations
- ---------------------------
Cash provided by operating activities for the first nine months of 1994
totaled $118.5 million compared with $45.8 million in the first nine months of
1993. The increase in 1994 compared with 1993 was due to the increase in net
income for the current year period and a significant increase in net cash
provided by operating assets and liabilities. In accordance with the tax
allocation policy, cash provided by operations in the first nine months of
1994 was net of $13.5 million of cash tax payments made by the Services Group
to the Minerals Group for utilization of tax benefits generated by the
Minerals Group.
Capital Expenditures
- --------------------
Cash capital expenditures for the first nine months of 1994 totaled $53.7
million, excluding equipment expenditures that have been or are expected to be
financed through capital and operating leases, and any acquisition expendi-
tures. Of the $53.7 million of cash capital expenditures for the first nine
months of 1994, $17.1 million was made by Burlington, $11.3 million was made
by Brink's, $25.2 million was made by BHS and $.1 million was attributed to
the Services Group for corporate expenditures. Expenditures incurred by BHS
in the first nine months of 1994 were primarily for customer installations,
representing the expansion in the subscriber base. For the full year 1994,
capital expenditures excluding expenditures that have been or are expected to
be financed through capital and operating leases and acquisition expenditures,
are estimated to approximate $75 million.
Financing
- ---------
The Services Group intends to fund its capital expenditure requirements during
the remainder of 1994 primarily with anticipated cash flows from operating
activities and through operating and capital leases if the latter are finan-
cially attractive. Shortfalls, if any, will be financed through the Company's
revolving credit agreements or short-term borrowing arrangements or borrowings
from the Minerals Group. In March 1994, the Company entered into a $350
million revolving credit agreement with a syndicate of banks (the "New
Facility"), replacing the Company's previously existing $250 million of
revolving credit agreements. The New Facility includes a $100 million five-
year term loan, which matures in March 1999. The New Facility also permits
additional borrowings, repayments and reborrowings of up to an aggregate of
$250 million until March 1999. As of September 30, 1994, borrowings of $100
million were outstanding under the five-year term loan portion of the New
Facility with no additional borrowings outstanding under the remainder of the
facility. Of the total amount outstanding under the New Facility $23.4
million was attributed to the Services Group.
Debt
- ----
Cash used for external debt repayments and net lending to the Minerals Group,
net of borrowings totaled $46.2 million. The amount of the $100 million term
loan attributed to the Services Group was $23.4 million at September 30, 1994.
Net payments to the Minerals Group of $42.2 million represent repayment of the
December 31, 1993 balance of $13.3 million and additional lending of $28.9
million to the Minerals Group.
On April 15, 1994, the Company redeemed all outstanding 9.2% Convertible
Subordinated Debentures due July 1, 2004. Such debt had been attributed to
the Services Group. The principal amount outstanding was $27.8 million and
the premium paid to call the debt totaled $.8 million. The Company used cash
provided under its revolving credit agreements to redeem the debentures. The
premium paid in addition to other charges related to the redemption are
included in the Statement of Operations for the nine months ended September
30, 1994.
Capitalization
- --------------
Since the approval of the Services Stock Proposal, capitalization of the
Services Group has been affected by all share activity related to Services
Stock.
In 1993, the Board of Directors authorized a new share repurchase program
under which up to 1,250,000 shares of Services Stock and 250,000 shares of
Minerals Stock may be repurchased. As of September 30, 1994, a total of
142,500 shares of Services Stock had been acquired pursuant to the authoriza-
tion, all of which was acquired in 1994 at an aggregate cost of $3.4 million.
Dividends
- ---------
The Board of Directors intends to declare and pay dividends on Services Stock
based on earnings, financial condition, cash flow and business requirements of
the Services Group. Since the Company remains subject to Virginia law limita-
tions on dividends and to dividend restrictions in its public debt and bank
credit agreements, losses by the Minerals Group could affect the Company's
ability to pay dividends in respect of stock relating to the Services Group.
As a result of the Company's issuance in January 1994 of 161,000 shares of a
new series of preferred stock, convertible into Minerals Stock, the Company
pays an annual cumulative dividend of $31.25 per share payable quarterly, in
cash, in arrears, out of all funds of the Company legally available therefor,
when, and if declared by the Board of Directors of the Company which commenced
March 1, 1994. Such stock, which is attributable to the Minerals Group, also
bears a liquidation preference of $500 per share, plus an amount equal to
accrued and unpaid dividends thereon.
During the first nine months of 1994, the Board of Directors declared and the
Company paid cash dividends of 15 cents per share of Services Stock. On an
equivalent basis, during the first nine months of 1993 the Company paid
dividends of 14.1 cents per share of Services Stock.
<TABLE>
Pittston Minerals Group
BALANCE SHEETS
(In thousands)
<CAPTION>
Sep. 30, Dec. 31,
ASSETS 1994 1993
- ----------------------------------------------------------------------------------
<S> <C> <C>
Current assets: (Unaudited)
Cash and cash equivalents $ 6,072 2,141
Short-term investments, at lower of cost or market 22,517 21,065
Accounts receivable (net of estimated amount
uncollectible: 1994 - $2,399; 1993 - $2,295) 98,889 84,978
Receivable - Pittston Services Group - 19,098
Inventories, at lower of cost or market:
Coal 25,984 18,649
Other 4,851 2,271
- ----------------------------------------------------------------------------------
30,835 20,920
Prepaid expenses 9,373 8,235
Deferred income taxes 28,573 30,723
- ----------------------------------------------------------------------------------
Total current assets 196,259 187,160
Property, plant and equipment, at cost (net of
accumulated depreciation, depletion and amortization:
1994 - $151,581; 1993 - $205,447) 220,318 181,745
Deferred pension assets 75,512 74,641
Deferred income taxes 112,829 76,887
Coal supply contracts 92,627 35,462
Intangibles, net 84,371 1,408
Receivable - Pittston Services Group 7,927 14,709
Other assets 38,418 34,235
- ----------------------------------------------------------------------------------
Total assets $828,261 606,247
==================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 359 30
Accounts payable 73,174 50,383
Payable - Pittston Services Group 10,930 -
Accrued liabilities 153,104 124,421
- ----------------------------------------------------------------------------------
Total current liabilities 237,567 174,834
Long-term debt, less current maturities 77,432 279
Postretirement benefits other than pensions 214,319 207,416
Workers' compensation and other claims 130,391 118,502
Deferred income taxes 5,397 -
Other liabilities 179,438 130,073
Shareholder's equity (16,283) (24,857)
- ----------------------------------------------------------------------------------
Total liabilities and shareholder's equity $828,261 606,247
==================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
PITTSTON MINERALS GROUP
STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
- ------------------------------------------------------------------------------------------
1994 1993 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $210,142 169,040 589,033 511,488
- -------------------------------------------------------------------------------------------
Cost of sales 199,372 158,975 578,197 481,473
Restructuring and other charges - - 90,806 -
Selling, general and administrative
expenses 9,309 8,814 27,544 25,899
- -------------------------------------------------------------------------------------------
Total costs and expenses 208,681 167,789 696,547 507,372
- -------------------------------------------------------------------------------------------
Other operating income 6,093 2,476 12,351 7,734
- -------------------------------------------------------------------------------------------
Operating profit (loss) 7,554 3,727 (95,163) 11,850
Interest income 38 121 138 555
Interest expense (1,683) (84) (3,821) (1,305)
Other income (expense), net (220) (145) (657) (412)
- -------------------------------------------------------------------------------------------
Income (loss) before income taxes 5,689 3,619 (99,503) 10,688
Provision (credit) for income taxes (507) (2,313) (38,370) (1,156)
- -------------------------------------------------------------------------------------------
Net income (loss) 6,196 5,932 (61,133) 11,844
Preferred stock dividends (541) - (2,804) -
- -------------------------------------------------------------------------------------------
Net income (loss) attributed
to common shares $ 5,655 5,932 (63,937) 11,844
===========================================================================================
Per Pittston Minerals Group common share:
Net income (loss):
Primary $ .74 .80 (8.44) 1.61
- -------------------------------------------------------------------------------------------
Fully diluted $ .61 .79 (8.44) 1.60
- -------------------------------------------------------------------------------------------
Cash dividends $ .1625 .1625 .4875 .4579
- -------------------------------------------------------------------------------------------
Average shares outstanding of Pittston
Minerals Group Common Stock:
Primary 7,605 7,386 7,578 7,343
- -------------------------------------------------------------------------------------------
Fully diluted 10,080 7,544 7,578 7,424
===========================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
PITTSTON MINERALS GROUP
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30
- ---------------------------------------------------------------------------------------
1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (61,133) 11,844
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Noncash charges and other write-offs 46,487 -
Depreciation, depletion and amortization 31,135 20,661
Provision (credit) for deferred income taxes (19,495) 2,834
Credit for pensions, noncurrent (871) (1,921)
Provision for uncollectible accounts receivable 132 518
Equity in earnings of unconsolidated affiliates,
net of dividends received (130) (497)
Other operating, net (2,993) (661)
Change in operating assets and liabilities net of
effects of acquisitions and dispositions:
Increase in accounts receivable (14,869) (18,252)
Decrease (increase) in inventories (4,101) 1,084
Increase in prepaid expenses (1,459) (2,001)
Increase (decrease) in accounts payable
and accrued liabilities (1,243) 14,688
Decrease (increase) in other assets 1,327 (1,284)
Increase (decrease) in other liabilities 59 (2,882)
Increase (decrease) in workers' compensation and
other claims, noncurrent 7,255 (10,156)
Other, net (203) (410)
- ---------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (20,102) 13,565
- ---------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (17,614) (16,695)
Property, plant and equipment pending lease financing (225) (3,449)
Disposal of property, plant and equipment 4,185 1,876
Acquisitions and related contingent payments (157,231) (19)
Other, net 8,206 9,935
- ---------------------------------------------------------------------------------------
Net cash used by investing activities (162,679) (8,352)
- ---------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 76,566 -
Reductions of debt (382) -
Payments (to) from - Services Group 42,196 (1,998)
Repurchase of stock (3,767) (185)
Proceeds from exercise of stock options 1,211 1,058
Proceeds from the sale of stock to SIP - 44
Proceeds from sale of stock to Services Group 253 48
Proceeds from the issuance of preferred stock,
net of cash expenses 77,359 -
Cost of Services Stock Proposal (2) (1,145)
Dividends paid (6,722) (3,361)
Net cash to the Company - (896)
- ---------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 186,712 (6,435)
- ---------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 3,931 (1,222)
Cash and cash equivalents at beginning of period 2,141 1,990
- ---------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 6,072 768
=======================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PIITSTON MINERALS GROUP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
(1) The approval on July 26, 1993 (the "Effective Date"), by the shareholders
of The Pittston Company (the "Company") of the Services Stock Proposal,
as described in the Company's proxy statement dated June 24, 1993,
resulted in the reclassification of the Company's common stock. The
outstanding shares of Company common stock were redesignated as Pittston
Services Group Common Stock ("Services Stock") on a share-for-share basis
and a second class of common stock, designated as Pittston Minerals Group
Common Stock ("Minerals Stock"), was distributed on the basis of one-
fifth of one share of Minerals Stock for each share of the Company's
previous common stock held by shareholders of record on July 26, 1993.
Minerals Stock and Services Stock provide shareholders with separate
securities reflecting the performance of the Pittston Minerals Group (the
"Minerals Group") and the Pittston Services Group (the "Services Group")
respectively, without diminishing the benefits of remaining a single
corporation or precluding future transactions affecting either group.
Accordingly, all stock and per share data prior to the reclassification
have been restated to reflect the reclassification. The primary impacts
of this restatement are as follows:
* Net income per common share has been included in the Statements of
Operations. For the purpose of computing net income per common share
of Minerals Stock, the number of shares of Minerals Stock are assumed
to be one-fifth of the total number of shares of the Company's common
stock.
* All financial impacts of purchases and issuances of the Company's
common stock prior to the Effective Date have been attributed to each
Group in relation of their respective common equity to the Company's
common stock. Dividends paid by the Company were attributed to the
Services and Minerals Groups in relation to the initial dividends paid
on the Services Stock and the Minerals Stock.
The Company, at any time, has the right to exchange each outstanding
share of Minerals Stock for shares of Services Stock having a fair market
value equal to 115% of the fair market value of one share of Minerals
Stock. In addition, upon the sale, transfer, assignment or other
disposition, whether by merger, consolidation, sale or contribution of
assets or stock or otherwise, of all or substantially all of the proper-
ties and assets of the Minerals Group to any person, entity or group
(with certain exceptions), the Company is required to exchange each
outstanding share of Minerals Stock for shares of Services Stock having a
fair market value equal to 115% of the fair market value of one share of
Minerals Stock. Shares of Services Stock are not subject to either
optional or mandatory exchange.
Holders of Services Stock have one vote per share. Holders of Minerals
Stock have one vote per share subject to adjustment on January 1, 1996,
and on each January 1 every two years thereafter based upon the relative
fair market values of one share of Minerals Stock and one share of
Services Stock on each such date. Accordingly, beginning on January 1,
1996, each share of Minerals Stock may have more than, less than or
continue to have exactly one vote. Holders of Services Stock and
Minerals Stock vote together as a single voting group on all matters as
to which all common shareholders are entitled to vote. In addition, as
prescribed by Virginia law, certain amendments to the Company's Restated
Articles of Incorporation affecting, among other things, the designation,
rights, preferences or limitations of one class of common stock, or any
merger or statutory share exchange, must be approved by the holders of
such class of common stock, voting as a separate voting group, and, in
certain circumstances, may also have to be approved by the holders of the
other class of common stock, voting as a separate voting group.
In the event of a dissolution, liquidation or winding up of the Company,
the holders of Services Stock and Minerals Stock will receive the funds
remaining for distribution, if any, to the common shareholders on a per
share basis in proportion to the total number of shares of Services Stock
and Minerals Stock, respectively, then outstanding to the total number of
shares of both classes of common stock then outstanding.
The financial statements of the Minerals Group include the balance
sheets, results of operations and cash flows of the Coal and Mineral
Ventures operations of the Company, and a portion of the Company's
corporate assets and liabilities and related transactions which are not
separately identified with operations of a specific segment. The
Minerals Group's financial statements are prepared using the amounts
included in the Company's consolidated financial statements. Corporate
allocations reflected in these financial statements are determined based
upon methods which management believes to be an equitable allocation of
such expenses and credits.
The Company provides holders of Minerals Stock separate financial
statements, financial reviews, descriptions of business and other
relevant information for the Minerals Group in addition to consolidated
financial information of the Company. Notwithstanding the attribution of
assets and liabilities (including contingent liabilities) between the
Minerals Group and the Services Group for the purpose of preparing their
financial statements, this attribution and the change in the capital
structure of the Company as a result of the approval of the Services
Stock Proposal did not result in any transfer of assets and liabilities
of the Company or any of its subsidiaries. Holders of Minerals Stock are
shareholders of the Company, which continues to be responsible for all
its liabilities. Therefore, financial developments affecting the
Minerals Group or the Services Group that affect the Company's financial
condition could affect the results of operations and financial condition
of both Groups. Accordingly, the Company's consolidated financial
statements must be read in connection with the Minerals Group's financial
statements.
