SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 June 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.
41,669,790 shares of $1 par value Pittston Services Group Common
Stock and 8,336,588 shares of $1 par value Pittston Minerals Group
Common Stock as of August 5, 1994.
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
THE PITTSTON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<CAPTION>
June 30, Dec. 31,
ASSETS 1994 1993
- - -------------------------------------------------------------------------------------
<S> <C> <C>
Current assets: (Unaudited)
Cash and cash equivalents $ 34,509 32,412
Short-term investments, at lower of cost or market 23,462 22,946
Accounts receivable (net of estimated amount
uncollectible: 1994 - $16,600; 1993 - $16,040) 332,561 296,543
Inventories, at lower of cost or market 39,064 24,155
Prepaid expenses 27,625 27,493
Deferred income taxes 56,225 53,642
- - -------------------------------------------------------------------------------------
Total current assets 513,446 457,191
Property, plant and equipment, at cost (net of
accumulated depreciation, depletion and amortization:
1994 - $366,118; 1993 - $412,533) 419,286 369,821
Intangibles, net of amortization 295,986 215,042
Deferred pension assets 116,726 117,066
Deferred income taxes 87,083 59,846
Coal supply contracts 96,868 35,462
Other assets 110,629 107,073
- - -------------------------------------------------------------------------------------
Total assets $1,640,024 1,361,501
=====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 11,681 9,546
Current maturities of long-term debt 8,473 7,908
Accounts payable 223,709 182,276
Accrued liabilities 267,884 237,714
- - -------------------------------------------------------------------------------------
Total current liabilities 511,747 437,444
Long-term debt, less current maturities 137,224 58,388
Postretirement benefits other than pensions 217,188 212,218
Workers' compensation and other claims 143,787 127,545
Deferred income taxes 19,177 15,847
Other liabilities 218,010 156,547
Shareholders' equity:
Preferred stock, par value $10 per share:
Authorized: 2,000 shares
$31.25 Series C Cumulative Convertible Preferred Stock:
Issued: 1994 - 161 shares 1,610 -
Pittston Services Group common stock, par value $1
per share: Authorized: 100,000 shares
Issued: 1994 - 41,567 shares;
1993 - 41,429 shares 41,567 41,429
Pittston Minerals Group common stock, par value $1
per share: Authorized 20,000 shares
Issued: 1994 - 8,329 shares;
1993 - 8,281 shares 8,329 8,281
Capital in excess of par value 420,155 354,911
Retained earnings 54,073 98,290
Equity adjustment from foreign currency translation (15,262) (18,381)
Employee benefits trust, at market value (117,581) (131,018)
- - -------------------------------------------------------------------------------------
Total shareholders' equity 392,891 353,512
- - -------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,640,024 1,361,501
=====================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
THE PITTSTON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
- - -----------------------------------------------------------------------------------------
1994 1993 1994 1993
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $202,149 174,457 378,891 342,448
Operating revenues 457,351 380,202 868,404 743,959
- - -----------------------------------------------------------------------------------------
Net sales and operating revenues 659,500 554,659 1,247,295 1,086,407
- - -----------------------------------------------------------------------------------------
Cost of sales 189,044 164,663 378,825 322,498
Operating expenses 369,935 315,459 716,179 624,896
Special and other charges - - 90,806 -
Selling, general and administrative 62,906 55,075 118,156 108,958
- - -----------------------------------------------------------------------------------------
Total costs and expenses 621,885 535,197 1,303,966 1,056,352
- - -----------------------------------------------------------------------------------------
Other operating income 5,834 5,809 10,835 10,825
- - -----------------------------------------------------------------------------------------
Operating profit (loss) 43,449 25,271 (45,836) 40,880
Interest income 552 502 1,208 1,282
Interest expense (2,644) (2,595) (5,209) (5,901)
Other income (expense), net (1,732) (1,286) (4,067) (1,423)
- - -----------------------------------------------------------------------------------------
Income (loss) before income taxes 39,625 21,892 (53,904) 34,838
Provision (credit) for income taxes 11,587 7,752 (18,374) 12,542
- - -----------------------------------------------------------------------------------------
Net income (loss) 28,038 14,140 (35,530) 22,296
Preferred stock dividends (1,257) - (2,263) -
- - -----------------------------------------------------------------------------------------
Net income (loss) attributed
to common shares $ 26,781 14,140 (37,793) 22,296
=========================================================================================
Pittston Services Group:
Net income attributed to common shares $ 21,288 10,970 31,799 16,384
- - -----------------------------------------------------------------------------------------
Net income per common share $ .56 .30 .84 .45
- - -----------------------------------------------------------------------------------------
Cash dividend per common share $ .05 .0455 .10 .0910
- - -----------------------------------------------------------------------------------------
Pittston Minerals Group:
Net income (loss) attributed
to common shares $ 5,493 3,170 (69,592) 5,912
- - -----------------------------------------------------------------------------------------
Net income (loss) per common share:
Primary $ .72 .43 (9.20) .81
- - -----------------------------------------------------------------------------------------
Fully diluted $ .67 .43 (9.20) .80
- - -----------------------------------------------------------------------------------------
Cash dividends per common share $ .1625 .1477 .3250 .2954
=========================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
THE PITTSTON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Six Months
Ended June 30
- - ----------------------------------------------------------------------------------------
1994 1993
- - ----------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (35,530) 22,296
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 47,191 37,506
Provision (credit) for deferred income taxes (17,389) 2,438
Provision (credit) for pensions, noncurrent 642 (1,403)
Provision for uncollectible accounts receivable 1,766 2,812
Equity in earnings of unconsolidated affiliates, net
of dividends received (2,248) (4,181)
Other operating, net 1,171 493
Change in operating assets and liabilities net
of effects of acquisitions and dispositions:
Increase in accounts receivable (38,610) (23,532)
Decrease (increase) in inventories (9,095) 5,060
Increase in prepaid expenses (2,619) (2,996)
Increase in accounts payable and accrued liabilities 23,963 2,754
Decrease (increase) in other assets 4,632 (6,454)
Increase (decrease) in other liabilities 10,661 (3,922)
Increase (decrease) in workers' compensation and
other claims, noncurrent 11,608 (6,413)
Other, net (314) 318
- - ----------------------------------------------------------------------------------------
Net cash provided by operating activities 42,622 24,787
- - ----------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (42,276) (54,977)
Property, plant and equipment pending lease financing 2,047 (8,036)
Disposal of property, plant and equipment 1,562 2,868
Acquisitions and related contingent payments (157,294) (35)
Other, net 5,575 10,198
- - ----------------------------------------------------------------------------------------
Net cash used by investing activities (190,386) (49,982)
- - ----------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 112,737 41,520
Reductions of debt (33,916) (8,175)
Repurchase of common stock of the Company (2,953) (1,105)
Proceeds from exercise of stock options 4,703 1,227
Proceeds from preferred stock issuance, net
of cash expenses 77,359 -
Cost of Services Stock Proposal (4) -
Proceeds from the sale of stock to SIP - 264
Dividends paid (8,065) (5,490)
- - ----------------------------------------------------------------------------------------
Net cash provided by financing activities 149,861 28,241
- - ----------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 2,097 3,046
Cash and cash equivalents at beginning of period 32,412 30,340
- - ----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 34,509 33,386
========================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
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:
<TABLE>
<CAPTION>
Second Quarter Six Months
------------------------------------------------------------------------
1994 1993 1994 1993
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Services Stock: 37,739 36,656 37,715 36,607
Minerals Stock:
Primary 7,644 7,331 7,565 7,321
Fully diluted 10,148 7,385 9,905 7,364
</TABLE>
Minerals stock's fully diluted earnings per share computation
for the six months ended June 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 second quarter and six
month periods were $17,262 ($15,455 in 1993) and $34,618
($30,692 in 1993), respectively.
(4) Cash payments made for interest and income taxes (net of refunds
received) were as follows:
Second Quarter Six Months
-------------------------------------------------------
1994 1993 1994 1993
-------------------------------------------------------
Interest $2,750 2,622 5,816 5,935
=======================================================
Income taxes $4,567 7,880 11,514 17,113
=======================================================
During the six months ended June 30, 1994, the Company acquired
one business for an aggregate purchase price of $157,231. See
Note 5.
During the six months ended June 30, 1994 and 1993, capital
lease obligations of $1,968 and $582, respectively, were
incurred for leases of property, plant and equipment.
(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 six month
periods ended June 30, 1994 and 1993 and the quarter ended June
30, 1993, nor are they indicative of the future results of
operations of the Company.
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
----------------------------------------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
----------------------------------------------------------------------------
1993 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales and operating revenues $617,111 1,257,221 1,206,941
============================================================================
Net income (loss) 17,973 (35,106) 27,738
Pittston Services Group:
Net income attributed to common
shares $ 10,970 31,799 16,384
----------------------------------------------------------------------------
Net income per common share $ .30 .84 .45
----------------------------------------------------------------------------
Average common shares outstanding 36,656 37,715 36,607
============================================================================
Pittston Minerals Group:
Net income (loss) attributed to
common shares: $ 5,745 (69,420) 8,838
----------------------------------------------------------------------------
Net income (loss) per common share:
Primary $ .78 (9.18) 1.21
----------------------------------------------------------------------------
Fully diluted $ .71 (9.18) 1.15
----------------------------------------------------------------------------
Average common shares outstanding:
Primary 7,331 7,565 7,321
----------------------------------------------------------------------------
Fully diluted 9,889 10,156 9,868
============================================================================
</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.
(7) During the six months ended June 30, 1994, the Company incurred
pre-tax charges of $90,800 ($58,100 after-tax) for asset
writedowns and accruals for costs related to facilities which
are being closed including contractually or statutorily required
employee severance and other benefit costs.
(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 six months of 1994 and 1993 by $2,149 and $1,636,
respectively, and for the second quarter of 1994 and 1993 by
$1,029 and $762, respectively. The effect of this change
increased net income per share of the Services Group for the
first six months of 1994 and 1993 by $.03 and $.03,
respectively, and for the second 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 Six Months
Ended June 30 Ended June 30
- - ------------------------------------------------------------------------------------------
1994 1993 1994 1993
- - ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues: (In thousands)
Burlington $302,266 240,316 563,750 471,201
Brink's 128,183 118,369 251,948 230,392
BHS 26,902 21,517 52,706 42,366
Coal 198,380 170,331 371,796 334,316
Mineral Ventures 3,769 4,126 7,095 8,132
- - ------------------------------------------------------------------------------------------
Consolidated revenues $659,500 554,659 1,247,295 1,086,407
==========================================================================================
Operating profit (loss):
Burlington $ 20,770 7,978 29,780 9,452
Brink's 10,216 8,667 16,349 15,086
BHS 7,897 6,462 15,463 12,831
Coal 8,395 5,750 (99,444) 11,289
Mineral Ventures 314 (53) 68 313
- - ------------------------------------------------------------------------------------------
Segment operating profit (loss) 47,592 28,804 (37,784) 48,971
General corporate expense (4,143) (3,533) (8,052) (8,091)
- - ------------------------------------------------------------------------------------------
Consolidated operating profit (loss) 43,449 25,271 (45,836) 40,880
Interest income 552 502 1,208 1,282
Interest expense (2,644) (2,595) (5,209) (5,901)
Other income (expense), net (1,732) (1,286) (4,067) (1,423)
- - ------------------------------------------------------------------------------------------
Income (loss) before income taxes 39,625 21,892 (53,904) 34,838
Provision (credit) for income taxes 11,587 7,752 (18,374) 12,542
- - ------------------------------------------------------------------------------------------
Net income (loss) $ 28,038 14,140 (35,530) 22,296
==========================================================================================
</TABLE>
RESULTS OF OPERATIONS
- - ---------------------
In the second quarter of 1994, The Pittston Company (the "Company")
reported net income of $28.0 million compared with $14.1 million in the
second quarter of 1993. Net income in the second quarter of 1994 was
positively impacted by improved results from each of the Company's
business segments.
In the first six months of 1994, the Company reported a net loss of
$35.5 million compared with net income of $22.3 million in the first six
months of 1993. The decrease in the first half of 1994 was attributable
to the Company's minerals businesses, specifically the 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, respectively. Net income in the first half of 1994 was
positively impacted by improved results from each of the Company's
services businesses and decreased net interest expense, partially offset
by higher nonoperating expenses compared with the same period of last
year.
Burlington Air Express Inc. ("Burlington")
- - ------------------------------------------
Operating profit in the second quarter of 1994 for Burlington aggregated
$20.8 million, a $12.8 million increase compared with $8.0 million in
the second quarter of 1993. Worldwide revenues rose 26% to $302.3
million from $240.3 million in the prior year. The $62.0 million
increase in revenues resulted primarily from higher volume in both
domestic and international markets. In the domestic market, volume
during the 1994 second quarter benefitted from the 24 day Teamster
strike against the domestic trucking industry. Increased revenues from
higher volumes were partially offset by lower average yields (revenues
per pound). Total weight shipped worldwide increased 30% to 315.7
million pounds from 242.3 million pounds in the same period a year
earlier. Global average yield decreased 3% or $.03 to $.96 per pound in
the second quarter of 1994 compared with the same period a year earlier,
whereas, total costs decreased 7% or $.07 to $.89 per pound for the same
period. Operating expenses and selling, general and administrative
expenses also increased largely from the increased volume of business.
Operating profit in the Americas region benefitted from strong domestic
volume shipments which increased 39% over the second quarter of 1993, as
local and national accounts continued their strong shipping levels. The
higher volume also reflected the impact of the Teamster strike in April,
which added an estimated 8 million pounds of second day freight.
However, much of Burlington's new business was retained as overnight
volumes were maintained throughout the quarter at the higher levels
reached during April. 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 impacted by a
highly competitive pricing environment.
During the 1994 second quarter, Burlington announced a 20% expansion of
its North American private fleet capacity, largely through the acquisi-
tion of additional aircraft under relatively short-term leases. This
expansion will meet additional customer needs and enhance service
quality. Burlington also announced the opening of a new freight station
in Ontario, California, improving the service capabilities in the
southern California market.
Foreign operating results in the current year quarter decreased from the
prior year quarter with results in the Pacific region remaining
unchanged and results in the Atlantic region decreased. Although
foreign operations also benefitted from a 20% increase in international
weight shipped, the impact of increased volumes was more than offset by
lower yields, increased airline costs and additional costs incurred in
connection with providing complete global logistics services. Decreased
yields continue to reflect intense price competition in many overseas
markets.
Operating profit in the first half of 1994 for Burlington was $29.8
million, a $20.3 million increase over the $9.5 million profit reported
in the first half of 1993. Worldwide revenues rose 20% to $563.8
million in the current year period from $471.2 million in the first six
months of the prior year. The $92.6 million increase in revenues
resulted principally from higher volume in both domestic and interna-
tional markets. Increased revenues from higher volumes were partially
offset by lower average yields. Total weight shipped worldwide
increased 24% to 591.3 million pounds in the first six months of 1994
from 478.2 million pounds in the same period a year earlier. Global
average yield decreased 3% or $.03 to $.95 per pound in the first six
months of 1994 compared with the same period a year earlier, whereas,
total costs decreased 6% or $.06 to $.90 per pound for the same period.
Operating expenses and selling, general and administrative expenses also
increased in the 1994 first half compared with the first half of 1993
largely resulting from the increased volume of business.
Operating profit in the America's region for the six months of 1994
benefitted from domestic volume increases, a significant portion of
which was from strong shipping levels maintained by local and national
accounts. 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 six 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 the use of more efficient aircraft placed in service
during the first half of 1993 and increased capacity as a result of the
fourth quarter 1993 expansion of Burlington's airfreight hub in Toledo,
Ohio, which assisted in increasing efficiency. Gains for Americas'
operations from increased business volume and efficiencies were
partially offset by decreased average yields in the first half of 1994.