(2) Minerals stock's fully diluted earnings per share computation for the
nine months ended September 30, 1994, is the same as primary earnings per
share because it is antidilutive, decreasing the loss per share.
(3) The amounts of depreciation, depletion and amortization of property,
plant and equipment in the 1994 third quarter and nine month periods
totaled $5,890 ($6,430 in 1993) and $18,202 ($17,414 in 1993), respec-
tively.
(4) Cash payments made for interest and income taxes (net of refunds re-
ceived) were as follows:
Third Quarter Nine Months
--------------------------------------------------------
1994 1993 1994 1993
--------------------------------------------------------
Interest $ 1,828 754 3,344 2,100
========================================================
Income taxes $(5,497) 1,526 (12,870) (123)
========================================================
In accordance with the tax allocation policy, cash income taxes paid was
net of amounts received from the Services Group for utilization of tax
benefits generated by the Minerals Group totalling $5,689 and $13,489 for
the quarter and nine months ended September 30, 1994, respectively.
There were no such receipts from the Services Group for the quarter ended
September 30, 1993, and for the nine months ended September 30, 1993,
receipts totalled $2,161.
During the nine months ended September 30, 1994, the Minerals Group
acquired one business for an aggregate purchase price of $157,231. See
Note 5.
During the nine months ended September 30, 1994, capital lease obliga-
tions of $746 were incurred for leases of property, plant and equipment.
In December 1993, the Minerals Group sold the majority of the assets of
its captive mine supply company. Cash proceeds of $8,400 from the sale
was received on January 2, 1994, and has been included in "Cash flow from
investing activities: Other, net".
During the nine month period ended September 30, 1993, the Minerals Group
sold a coal preparation plant and related interest in land, equipment and
facilities for mineral reserves with a fair market value of $13,300 and
cash of $10,700. The cash proceeds of $10,700 less $1,001 in expenses
related to the transaction have been included in "Cash flow from invest-
ing activities: Other, net".
(5) On January 14, 1994, a wholly owned indirect subsidiary of the Minerals
Group completed the acquisition of substantially all of the coal mining
operations and coal sales contracts of Addington Resources, Inc. for
$157,231. The acquisition has been accounted for as a purchase; accord-
ingly, the purchase price has been allocated to the underlying assets and
liabilities based on their respective estimated fair values at the date
of acquisition. Based on preliminary estimates, subject to finalization
by year-end, the fair value of assets acquired was $180,017 and liabili-
ties assumed was $107,174. The excess of the purchase price over the
fair value of the assets acquired and liabilities assumed was $84,388 and
is being amortized over a period of 40 years. The results of operations
of the acquired company have been included in the Minerals Group's
results of operations since the date of acquisition.
The acquisition was financed by the issuance of $80,500 of a new series
of the Company's preferred stock, convertible into Minerals Stock, and
additional debt under existing credit facilities. This financing has
been attributed to the Minerals Group. In March 1994, the additional
debt incurred for this acquisition was refinanced with a five-year term
loan.
The following pro forma results, however, assume that the acquisition and
related financing had occurred at the beginning of the periods presented.
The unaudited pro forma data below are not necessarily indicative of
results that would have occurred if the transaction were in effect for
the nine month periods ended September 30, 1994 and 1993 and the quarter
ended September 30, 1993, nor are they indicative of the future results
of operations of the Minerals Group.
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
-----------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-----------------------------------------------------------------------------
1993 1994 1993
-----------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales and operating revenues $243,382 598,959 706,364
============================================================================
Net income (loss) 14,956 (60,709) 26,310
============================================================================
Pittston Minerals Group:
Net income (loss) attributed to
common shares: $ 13,699 (63,765) 22,537
----------------------------------------------------------------------------
Net income (loss) per common share:
Primary $ 1.85 (8.41) 3.07
----------------------------------------------------------------------------
Fully diluted $ 1.49 (8.41) 2.65
----------------------------------------------------------------------------
Average common shares outstanding:
Primary 7,386 7,578 7,343
----------------------------------------------------------------------------
Fully diluted 10,046 7,578 9,926
============================================================================
</TABLE>
(6) The Company has authority to issue up to 2,000 shares of preferred
stock, par value $10 per share. In January 1994, the Company issued 161
shares of its $31.25 Series C Cumulative Convertible Preferred Stock,
par value $10 per share (the "Convertible Preferred Stock"). The
Convertible Preferred Stock pays an annual cumulative dividend of $31.25
per share payable quarterly, in cash, in arrears, out of all funds of
the Company legally available therefor, when, as and if declared by
the Board of Directors of the Company, and bears a liquidation
preference of $500 per share, plus an amount equal to accrued and
unpaid dividends thereon. Each share of the Convertible Preferred
Stock is convertible at the option of the holder at any time after
March 11, 1994, unless previously redeemed or, under certain circum-
stances, called for redemption, into shares of Minerals Stock at a
conversion price of $32.175 per share of Minerals Stock, subject to
adjustment in certain circumstances. Except under certain circum-
stances, the Convertible Preferred Stock is not redeemable prior to
February 1, 1997. On and after such date, the Company may at its
option, redeem the Convertible Preferred Stock, in whole or in part,
for cash initially at a price of $521.875 per share, and thereafter
at prices declining ratably annually on each February 1 to an amount
equal to $500 per share on and after February 1, 2004, plus in each
case an amount equal to accrued and unpaid dividends on the date of
redemption. Except under certain circumstances or as prescribed by
Virginia law, shares of the Convertible Preferred Stock are nonvot-
ing. Other than the Convertible Preferred Stock no shares of pre-
ferred stock are presently issued or outstanding. In July 1994, the
Company repurchased 8 shares of Convertible Preferred Stock at a
total cost of $3,366 under a repurchase program that authorizes
repurchases of up to $15,000. The excess of the carrying value of
the Convertible Preferred Stock over the purchase price was $632 and
reduced the amount of preferred dividends deducted from net income to
arrive at net income available to common shareholders.
(7) As a result of the continuing long-term decline in the metallurgical
coal markets, which was evidenced by severe price reductions, the
Minerals Group accelerated its strategy of decreasing its exposure to
these markets by reducing its metallurgical coal production and increas-
ing its production and sales of lower cost surface mineable steam coal.
After a review of the economic viability of the remaining metallurgical
coal assets, management determined that four underground mines were no
longer economically viable and would be closed resulting in significant
economic impairment to three related preparation plants. In addition,
it was determined that one surface steam coal mine, the Heartland mine,
which provides coal to Alabama Power under a long-term sales agreement,
would be closed due to rising costs caused by unfavorable geological
conditions.
As a result of these decisions, the Minerals Group incurred pre-tax
charges of $90.8 million in the first quarter of 1994 which included a
reduction in the carrying value of these assets and related accruals for
mine closure costs. These charges included asset writedowns of $46.5
million which reduced the book carrying value of such assets to what
management believes to be their net realizable value based on either
estimated sales or leasing of such property to unrelated third parties.
In addition, the charges included $3.8 million for required lease
payments owed to lessors for machinery and equipment that would be idled
as a result of the mine and facility closures. The charges also
included $19.3 million for mine and plant closure costs which represent-
ed estimates for reclamation and other environmental costs to be
incurred to bring the properties in compliance with federal and state
mining and environmental laws. This accrual is required due to the
premature closing of the mines. The accrual also included $21.2 million
in contractually or statutorily required employee severance and other
benefit costs associated with termination of employees at these facili-
ties and costs associated with inactive employees at these facilities.
Such employee benefits include severance payments, medical insurance,
workers' compensation and other benefits and have been calculated in
accordance with contractually (collective bargaining agreements signed
by certain coal subsidiaries included in the Minerals Group) and legally
required employee severance and other benefits. In the 1994 third
quarter, the Minerals Group paid $3.4 million of these liabilities, of
which $.9 million was for idled leased equipment; $1.2 million was for
facility closure costs and $1.3 million was for terminated employee
costs. In the first nine months of 1994, $8.5 million was paid, of
which $1.3 million was for leased equipment; $2.9 million was for
facility closure costs, and $4.3 million was for terminated employee
costs.
Of the four underground mines, one has ceased coal production, one is
expected to cease coal production in the 1994 fourth quarter, while the
remaining two mines are expected to cease coal production next year.
During the second quarter of 1994 the Minerals Group reached agreement
with Alabama Power Company to transfer the coal sales contract currently
serviced by the Heartland mine to another location in West Virginia.
The Heartland mine ceased coal production during the 1994 third quarter
and final reclamation and environmental work has begun. As of the
beginning of this year, there were approximately 750 employees involved
in operations at these facilities and other administrative support. To
date, employment at these facilities has been reduced by 47% to approxi-
mately 400 employees.
Although coal production has or will cease at these mines, the Minerals
Group will incur reclamation and environmental costs for several years
to bring these properties into compliance with federal and state
environmental laws. In addition, employee termination and medical
costs will continue to be incurred for several years after the facili-
ties have been closed. The significant portion of these employee
liabilities is for statutorily provided workers' compensation costs for
inactive employees. Such benefits include indemnity and medical costs
as required under state workers' compensation laws. The long maturities
are based on continued, and in some cases lifetime, indemnity and
medical payments to injured former employees and their surviving
spouses. Management believes that the charges incurred in the first
quarter of 1994 should be sufficient to provide for these future costs
and does not anticipate material additional future charges to operating
earnings for these facilities, although continual cash funding will be
required over the next several years.
(8) Certain prior period amounts have been reclassified to conform to
current period financial statement presentation.
(9) All adjustments have been made which are, in the opinion of management,
necessary to a fair presentation of results of operations for the
periods reported herein. All such adjustments are of a normal recurring
nature.
PITTSTON MINERALS GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The financial statements of the Pittston Minerals Group (the "Minerals Group")
include the balance sheets, results of operations and cash flows of the Coal
and Mineral Ventures operations of The Pittston Company (the "Company"), and a
portion of the Company's corporate assets and liabilities and related trans-
actions which are not separately identified with operations of a specific
segment. The Minerals Group's financial statements are prepared using the
amounts included in the Company's consolidated financial statements. Corp-
orate allocations reflected in these financial statements are determined based
upon methods which management believes to be an equitable allocation of such
expenses and credits. The accounting policies applicable to the preparation
of the Minerals Group's financial statements may be modified or rescinded at
the sole discretion of the Company's Board of Directors (the "Board") without
the approval of the shareholders, although there is no intention to do so.
The Company provides to holders of the Pittston Minerals Group Common Stock
("Minerals Stock") separate financial statements, financial reviews, descrip-
tions of business and other relevant information for the Minerals Group in
addition to consolidated financial information of the Company. Notwithstand-
ing the attribution of assets and liabilities (including contingent liabili-
ties) between the Minerals Group and the Pittston Services Group (the "Servic-
es Group") for the purpose of preparing their financial statements, this
attribution and the change in the capital structure of the Company as a result
of the approval of the Services Stock Proposal, as described in the Company's
proxy statement dated June 24, 1993, did not result in any transfer of assets
and liabilities of the Company or any of its subsidiaries. Holders of
Minerals Stock are shareholders of the Company, which continues to be respon-
sible for all its liabilities. Therefore, financial developments affecting
the Minerals Group or the Services Group that affect the Company's financial
condition could affect the results of operations and financial condition of
both Groups. Accordingly, the Company's consolidated financial statements
must be read in connection with the Minerals Group's financial statements.
The following discussion is a summary of the key factors management considers
necessary in reviewing the Minerals Group's results of operations, liquidity
and capital resources. This discussion should be read in conjunction with the
financial statements and related notes of the Company.
<TABLE>
SEGMENT INFORMATION
(In thousands)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
- ------------------------------------------------------------------------------------------
1994 1993 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
Coal $205,831 165,790 577,627 500,106
Mineral Ventures 4,311 3,250 11,406 11,382
- -----------------------------------------------------------------------------------------
Net sales $210,142 169,040 589,033 511,488
=========================================================================================
Operating profit (loss):
Coal $ 8,488 6,017 (90,956) 17,306
Mineral Ventures 786 (461) 854 (148)
- -----------------------------------------------------------------------------------------
Segment operating profit (loss) 9,274 5,556 (90,102) 17,158
General corporate expense (1,720) (1,829) (5,061) (5,308)
- -----------------------------------------------------------------------------------------
Operating profit (loss) 7,554 3,727 (95,163) 11,850
Interest income 38 121 138 555
Interest expense (1,683) (84) (3,821) (1,305)
Other income (expense), net (220) (145) (657) (412)
- -----------------------------------------------------------------------------------------
Income (loss) before income taxes 5,689 3,619 (99,503) 10,688
Provision (credit) for income taxes (507) (2,313) (38,370) (1,156)
- -----------------------------------------------------------------------------------------
Net income (loss) $ 6,196 5,932 (61,133) 11,844
=========================================================================================
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
In the third quarter of 1994, the Minerals Group reported net income of $6.2
million or $.74 per share ($.61 per share on a fully diluted basis) compared
with net income of $5.9 million or $.80 per share ($.79 per share on a fully
diluted basis) in the third quarter of 1993. Operating profit for the 1994
third quarter totaled $7.6 million, or $3.9 million greater than the $3.7
million operating profit reported in the same period of last year. Operating
profit increased for both the Coal and Mineral Ventures segment with only a
slight decrease in general corporate operating expenses. Net income for the
1994 third quarter was negatively impacted by increased net interest expense
compared with the same period of last year.
For the first nine months of 1994, the Minerals Group reported a net loss of
$61.1 million or $8.44 per share and an operating loss of $95.2 million
compared with net income of $11.8 million or $1.61 per share and operating
profit of $11.9 million for the first nine months of 1993. The decrease in
both net income and operating profit for the current nine month period
compared with the same period of last year was attributable to the Coal
segment whose results included charges for asset writedowns, accruals for
costs related to facilities which are being closed and operating losses
incurred related to these facilities, which in the aggregate reduced operating
profit and net income by $90.8 million and $58.1 million, respectively.
Mineral Ventures operations reported an increase in operating profit in the
first nine months of 1994 and general corporate expenses decreased $.2 million
for the same period compared to the prior year period. The first nine months
of 1993 was adversely affected by a one-time coal litigation charge and
corporate charges related to the Company's then proposed reclassification of
its common stock into two classes. Net income for the first nine months of
1994 was also affected by greater net interest expense compared to the same
period of last year.
Coal
- ----
Coal Operations earned an operating profit of $8.5 million in the third
quarter of 1994, a $2.5 million increase over the $6.0 million recorded in the
year earlier quarter. The third quarter of 1994 included the operating
results from substantially all the coal mining operations and coal sales
contracts of Addington Resources, Inc. ("Addington"), which were acquired by
the Minerals Group on January 14, 1994. Operating profit in the current year
quarter benefitted from a $2.5 million gain on the sale of a natural gas
pipeline to a production company.
Sales volume of 7.5 million tons for the third quarter of 1994 was 37% or 2.0
million tons higher than sales volume in the third quarter of 1993. Virtually
all of the increased sales were attributable to steam coal with sales of 4.9
million tons (65% of total sales), up from 2.7 million tons (49% of total
sales) in the third quarter of 1993, while metallurgical coal sales decreased
7% from 2.8 million tons in the third quarter of 1993 to 2.6 million tons for
the third quarter of this year. Coal produced and purchased totaled 7.3
million tons in the 1994 third quarter, a 31% or 1.7 million ton increase over
the same period of 1993. The increase in coal sales and coal
produced/purchased in the third quarter of 1994 as compared with the third
quarter of 1993 is largely attributable to the Addington operations.