Average yields continue to reflect a highly competitive pricing
environment. Domestic pricing remains below last years level but has
stabilized partly as a result of the price increase program which was
instituted in the first quarter of 1994.
Foreign operating results in the first six months of the current year
decreased from the 1993 level. The benefit of increased volumes was
more than offset by lower yields, increased airline costs 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 $10.2 million in the
second quarter of 1994 from $8.7 million in the second quarter of 1993
with an increase in revenues of $9.8 million, partially offset by
increases in operating expenses and selling, general and administrative
expenses of $7.4 million and a decrease in other operating income of $.9
million.
Operating results in North America continued at a strong pace in the
1994 second quarter, with revenue increasing $8.6 million or 12% to
$82.3 million and operating profit increasing $1.0 million to $5.2
million or 23% over the prior year's second quarter. The improvement
principally reflected increased earnings from the armored car, ATM and
air courier business. Revenue growth in North America was attributable
to the addition of several new customer accounts as well as additional
business from certain existing customers.
Revenue from international subsidiaries increased $1.2 million or 3% to
$45.8 million in the second quarter of 1994, while operating earnings
from international subsidiaries and affiliates increased $.6 million or
13% to $5.0 million compared with the 1993 second quarter primarily due
to improved results reported by operations in Israel (70% owned), Brazil
and Australia, partially offset by declines experienced in Holland (65%
owned), France (38% owned) and Mexico (20% owned). Results in Brink's
Brazil improved significantly from the prior year second quarter.
During the current year second quarter, management in Brazil implemented
price increases to defray the substantially higher security costs made
necessary by the increase in armed robberies. Although Brink's 20%
owned Mexican affiliate reported lower earnings compared to the 1993
second quarter reflecting the impact of the local economic recession and
strengthening competition, operating results improved from the first
quarter of 1994 reflecting the benefits of cost-cutting efforts
implemented in late 1993 and early 1994.
Brink's operating profit increased $1.3 million to $16.4 million in the
first six months of 1994 from $15.1 million in the first six months of
1993 with an increase in revenues of $21.6 million, partially offset by
increases in operating expenses and selling, general and administrative
expenses of $18.9 million and a decrease in other operating income of
$1.4 million.
The increase in revenues and operating profit in the first six months of
1994 was primarily due to North American operations. Revenue from North
American operations increased $19.3 million or 14% to $161.8 million and
operating profit increased $2.2 million or 30% to $9.4 million. The
increase in operating profit was largely attributable to increases from
air courier operations, which resulted principally from strong volumes.
Operating profit from other North American based operations, including
armored car and ATM, also increased compared with 1993 results despite
the impact in early 1994 of adverse weather conditions and the Califor-
nia earthquake.
Revenue from international subsidiaries increased $2.3 million or 3% to
$90.1 million, while operating earnings from international subsidiaries
and affiliates decreased $.9 million or 12% to $6.9 million. The
decline was attributable to operations in Brazil, Holland, Mexico and
France, partially offset by increases reported in Israel and Australia.
Results for Brink's Mexican affiliate reflected the impact of the local
economic recession, restructuring costs which included employee
severance costs, and strengthening competition which impacted the first
quarter of the year. The decrease for Brink's Brazil in the first half
of 1994 reflected the costs of extra security measures made necessary by
the significant increase in armed robberies at Brink's and its competi-
tors.
Brink's Home Security, Inc. ("BHS")
- - -----------------------------------
Operating profit of BHS increased $1.4 million to $7.9 million in the
second quarter of 1994 from $6.5 million in the prior year quarter. In
the first half of 1994, operating profit increased $2.7 million to $15.5
million from $12.8 million in the first half of 1993. The increase in
operating profit for the second quarter and first half of 1994 compared
to the similar periods in 1993 reflected higher monitoring revenues due
to an average subscriber base that was 22% and 21% 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 13,700 and 30,100 in the second
quarter and first six months of 1994, respectively, compared with 9,800
and 19,600 in the second quarter and first six months of 1993, respec-
tively. Subscribers at June 30, 1994 totaled 289,600.
Coal
- - ----
Coal operations earned an operating profit of $8.4 million in the second
quarter of 1994, a $2.6 million increase over the $5.8 million in the
year earlier quarter. The second 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.
Sales volume of 7.2 million tons for the second quarter of 1994 was 31%
or 1.7 million tons higher than sales volume in the second quarter of
1993. Virtually all of the increased sales related to steam coal with
sales of 4.8 million tons (67% of sales), up from 2.5 million tons in
the second quarter of 1993, while metallurgical coal sales decreased 22%
from 3.0 million tons in the second quarter of 1993 to 2.4 million tons
for the second quarter of this year. Coal produced and purchased
totaled 7.3 million tons in the 1994 second quarter, a 38% or 2.0
million ton increase over the same period of 1993. The increase in coal
sales and coal produced/purchased in the second quarter of 1994 as
compared with the second quarter of 1993 is largely attributable to
Addington operations.
In the 1994 second quarter, 30% of total production was derived from
deep mines and 70% was derived from surface mines compared with 56% and
44% of deep and surface mine production, respectively, in the 1993
second quarter.Average coal margin (realization less current production
costs of coal sold), which was $2.63 per ton for the 1994 second
quarter, decreased $.32 per ton from the prior year second quarter with
a 9% or $2.61 per ton decrease in average realization and an 8% or $2.29
per ton decrease in average current production costs of coal sold. The
higher percentage of steam coal sales and declines in export metallurgi-
cal 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.
Coal operations had an operating loss totaling $99.4 million in the
first six months of 1994 compared with an operating profit of $11.3
million in the year earlier six months. The coal operating loss in the
first half of 1994 included $90.8 million of charges for asset write-
downs and accruals for costs related to facilities which are being
closed. In addition, the decrease compared with prior six months oper-
ating results reflected the adverse impact of the severe winter weather
in the 1994 first quarter which particularly hampered surface mine pro-
duction and river transportation. Operating profit in the first six
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 13.3 million tons for the first half of 1994 was 22% or
2.4 million tons higher than sales volume in the first half of 1993.
The increased sales related to steam coal with sales of 8.5 million tons
(64% of sales), up from 4.9 million tons, while metallurgical coal sales
decreased 19% from 5.9 million tons to 4.8 million tons. Coal produced
and purchased totaled 13.6 million tons for first half of 1994, a 28% or
2.9 million ton increase over the first half of 1993. The increase in
coal sales and coal produced/purchased in the first half of 1994 as
compared with the first half of 1993 was largely attributable to the
Addington operations.
In the first six months of 1994, 34% of total production was derived
from deep mines and 66% was derived from surface mines compared with 59%
and 41% of deep and surface mine production, respectively, in the first
six months of 1993.
Production in the first half 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
interruptions which limited output efficiencies during periods of
performance. Sales also suffered due to lost loading days and were
impeded by closed and 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
shipments during the period. In addition to weather related difficul-
ties, operations in the 1994 first quarter were affected by lost
business due to a utility customer's plant closure and production
shortfalls due to withdrawal of contractors from the market.
The metallurgical coal markets continued their long-term decline with
price reductions of $3.85 per ton negotiated early in the year 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 contracts for metallurgical
coal shipments. Such agreements replace 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. The net margin for coal sold under
such agreements is expected to decrease less than $1 a ton for the
current contract year. Agreements reached with certain customers in
Europe and Brazil are expected to result in margin reductions of up to
$1 per ton. 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 is evidenced by the recent severe price reductions,
the Coal Operation 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 minable steam
coal. After a review of the economic viability of the remaining
metallurgical coal assets, certain underground mines are being closed
resulting in significant economic impairment of the related preparation
plants. In addition, one surface steam coal mine, the Heartland mine,
is being closed due to rising costs caused by unfavorable geological
conditions. During the second quarter of 1994 the Company reached
agreement with Alabama Power Company to transfer the coal sales contract
currently serviced by the Heartland mine to another Company location in
West Virginia, at comparable economics. The Heartland mine will cease
operations by year end. The $90.8 million in charges to operating
earnings in the 1994 first quarter 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, mine closing
costs, including reclamation expenses, estimated at $23.1 million and
contractually or statutorily required employee severance and other
benefit costs estimated at $21.2 million. Of the total charges,
liabilities which are expected to be paid within one year total $16.8
million with the balance over the next several years. Operating results
for the remainder of 1994 and thereafter should benefit from these
measures, as well as the continued integration of Addington operations,
the planned expansion of surface mine operations and cost reductions
resulting from personnel cutbacks and the realignment of administrative
duties which were put in place at the end of the 1994 first quarter.
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.
Legislation is currently pending in Congress on pneumoconiosis ("black
lung") reform. A bill has been passed by the House of Representatives
that, if enacted, would result in substantial modifications to the
current procedural and substantive framework for black lung claims. The
Senate is currently considering a bill which likewise would create
various reforms to the current black lung laws. The Company is unable
to predict if any such legislation will be passed and what the final
contents will be. At this time, the Company is unable to calculate what
impact, if any, such legislation might have on the Company or the coal
industry as a whole. Should some or all the proposals in either the
House or Senate version of black lung reform eventually be made into
law, there can be no assurance that the legislation would not have a
material adverse effect on the Company.
Mineral Ventures
- - ----------------
Operating profit of Mineral Ventures increased $.4 million in the 1994
second quarter to an operating profit of $.3 million, from an operating
loss of $.1 million in the prior year second quarter. The favorable
change primarily reflected the fourth quarter 1993 closure of the Uley
graphite property in Australia. The Stawell gold mine in western
Victoria, Australia, in which Mineral Ventures has a 67% interest,
produced 18,900 ounces in the period compared to 20,600 ounces in the
second quarter of 1993.
In the first six months of 1994, operating profit of Mineral Ventures
decreased $.2 million to $.1 million from $.3 million in the year
earlier six months. Although costs related to the Uley graphite
property did not affect operating results in the first six months of
1994 as in the first half of 1993, Mineral Ventures operating results
were impacted by increased exploration costs in Nevada as well as lower
production at the Stawell gold mine. The production shortfall at the
Stawell mine was largely due to an operator accident that occurred in
the 1994 first quarter, which also contributed to higher operating costs
for the period. The Stawell gold mine produced 35,800 ounces in the
first six months of 1994 compared with 39,400 ounces in the comparable
period of 1993. 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 transac-
tions in the normal course of its business. Although the diversity of
its foreign operations limits the risks associated with such transac-
tions, 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, national-
ization, expropriation 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 of $5.8 million and $10.8 million for the second
quarter and first six months of 1994, respectively, were comparable to
other operating income for the same periods a year earlier. 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.
Corporate Expenses
- - ------------------
General corporate expenses increased $.6 million to $4.1 million for the
1994 second quarter from $3.5 million for the 1993 second quarter. In
the first six months of 1994, general corporate expenses of $8.1 million
remained unchanged compared to the year earlier six months. The
increased expenses for the second quarter principally related to
employee related costs and benefits. Expenses in the second quarter and
first six months of 1993 included costs incurred for the Company's then
proposed reclassification of its common stock into two classes.
Interest Expense
- - ----------------
Interest expense of $2.6 million for the second quarter of 1994
increased slightly compared to the second quarter of 1993. In the first
six months of 1994, interest expense decreased $.7 million to $5.2
million from $5.9 million in the first six months of 1993. Interest
expense for the second quarter and first six 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 and early payment of a term loan which occurred during the
1993 second quarter. Interest expense in the first six 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.
Other Income (Expense), Net
- - ---------------------------
Other net expense for the second quarter of 1994 increased $.4 million
to a net expense of $1.7 million from $1.3 million in the second quarter
of 1993. In the first six months of 1994, other net expense increased
$2.7 million to a net expense of $4.1 million from $1.4 million in the
first six months of 1993. The first six 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 six months of
1994 totaled $42.6 million compared with $24.8 million in the first six
months of 1993. Operations provided more cash in the 1994 period
despite 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 six months of 1994 were significantly affected by after-tax
special and other charges of $58.1 million which had an impact of
approximately $4.1 million in the first six months of 1994 on cash
generated by operations. 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, of which $16.8 million are expected to
be paid within one year with the balance to be paid over the next
several years.
Capital Expenditures
- - --------------------
Cash capital expenditures for the first six months of 1994 totaled $42.3
million. Of that amount, $11.0 million was spent by Burlington, $6.7
million was spent by Brink's, $16.7 million was spent by BHS, $6.9
million was spent by Coal, $.8 million was spent by Mineral Ventures and
$.2 million was spent by the Corporate office. Expenditures incurred by
BHS in the first half of 1994 were primarily for customer installations,
representing the expansion in the subscriber base. For the full year
1994, capital expenditures 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 six months of 1994 used net
cash of $148.1 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 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.
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 attractive. 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 syndicate of banks (the "New Facil-
ity"), 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 June 30, 1994,
borrowings of $100 million were outstanding under the five-year term
loan portion of the New Facility and $10.0 million of additional
borrowings was outstanding under the remainder of the facility.
Debt
- - ----
Outstanding debt, including borrowings under revolving credit agree-
ments, aggregated $157.4 million at June 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 six months ended
June 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 attribut-
able to the Minerals Group, 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, 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 July 31, 1994, 8,350
shares at a total cost of $3.4 million were repurchased.
As of June 30, 1994, debt as a percent of capitalization (total debt and
shareholders' equity) was 29%, 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 six months ended
June 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 June 30, 1994, a total of 142,500
shares of Services Stock and 38,500 shares of Minerals Stock had been
acquired pursuant to the authorization. Of those amounts, 142,500
shares of Services Stock and 19,700 shares of Minerals Stock were
repurchased in the first six months of 1994 at an aggregate cost of $3.8
million, of which $.9 million was paid subsequent to the end of the
period.
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, respectively. 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 six months of 1994, the Board of Directors declared and
the Company paid cash dividends of 10 cents per share of Services Stock
and 32.5 cents per share of Minerals Stock. On an equivalent basis,
during the first six months of 1993 the Company paid dividends of 9.1
cents per share and 29.54 cents per share for Services Stock and
Minerals Stock, respectively. Dividends paid on the cumulative
convertible preferred stock in the first six months of 1994 totaled $1.8
million.