In the 1994 third quarter, 29% of total production was derived from deep mines
and 71% was derived from surface mines compared with 49% and 51% of deep and
surface mine production, respectively, in the 1993 third quarter. During the
1994 third quarter operations commenced at three new surface operations in
West Virginia, which are expected to produce low sulphur steam coal at a rate
of three million tons per annum.
Average coal margin (realization less current production costs of coal sold),
which was $2.09 per ton for the 1994 third quarter, decreased $.96 per ton
from the prior year third quarter with a 7% or $2.15 per ton decrease in
average realization partially offset by a 5% or $1.19 per ton decrease in
average current production costs of coal sold. The higher percentage of steam
coal sales and declines in export metallurgical coal prices contributed to the
decline in average realization. The decrease in average cost is largely due
to the shift to lower cost surface production.
Although average realization per ton in the 1994 third quarter was essentially
the same as the 1994 second quarter, average coal margin decreased $.53 per
ton on a quarter-to-quarter comparison due to higher average per ton costs.
In the 1994 third quarter, operating costs were adversely impacted by, among
other things, surface mine performance in Virginia due to the relocation of
equipment to a lower cost and more productive mine, the delay in obtaining a
mine permit and poor mining conditions at one mine as well as the continuing
integration of the Addington operations. Management is reviewing its options
of sources used to fulfill its coal sales agreements in order to prevent any
further declines in margins.
Coal Operations had an operating loss totaling $91.0 million in the first nine
months of 1994 compared with an operating profit of $17.3 million in the year
earlier nine month period. The Coal operating loss in the first nine months
of 1994 included $90.8 million of charges for asset writedowns and accruals
for costs related to facilities which are being closed (further discussed
below). In addition, the decrease compared with prior year's nine months
operating results reflected the adverse impact of the severe winter weather in
the 1994 first quarter which particularly hampered surface mine production and
river transportation. Operating profit in the first nine months of 1993 was
negatively impacted by a $1.8 million charge to settle litigation related to
the moisture content of tonnage used to compute royalty payments to the UMWA
pension and benefit funds during the period ending February 1, 1988.
Sales volume of 20.7 million tons for the first nine months of 1994 was 27% or
4.4 million tons higher than sales volume in the first nine months of 1993.
The increased sales were attributable to steam coal with sales of 13.3 million
tons (64% of total sales), up from 7.6 million tons (47% of total sales),
while metallurgical coal sales decreased 15% from 8.7 million tons to 7.4
million tons. Coal produced and purchased totaled 20.8 million tons for first
nine months of 1994, a 29% or 4.7 million ton increase over the first nine
months of 1993. The increase in coal sales and coal produced/purchased in the
first nine months of 1994 as compared with the first nine months of 1993 was
largely attributable to the Addington operations.
In the first nine months of 1994, 32% of total production was derived from
deep mines and 68% was derived from surface mines compared with 55% and 45% of
deep and surface mine production, respectively, in the first nine months of
1993.
Production in the first nine months of 1994 was adversely impacted by the
extreme cold weather and above-normal precipitation in the first quarter of
the year which resulted in a large number of lost production days and inter-
ruptions which limited output efficiencies during periods of performance.
Sales also suffered due to lost loading days and were impeded by restricted
road accessibility, particularly during the first quarter of the year. Sales
were further impacted by the lack of rail car availability and the disruption
of river barge service initially due to frozen waterways and subsequently due
to the heavy snow melt and rain, which raised the rivers above operational
levels. The severe weather during the first quarter also reduced output from
purchased coal suppliers, which hindered the ability to meet customer ship-
ments during the period. In addition to weather related difficulties,
operations in the 1994 first quarter were affected by lost business due to a
utility customer's plant closure and production shortfalls due to the with-
drawal of contract producers from the market.
Early in the year the metallurgical coal markets continued their long-term
decline with price reductions of $3.85 per ton negotiated between Canadian and
Australian producers and Japanese steel mills. During the 1994 second quarter
Coal Operations reached agreement with its major Japanese steel customers for
new three-year agreements (subject to annual price renegotiations) for
metallurgical coal shipments. Such agreements replaced sales contracts which
expired on March 31, 1994. Pricing under the new agreements for the coal year
beginning April 1, 1994 was impacted by the price reductions accepted by
foreign producers, but was largely offset by modifications in coal quality
specification which allows the Coal Operation flexibility in sourcing and
blending the coals. Sales of metallurgical coal are expected to continue to
decrease.
As a result of the continuing long-term decline in the metallurgical coal
markets, which was evidenced by the previously discussed severe price reduc-
tions, the Coal Operations accelerated its strategy of decreasing its
exposure to these markets by reducing its metallurgical coal production and
increasing its production and sales of lower cost surface mineable steam coal.
After a review of the economic viability of the remaining metallurgical coal
assets earlier this year, management determined that four underground mines
were no longer economically viable and would be closed resulting in signifi-
cant economic impairment to three related preparation plants. In addition, it
was determined that one surface steam coal mine, the Heartland mine, which
provides coal to Alabama Power under a long-term sales agreement, would be
closed due to rising costs caused by unfavorable geological conditions.
As a result of these decisions, the Coal Operations incurred pre-tax charges
of $90.8 million in the first quarter of 1994 which included a reduction in
the carrying value of these assets and related accruals for mine closure
costs. These charges included asset writedowns of $46.5 million which reduced
the book carrying value of such assets to what management believes to be their
net realizable value based on either estimated sales or leasing of such
property to unrelated third parties. In addition, the charges included $3.8
million for required lease payments owed to lessors for machinery and equip-
ment that would be idled as a result of the mine and facility closures. The
charges also included $19.3 million for mine and plant closure costs which
represented estimates for reclamation and other environmental costs to be
incurred to bring the properties in compliance with federal and state mining
and environmental laws. This accrual is required due to the premature closing
of the mines. The accrual also included $21.2 million in contractually or
statutorily required employee severance and other benefit costs associated
with termination of employees at these facilities and costs associated with
inactive employees at these facilities. Such employee benefits include
severance payments, medical insurance, workers' compensation and other
benefits and have been calculated in accordance with contractually (collective
bargaining agreements signed by certain coal subsidiaries included in the Coal
Operations) and legally required employee severance and other benefits. In
the 1994 third quarter, the Company paid $3.4 million of these liabilities, of
which $.9 million was for idled leased equipment; $1.2 million was for
facility closure costs and $1.3 million was for terminated employee costs. In
the first nine months of 1994, $8.5 million was paid, of which $1.3 million
was for leased equipment; $2.9 million was for facility closure costs, and
$4.3 million was for terminated employee costs.
Of the four underground mines, one has ceased coal production, one is expected
to cease coal production in the 1994 fourth quarter, while the remaining two
mines are expected to cease coal production next year. During the second
quarter of 1994 the Coal Operations reached agreement with Alabama Power
Company to transfer the coal sales contract currently serviced by the Heart-
land mine to another location in West Virginia. The Heartland mine ceased
coal production during the 1994 third quarter and final reclamation and
environmental work has begun. As of the beginning of this year, there were
approximately 750 employees involved in operations at these facilities and
other administrative support. To date, employment at these facilities has
been reduced by 47% to approximately 400 employees.
As discussed previously, the effects of this strategy have been to decrease
Coal Operations' exposure to the metallurgical coal markets and to increase
its production and sales of lower cost surface mineable steam coal. For the
third quarter and first nine months of 1994, steam coal sales have risen to
approximately 65% of total coal sales up from slightly less than 50% for the
comparable periods last year. In addition, production from surface mines has
increased to 71% for the first nine months of 1994 as compared to 45% for the
same period last year. Management expects this trend to continue due to the
previously mentioned three new surface mines, which are expected to produce 3
million tons on an annual basis, that commenced operations in the third
quarter of this year. In addition, on a year-to-date basis, metallurgical
coal production has decreased to 4.7 million tons versus 6.8 million tons when
comparing 1994 to 1993.
Although coal production has or will cease at these mines, the Coal Operations
will incur reclamation and environmental costs for several years to bring
these properties into compliance with federal and state environmental laws.
In addition, employee termination and medical costs will continue to be
incurred for several years after the facilities have been closed. The
significant portion of these employee liabilities is for statutorily provided
workers' compensation costs for inactive employees. Such benefits include
indemnity and medical costs as required under state workers' compensation
laws. The long maturities are based on continued, and in some cases lifetime,
indemnity and medical payments to injured former employees and their surviving
spouses. Management believes that the charges incurred in the first quarter
of 1994 should be sufficient to provide for these future costs and does not
anticipate material additional future charges to operating earnings for these
facilities, although continual cash funding will be required over the next
several years.
The following table analyzes the changes in liabilities during 1994 for closed
facilities and follows with a discussion of their estimated maturities:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
Balance 1994 Balance
as of 1994 Cash as of
12/31/93 (a) Additions (b) Payments (c) 9/30/94
----------------------------------------------------------------------------------
(In millions)
<S> <C> <C> <C> <C>
Leased machinery and equipment 3.1 3.8 2.6 4.3
Mine and plant closure costs 28.4 19.3 6.1 41.6
Employee termination, medical
and severance costs 33.5 21.2 11.0 43.7
---------------------------------------------------------------------------------
Total 65.0 44.3 19.7 89.6
=================================================================================
</TABLE>
(a) These amounts represent the remaining liabilities for closed facilities
recorded in prior years. They relate principally to incremental facility
closing costs, including reclamation and employee benefit costs, primari-
ly workers' compensation, which will continue to be paid for several
years.
(b) These amounts represent the previously discussed accruals during the
first quarter of 1994.
(c) These amounts represent total cash payments made during the first nine
months of 1994 for all liabilities related to these facilities. Of the
total payments made, $11.2 million was for liabilities recorded in prior
years.
During the next twelve months, payment of liabilities related to these closed
facilities is expected to be approximately $21 million. The Coal Operations
estimate that the remaining liability for leased machinery and equipment will
be fully paid over the next two years. The liability for mine and plant
closure costs is expected to be satisfied over the next ten years of which
approximately 70% is expected to be paid over the first three years. The
liability for employee related costs which is primarily workers' compensation
is estimated to be 70% settled over the next five years with the balance paid
during the following five to ten years.
For the third quarter 1994, Coal Operations' closed facilities (including
those facilities for which the decision to close was made earlier this year)
increased operating profit by $.6 million, whereas for the first nine months
of 1994, these facilities incurred operating losses of $7.7 million. The
first nine months of 1994 included losses of $6.7 million incurred in the
first quarter of the year for the facilities designated for closure in 1994.
On June 21, 1994 a new collective bargaining agreement between the Coal
Operations' union companies and the UMWA was ratified by such companies' union
members. The new agreement, replaced the principal labor agreement which
expired on June 30, 1994 and will remain in effect until December 31, 1998.
This agreement continues the basic principles and provisions established in
the predecessor 1990 Agreement with respect to areas of job security, work
rules and scheduling. The new agreement provides, among other things, for
wage increases of $.40 per hour on December 15 of each of the years 1994 to
1997 and includes improvements in certain employee benefit programs.
Mineral Ventures
- ----------------
Operating profit of Mineral Ventures increased $1.2 million in the 1994 third
quarter to an operating profit of $.8 million, from an operating loss of $.4
million in the prior year third quarter. Operating profit in the 1994 third
quarter was positively impacted by a significant increase in production at the
Stawell gold mine. The Stawell gold mine in western Victoria, Australia, in
which Mineral Ventures has a 67% interest, produced 21,700 ounces in the
period compared to 16,900 ounces in the third quarter of 1993. The favorable
change in operating profit for the 1994 third quarter compared to the same
period of 1993 also reflected the fourth quarter 1993 closure of the Uley
graphite property in Australia.
In the first nine months of 1994, operating profit of Mineral Ventures
increased $1.0 million to $.9 million from a loss of $.1 million in the year
earlier nine months. Operating results in the first nine months of 1993
included costs related to the Uley graphite property which was closed in the
1994 fourth quarter. Although gold production at the Stawell gold mine
increased for the first nine months of 1994 compared with the same period a
year ago, Mineral Ventures operating results for the first nine months of 1994
were impacted by increased exploration costs in Nevada as well as higher
operating costs incurred during the 1994 first quarter as a result of an
operator accident at Stawell. The Stawell gold mine produced 57,500 ounces in
the first nine months of 1994 compared with 56,300 ounces in the comparable
period of 1993. Successful exploration efforts indicate an increase of
approximately 90,000 ounces of additional proven and probable gold reserves at
the Stawell gold mine. At September 30, 1994, remaining proven and probable
gold reserves are estimated at 307,300 ounces. Mineral Ventures is continuing
gold exploration projects in Nevada and Australia with its joint venture
partner.
Other Operating Income
- ----------------------
Other operating income for the third quarter of 1994 increased $3.6 million to
$6.1 million from $2.5 million recognized in the year earlier quarter and
increased $4.7 million to $12.4 million in the first nine months of 1994 from
$7.7 million in the first nine months of last year. Other operating income
principally includes royalty income from coal and natural gas properties and
gains and losses attributable to sales of property and equipment. The
increase in both the current year quarter and nine month period compared to
the same periods last year is largely due to the $2.5 million gain recognized
in the 1994 third quarter from the sale of the natural gas pipeline and
increased coal and natural gas royalties.
Corporate Expenses
- ------------------
A portion of the Company's corporate general and administrative expenses and
other shared services has been allocated to the Minerals Group based on
utilization and other methods and criteria which management believes to be
equitable and a reasonable estimate of such expenses as if the Minerals Group
operated on a stand alone basis. These allocations were $1.7 million and $1.8
million for the third quarter of 1994 and 1993, respectively, and $5.1 million
and $5.3 million for the first nine months of 1994 and 1993, respectively.
General corporate expenses in the third quarter and first nine months of 1993
included costs incurred for the Company's reclassification of its common stock
into two classes.
Interest Expense
- ----------------
Interest expense for the third quarter of 1994 increased $1.6 million to $1.7
million from $.1 million in the third quarter of 1993 and increased $2.5
million to $3.8 million in the first nine months of 1994 from $1.3 million in
the first nine months of 1993. Interest expense in the third quarter and
first nine months of 1994 included interest incurred on borrowings used to
finance the Addington acquisition and initial working capital requirements.
Interest expense in the first nine months of 1993 included interest assessed
on settlement of coal litigation related to the moisture content of tonnage
used to compute royalty payments to UMWA pension and benefit funds.
FINANCIAL CONDITION
- -------------------
A portion of the Company's corporate assets and liabilities has been attribut-
ed to the Minerals Group based upon utilization of the shared services from
which assets and liabilities are generated, which management believes to be
equitable and a reasonable estimate of the asset and liabilities which would
be generated if the Minerals Group operated on a stand alone basis.