<TABLE>
PITTSTON SERVICES GROUP
BALANCE SHEETS
(In thousands)
<CAPTION>
June 30, Dec. 31,
ASSETS 1994 1993
- - ---------------------------------------------------------------------------------
<S> <C> <C>
Current assets: (Unaudited)
Cash and cash equivalents $ 28,371 30,271
Short-term investments, at lower of cost or market 2,070 1,881
Accounts receivable (net of estimated amount
uncollectible: 1994 - $14,201; 1993 - $13,745) 231,962 211,565
Receivable - Pittston Minerals Group 7,711 -
Inventories, at lower of cost or market 4,111 3,235
Prepaid expenses 18,849 19,258
Deferred income taxes 24,449 22,919
- - ---------------------------------------------------------------------------------
Total current assets 317,523 289,129
Property, plant and equipment, at cost (net of
accumulated depreciation and amortization:
1994 - $218,157; 1993 - $207,086) 201,979 188,076
Intangibles, net of amortization 211,140 213,634
Deferred pension assets 41,260 42,425
Deferred income taxes 1,478 839
Other assets 71,869 72,838
- - ---------------------------------------------------------------------------------
Total assets $845,249 806,941
=================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings $ 11,681 9,546
Current maturities of long-term debt 8,088 7,878
Accounts payable 149,374 131,893
Payable - Pittston Minerals Group - 19,098
Accrued liabilities 114,749 113,293
- - ---------------------------------------------------------------------------------
Total current liabilities 283,892 281,708
Long-term debt, less current maturities 49,701 58,109
Postretirement benefits other than pensions 5,558 4,802
Workers' compensation and other claims 9,015 9,043
Deferred income taxes 37,193 33,727
Payable - Pittston Minerals Group 23,875 14,709
Other liabilities 25,742 26,474
Shareholder's equity 410,273 378,369
- - ---------------------------------------------------------------------------------
Total liabilities and shareholder's equity $845,249 806,941
=================================================================================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
PITTSTON SERVICES GROUP
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
- - -------------------------------------------------------------------------------------------
1994 1993 1994 1993
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $457,351 380,202 868,404 743,959
- - -------------------------------------------------------------------------------------------
Operating expenses 369,935 315,459 716,179 624,896
Selling, general and administrative
expenses 53,558 47,008 99,921 91,873
- - -------------------------------------------------------------------------------------------
Total costs and expenses 423,493 362,467 816,100 716,769
- - -------------------------------------------------------------------------------------------
Other operating income 2,529 3,358 4,577 5,567
- - -------------------------------------------------------------------------------------------
Operating profit 36,387 21,093 56,881 32,757
Interest income 590 367 1,212 848
Interest expense (1,406) (2,352) (3,175) (4,680)
Other income (expense), net (1,514) (1,006) (3,630) (1,156)
- - -------------------------------------------------------------------------------------------
Income before income taxes 34,057 18,102 51,288 27,769
Provision for income taxes 12,769 7,132 19,489 11,385
- - -------------------------------------------------------------------------------------------
Net income $ 21,288 10,970 31,799 16,384
===========================================================================================
Per Pittston Services Group common share:
Net income $ .56 .30 .84 .45
===========================================================================================
Cash dividends $ .05 .0455 .10 .0910
===========================================================================================
Average shares outstanding of Pittston
Services Group Common Stock 37,739 36,656 37,715 36,607
===========================================================================================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
PITTSTON SERVICES GROUP
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
- - ----------------------------------------------------------------------------------------
1994 1993
- - ----------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 31,799 16,384
Adjustments to reconcile net income to net cash provided
by operating activities:
Noncash charges and other write-offs 306 11
Depreciation and amortization 26,717 24,389
Provision for deferred income taxes 1,539 832
Provision for pensions, noncurrent 1,467 (150)
Provision for uncollectible accounts receivable 1,634 2,757
Equity in earnings of unconsolidated affiliates, net
of dividends received (2,178) (3,890)
Other operating, net 1,314 1,007
Change in operating assets and liabilities:
Increase in accounts receivable (22,031) (1,599)
Increase in inventories (876) (673)
Increase in prepaid expenses (1,532) (4,870)
Increase (decrease) in accounts payable and accrued
liabilities 29,202 (14,730)
Decrease (increase) in other assets 3,773 (4,571)
Decrease in other liabilities (816) (505)
Other, net (157) 182
- - ----------------------------------------------------------------------------------------
Net cash provided by operating activities 70,161 14,574
- - ----------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (34,509) (43,009)
Property, plant and equipment pending lease financing 2,047 (1,163)
Disposal of property, plant and equipment 1,267 1,433
Acquisitions and related contingent payments (63) (16)
Other, net (2,287) (233)
- - ----------------------------------------------------------------------------------------
Net cash used by investing activities (33,545) (42,988)
- - ----------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 26,171 41,520
Reductions of debt (33,666) (8,175)
Payments (to) from - Minerals Group (28,777) -
Repurchase of common stock (2,552) (921)
Proceeds from exercise of stock options 3,756 1,023
Proceeds from the sale of stock to SIP - 220
Proceeds from sale of stock to Minerals Group 322 -
Dividends paid (3,768) (3,327)
Cost of Services Stock Proposal (2) -
Net cash from the Company - 894
- - ----------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (38,516) 31,234
- - ----------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,900) 2,820
Cash and cash equivalents at beginning of period 30,271 28,350
- - ----------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 28,371 31,170
========================================================================================
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 Effec-
tive 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 outstand-
ing 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. Accord-
ingly, 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 share-
holders 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 statements 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 attribu-
tion 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 sharehold-
ers 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 six months of 1994
and 1993 by $2,149 and $1,636, respectively, and for the second
quarter of 1994 and 1993 by $1,029 and $762, respectively. The
effect of this change increased net income per share of the
Services Group for the first six months of 1994 and 1993 by $.03
and $.03, respectively and for the second 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 second quarter and six month periods totaled
$11,582 ($9,926 in 1993) and $22,306 ($19,708 in 1993), respective-
ly.
(4) Cash payments made for interest and income taxes (net of refunds
received) were as follows:
Second Quarter Six Months
-------------------------------------------------------
1994 1993 1994 1993
-------------------------------------------------------
Interest $ 1,951 1,912 4,404 4,589
=======================================================
Income taxes $12,054 9,529 18,887 18,762
=======================================================
During the six month periods ended June 30, 1994 and 1993, capital
lease obligations of $1,222 and $582, 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%
Convertible 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 attributed to the Minerals Group.
(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
management 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
("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 Pittston Minerals Group (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, 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 Six Months
Ended June 30 Ended June 30
- - ---------------------------------------------------------------------------------------
1994 1993 1994 1993
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Burlington $302,266 240,316 563,750 471,201
Brink's 128,183 118,369 251,948 230,392
BHS 26,902 21,517 52,706 42,366
- - ---------------------------------------------------------------------------------------
Revenues $457,351 380,202 868,404 743,959
=======================================================================================
Operating profit:
Burlington $ 20,770 7,978 29,780 9,452
Brink's 10,216 8,667 16,349 15,086
BHS 7,897 6,462 15,463 12,831
- - ---------------------------------------------------------------------------------------
Segment operating profit 38,883 23,107 61,592 37,369
General corporate expense (2,496) (2,014) (4,711) (4,612)
- - ---------------------------------------------------------------------------------------
Operating profit 36,387 21,093 56,881 32,757
Interest income 590 367 1,212 848
Interest expense (1,406) (2,352) (3,175) (4,680)
Other income (expense), net (1,514) (1,006) (3,630) (1,156)
- - ---------------------------------------------------------------------------------------
Income before income taxes 34,057 18,102 51,288 27,769
Provision for income taxes 12,769 7,132 19,489 11,385
- - ---------------------------------------------------------------------------------------
Net income $ 21,288 10,970 31,799 16,384
=======================================================================================
</TABLE>
RESULTS OF OPERATIONS
- - ---------------------
Net income totaled $21.3 million or $.56 per share in the second quarter
of 1994 compared with $11.0 million or $.30 per share in the second
quarter of 1993. Operating profit for the 1994 second quarter increased
to $36.4 million from $21.1 million in the prior year quarter. The
increase in net income and operating profit for the 1994 second quarter
compared with the same period of 1993 was largely attributable to
improved earnings for each of the services segments. Segment operating
profit for the 1994 second quarter was partially offset by increased
general corporate operating expenses. In addition, net income for the
1994 second quarter was positively affected by lower net interest
expense and was negatively impacted by greater other nonoperating
expenses compared with the same period last year.
Revenues for the 1994 second quarter increased $77.2 million compared
with the 1993 second quarter, of which $62.0 million was from Burling-
ton, $9.8 million was from Brink's and $5.4 million was from BHS.
Operating expenses and selling general and administrative expenses for
the 1994 second quarter increased $61.0 million compared with the same
period last year, of which $49.2 million was from Burlington, $7.4
million was from Brink's, $3.9 million was from BHS, and $.5 million was
from an increase in general corporate expenses.
Net income totaled $31.8 million or $.84 per share in the first six
months of 1994 compared with $16.4 million or $.45 per share in the same
period of 1993. Operating profit for the first six months of 1994
increased to $56.9 million from $32.8 million in the prior year six
month period. The increase in net income and operating profit for the
first half of 1994 compared with the same period of 1993 was largely
attributable to improved earnings each of the services segments. Net
income was positively affected by lower net interest expense and was
negatively impacted by higher other nonoperating expenses compared with
the same period last year.
Revenues for the first six months of 1994 increased $124.5 million
compared with the first six months of 1993, of which $92.6 million was
from Burlington, $21.6 million was from Brink's and $10.3 million was
from BHS. Operating expenses and selling general and administrative
expenses for the first half of 1994 increased $99.3 million compared
with the same period last year, of which $72.7 million was from
Burlington, $18.9 million was from Brink's and $7.7 million was from
BHS.
Burlington Air Express Inc. ("Burlington")
- - ------------------------------------------
Operating profit in the second quarter of 1994 for Burlington aggregated
$20.8 million, a $12.8 million increase compared with $8.0 million in
the second quarter of 1993. Worldwide revenues rose 26% to $302.3
million from $240.3 million in the prior year. The $62.0 million
increase in revenues resulted primarily from higher volume in both
domestic and international markets. In the domestic market, volume
during the 1994 second quarter benefitted from the 24 day Teamster
strike against the domestic trucking industry. Increased revenues from
higher volumes were partially offset by lower average yields (revenues
per pound). Total weight shipped worldwide increased 30% to 315.7
million pounds from 242.3 million pounds in the same period a year
earlier. Global average yield decreased 3% or $.03 to $.96 per pound in
the second quarter of 1994 compared with the same period a year earlier,
whereas, total costs decreased 7% or $.07 to $.89 per pound for the same
period. Operating expenses and selling, general and administrative
expenses also increased largely from the increased volume of business.
Operating profit in the Americas region benefitted from strong domestic
volume shipments which increased 39% over the second quarter of 1993, as
local and national accounts continued their strong shipping levels. The
higher volume also reflected the impact of the Teamster strike in April,
which added an estimated 8 million pounds of second day freight.
However, much of Burlington's new business was retained as overnight
volumes were maintained throughout the quarter at the higher levels
reached during April. 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 impacted by a
highly competitive pricing environment.
During the 1994 second quarter, Burlington announced a 20% expansion of
its North American private fleet capacity, largely through the acquisi-
tion of additional aircraft under relatively short-term leases. This
expansion will meet additional customer needs and enhance service
quality. Burlington also announced the opening of a new freight station
in Ontario, California, improving the service capabilities in the
southern California market.
Foreign operating results in the current year quarter decreased from the
prior year quarter with results in the Pacific region remaining
unchanged and results in the Atlantic region decreased. Although
foreign operations also benefitted from a 20% increase in international
weight shipped, the impact of increased volumes was more than offset by
lower yields, increased airline costs and additional costs incurred in
connection with providing complete global logistics services. Decreased
yields continue to reflect intense price competition in many overseas
markets.
Operating profit in the first half of 1994 for Burlington was $29.8
million, a $20.3 million increase over the $9.5 million profit reported
in the first half of 1993. Worldwide revenues rose 20% to $563.8
million in the current year period from $471.2 million in the first six
months of the prior year. The $92.6 million increase in revenues
resulted principally from higher volume in both domestic and interna-
tional markets. Increased revenues from higher volumes were partially
offset by lower average yields. Total weight shipped worldwide
increased 24% to 591.3 million pounds in the first six months of 1994
from 478.2 million pounds in the same period a year earlier. Global
average yield decreased 3% or $.03 to $.95 per pound in the first six
months of 1994 compared with the same period a year earlier, whereas,
total costs decreased 6% or $.06 to $.90 per pound for the same period.
Operating expenses and selling, general and administrative expenses also
increased in the 1994 first half compared with the first half of 1993
largely resulting from the increased volume of business.
Operating profit in the America's region for the six months of 1994
benefitted from domestic volume increases, a significant portion of
which was from strong shipping levels maintained by local and national
accounts. 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 six 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 the use of more efficient aircraft placed in service
during the first half of 1993 and increased capacity as a result of the
fourth quarter 1993 expansion of Burlington's airfreight hub in Toledo,
Ohio, which assisted in increasing efficiency. Gains for Americas'
operations from increased business volume and efficiencies were
partially offset by decreased average yields in the first half of 1994.
Average yields continue to reflect a highly competitive pricing
environment. Domestic pricing remains below last years level but has
stabilized partly as a result of the price increase program which was
instituted in the first quarter of 1994.
Foreign operating results in the first six months of the current year
decreased from the 1993 level. The benefit of increased volumes was
more than offset by lower yields, increased airline costs 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 $10.2 million in the
second quarter of 1994 from $8.7 million in the second quarter of 1993
with an increase in revenues of $9.8 million, partially offset by
increases in operating expenses and selling, general and administrative
expenses of $7.4 million and a decrease in other operating income of $.9
million.
Operating results in North America continued at a strong pace in the
1994 second quarter, with revenue increasing $8.6 million or 12% to
$82.3 million and operating profit increasing $1.0 million to $5.2
million or 23% over the prior year's second quarter. The improvement
principally reflected increased earnings from the armored car, ATM and
air courier business. Revenue growth in North America was attributable
to the addition of several new customer accounts as well as additional
business from certain existing customers.
Revenue from international subsidiaries increased $1.2 million or 3% to
$45.8 million in the second quarter of 1994, while operating earnings
from international subsidiaries and affiliates increased $.6 million or
13% to $5.0 million compared with the 1993 second quarter primarily due
to improved results reported by operations in Israel (70% owned), Brazil
and Australia, partially offset by declines experienced in Holland (65%
owned), France (38% owned) and Mexico (20% owned). Results in Brink's
Brazil improved significantly from the prior year second quarter.
During the current year second quarter, management in Brazil implemented
price increases to defray the substantially higher security costs made
necessary by the increase in armed robberies. Although Brink's 20%
owned Mexican affiliate reported lower earnings compared to the 1993
second quarter reflecting the impact of the local economic recession and
strengthening competition, operating results improved from the first
quarter of 1994 reflecting the benefits of cost-cutting efforts
implemented in late 1993 and early 1994.
Brink's operating profit increased $1.3 million to $16.4 million in the
first six months of 1994 from $15.1 million in the first six months of
1993 with an increase in revenues of $21.6 million, partially offset by
increases in operating expenses and selling, general and administrative
expenses of $18.9 million and a decrease in other operating income of
$1.4 million.
The increase in revenues and operating profit in the first six months of
1994 was primarily due to North American operations. Revenue from North
American operations increased $19.3 million or 14% to $161.8 million and
operating profit increased $2.2 million or 30% to $9.4 million. The
increase in operating profit was largely attributable to increases from
air courier operations, which resulted principally from strong volumes.
Operating profit from other North American based operations, including
armored car and ATM, also increased compared with 1993 results despite
the impact in early 1994 of adverse weather conditions and the
California earthquake.
Revenue from international subsidiaries increased $2.3 million or 3% to
$90.1 million, while operating earnings from international subsidiaries
and affiliates decreased $.9 million or 12% to $6.9 million. The
decline was attributable to operations in Brazil, Holland, Mexico and
France, partially offset by increases reported in Israel and Australia.
Results for Brink's Mexican affiliate reflected the impact of the local
economic recession, restructuring costs which included employee
severance costs, and strengthening competition which impacted the first
quarter of the year. The decrease for Brink's Brazil in the first half
of 1994 reflected the costs of extra security measures made necessary by
the significant increase in armed robberies at Brink's and its competi-
tors.
Brink's Home Security, Inc. ("BHS")
- - -----------------------------------
Operating profit of BHS increased $1.4 million to $7.9 million in the
second quarter of 1994 from $6.5 million in the prior year quarter. In
the first half of 1994, operating profit increased $2.7 million to $15.5
million from $12.8 million in the first half of 1993. The increase in
operating profit for the second quarter and first half of 1994 compared
to the similar periods in 1993 reflected higher monitoring revenues due
to an average subscriber base that was 22% and 21% 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 13,700 and 30,100 in the second
quarter and first six months of 1994, respectively, compared with 9,800
and 19,600 in the second quarter and first six months of 1993, respec-
tively. Subscribers at June 30, 1994 totaled 289,600.
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 fluctua-
tions. 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 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 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, national-
ization, expropriation and other forms of restrictive action by local
governments. The future effects, if any, of such risks on the Services
Group cannot be predicted.
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
$2.5 million and $2.0 million for the second quarter of 1994 and 1993,
respectively, and $4.7 million and $4.6 million for the first six months
of 1994 and 1993, respectively. General corporate expenses in the 1993
second quarter and six month periods included costs incurred for the
Company's then proposed reclassification of its common stock into two
classes.