Cash Provided by Operations
- ---------------------------
Operating activities for the first nine months of 1994 used cash of $20.1
million, while operations in the first nine months of 1993 provided cash of
$13.6 million. Operations provided less cash in the 1994 period largely due
to the integration of operating activities of Addington which required cash to
finance initial working capital needs. Net income, noncash charges and
changes in operating assets and liabilities in the first nine months of 1994
were significantly affected by after-tax special and other charges of $58.1
million which used cash of approximately $8.5 million in the first nine months
of 1994. In addition, in the first nine months of 1994, $11.2 million was
paid for facilities closed in prior periods. Of the total $90.8 million of
the 1994 pre-tax charges, $46.5 million was for noncash writedowns of assets
and the remainder represents liabilities which are expected to be paid over
the next several years. As discussed under Coal Operations, funding require-
ments for closed facilities are expected to be approximately $21 million
during the next twelve months. In accordance with the tax allocation policy,
cash provided by operations in the first nine months of 1994 included $13.5
million of cash received from the Services Group for utilization of tax
benefits generated by the Minerals Group.
Capital Expenditures
- --------------------
Cash capital expenditures for the first nine months of 1994 totaled $17.6
million, excluding equipment expenditures that have been or are expected to be
financed through capital and operating leases, and any acquisition expendi-
tures. For the full year 1994, capital expenditures, excluding expenditures
that have been or are expected to be financed through capital and operating
leases and acquisition expenditures, are estimated to approximate $30 million.
Other Investing Activities
- --------------------------
All other investing activities in the first nine months of 1994 used net cash
of $145.1 million. In January 1994, the Company paid approximately $157
million in cash for the acquisition of substantially all the coal mining
operations and coal sales contracts of Addington. The purchase price of the
acquisition was subsequently financed through the issuance of $80.5 million of
a new series of preferred stock, convertible into Pittston Minerals Group
Common Stock, and additional debt under revolving credit agreements. Other
investing activities also includes $8.4 million of cash received in 1994 from
the December 1993 sale of the majority of the assets of a captive mine supply
company.
Financing
- ---------
The Minerals Group intends to fund its capital expenditure requirements during
the remainder of 1994 primarily with anticipated cash flows from operating
activities and through operating and capital leases if the latter are finan-
cially attractive. Shortfalls, if any, will be financed through the Company's
revolving credit agreements or short-term borrowing arrangements or borrowings
from the Services Group. In March 1994, the Company entered into a $350
million revolving credit agreement with a syndicate of banks (the "New
Facility"), replacing the Company's previously existing $250 million of
revolving credit agreements. The New Facility includes a $100 million five-
year term loan, which matures in March 1999. The New Facility also permits
additional borrowings, repayments and reborrowings of up to an aggregate of
$250 million until March 1999. As of September 30, 1994, borrowings of $100
million were outstanding under the five-year term loan portion of the New
Facility with no additional borrowings outstanding under the remainder of the
facility. Of the total amount outstanding under the New Facility, $76.6
million was attributed to the Minerals Group, the entire portion of which
related to the term-loan portion of the facility.
Debt
- ----
Net cash proceeds from external outstanding debt and net lending from the
Services Group totaled $118.3 million for the first nine months of 1994,
including borrowings under the New Facility which were attributed to the
Minerals Group aggregating $76.6 million at September 30, 1994. Cash proceeds
from the issuance of preferred stock was not sufficient to fund current
operating activities, capital expenditures, other net investing activities and
net costs related to share activity during the first nine months of 1994,
resulting in additional borrowings under the Company's revolving credit
agreements. Net payments from the Services Group of $42.2 million represents
repayment of the December 31, 1993 balance of $13.3 million and additional
lending from the Services Group of $28.9 million.
Capitalization
- --------------
Since the creation of Minerals Stock upon approval of the Services Stock
Proposal, capitalization of the Minerals Group has been affected by all share
activity related to Minerals Stock.
In January 1994, the Company issued $80.5 million (161,000 shares) of a new
series of preferred stock, convertible into Minerals Stock, to finance a
portion of the Addington acquisition. Such stock has been attributed to the
Minerals Group.
In July 1994, the Board of Directors of the Company authorized the repurchase
from time to time of up to $15 million of the new series of cumulative
convertible preferred stock. As of September 30, 1994, 8,350 shares at a
total cost of $3.4 million were repurchased.
In 1993, the Board of Directors of the Company authorized a new share repur-
chase program under which up to 1,250,000 shares of Services Stock and 250,000
shares of Minerals Stock may be repurchased. As of September 30, 1994, a
total of 38,500 shares of Minerals Stock had been acquired pursuant to the
authorization. Of that amount, 19,700 shares of Minerals Stock were repur-
chased in the first nine months of 1994 at an aggregate cost of $.4 million.
Dividends
- ---------
The Board of Directors intends to declare and pay dividends on Services Stock
and Minerals Stock based on earnings, financial condition, cash flow and
business requirements of the Services Group and the Minerals Group, respec-
tively. Since the Company remains subject to Virginia law limitations on
dividends and to dividend restrictions in its public debt and bank credit
agreements, losses by one Group could affect the Company's ability to pay
dividends in respect of stock relating to the other Group. Dividends on
Minerals Stock are also limited by the Available Minerals Dividend Amount as
defined in the Company's Articles of Incorporation.
As a result of the Company's issuance in January 1994 of 161,000 shares of a
new series of preferred stock, convertible into Minerals Stock, the Company
pays an annual cumulative dividend of $31.25 per share payable quarterly, in
cash, in arrears, out of all funds of the Company legally available therefor,
when, and if declared by the Board of Directors of the Company which commenced
March 1, 1994. Such stock which is attributable to the Minerals Group, also
bears a liquidation preference of $500 per share, plus an amount equal to
accrued and unpaid dividends thereon.
During the first nine months of 1994, the Board of Directors declared and the
Company paid cash dividends of 48.75 cents per share of Minerals Stock. On
an equivalent basis, during the first half of 1993 the Company paid dividends
of 45.79 cents per share of Minerals Stock. Dividends paid on the cumulative
convertible preferred stock in the first nine months of 1994 totaled $3.0
million.
Part II - OTHER INFORMATION
Item 5. Other Information
- ------- -----------------
In 1988 the trustees of certain pension and benefit trust funds (the "Funds")
established under collective bargaining agreements with the United Mine
Workers of America (the "UMWA") brought an action (the so-called "Evergreen
Case") against the Company and a number of its coal subsidiaries in the United
States District Court for the District of Columbia, claiming that the defen-
dants are obligated to contribute to the Funds in accordance with the provi-
sions of the 1988 National Bituminous Coal Wage Agreement (the "1988 NBCWA"),
to which neither the Company nor any of its subsidiaries is a signatory. In
January 1992 the District Court issued an order granting summary judgment on
the issue of liability which was thereafter affirmed by the Court of Appeals.
In June 1993 the United States Supreme Court denied a petition for a writ of
certiorari. The case has been remanded to the District Court, and damage and
other issues remain to be decided. In September 1993 the Company filed a
motion seeking relief from the District Court's grant of summary judgment to
plaintiffs based on, among other things, the Company's allegation that
plaintiffs improperly withheld evidence that directly refutes plaintiffs'
representations to the District Court and the Court of Appeals in this case.
In December 1993 that motion was denied. On May 23, 1994, the trustees filed
a Motion for Entry of Final Judgment seeking approximately $71.1 million in
delinquent contributions, interest and liquidated damages through May 31,
1994, plus approximately $17.4 thousand additional interest and liquidated
damages for each day between May 31, 1994 and the date final judgment is
entered plus ongoing contributions to the 1974 Pension Plan. The Company has
opposed this motion.
In furtherance of its ongoing effort to identify other available legal options
for seeking relief from what it believes to be an erroneous finding of
liability in the Evergreen Case, the Company has filed suit against the
Bituminous Coal Operators Association and others to hold them responsible for
any damages sustained by the Company as a result of the Evergreen Case.
Although the Company is continuing that effort, the Company, following the
District Court's ruling in December 1993, recorded in the Company's financial
statements an accrual for the potential liability that may result from an
adverse judgment in the Evergreen Case. In any event, any final judgment in
the Evergreen Case will be subject to appeal.
As a result of the Coal Industry Retiree Health Benefit Act of 1992, there is
no continuing liability in this case in respect of health benefit funding
after February 1, 1993.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits:
Exhibit
Number
- -------
10(a)* Amendment dated as of September 16, 1994, to The Registrant's
Pension Equalization Plan, as previously amended.
10(b)* Form of Amendment No. 2 dated as of September 16, 1994, to Employ-
ment agreement dated as of May 1, 1993, as amended by Amendment No.
1 thereto dated March 18, 1994, between the Registrant and Joseph C.
Farrell.
10(c)* Form of Letter Agreement dated as of September 16, 1994, amending
Employment agreement dated as of June 1, 1994, between the Regis-
trant and D. L. Marshall.
10(d)* Form of letter agreement dated as of September 16, 1994, between the
Registrant and R. D. Duke.
10(e)* Form of letter agreement dated as of September 16, 1994, between the
Registrant and J. M. Sturman.
10(f)* Form of letter agreement dated as of September 16, 1994, between the
Registrant and Participants pursuant to the Pension Equalization
Plan.
10(g)* Amendment dated as of September 16, 1994, to Retirement Plan for
Non-Employee Directors, as previously amended.
10(h)* Form of letter agreement dated as of September 16, 1994, between the
Registrant and its Non-Employee Directors pursuant to Retirement
Plan for Non-Employee Directors.
10(i)* Trust Agreement under the Pension Equalization Plan, Retirement Plan
for Non-Employee Directors and Certain Contractual Arrangements of
The Pittston Company made as of September 16, 1994, by and between
the Registrant and Chase Manhattan Bank (National Association), as
Trustee.
11 Statement re Computation of Per Share Earnings.
27 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the third quarter of 1994.
- -----------------
*Management contract or compensatory plan or arrangement.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE PITTSTON COMPANY
November 14, 1994 By G. R. Rogliano
--------------------------
(G. R. Rogliano)
Vice President -
Controllership and Taxes
(Duly Authorized Officer and
Chief Accounting Officer)
Exhibit 10(a)
THE PITTSTON COMPANY
PENSION EQUALIZATION PLAN
Introduction
In August 1985 the Board of Directors of The
Pittston Company (the "Company") adopted a Pension
Equalization Plan (the "Equalization Plan") to assure that
the aggregate pension benefits provided to employees covered
by the Pension-Retirement Plan of The Pittston Company and
Its Subsidiaries (which Plan, as now in effect and as
hereafter amended, is hereinafter referred to as the
"Pension Plan") would not be reduced as a result of
limitations imposed under Section 415 of the Internal
Revenue Code of 1986, as amended (the "Code"). At its
meeting in July 1989, the Board determined that the
Equalization Plan should be amended so as to provide, among
other things, for the payment thereunder of additional
amounts equal to the benefits that would have been payable
under the Pension Plan in the absence of the then applicable
annual limit on compensation under Section 401(a)(17) of the
Code. Pursuant to the authority under the Equalization
Plan, on July 7, 1994 the Pension Committee further amended
the Equalization Plan (i) to reflect the lower annual limit
imposed by the 1993 amendment of such Section 401(a)(17),
and (ii) to assure that such aggregate pension benefits will
not be adversely affected by deferrals made pursuant to the
Key Employees Deferred Compensation Program as originally
approved by the shareholders of the Company on May 1, 1992,
or as amended with shareholder approval effective as of
July 1, 1994 (the "Deferral Program"). In view of the
recommendation of the Pension Committee that the
Equalization Plan be further amended so as to provide
additional assurance to Participants and their beneficiaries
that benefits under the Equalization Plan will be paid to
them in the event of a Change in Control as hereinafter
defined, the Board has further amended the Equalization Plan
so as to read in its entirety as follows:
1. Definitions. As used herein:
"Benefit Limitations" means the limitations,
if any, on benefits payable to or in respect of an
employee under the Pension Plan (i) pursuant to
Section 415 or Section 401(a)(17) of the Code and
any regulations promulgated with respect thereto
or (ii) resulting from any exclusion from Basic
Earnings (as defined in the Pension Plan)
attributable to the deferral, pursuant to the
Deferral Program, by such employee of Cash
Incentive Payments (as defined in the Deferral
Program) or Salary (as defined in the Deferral
Program) otherwise payable currently.
"Participant" means any employee referred to
in Section 2 hereof.
"Participating Company" means the Company and
any subsidiary of the Company which is a
"Participating Company" under the Pension Plan,
unless the Board shall determine that such
subsidiary shall not be a Participating Company
hereunder.
Except as herein otherwise provided, terms defined
in the Pension Plan are used herein with the meanings
ascribed to them in said Plan.
2. Coverage. The Equalization Plan shall apply
to or in respect of each employee of any Participating
Company whose benefits under the Pension Plan are limited by
the Benefit Limitations.
3. Benefits. Supplementing the benefits
provided by the Pension Plan and subject to all terms and
conditions thereof not inconsistent herewith, each Partici-
pant and his beneficiary or beneficiaries shall be paid
under the Equalization Plan such additional amounts as are
equal to the benefits that would have been payable under the
Pension Plan in the absence of the Benefit Limitations
applicable to such Participant.
Benefits payable to any person under this Section
3 shall be payable at the same time and in the same manner
as the benefits payable to such person under the Pension
Plan. Unless the Pension Committee otherwise determines
upon request of a Participant, the beneficiary or
beneficiaries of such Participant under the Pension Plan
shall also be his beneficiary or beneficiaries under the
Equalization Plan.
The obligations of any Participating Company under
the Equalization Plan shall not be funded in any manner for
purposes of the Code or ERISA. Actions taken in conformity
with Section 8 hereof shall not constitute funding for such
purposes.
4. Administration. The Equalization Plan shall
be administered by the Pension Committee and the
Administrative Committee (subject to such directions as the
Pension Committee may determine to be appropriate) sub-
stantially in accordance with the comparable procedures and
rules applicable to the Committee which administers
corresponding provisions of the Pension Plan, including
establishing and maintaining a claims procedure (similar to
the claims procedure under the Pension Plan) pursuant to
which any Participant or beneficiary under the Equalization
Plan whose claim for benefits under the Equalization Plan
has been denied shall be given (i) notice in writing of such
denial, including the reasons therefor, and (ii) a
reasonable opportunity to have a full review of such denial.
Notwithstanding any other provision of the Equalization Plan
the Pension Committee shall have full authority (i) in its
sole discretion to determine the amounts payable under the
Equalization Plan and the time of any such payments so as to
conform with the intent as well as the terms of the
Equalization Plan, (ii) to construe any of the provisions of
the Equalization Plan and (iii) to adopt rules and regu-
lations for the implementation of such provisions.
5. Amendment and Termination. The Equalization
Plan may at any time be amended or terminated by the Board
or the Pension Committee, provided that no such amendment or
termination of the Equalization Plan shall adversely affect
the benefits accrued or payable hereunder or under any trust
agreement referred to in Section 8 hereof on account of any
Participant (or any beneficiary) in respect of service
rendered prior to such amendment or termination.
6. Assignability. No right to payment or any
other interest under the Equalization Plan shall be assign-
able or subject to attachment, execution or levy of any
kind.