Other Operating Income
- - ----------------------
Other operating income decreased $.8 million to $2.5 million in the 1994
second quarter from $3.3 million in the 1993 second quarter and
decreased $1.0 million to $4.6 million in the first six months of 1994
from $5.6 million in the first six 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 $1.8 million and $2.9 million for the second
quarter of 1994 and 1993, respectively, and $3.4 million and $4.7
million for the first half of 1994 and 1993, respectively.
Interest Expense
- - ----------------
Interest expense for the second quarter of 1994 decreased $1.0 million
to $1.4 million from $2.4 million in the second quarter of 1993 and
decreased $1.5 million to $3.2 million in the first six months of 1994
from $4.7 million in the first six months of 1993 primarily due to
significantly lower average borrowings. Interest expense in the second
quarter and first half of 1993 included interest on debt which was
retired during the latter half of 1993. The second quarter and first
half of 1993 and the first quarter of 1994 included interest on the
Company's 9.2% Convertible Subordinated Debentures which were redeemed
in April 1994.
Other Income (Expense), Net
- - ---------------------------
Other net expense for the second quarter of 1994 increased $.5 million
to a net expense of $1.5 million from $1.0 million in the second quarter
of 1993 and increased $2.4 million to a net expense of $3.6 million from
$1.2 million in the first six months of 1993. Other operating expense
in the first six 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
attributed 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 half of 1994 totaled
$70.2 million compared with $14.6 million in the first half 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 decrease in net
cash requirements for operating assets and liabilities.
Capital Expenditures
- - --------------------
Cash capital expenditures for the first six months of 1994 totaled $34.5
million, excluding equipment expenditures that have been or are expected
to be financed through capital and operating leases, and any acquisition
expenditures. Of the $34.5 million of cash capital expenditures for the
first six months of 1994, $11.0 million was made by Burlington, $6.7
million was made by Brink's and $16.7 million was made by BHS.
Expenditures incurred by BHS in the first half of 1994 were primarily
for customer installations, representing the expansion in the subscriber
base. For the full year 1994, capital expenditures excluding expendi-
tures 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 financially 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 June 30, 1994, borrowings of $100 million were
outstanding under the five-year term loan portion of the New Facility
with an additional $10.0 million of 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 $36.3 million. The amount of the $100
million term loan attributed to the Services Group was $23.4 million at
June 30, 1994. Net payments to the Minerals Group of $28.8 million
represent repayment of the December 31, 1993 balance of $13.3 million
and additional lending of $15.5 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 six months ended June 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 June 30, 1994, a
total of 142,500 shares of Services Stock had been acquired pursuant to
the authorization, all of which was acquired in 1994 at an aggregate
cost of $3.4 million, of which $.9 million was paid subsequent to the
end of the second quarter.
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 limitations 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 half of 1994, the Board of Directors declared and the
Company paid cash dividends of 10 cents per share of Services Stock. On
an equivalent basis, during the first half of 1993 the Company paid
dividends of 9.1 cents per share of Services Stock.
<TABLE>
PITTSTON MINERALS GROUP
BALANCE SHEETS
(In thousands)
<CAPTION>
June 30, Dec. 31,
Assets 1994 1993
- - ----------------------------------------------------------------------------------
<S> <C> <C>
Current assets: (Unaudited)
Cash and cash equivalents $ 6,138 2,141
Short-term investments, at lower of cost or market 21,392 21,065
Accounts receivable (net of estimated amount
uncollectible: 1994 - $2,399; 1993 - $2,295) 100,599 84,978
Receivable - Pittston Services Group - 19,098
Inventories, at lower of cost or market:
Coal 30,721 18,649
Other 4,232 2,271
- - ----------------------------------------------------------------------------------
34,953 20,920
Prepaid expenses 8,776 8,235
Deferred income taxes 31,777 30,723
- - ----------------------------------------------------------------------------------
Total current assets 203,635 187,160
Property, plant and equipment, at cost (net of
accumulated depreciation, depletion and amortization:
1994 - $147,961; 1993 - $205,447) 217,307 181,745
Deferred pension assets 75,466 74,641
Deferred income taxes 103,620 76,887
Coal supply contracts 96,868 35,462
Intangibles, net 84,846 1,408
Receivable - Pittston Services Group 23,875 14,709
Other assets 38,760 34,235
- - ----------------------------------------------------------------------------------
Total assets $844,377 606,247
==================================================================================
Liabilities and Shareholder's Equity
Current liabilities:
Current maturities of long-term debt $ 385 30
Accounts payable 74,335 50,383
Payable - Pittston Services Group 7,711 -
Accrued liabilities 153,135 124,421
- - ----------------------------------------------------------------------------------
Total current liabilities 235,566 174,834
Long-term debt, less current maturities 87,523 279
Postretirement benefits other than pensions 211,630 207,416
Workers' compensation and other claims 134,772 118,502
Other liabilities 192,268 130,073
Shareholder's equity (17,382) (24,857)
- - ----------------------------------------------------------------------------------
Total liabilities and shareholder's equity $844,377 606,247
==================================================================================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
PITTSTON MINERALS GROUP
STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
- - -------------------------------------------------------------------------------------------
1994 1993 1994 1993
- - -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $202,149 174,457 378,891 342,448
- - -------------------------------------------------------------------------------------------
Cost of sales 189,976 164,663 379,757 322,498
Special and other charges - - 90,806 -
Selling, general and administrative
expenses 8,416 8,067 17,303 17,085
- - -------------------------------------------------------------------------------------------
Total costs and expenses 198,392 172,730 487,866 339,583
- - -------------------------------------------------------------------------------------------
Other operating income 3,305 2,451 6,258 5,258
- - -------------------------------------------------------------------------------------------
Operating profit (loss) 7,062 4,178 (102,717) 8,123
Interest income 49 135 100 434
Interest expense (1,325) (243) (2,138) (1,221)
Other income (expense), net (218) (280) (437) (267)
- - -------------------------------------------------------------------------------------------
Income (loss) before income taxes 5,568 3,790 (105,192) 7,069
Provision (credit) for income taxes (1,182) 620 (37,863) 1,157
- - -------------------------------------------------------------------------------------------
Net income (loss) 6,750 3,170 (67,329) 5,912
Preferred stock dividends (1,257) - (2,263) -
- - -------------------------------------------------------------------------------------------
Net income (loss) attributed
to common shares $ 5,493 3,170 (69,592) 5,912
===========================================================================================
Per Pittston Minerals Group common share:
Net income (loss):
Primary $ .72 .43 (9.20) .81
- - -------------------------------------------------------------------------------------------
Fully diluted $ .67 .43 (9.20) .80
- - -------------------------------------------------------------------------------------------
Cash dividends $ .1625 .1477 .3250 .2954
- - -------------------------------------------------------------------------------------------
Average shares outstanding of Pittston
Minerals Group Common Stock:
Primary 7,644 7,331 7,565 7,321
- - -------------------------------------------------------------------------------------------
Fully diluted 10,148 7,385 9,905 7,364
===========================================================================================
See accompanying notes to financial statements.