7. No Employment Rights. Nothing in the
Equalization Plan shall be construed as giving any
Participant the right to be retained in the service of any
Participating Company or as interfering with the right of
any such Company to discharge any Participant at any time
without regard to the effect which such discharge shall have
upon his rights or potential rights, if any, under the
Equalization Plan.
8. Change in Control. The provisions of this
Section 8 shall be controlling, anything in the other
provisions of the Equalization Plan to the contrary
notwithstanding.
(a) In the event that a Change in Control
(as hereinafter defined in paragraph (b) of this
Section 8) shall occur or the Board shall in its
discretion determine that a Change in Control is
anticipated within 90 days from the date of such
determination, the Company shall forthwith take such
action as shall be necessary or appropriate to activate
the trust agreement dated as of September 16, 1994
between the Company and The Chase Manhattan Bank
(National Association), as trustee, by the payment in
cash to the trustee under such trust agreement of the
aggregate amount which A. Foster Higgins & Co. Inc. (or
another nationally recognized firm of actuaries
selected by the Board) shall determine, on the basis of
mortality and other assumptions at the time applicable
under the Pension Plan, to be required to provide all
projected benefit obligations to Participants and their
beneficiaries under the Equalization Plan as of the
date the Change in Control occurs or as of the date of
such determination, as the case may be. All expenses
and income and other taxes in connection with the
establishment and operation of such trust shall be paid
by the Company.
(b) A Change in Control shall be deemed
to occur if either (i) any person, or any two or
more persons acting as a group, and all affiliates
of such person or persons, shall own beneficially
more than 20% of the total voting power in the
election of directors of the Company of shares of
all classes of Common Stock of the Company
outstanding (exclusive of shares held by any
corporation of which shares representing at least
50% of the ordinary voting power are owned,
directly or indirectly by the Company) pursuant to
a tender offer, exchange offer or series of
purchases or other acquisitions, or any
combination of those transactions, or (ii) there
shall be a change in the composition of the Board
at any time within two years after any tender
offer, exchange offer, merger, consolidation,
share exchange, sale of assets or contested
election, or any combination of those transactions
(a "Transaction"), so that (i) the persons who
were directors of the Company immediately before
the first such Transaction cease to constitute a
majority of the board of directors of the
corporation which shall thereafter be in control
of the companies or other entities that were
parties to or otherwise involved in such first
Transaction, or (ii) the number of persons who
shall thereafter be directors of such corporation
shall be fewer than two-thirds of the number of
directors of the Company immediately prior to such
first Transaction. A Change in Control shall be
deemed to take place upon the first to occur of
the events specified in the foregoing clauses (i)
and (ii).
(c) In addition to all other rights under
applicable law, any individual who shall be a
Participant or beneficiary at the date on which a
Change in Control shall occur or be anticipated as
provided in paragraph (b) above shall from and after
that date have the right to bring an action, either
individually or on behalf of all Participants and
beneficiaries, to enforce the provisions of this
Section 8 by seeking injunctive relief and/or damages,
and the Company shall be obligated to pay or reimburse
each such Participant or beneficiary who shall prevail,
in whole or in substantial part, for all reasonable
expenses, including attorney's fees, in connection with
such action.
(d) The foregoing provisions of this
Section 8 shall be construed liberally to the end
that accrued benefits under the Equalization Plan
shall be assured to the fullest extent
practicable; provided, however, that nothing in
the Equalization Plan shall be construed in a
manner that would subject any Participant or
beneficiary to current taxation on establishment
of the trust.
(e) Nothing in this Section 8 shall of
itself be deemed to increase the amount of any
accrued benefits to which any Participant or
beneficiary shall have become entitled under the
Equalization Plan. The establishment and
activation of the trust agreement referred to in
paragraph (a) of this Section 8 shall not be
deemed to relieve the Company of its obligations
under the Equalization Plan to Participants and
beneficiaries except pro tanto to the extent that
amounts in respect thereof are paid under such
trust agreement to such Participants and
beneficiaries.
9. Agreements with Participants. The Company
shall enter into an agreement with each Participant
incorporating the provisions of the Equalization Plan and
containing such other provisions, consistent with the
Equalization Plan, as may be mutually acceptable.
10. Successors. The Equalization Plan shall
inure to the benefit of and be binding upon the Company and
its successors (including, without limitation, each person
or group referred to in the definition of Change of Control
and each affiliate of such person or group). Each such
successor shall be obligated to enter into an agreement with
each Participant, in form and substance satisfactory to such
Participant, by which such successor shall expressly assume
and agree to perform its obligations under the Equalization
Plan in the same manner and to the same extent as the
Company would be required to perform if no succession had
taken place. The Company shall cause each such successor to
comply with its obligations to enter into such agreement.
11. Governing Law. This Equalization Plan and
all actions taken hereunder shall be governed by and
construed in accordance with the laws of the Commonwealth of
Virginia.
As amended September 16, 1994
Effective as of May 1, 1992
Exhibit 10(b)
AMENDMENT No. 2 dated as of September 16,
1994 to Employment Agreement dated as of May 1, 1993 as
amended by Amendment No. 1 thereto dated March 18, 1994
(said Employment Agreement as so amended being herein-
after called the "Employment Agreement"), between The
Pittston Company, a Virginia corporation (the
"Company"), and Joseph C. Farrell, residing at 53
Londonderry Drive, Greenwich, Connecticut 06830 (the
"Employee").
The Company and the Employee desire to further
amend the Employment Agreement so as to provide additional
assurance that the Supplemental Retirement Benefit under
Paragraph 3(c) thereof will be paid in the event of a Change
in Control as hereinafter defined.
Accordingly, the Company and the Employee agree as
follows:
1. The Employment Agreement is hereby amended by
inserting the following Paragraph 3A immediately before
Paragraph 4 of the Employment Agreement:
3A. Supplemental Retirement Benefit; Change
in Control. The provisions of this Paragraph 3A shall
be controlling, anything in the other provisions of
this Agreement to the contrary notwithstanding.
(a) In the event that a Change in
Control (as hereinafter defined in subparagraph
(b) of this Paragraph 3A) shall occur or the
Company's Board of Directors shall in its dis-
cretion determine that a Change in Control is
anticipated within 90 days from the date of such
determination, the Company shall forthwith take
such action as shall be necessary or appropriate
to activate the trust agreement dated as of
September 16, 1994 between the Company and The
Chase Manhattan Bank (National Association), as
trustee, by the payment in cash to the trustee
under such trust agreement of the aggregate amount
which A. Foster Higgins & Co. Inc. (or another
nationally recognized firm of actuaries selected
by the Board) shall determine, on the basis of
mortality and other assumptions at the time
applicable under the Pittston Pension Plan, to be
required to provide all projected benefit obliga-
tions to the Employee (or his beneficiary) under
Paragraph 3(c) of this Agreement, as of the date
the Change in Control occurs or as of the date of
such determination, as the case may be. All
expenses and income and other taxes in connection
with the establishment and operation of such trust
shall be paid by the Company.
(b) For purposes of this Paragraph 3A,
a Change in Control shall be deemed to occur if
either (i) any person, or any two or more persons
acting as a group, and all affiliates of such
person or persons, shall own beneficially more
than 20% of the total voting power in the election
of directors of the Company of shares of all
classes of Common Stock of the Company outstanding
(exclusive of shares held by any corporation of
which shares representing at least 50% of the
ordinary voting power are owned, directly or
indirectly by the Company) pursuant to a tender
offer, exchange offer or series of purchases or
other acquisitions, or any combination of those
transactions, or (ii) there shall be a change in
the composition of the Company's Board of
Directors at any time within two years after any
tender offer, exchange offer, merger, con-
solidation, share exchange, sale of assets or
contested election, or any combination of those
transactions (a "Transaction"), so that (i) the
persons who were directors of the Company
immediately before the first such Transaction
cease to constitute a majority of the board of
directors of the corporation which shall there-
after be in control of the companies or other
entities that were parties to or otherwise
involved in such first Transaction, or (ii) the
number of persons who shall thereafter be
directors of such corporation shall be fewer than
two-thirds of the number of directors of the
Company immediately prior to such first Trans-
action. A Change in Control shall be deemed to
take place upon the first to occur of the events
specified in the foregoing clauses (i) and (ii).
(c) In addition to all other rights
under applicable law, the Employee shall, from and
after the date on which a Change in Control shall
occur or be anticipated as provided in subpara-
graph (b) above, have the right to bring an action
to enforce the provisions of this Paragraph 3A by
seeking injunctive relief and/or damages, and the
Company shall be obligated to pay or reimburse the
Employee to the extent that he prevails, in whole
or in substantial part, for all reasonable
expenses, including attorney's fees, in connection
with such action.
(d) The foregoing provisions of this
Paragraph 3A shall be construed liberally to the
end that accrued benefits under this Paragraph 3A
shall be assured to the fullest extent prac-
ticable; provided, however, that nothing in this
Paragraph 3A shall be construed in a manner that
would subject the Employee to current taxation on
establishment of the trust.
(e) Nothing in this Paragraph 3A shall
of itself be deemed to increase the amount of any
accrued benefits to which the Employee shall have
become entitled under Paragraph 3(c) of this
Agreement. The establishment and activation of
the trust agreement referred to in subparagraph
(a) of this Paragraph 3A shall not be deemed to
relieve the Company of its obligations to the
Employee under such Paragraph 3(c) except pro
tanto to the extent that amounts in respect
thereof are paid under such trust agreement to the
Employee.
2. Except as hereinabove provided, the Employment
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this
Amendment as of September 16, 1994.
THE PITTSTON COMPANY
By_______________________
Vice President, General
Counsel and Secretary
APPROVED:
__________________________
Robert H. Spilman
Chairman, Compensation and
Benefits Committee of the
Board of Directors ________________________
Joseph C. Farrell
Exhibit 10(c)
As of September 16, 1994
Mr. David L. Marshall
28 Glenmoor Place
Hilton Head
South Carolina 29926
Dear Dave:
With reference to the letter agreement with you dated
as of June 1, 1994 (the "Agreement"), providing among other
things, for your Supplemental Retirement Benefit and for your
continued participation in the Company's Pension Equalization
Plan, this confirms that The Pittston Company (the "Company")
has agreed with you to provide additional assurance that
benefits thereunder will be paid in the event of a Change in
Control as hereinafter defined. Accordingly, the Agreement is
hereby amended by inserting the following Paragraph 3A im-
mediately before Paragraph 4 of the Agreement:
3A. Supplemental Retirement Benefits; Change
in Control. The provisions of this Paragraph 3A shall be
controlling, anything in the other provisions of this
Agreement to the contrary notwithstanding.
(a) In the event that a Change in
Control (as hereinafter defined in subparagraph
(b) of this Paragraph 3A shall occur or the
Company's Board of Directors shall in its dis-
cretion determine that a Change in Control is
anticipated within 90 days from the date of such
determination, the Company shall forthwith take
such action as shall be necessary or appropriate
to activate the trust agreement dated as of
September 15, 1994 between the Company and The
Chase Manhattan Bank (National Association), as
trustee, by the payment in cash to the trustee
under such trust agreement of the aggregate
amountwhich A. Foster Higgins & Co. Inc. (or
another nationally recognized firm of actuaries
selected by the Board) shall determine, on
the basis of mortality and other assump-
tions at the time applicable under the
Pittston Pension Plan, to be required to
provide all projected benefit obligations
to you (or your beneficiary) under Para-
graph 3(c) of this Agreement, as of the
date the Change in Control occurs or as of
the date of such determination, as the case
may be. All expenses and income and other
taxes in connection with the establishment
and operation of such trust shall be paid
by the Company.
(b) For purposes of this Paragraph
3A, a Change in Control shall be deemed to occur
if either (i) any person, or any two or more
persons acting as a group, and all affiliates of
such person or persons, shall own beneficially
more than 20% of the total voting power in the
election of directors of the Company of shares
of all classes of Common Stock of the Company
outstanding (exclusive of shares held by any
corporation of which shares representing at
least 50% of the ordinary voting power are
owned, directly or indirectly by the Company)
pursuant to a tender offer, exchange offer or
series of purchases or other acquisitions, or
any combination of those transactions, or (ii)
there shall be a change in the composition of
the Company's Board of Directors at any time
within two years after any tender offer,
exchange offer, merger, consolidation, share
exchange, sale of assets or contested election,
or any combination of those transactions (a
"Transaction"), so that (i) the persons who were
directors of the Company immediately before the
first such Transaction cease to constitute a
majority of the board of directors of the
corporation which shall thereafter be in control
of the companies or other entities that were
parties to or otherwise involved in such first
Transaction, or (ii) the number of persons who
shall thereafter be directors of such
corporation shall be fewer than two-thirds
of the number of directors of the Company
immediately prior to such first Trans-
action. A Change in Control shall be
deemed to take place upon the first to
occur of the events specified in the fore-
going clauses (i) and (ii).
(c) In addition to all other rights
under applicable law, you shall, from and after
the date on which a Change in Control shall
occur or be anticipated as provided in sub-
paragraph (b) above, have the right to bring an
action to enforce the provisions of this Para-
graph 3A by seeking injunctive relief and/or
damages, and the Company shall be obligated to
pay or reimburse you to the extent that you
prevail, in whole or in substantial part, for
all reasonable expenses, including attorney's
fees, in connection with such action.
(d) The foregoing provisions of this
Paragraph 3A shall be construed liberally to the
end that accrued benefits under this Paragraph
3A shall be assured to the fullest extent prac-
ticable; provided, however, that nothing in this
Paragraph 3A shall be construed in a manner that
would subject you to current taxation on
establishment of the trust.
(e) Nothing in this Paragraph 3A
shall of itself be deemed to increase the amount
of any accrued benefits to which you shall have
become entitled under Paragraph 3 (c) of this
Agreement. The establishment and activation of
the trust agreement referred to in subparagraph
(a) of this Paragraph 3A shall not be deemed to
relieve the Company of its obligations to you
under such Paragraph 3 (c) except pro tanto to
the extent that amounts in respect thereof are
paid under such trust agreement to you.
2. Except as hereinabove provided, the Agreement
shall remain in full force and effect.
Please confirm that the foregoing is in accordance
with our agreement.
Very truly yours,
THE PITTSTON COMPANY
By______________________
Chairman
I hereby confirm that the foregoing is in accordance
with our agreement.
________________________
David L. Marshall
APPROVED:
___________________________
Robert H. Spilman
Chairman, Compensation and
Benefits Committee of the
Board of Directors
Exhibit 10(d)
As of September 16, 1994
Robert D. Duke, Esq.
67 Ridgefield Road
Wilton, CT 06897
Dear Bob:
With reference to the letter agreement with you dated
as of November 1, 1993 (the "Agreement"), providing, among
other things, for pension and related payments under the
Company's Pension Equalization Plan and under your agreement
with the Company dated as of October 1, 1989, this confirms
that the Company has agreed with you to provide additional
assurance that such payments will be made in the event of a
Change in Control as hereinafter defined. Accordingly, the
Agreement is hereby amended by inserting the following Section
3A immediately before Section 4 of the Agreement:
3A. Supplemental Retirement Benefit; Change
in Control. The provisions of this Paragraph 3A shall be
controlling, anything in the other provisions of this
Agreement to the contrary notwithstanding.
(a) In the event that a Change in
Control (as hereinafter defined in subparagraph
(b) of this Paragraph 3A shall occur or the
Company's Board of Directors shall in its
discretion determine that a Change in Control is
anticipated within 90 days from the date of such
determination, the Company shall forthwith take
such action as shall be necessary or appropriate
to activate the trust agreement dated as of
September 15, 1994 between the Company and The
Chase Manhattan Bank (National Association), as
trustee, by the payment in cash to the trustee
under such trust agreement of the aggregate
amount which A. Foster Higgins & Co. Inc.
(or another nationally recognized firm of
actuaries selected by the Board) shall
determine, on the basis of mortality and
other assumptions at the time applicable
under the Pittston Pension Plan, to be
required to provide all projected benefit
obligations to you (or your beneficiary)
under Paragraph 3(c) of this Agreement, as
of the date the Change in Control occurs or
as of the date of such determination, as
the case may be. All expenses and income
and other taxes in connection with the
establishment and operation of such trust
shall be paid by the Company.
(b) For purposes of this Paragraph
3A, a Change in Control shall be deemed to occur
if either (i) any person, or any two or more
persons acting as a group, and all affiliates of
such person or persons, shall own beneficially
more than 20% of the total voting power in the
election of directors of the Company of shares
of all classes of Common Stock of the Company
outstanding (exclusive of shares held by any
corporation of which shares representing at
least 50% of the ordinary voting power are
owned, directly or indirectly by the Company)
pursuant to a tender offer, exchange offer or
series of purchases or other acquisitions, or
any combination of those transactions, or (ii)
there shall be a change in the composition of
the Company's Board of Directors at any time
within two years after any tender offer,
exchange offer, merger, consolidation, share
exchange, sale of assets or contested election,
or any combination of those transactions (a
"Transaction"), so that (i) the persons who were
directors of the Company immediately before the
first such Transaction cease to constitute a
majority of the board of directors of the
corporation which shall thereafter be in control
of the companies or other entities that were
parties to or otherwise involved in such
first Transaction, or (ii) the number of
persons who shall thereafter be directors
of such corporation shall be fewer than
two-thirds of the number of directors of
the Company immediately prior to such first
Transaction. A Change in Control shall be
deemed to take place upon the first to
occur of the events specified in the fore
going clauses (i) and (ii).
(c) In addition to all other rights
under applicable law, you shall, from and after
the date on which a Change in Control shall
occur or be anticipated as provided in sub-
paragraph (b) above, have the right to bring an
action to enforce the provisions of this Para-
graph 3A by seeking injunctive relief and/or
damages, and the Company shall be obligated to
pay or reimburse you to the extent that you
prevail, in whole or in substantial part, for
all reasonable expenses, including attorney's
fees, in connection with such action.
(d) The foregoing provisions of this
Paragraph 3A shall be construed liberally to the
end that accrued benefits under this Paragraph
3A shall be assured to the fullest extent
practicable; provided, however, that nothing in
this Paragraph 3A shall be construed in a manner
that would subject you to current taxation on
establishment of the trust.
(e) Nothing in this Paragraph 3A
shall of itself be deemed to increase the amount
of any accrued benefits to which you shall have
become entitled under Paragraph 3 of this Agree-
ment. The establishment and activation of the
trust agreement referred to in subparagraph (a)
of this Paragraph 3A shall not be deemed to
relieve the Company of its obligations to you
under such Paragraph 3 except pro tanto to the
extent that amounts in respect thereof are paid
under such trust agreement to you.
2. Except as hereinabove provided, the Agreement
shall remain in full force and effect.
Please confirm that the foregoing is in accordance
with our agreement.
Very truly yours,
THE PITTSTON COMPANY
By______________________
Chairman
I hereby confirm that the foregoing is in accordance
with our agreement.
________________________
Robert D. Duke
Exhibit 10(e)
As of September 16, 1994
Mr. Jonathan M. Sturman
23 Oakwood Drive
Weston, CT 06883
Dear Jon:
With reference to the letter agreement with you
dated as of October 1, 1988 (the "Agreement") providing for
your Supplemental Retirement benefit, this confirms that The
Pittston Company (the "Company") has agreed with you to
provide additional assurance that such benefit will be paid
in the event of a Change in Control as hereinafter defined.
Accordingly, the Agreement is hereby amended by inserting the
following paragraph 1A immediately before paragraph 2
thereof:
1A. Supplemental Retirement Benefit; Change
in Control. The provisions of this Paragraph 1A shall
be controlling, anything in the other provisions of this
Agreement to the contrary notwithstanding.
(a) In the event that a Change in
Control (as hereinafter defined in subparagraph
(b) of this paragraph 1A shall occur or the
Company's Board of Directors shall in its dis-
cretion determine that a Change in Control is
anticipated within 90 days from the date of
such determination, the Company shall forthwith
take such action as shall be necessary or
appropriate to activate the trust agreement
dated as of September 15, 1994 between the
Company and The Chase Manhattan Bank (National
Association), as trustee, by the payment in
cash to the trustee under such trust agreement
of the aggregate amount which A. Foster Higgins
& Co. Inc. (or another nationally recognized
firm of actuaries selected by the Board) shall
determine, on the basis of mortality and other
assumptions at the time applicable under the
Pittston Pension Plan, to be required to
provide all projected benefit obligations to
you (or your beneficiary) under paragraph 1 of
this Agreement, as of the date the Change in
Control occurs or as of the date of such de-
termination, as the case may be. All expenses
and income and other taxes in connection with
the establishment and operation of such trust
shall be paid by the Company.
(b) For purposes of this paragraph
1A, a Change in Control shall be deemed to
occur if either (i) any person, or any two or
more persons acting as a group, and all
affiliates of such person or persons, shall
own beneficially more than 20% of the total
voting power in the election of directors of
the Company of shares of all classes of Com-
mon Stock of the Company outstanding
(exclusive of shares held by any corporation
of which shares representing at least 50% of
the ordinary voting power are owned, directly
or indirectly by the Company) pursuant to a
tender offer, exchange offer or series of
purchases or other acquisitions, or any com-
bination of those transactions, or (ii) there
shall be a change in the composition of the
Company's Board of Directors at any time
within two years after any tender offer,
exchange offer, merger, consolidation, share
exchange, sale of assets or contested
election, or any combination of those
transactions (a "Transaction"), so that (i)
the persons who were directors of the Company
immediately before the first such Transaction
cease to constitute a majority of the board
of directors of the corporation which shall
thereafter be in control of the companies or
other entities that were parties to or
otherwise involved in such first Transaction,
or (ii) the number of persons who shall
thereafter be directors of such corporation
shall be fewer than two-thirds of the number
of directors of the Company immediately prior
to such first Transaction. A Change in
Control shall be deemed to take place upon
the first to occur of the events specified in
the foregoing clauses (i) and (ii).
(c) In addition to all other
rights under applicable law, you shall, from
and after the date on which a Change in
Control shall occur or be anticipated as
provided in subparagraph (b) above, have the
right to bring an action to enforce the
provisions of this paragraph 1A by seeking
injunctive relief and/or damages, and the
Company shall be obligated to pay or
reimburse you to the extent that you prevail,
in whole or in substantial part, for all
reasonable expenses, including attorney's
fees, in connection with such action.
(d) The foregoing provisions of
this paragraph 1A shall be construed
liberally to the end that accrued benefits
under this paragraph 1A shall be assured to
the fullest extent practicable; provided,
however, that nothing in this paragraph 1A
shall be construed in a manner that would
subject you to current taxation on
establishment of the trust.
(e) Nothing in this paragraph 1A
shall of itself be deemed to increase the
amount of any accrued benefits to which you
shall have become entitled under paragraph 1
of this Agreement. The establishment and
activation of the trust agreement referred to
in subparagraph (a) of this paragraph 1A
shall not be deemed to relieve the Company of
its obligations to you under such Paragraph 1
except pro tanto to the extent that amounts
in respect thereof are paid under such trust
agreement to you.
2. Except as hereinabove provided, the Agreement
shall remain in full force and effect.
Please confirm that the foregoing is in accordance
with our agreement.
Very truly yours,
THE PITTSTON COMPANY
By______________________
Chairman
I hereby confirm that the foregoing is in
accordance with our agreement.
________________________
Jonathan M. Sturman
Exhibit 10(f)
[Form of letter agreement pursuant
to Pension Equalization Plan]
As of September 16, 1994
Mr.
Dear :
Pursuant to the Pension Equalization Plan (the
"Plan") as amended as of September 16, 1994, a copy of which
is attached hereto as Annex 1, this will confirm that, in
consideration of your services rendered and to be rendered
to The Pittston Company (the "Company") and for other good
and valuable consideration, the Company and you have agreed,
and do hereby agree, that you shall be entitled to partici-
pate in the Plan and have enforceable rights to all benefits
thereunder and under related trust and other agreements,
subject to and in accordance with their respective terms.
Notices and other communications and payments in
relation to this agreement, the plan or such trust and other
agreements shall be sent to you at the above address or at
such other address as you shall from time to time designate
in writing to the Company.
Please confirm this agreement by signing and
returning to the Company at its address set forth above the
enclosed duplicate original of this letter.
Very truly yours,
THE PITTSTON COMPANY
By___________________
Chairman
Confirmed and agreed:
__________________________
Exhibit 10(g)
THE PITTSTON COMPANY
Retirement Plan for Non-Employee Directors
A resolution (the "1981 Resolution") adopted by
the Board of Directors (the "Board") of The Pittston Company
on March 31, 1981 provides for payments to certain Directors
upon their retirement from the Board after at least five
years of service and after attaining certain ages.
On November 3, 1989 the Board amended the 1981
Resolution by adopting this Retirement Plan for Non-Employee
Directors (the "Plan") which (a) incorporates the
substantive provisions of the 1981 resolution, (b) provides
for payments in case of retirement after a "Change in
Control" (as hereinafter defined) and (c) provides for
contractual arrangements between the Company and individual
Directors establishing their rights under the Plan.
The Board has determined to further amend the Plan
so as to provide additional assurance that benefits there-
under will be paid in the event of a "Change in Control" as
hereinafter defined.
Definitions.
1. As used herein:
"Pension Plan" means the Pension-Retirement
Plan of The Pittston Company and Its Subsidiaries.
"Non-Employee Director" means any Director of
the Company who does not participate in the Pension-
Retirement Plan of The Pittston Company and Its Sub-
sidiaries or in any other retirement plan for employees
of the Company or any of its subsidiaries.
A "Change in Control" shall be deemed to have
occurred if (i) any person, or any two or more persons
acting as a group, and all affiliates of such person or
persons, shall own beneficially more than 20% of the
total voting power in the election of directors of the
Company of shares of all classes of Common Stock
outstanding (exclusive of shares held by any corpo-
ration of which shares representing at least 50% of the
ordinary voting power are owned, directly or
indirectly, by the Company) pursuant to a tender offer,
exchange offer or series of purchases or other acqui-
sitions, or any combination of those transactions, or
(ii) there shall be change in the composition of the
Board at any time within two years after any tender
offer, exchange offer, merger, consolidation, share
exchange, sale of assets or contested election, or any
combination of those transactions (a "Transaction"), so
that (A) the persons who were directors of the Company
immediately before the first such Transaction cease to
constitute a majority of the board of directors of the
company which shall thereafter be in control of the
companies or other entities which were parties to or
otherwise involved in the first such Transaction, or
(B) the number of persons who shall be directors of
such company shall be fewer than two-thirds of the
number of directors of the Company immediately prior to
such first Transaction. A Change in Control shall be
deemed to take place upon the first to occur of the
events specified in the foregoing clauses (i) and (ii).
"Retirement" or "retires" means ceasing to be
a Director for any reason other than death or removal
for Cause.
"Cause" means an act of dishonesty
constituting a felony which results in substantial
personal enrichment at the expense of the Company.
2. Coverage. The Plan shall apply to each
person who was a Non-Employee Director on March 31, 1981 or
who became a Non-Employee Director at any time thereafter.
3. Benefits. Benefits shall be payable under
the Plan as hereinafter provided to each Non-Employee
Director who has five years of service as a Director of the
Company and who
(a) retires as a Director upon or after
attaining age 72; or
(b) retires prior to age 72 in anticipation
of attaining that age during what would otherwise
be such Non-Employee Director's next following
term of office as a Director; or
(c) retires as a Director prior to age 72
but after age 65 for reasons such as health,
relocation (whether residence or principal place
of business), or similar considerations; or
(d) retires as a Director at any time after
a Change in Control, regardless of age.
Benefits shall be payable during the lifetime of
each such Non-Employee Director at an annual rate equal to
the product obtained by multiplying the applicable
percentage (based on the number of full years of service)
specified below, by the amount of the annual retainer fee
(i.e., exclusive of attendance and other fees) payable at
the date of retirement or as of a date six months prior to a
Change in Control, whichever is greater:
Years of Percentage of
Service Annual Retainer Fee
5 50%
6 60%
7 70%
8 80%
9 90%
10 or more 100%
Such benefits shall be payable in advance in installments.
The first of such installments shall be paid on such Non-
Employee Director's date of retirement for the period ending
on the last day of the calendar quarter in which such date
falls, and each succeeding installment shall be paid on the
first day of the relevant calendar quarter. Notwithstanding
the foregoing, benefits payable to any Non-Employee Director
shall in no event commence prior to the date on which such
Director attains age 65.
The obligations of the Company under the Plan
shall not be funded in any manner for purposes of the
Internal Revenue Code or the Employee Retirement Income
Security Act of 1974. Actions taken in conformity with
Section 5 hereof shall not constitute funding for such
purposes.
4. Amendment and Termination. The Plan may at
any time be amended or terminated by the Board, provided
that no such amendment or termination of the Plan shall
adversely affect the benefits accrued or payable hereunder
on account of any present or former Non-Employee Director in
respect of service rendered prior to such amendment or
termination.
5. Change in Control. The provisions of this
Section 5 shall be controlling, anything in the other
provisions of the Plan to the contrary notwithstanding.
(a) In the event that a Change in Control
shall occur or the Board shall in its discretion
determine that a Change in Control is anticipated
within 90 days from the date of such determination,
the Company shall forthwith take such action as shall
be necessary or appropriate to activate the trust
agreement dated as of September 16, 1994 between the
Company and The Chase Manhattan Bank (National
Association), as trustee, by the payment in cash to
the trustee under such trust agreement of the aggregate
amount which A. Foster Higgins & Co. Inc. (or another
nationally recognized firm of actuaries selected by the
Board) shall determine, on the basis of mortality and
other assumptions at the time applicable under the
Pension Plan, to be required to provide all projected
benefit obligations to Non-Employee Directors under the
Plan as of the date the Change in Control occurs or as
of the date of such determination, as the case may be.
All expenses and income and other taxes in connection
with the establishment and operation of such trust
shall be paid by the Company.
(b) In addition to all other rights under
applicable law, any individual who shall be a Non-
Employee Director at the date on which a Change in
Control shall occur or be anticipated as provided in
paragraph (b) above shall from and after that date have
the right to bring an action, either individually or on
behalf of all Non-Employee Directors, to enforce the
provisions of this Section 5 by seeking injunctive
relief and/or damages, and the Company shall be
obligated to pay or reimburse each such Non-Employee
Director who shall prevail, in whole or in substantial
part, for all reasonable expenses, including attorney's
fees, in connection with such action.
(c) The foregoing provisions of this Section
5 shall be construed liberally to the end that accrued
benefits under the Plan shall be assured to the fullest
extent practicable; provided, however, that nothing in
the Plan shall be construed in a manner that would
subject any Non-Employee Director to current taxation
on establishment of the trust.
(d) Nothing in this Section 5 shall of
itself be deemed to increase the amount of any accrued
benefits to which any Non-Employee Director shall have
become entitled under the Plan. The establishment and
activation of the trust agreement referred to in
paragraph (a) of this Section 5 shall not be deemed to
relieve the Company of its obligations under the Plan
to Non-Employee Directors except pro tanto to the
extent that amounts in respect thereof are paid under
such trust agreement to such Non-Employee Directors.
6. Agreements with Non-Employee Directors. The
Company shall enter into an agreement with each of its Non-
Employee Directors incorporating the provisions of the Plan
and containing such other provisions, consistent with the
Plan, as may be mutually acceptable.
7. Successors. The Plan shall inure to the
benefit of and be binding upon the Company and its succes
sors (including, without limitation, each person or group
referred to in the definition of Change in Control and each
affiliate of such person or group). Each such successor
shall be obligated to enter into an agreement in form and
substance satisfactory to each Non-Employee Director by
which such successor shall expressly assume and agree to
perform this agreement in the same manner and to the same
extent as the Company would be required to perform if no
succession had taken place. The Company shall cause each
such successor to comply with its obligation to enter into
such agreement.
8. Governing Law. The Plan and all actions
taken hereunder shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia.
As amended September 16, 1994
Exhibit 10(h)
[Form of letter agreement pursuant
to Non-Employee Directors Retirement Plan]
As of September 16, 1994
Mr.
Dear :
Pursuant to the Retirement Plan for Non-Employee
Directors (the "Plan"), as amended as of September 16, 1994,
a copy of which is attached hereto as Annex 1, this will
confirm that, in consideration of your services rendered and
to be rendered to The Pittston Company (the "Company") and
for other good and valuable consideration, the Company and
you have agreed, and do hereby agree, that you shall be
entitled to participate in the Plan and have enforceable
rights to all benefits thereunder and under related trust
and other agreements, subject to and in accordance with
their respective terms.
Notices and other communications and payments in
relation to this agreement, the plan or such trust and other
agreements shall be sent to you at the above address or at
such other address as you shall from time to time designate
in writing to the Company.
Please confirm this agreement by signing and
returning to the Company at its address set forth above the
enclosed duplicate original of this letter.
Very truly yours,
THE PITTSTON COMPANY
By___________________
Chairman
Confirmed and agreed:
__________________________
Exhibit 10(i)
Trust under the Pension Equalization
Plan, Retirement Plan for Non-Employee
Directors and Certain Contractual
Arrangements of The Pittston Company
TRUST AGREEMENT made as of this 16th day
of September, 1994, by and between THE
PITTSTON COMPANY (the "Company") and THE
CHASE MANHATTAN BANK (NATIONAL ASSOCIATION),
as Trustee (the "Trustee").
WHEREAS, the Company has (i) entered into
contractual arrangements with the individuals listed on
Exhibit A to provide supplemental pension payments based on
periods of employment prior to employment with the Company
(collectively, the "Contracts"), (ii) adopted the Pension
Equalization Plan and (iii) adopted the Retirement Plan for
Non-Employee Directors (collectively, the plans referred to
in clauses (ii) and (iii) are referred to as the "Plans");
and
WHEREAS, the Company has incurred or expects to
incur liability under the terms of the Plans and the
Contracts with respect to the individuals participating in
the Plans or covered by the Contracts; and
WHEREAS, the Company wishes to establish a trust
(the "Trust") and to contribute to the Trust assets that
shall be held therein, subject to the claims of the
Company's creditors in the event of the Company's Insolvency
(as hereinafter defined) until paid to Participants and
their Beneficiaries (as hereinafter defined) in such manner
and at such times as specified in the Plans and/or
Contracts; and
WHEREAS, it is the intention of the parties that
this Trust shall constitute an unfunded arrangement and
shall not affect the status of the Plans as unfunded plans
maintained for the purpose of providing deferred
compensation for a select group of management or highly
compensated employees for purposes of Title I of the
Employee Retirement Income Security Act of 1974; and
WHEREAS, it is the intention of the Company to
make contributions to the Trust to provide itself with a
source of funds to assist it in the meeting of its
liabilities under the Contracts and Plans.
NOW, THEREFORE, the parties do hereby establish
the Trust and agree that the Trust shall be comprised, held
and disposed of as follows:
Section 1. Definitions. As used in this Trust
Agreement, the following words and terms shall have the
meanings specified below:
"Beneficiary" means the beneficiary or
beneficiaries last designated by the Participant in
writing under the Plans or Contracts. In the absence
of an effective designation or if the final surviving
designated beneficiary has predeceased the Participant,
the Beneficiary shall be the Participant's estate. In
the event the Participant is survived by a Beneficiary
who dies after payments to the Beneficiary have
commenced but before receiving all amounts due him or
her under the Plan or Contract, any remaining amounts
shall be paid to an alternate beneficiary designated by
the Participant or, in the absence of an alternative
surviving Beneficiary, to the estate of the last
surviving Beneficiary.
"Change of Control" shall be deemed to occur if
either (a) any person, or any two or more persons
acting as a group, and all affiliates of such person or
persons, shall own beneficially shares of stock of the
Company entitled to more than 20% of the total combined
voting power in the election of directors of the
Company (exclusive of shares held by any corporation of
which shares representing at least 50% of the ordinary
voting power are owned, directly or indirectly, by the
Company) pursuant to a tender offer, exchange offer or
series of purchases or other acquisitions, or any
combination of those transactions, or (b) there shall
be a change in the composition of the Board at any time
within two years after any tender offer, exchange
offer, merger, consolidation, share exchange, sale of
assets or contested election, or any combination of
those transactions (a "Transaction"), so that (i) the
persons who were directors of the Company immediately
before the first such Transaction cease to constitute a
majority of the board of directors of the corporation
which shall thereafter be in control of the companies
or other entities that were parties to or otherwise
involved in such first Transaction, or (ii) the number
of persons who shall thereafter be directors of such
corporation shall be fewer than two-thirds of the
number of directors of the Company immediately prior to
such first Transaction. A Change of Control shall be
deemed to take place upon the first to occur of the
events specified in the foregoing clauses (a) and (b).
"Insolvent" means (a) the inability of the Company
to pay its debts as they become due or (b) the Company
being subject to a pending proceeding as a debtor under
the United States Bankruptcy Code.
"Participant" means an individual who is entitled
to a benefit under the Plans or who is a party to one
of the Contracts.
Section 2. Establishment Of Trust.
(a) The Company hereby deposits with the Trustee
in trust the sum of $1,000.00, which shall become the
principal of the Trust to be held, administered and disposed
of by the Trustee as provided in this Trust Agreement.
(b) The Trust hereby established is revocable by
the Company until there shall occur a Change of Control, at
which time it shall become irrevocable.
(c) The Trust is intended to be a grantor trust,
of which the Company is the grantor, within the meaning of
subpart E, part I, subchapter J, chapter 1, subtitle A of
the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust and any earnings
thereon shall be held separate and apart from other funds of
Company and shall be used exclusively for the uses and
purposes of Participants and general creditors as herein set
forth. Participants and their Beneficiaries shall have no
preferred claim on, or any beneficial ownership interest in,
any assets of the Trust. Any rights created under the
Plans, Contracts and this Trust Agreement shall be unsecured
contractual rights of Participants and their Beneficiaries
against the Company. Any assets held by the Trust will be
subject to the claims of the Company's general creditors
under federal and state law in the event the Company becomes
Insolvent.
(e) The Company, in its sole discretion, may at
any time, or from time to time, make additional deposits of
cash or other property, which property shall be acceptable
to the Trustee, in trust with the Trustee to augment the
principal to be held, administered and disposed of by the
Trustee as provided in this Trust Agreement. Neither the
Trustee nor any Participant or Beneficiary under the Plans
or Contracts shall have any right hereunder to compel such
additional deposits.
(f) Anything in this Agreement notwithstanding,
upon a Change of Control, the Company shall, as soon as
possible, but in no event later than 90 days following the
Change of Control make an irrevocable contribution to the
Trust in an amount sufficient to pay each Participant or
Beneficiary the benefits to which they would be entitled
pursuant to the terms of the Contracts and Plans as in
effect on the date on which the Change of Control occurred.
Section 3. Payments to Participants and Their
Beneficiaries.
(a) No payment shall be made from this Trust
prior to a Change of Control. Following a Change of
Control, the Company shall deliver periodically to the
Trustee a schedule (the "Payment Schedule") that indicates
the amounts payable in respect of each Participant (and his
or her Beneficiaries) and provides a formula or other
instructions acceptable to the Trustee for determining the
amounts so payable, the form in which such amount is to be
paid (as provided for or available under the Contracts or
Plans) and the time of commencement of payment of such
amounts. Except as otherwise provided herein, the Trustee
shall make payments to the Participants and their
Beneficiaries in accordance with such Payment Schedule. The
Payment Schedule may periodically be amended by the Company
to reflect additional retirements of Participants, changes
in their marital status, terminations as a result of
disability and such other matters as may result in a change
in the form or amount of benefits payable to Participants.
The Trustee shall make provision for reporting and
withholding of any federal, state or local taxes that may be
required to be withheld with respect to the payment of
benefits pursuant to the terms of the Plans and/or Contracts
and shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been
reported, withheld and paid by the Company.
(b) The entitlement of a Participant or
Beneficiary to benefits under the Plans or Contracts shall
be determined by the Company or such party as it shall
designate under the Plans or Contracts, and any claim for
such benefits shall be considered and reviewed under the
procedures set out in the Plans or Contracts.
(c) The Company may make payment of benefits
directly to Participants or their Beneficiaries under the
Plans or Contracts as they become due under the terms of the
Plans or Contracts. Following a Change of Control, the
Company shall notify the Trustee of its decision to make
payment of benefits directly prior to the time amounts are
payable to Participants or their Beneficiaries, and a
revised Payment Schedule reflecting such direct payments
shall promptly be delivered by the Company to the Trustee.
In addition, if the principal of the Trust, and any earnings
thereon, are not sufficient to make payments of benefits in
accordance with the terms of the Plans and Contracts, the
Company shall make the balance of each such payment as it
falls due. The Trustee shall notify the Company when
principal and earnings are not sufficient. The
establishment and funding of the Trust shall not relieve the
Company from its obligations to provide the benefits under
the Plans except pro tanto to the extent that amounts are
paid to Participants and Beneficiaries from the Trust.
Section 4. Trustee Responsibility Regarding
Payments to Trust Beneficiary When Company Is Insolvent.
(a) The Trustee shall cease payment of benefits
to Participants and their Beneficiaries if the Company is
Insolvent.
(b) At all times during the continuance of this
Trust, as provided in paragraph (d) of Section 2 hereof, the
principal and income of the Trust shall be subject to claims
of general creditors of the Company under federal and state
law as set forth below:
(1) The Board of Directors and the Chief
Executive Officer of the Company shall have the duty to
inform the Trustee in writing of the Company's Insolvency.
If a person claiming to be a creditor of the Company alleges
in writing to the Trustee that the Company has become
Insolvent, the Trustee shall determine whether the Company
is Insolvent and, pending such determination, the Trustee
shall discontinue payment of benefits to Participants or
their Beneficiaries.
(2) Unless the Trustee has actual knowledge of
the Company's Insolvency, or has received notice from the
Company or a person claiming to be a creditor alleging that
the Company is Insolvent, the Trustee shall have no duty to
inquire whether the Company is Insolvent. The Trustee may
in all events rely on such evidence concerning the Company's
solvency as may be furnished to the Trustee and that
provides the Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(3) If at any time the Trustee has determined
that the Company is Insolvent, the Trustee shall discontinue
payments to Participants or their Beneficiaries and shall
hold the assets of the Trust for the benefit of the
Company's general creditors. Nothing in this Trust
Agreement shall in any way diminish any rights of
Participants or their Beneficiaries to pursue their rights
as general creditors of the Company with respect to benefits
due under the Plans, Contracts or otherwise.
(4) The Trustee shall resume the payment of
benefits to Participants or their Beneficiaries in
accordance with Section 3 of this Trust Agreement only after
the Trustee has determined that the Company is not Insolvent
(or is no longer Insolvent).
(c) Provided that there are sufficient assets, if
the Trustee discontinues the payment of benefits from the
Trust pursuant to paragraph (b) of Section 4 hereof and
subsequently resumes such payments, the first payment
following such discontinuance shall include the aggregate
amount of all payments due to Participants or their
Beneficiaries under the terms of the Plans and Contracts for
the period of such discontinuance, less the aggregate amount
of any payments made to such Participants or their
Beneficiaries by the Company in lieu of the payments
provided for hereunder during any such period of
discontinuance.
Section 5. Payments to Company.
Except as provided in Section 4 hereof, after the
Trust has become irrevocable, the Company shall have no
right or power to direct the Trustee to return to the
Company or to divert to others any of the Trust assets
before all payment of benefits have been made to
Participants and their Beneficiaries pursuant to the terms
of the Plans and Contracts.
Section 6. Investment Authority.
(a) The Trustee shall invest the assets of the
Trust in the manner directed by the Company. The Company
agrees to indemnify the Trustee for, and to hold it harmless
against, any and all liabilities, losses, costs or expenses
(including reasonable legal fees and expenses) of whatsoever
kind and nature which may be imposed on, incurred by, or
asserted against the Trustee at any time by reason of
actions taken in accordance with such directions by the
Company or omitted because no such directions are given,
including, without limitation, any acquisition, retention or
disposition of any stock or other securities of the Company.
(b) To the extent directed by the Company, the
Trustee shall have the following investment powers:
(i) To purchase or subscribe for any property
whatsoever (including stock or rights to acquire stock)
and to retain in trust such securities or other
property. The Trustee may invest in securities
(including stock or rights to acquire stock) or
obligations issued by the Company.
(ii) To sell for cash or on credit, to grant
options, convert, redeem, exchange for other securities
or other property, or otherwise to dispose of any
securities or other property at any time held.
(iii) To exercise any conversion privilege and/or
subscription right available in connection with any
securities or other property at any time held; to
oppose or to consent to the reorganization,
consolidation, merger or readjustment of the finances
of any corporation, company or association or to the
sale, mortgage, pledge or lease of the property of any
corporation, company or association any of the
securities of which may at any time be held and to do
any act with reference thereto, including the exercise
of options, the making of agreements or subscriptions,
which may be deemed necessary or advisable in
connection therewith; and to hold and retain any
securities or other property so acquired.
(iv) To exercise, personally or by general or by
limited power of attorney, any right, including the
right to vote (other than with respect to the stock of
the Company), appurtenant to any securities or other
property held at any time.
(v) To hold part or all of the Trust uninvested.
(vi) To register any securities held hereunder in
the name of the Trustee or in the name of a nominee
with or without the addition of words indicating that
such securities are held in a fiduciary capacity, and
to hold any securities in bearer form.
All rights associated with assets of the Trust shall be
exercised by the Trustee or the person designated by the
Trustee except that voting rights with respect to stock of
the Company shall be exercised by the Company, and shall in
no event be exercisable by or rest with Participants or
their Beneficiaries. The Company shall have the right in
its sole discretion at any time, and from time to time, to
substitute assets of equal fair market value for any asset
held by the Trust. This right is exercisable by the Company
in a nonfiduciary capacity without the approval or consent
of any person in a fiduciary capacity.
Section 7. Disposition of Income.
During the term of this Trust, all income received
by the Trust, net of expenses and taxes, shall be
accumulated and reinvested.
Section 8. Accounting by Trustee.
The Trustee shall keep accurate and detailed
records of all investments, receipts, disbursements and
other transactions required to be made, including such
specific records as shall be agreed upon in writing between
the Company and the Trustee. Within 90 days following the
close of each calendar year and within 90 days after the
removal or resignation of the Trustee, the Trustee shall
deliver to the Company a written account of its
administration of the Trust during such year or during the
period from the close of the last preceding year to the date
of such removal or resignation, setting forth all
investments, receipts, disbursements and other transactions
effected by it, including a description of all securities
and investments purchased and sold with the cost or net
proceeds of such purchases or sales (accrued interest paid
or receivable being shown separately), and showing all cash,
securities and other property held in the Trust at the end
of such year or as of the date of such removal or
resignation, as the case may be. Unless protested by
written notice to the Trustee within 120 days of receipt
thereof by the Company, any such written account shall be
deemed accepted and approved by the Company, and the Trustee
shall be relieved and discharged, as if such account had
been settled and allowed by a judgment or decree of a court
of competent jurisdiction, in an action or proceeding in
which the Company and all persons having a beneficial
interest in the Trust were parties.
Nothing contained in this Agreement shall deprive
the Trustee or the Company of the right to have a judicial
settlement of its accounts. In any proceeding for a
judicial settlement of the Trustee's accounts, or for
instructions in connection with the Trust, the only
necessary party thereto in addition to the Trustee shall be
the Company. If the Trustee or the Company so elects, it
may bring in as a defendant party or parties any other
person or persons.
Section 9. Responsibility of Trustee.
(a) The Trustee shall act with the care, skill,
prudence and diligence under the circumstances then
prevailing that a prudent person acting in like capacity and
familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims. In the
event of a dispute between the Company and a party, the
Trustee may apply to a court of competent jurisdiction to
resolve the dispute.
(b) Whenever in the administration of the Trust a
certification is required to be given to the Trustee, or the
Trustee shall deem it necessary that a matter be proved
prior to taking, suffering or omitting any action hereunder,
such certification shall be duly made and said matter may be
deemed to be conclusively proved by an instrument, signed in
the name of the Company, by its President, a Vice President
or by any other person specified in writing by the Company.
The Company shall file with the Trustee a certified list of
the names and specimen signatures of the persons authorized
to act for the Company. The Trustee may rely on any such
certification purporting to have been signed by or on behalf
of such person or persons that the Trustee believes in good
faith to have been signed thereby. The Trustee shall have
no responsibility for reasonably relying upon any
certification believed by the Trustee in good faith to have
been so signed by a duly authorized officer or agent of the
Company.
(c) The Trustee may make any payment required to
be made by it hereunder by mailing its check in the amount
hereof by first class mail in a sealed envelope addressed to
the person to whom such payment is to be made. The Trustee
shall not be required to make any investigation to determine
the identity or mailing address of any person entitled to
benefits under this Agreement and shall be entitled to
withhold making payments until the identity and mailing
addresses of persons entitled to benefits are certified to
it. In the event that any dispute shall arise as to the
identity or rights of persons entitled to benefits
hereunder, the Trustee may withhold payment of benefits
until such dispute shall have been determined by arbitration
or by a court of competent jurisdiction or shall have been
settled by written stipulation of the parties concerned.
(d) If the Trustee undertakes or defends any
litigation arising in connection with this Trust, the
Company agrees to indemnify the Trustee against the
Trustee's costs, expenses and liabilities (including,
without limitation, reasonable attorneys' fees and expenses)
relating thereto and to be primarily liable for such
payments. If the Company does not pay such costs, expenses
and liabilities in a reasonably timely manner, the Trustee
may obtain payment from the Trust.
(e) The Trustee may consult with legal counsel
(who may also be counsel for the Company generally) with
respect to any of its duties or obligations hereunder.
(f) The Trustee may hire agents, accountants,
actuaries, investment advisors, financial consultants or
other professionals to assist it in performing any of its
duties or obligations hereunder. Prior to a Change of
Control, to the extent approved by the Company, the Company
shall be responsible for payment of these expenses, and if
not paid by the Company, such authorized expenses shall be
paid by the Trust. Following a Change of Control, the
Company shall be responsible for payment of these expenses,
and if not paid by the Company, such expenses shall be paid
by the Trust.
(g) The Trustee shall have, without exclusion,
all powers conferred on trustees by applicable law, unless
expressly provided otherwise herein, provided, however, that
if an insurance policy is held as an asset of the Trust, the
Trustee shall have no power to name a Beneficiary of the
policy other than the Trust, to assign the policy (as
distinct from conversion of the policy to a different form)
other than to a successor Trustee or to loan to any person
the proceeds of any borrowing against such policy.
(h) A third party dealing with the Trustee shall
not be required to make any inquiry whether the Company or a
Participant has instructed the Trustee, or the Trustee is
otherwise authorized to take or omit any action; or to
follow the application by the Trustee of any money or
property which may be paid or delivered to the Trustee.
(i) The liability of the Trustee to make the
payments specified by the Plan shall be limited to the funds
which have come into its hands as Trustee hereunder,
including all income therefrom and increment thereof.
(j) The Company shall indemnify and hold harmless
the Trustee for any liability or expenses, including without
limitation, reasonable attorneys' fees reasonably incurred
by the Trustee with respect to any action undertaken with
the consent of the Company in good faith hereunder or
pursuant to the Plans other than on account of the Trustee's
negligence or willful misconduct.
(k) Notwithstanding any powers granted to the
Trustee pursuant to this Trust Agreement or applicable law,
the Trustee shall not have any power that could give this
Trust the objective of carrying on a business and deriving
the gains therefrom, within the meaning of section 301.7701-
2 of the Procedure and Administrative Regulations
promulgated pursuant to the Internal Revenue Code.
Section 10. Compensation and Expenses of
Trustees.
The Trustee shall receive for its services
compensation in accordance with Schedule A, which can be
amended upon the agreement of the Company and Trustee.
After a Change of Control of the Company, the Trustee may
increase its rate of compensation as reasonably necessary.
The Company shall pay all administrative and
Trustee's fees and expenses. If not so paid, the fees and
expenses shall be paid from the Trust.
Section 11. Resignation and Removal of Trustee.
(a) The Trustee may resign at any time by written
notice to the Company, which shall be effective 90 days
after receipt of such notice unless the Company and the
Trustee agree otherwise.
(b) Except as provided in paragraph (c) of this
Section 11, the Trustee may be removed by the Company on
90 days' notice or upon shorter notice accepted by the
Trustee.
(c) Upon a Change of Control, the Trustee may not
be removed by the Company for five years.
(d) If the Trustee resigns or is removed within
ten years of a Change of Control, as defined herein, the
Trustee shall select a successor Trustee in accordance with
the provisions of paragraph (b) of Section 12 hereof whose
appointment shall be effective at the effective time of the
Trustee's resignation or removal. The Trustee shall be
compensated for the reasonable costs of selecting a
successor as provided in Sections 10 and 12.
(e) Upon resignation or removal of the Trustee
and appointment of a successor Trustee, all assets shall
subsequently be transferred to the successor Trustee. The
transfer shall be completed within 90 days after receipt of
notice of resignation, removal or transfer, unless the
Company extends the time limit.
(f) If the Trustee resigns or is removed, a
successor shall be appointed, in accordance with Section 12
hereof, by the effective date of resignation or removal
under paragraph (a) or (b) of this Section 11. If no such
appointment has been made, the Trustee may apply to a court
of competent jurisdiction for appointment of a successor or
for instructions. All expenses of the Trustee in connection
with the proceeding shall be allowed as administrative
expenses of the Trust.
Section 12. Appointment of Successor.
(a) Subject to the provisions of paragraph (b) of this
Section 12, if the Trustee resigns or is removed in
accordance with paragraph (a) or (b) of Section 11 hereof,
the Company shall appoint any third party, such as a bank
trust department or other party that may be granted
corporate trustee powers under state law, as a successor to
replace the trustee upon resignation or removal. The
appointment shall be effective when accepted in writing by
the new trustee, who shall have all of the rights and powers
of the former Trustee, including ownership rights in the
Trust assets. The former Trustee shall execute any
instrument necessary or reasonably requested by the Company
or the successor trustee to evidence the transfer.
(b) If the Trustee resigns or is removed pursuant
to the provisions of paragraph (d) of Section 11 hereof, the
Trustee shall appoint any third party, such as a bank trust
department or other party that may be granted corporate
trustee powers under state law, as successor trustee. The
appointment of a successor trustee shall be effective when
accepted in writing by the new trustee. The new trustee
shall have all the rights and powers of the former Trustee,
including ownership rights in Trust assets. The former
Trustee shall execute any instrument necessary or reasonably
requested by the successor trustee to evidence the transfer.
(c) The successor trustee need not examine the
records and acts of any prior Trustee and may retain or
dispose of existing Trust assets, subject to Sections 8
and 9 hereof. The successor trustee shall not be
responsible for and the Company shall indemnify and defend
the successor trustee from any claim or liability resulting
from any action or inaction of any prior Trustee or from any
other past event, or any condition existing at the time it
becomes trustee.
Section 13. Amendment or Termination. (a) This
Trust Agreement may be amended by a written instrument
executed by the Trustee and the Company. Notwithstanding
the foregoing, no such amendment shall conflict with the
terms of the Plans or Contracts or shall make the Trust
revocable after it has become irrevocable in accordance with
paragraph (b) of Section 2 hereof.
(b) Unless sooner revoked in accordance with
paragraph (b) of Section 2 hereof, the Trust shall not
terminate until the date on which Participants and their
Beneficiaries are no longer entitled to benefits pursuant to
the terms of the Plans and Contracts. Upon termination of
the Trust, any assets remaining in the Trust shall be
returned to the Company.
(c) Upon written approval of Participants or
Beneficiaries entitled to payment of benefits pursuant to
the terms of the Plans and Contracts, the Company may
terminate this Trust prior to the time all benefit payments
under the Plans and Contracts have been made. All assets in
the Trust at termination shall be returned to the Company.
(d) Paragraph (f) of Section 2, Section 3,
paragraph (c) or (d) of Section 11 and paragraph (b) of
Section 12 of this Trust Agreement may not be amended by
Company for ten years following a Change of Control.
Section 14. Miscellaneous. (a) Any provision of
this Trust Agreement prohibited by law shall be ineffective
to the extent of any such prohibition, without invalidating
the remaining provisions hereof.
(b) Benefits payable to Participants and their
Beneficiaries under this Trust Agreement may not be
anticipated, assigned (either at law or in equity),
alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable
process.
(c) This Trust Agreement shall be governed by and
construed in accordance with the laws of the State of New
York.
Section 15. Effective Date.
The effective date of this Trust Agreement shall
be the 16th day of September, 1994.
THE PITTSTON COMPANY,
by s/Frank T. Lennon
_________________________
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
Trustee
by s/Edward L. Berman
_________________________
[Title]
<PAGE>
Exhibit A
Individuals Covered by Contractual Arrangements with
The Pittston Company
Robert D. Duke
Joseph Farrell
David Marshall
Jonathan Sturman
<TABLE>
EXHIBIT 11
THE PITTSTON COMPANY AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(In thousands, except per share amounts)
<CAPTION>
FULLY DILUTED EARNINGS PER COMMON SHARE: (a)
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
1994 1993 1994 1993
-------- ------ ------- ------
<S> <C> <C> <C> <C>
PITTSTON SERVICES GROUP:
Net income attributed to common shares $25,014 15,313 56,813 31,697
======= ====== ======= ======
Average common shares outstanding 37,840 36,948 37,757 36,722
Incremental shares of stock options 464 559 492 330
------- ------ ------- ------
Pro forma common shares outstanding 38,304 37,507 38,249 37,052
======= ====== ======= ======
Fully diluted earnings per common share: $ .65 .41 1.49 .86
======= ====== ======= ======
PITTSTON MINERALS GROUP:
Net income (loss) attributed to common shares $ 6,196 5,932 (61,133) 11,844
Preferred stock dividends (541) - (2,804) -
------- ------ ------- ------
Fully diluted net income (loss)
attributed to common shares $ 5,655 5,932 (63,937) 11,844
======= ====== ======= ======
Average common shares outstanding 7,605 7,386 7,578 7,343
Incremental shares of stock options 90 158 88 81
Conversion of preferred stock 2,385 - 2,299 -
------- ------ ------- ------
Pro forma common shares outstanding 10,080 7,544 9,965 7,424
======= ====== ======= ======
Fully diluted earnings (loss) per common share: $ .61 .79 (8.44)(b) 1.60
======= ====== ======= ======
</TABLE>
(a) On July 26, 1993, the outstanding shares of The Pittston Company's common
stock were redesignated as Pittston Services Group common stock on a
share-for-share and a second class of stock, designated as Pittston
Minerals Group common stock ("Minerals Stock") was distributed on a basis
of one-fifth of one share of Minerals Stock for each share of The
Pittston Company's common stock. Accordingly, all common share, stock
options and per share data prior to the redesignation has been restated
to reflect the new equity structure of The Pittston Company.
(b) Antidilutive, therefore the same as primary.
Primary Earnings Per Share:
- --------------------------
Primary earnings per share can be computed from the information on the face of
the Consolidated Statements of Operations.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The Pittston
Company Form 10Q for the quarterly period ended September 30, 1994, and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 52,255
<SECURITIES> 24,554
<RECEIVABLES> 337,122
<ALLOWANCES> 16,963
<INVENTORY> 34,930
<CURRENT-ASSETS> 547,465
<PP&E> 809,456
<DEPRECIATION> 378,669
<TOTAL-ASSETS> 1,685,483
<CURRENT-LIABILITIES> 549,130
<BONDS> 128,314
<COMMON> 50,032
0
1,526
<OTHER-SE> 367,755
<TOTAL-LIABILITY-AND-EQUITY> 1,685,483
<SALES> 589,033
<TOTAL-REVENUES> 1,941,149
<CGS> 578,197
<TOTAL-COSTS> 1,690,035
<OTHER-EXPENSES> 90,806
<LOSS-PROVISION> 3,150
<INTEREST-EXPENSE> 7,954
<INCOME-PRETAX> (10,033)
<INCOME-TAX> (5,713)
<INCOME-CONTINUING> (4,320)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,320)
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Pittston Services Group - Primary - 1.50
Pittston Minerals Group - Primary - (8.44)
<F2>Pittston Services Group - Diluted - 1.50
Pittston Minerals Group - Diluted - (8.44)
</FN>
</TABLE>