</TABLE>
<TABLE>
PITTSTON MINERALS GROUP
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Six Months Ended
June 30
- - ---------------------------------------------------------------------------------------
1994 1993
- - ---------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (67,329) 5,912
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 20,474 13,117
Provision (credit) for deferred income taxes (18,928) 1,606
Credit for pensions, noncurrent (825) (1,253)
Provision for uncollectible accounts receivable 132 55
Equity in (earnings) loss of unconsolidated affiliates,
net of dividends received (70) (291)
Other operating, net (333) (514)
Change in operating assets and liabilities net of
effects of acquisitions and dispositions:
Increase in accounts receivable (16,579) (21,933)
Decrease (increase) in inventories (8,219) 5,733
Decrease (increase) in prepaid expenses (1,087) 1,874
Increase (decrease) in accounts payable
and accrued liabilities (5,239) 17,484
Decrease (increase) in other assets 859 (1,883)
Increase (decrease) in other liabilities 11,092 (3,520)
Increase (decrease) in workers' compensation and
other claims, noncurrent 11,636 (6,310)
Other, net (185) 136
- - ---------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (28,114) 10,213
- - ---------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (7,767) (11,968)
Property, plant and equipment pending lease financing - (6,873)
Disposal of property, plant and equipment 295 1,435
Acquisitions and related contingent payments (157,231) (19)
Other, net 7,862 10,431
- - ---------------------------------------------------------------------------------------
Net cash used by investing activities (156,841) (6,994)
- - ---------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 86,566 -
Reductions of debt (251) -
Payments (to) from - Services Group 28,777 -
Repurchase of common stock (401) (184)
Proceeds from exercise of stock options 947 204
Proceeds from the sale of stock to SIP - 44
Proceeds from sale of stock to Services Group 254 -
Proceeds from the issuance of preferred stock,
net of cash expenses 77,359 -
Cost of Services Stock Proposal (2) -
Dividends paid (4,297) (2,163)
Net cash to the Company - (894)
- - ---------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 188,952 (2,993)
- - ---------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,997 226
Cash and cash equivalents at beginning of period 2,141 1,990
- - ---------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 6,138 2,216
=======================================================================================
See accompanying notes to financial statements.
</TABLE>
PITTSTON 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 outstand-
ing 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. Accord-
ingly, 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 share-
holders 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
anymerger 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 attribu-
tion 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 sharehold-
ers 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 six months ended June 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 second quarter and six
month periods totaled $5,680 ($5,529 in 1993) and $12,312 ($10,984
in 1993), respectively.
(4) Cash payments made for interest and income taxes (net of refunds
received) were as follows:
Second Quarter Six Months
--------------------------------------------------------
1994 1993 1994 1993
--------------------------------------------------------
Interest $ 886 710 1,516 1,346
========================================================
Income taxes $(7,487) (1,649) (7,373) (1,649)
========================================================
During the six months ended June 30, 1994, the Minerals Group
acquired one business for an aggregate purchase price of $157,231.
See Note 5.
During the six months ended June 30, 1994, capital lease obliga-
tions of $746 were incurred for leases of property, plant and
equipment.
(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; 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 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 acquisi-
tion.
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 acquisi-
tion 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 six month periods ended June 30,
1994 and 1993 and the quarter ended June 30, 1993, nor are they
indicative of the future results of operations of the Minerals
Group.
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
----------------------------------------------------------------------------
Three Months Six Months
Ended June 30, Ended June 30,
----------------------------------------------------------------------------
1993 1994 1993
----------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales and operating revenues $236,909 388,817 462,982
============================================================================
Net income (loss) 7,003 (66,905) 11,354
============================================================================
Pittston Minerals Group:
Net income (loss) attributed to
common shares: $ 5,745 (69,420) 8,838
----------------------------------------------------------------------------
Net income (loss) per common share:
Primary $ .78 (9.18) 1.21
----------------------------------------------------------------------------
Fully diluted $ .71 (9.18) 1.15
----------------------------------------------------------------------------
Average common shares outstanding:
Primary 7,331 7,565 7,321
----------------------------------------------------------------------------
Fully diluted 9,889 10,156 9,868
============================================================================
</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 divi-
dends 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
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 Con-
vertible Preferred Stock are nonvoting. Other than the Convert-
ible Preferred Stock no shares of preferred stock are presently
issued or outstanding.
(7) During the six month period ended June 30, 1994, the Minerals
Group incurred pre-tax charges of $90,800 ($58,100 after-tax) for
asset writedowns and accruals for costs related to facilities
which are being closed including contractually or statutorily
required employee severance and other benefit costs.
(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 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 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, 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
Pittston Services Group (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, 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
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.
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 Six Months
Ended June 30 Ended June 30
- - -----------------------------------------------------------------------------------------
1994 1993 1994 1993
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
Coal $198,380 170,331 371,796 334,316
Mineral Ventures 3,769 4,126 7,095 8,132
- - -----------------------------------------------------------------------------------------
Net sales $202,149 174,457 378,891 342,448
=========================================================================================
Operating profit (loss):
Coal $ 8,395 5,750 (99,444) 11,289
Mineral Ventures 314 (53) 68 313
- - -----------------------------------------------------------------------------------------
Segment operating profit (loss) 8,709 5,697 (99,376) 11,602
General corporate expense (1,647) (1,519) (3,341) (3,479)
- - -----------------------------------------------------------------------------------------
Operating profit (loss) 7,062 4,178 (102,717) 8,123
Interest income 49 135 100 434
Interest expense (1,325) (243) (2,138) (1,221)
Other income (expense), net (218) (280) (437) (267)
- - -----------------------------------------------------------------------------------------
Income (loss) before income taxes 5,568 3,790 (105,192) 7,069
Provision (credit) for income taxes (1,182) 620 (37,863) 1,157
- - -----------------------------------------------------------------------------------------
Net income (loss) $ 6,750 3,170 (67,329) 5,912
=========================================================================================
</TABLE>
RESULTS OF OPERATIONS
- - ---------------------
In the second quarter of 1994, the Minerals Group reported net income of
$6.8 million or $.72 per share ($.67 per share on a fully diluted basis)
compared with net income of $3.2 million or $.43 per share in the second
quarter of 1993. Operating profit for the 1994 second quarter totaled
$7.1 million, or $2.9 million greater than the $4.2 million operating
profit reported in the same period of last year. Operating profit
increased for both the Coal and Mineral Ventures segment and was only
slightly offset by an increase in general corporate operating expenses.
Net income for the 1994 second quarter was negatively impacted by
increased net interest expense compared with the same period of last
year.
For the first six months of 1994, the Minerals Group reported a net loss
of $67.3 million or $9.20 per share and an operating loss of $102.7
million compared with net income of $5.9 million or $.81 per share and
operating profit of $8.1 million the first half of 1993. The decrease
in both net income and operating profit for the current six 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 also reported a
decrease in operating profit in the first half of 1994, while general
corporate expenses remained comparable to the prior year period. The
first six 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 half 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 $8.4 million in the second
quarter of 1994, a $2.6 million increase over the $5.8 million in the
year earlier quarter. The second 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.
Sales volume of 7.2 million tons for the second quarter of 1994 was 31%
or 1.7 million tons higher than sales volume in the second quarter of
1993. Virtually all of the increased sales related to steam coal with
sales of 4.8 million tons (67% of sales), up from 2.5 million tons in
the second quarter of 1993, while metallurgical coal sales decreased 22%
from 3.0 million tons in the second quarter of 1993 to 2.4 million tons
for the second quarter of this year. Coal produced and purchased
totaled 7.3 million tons in the 1994 second quarter, a 38% or 2.0
million ton increase over the same period of 1993. The increase in coal
sales and coal produced/purchased in the second quarter of 1994 as
compared with the second quarter of 1993 is largely attributable to
Addington operations.
In the 1994 second quarter, 30% of total production was derived from
deep mines and 70% was derived from surface mines compared with 56% and
44% of deep and surface mine production, respectively, in the 1993
second quarter.
Average coal margin (realization less current production costs of coal
sold), which was $2.63 per ton for the 1994 second quarter, decreased
$.32 per ton from the prior year second quarter with a 9% or $2.61 per
ton decrease in average realization and an 8% or $2.29 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 produc-
tion.
Coal operations had an operating loss totaling $99.4 million in the
first six months of 1994 compared with an operating profit of $11.3
million in the year earlier six months. The coal operating loss in the
first half of 1994 included $90.8 million of charges for asset writedow-
ns and accruals for costs related to facilities which are being closed.
In addition, the decrease compared with prior six 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 six 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 13.3 million tons for the first half of 1994 was 22% or
2.4 million tons higher than sales volume in the first half of 1993.
The increased sales related to steam coal with sales of 8.5 million tons
(64% of sales), up from 4.9 million tons, while metallurgical coal sales
decreased 19% from 5.9 million tons to 4.8 million tons. Coal produced
and purchased totaled 13.6 million tons for first half of 1994, a 28% or
2.9 million ton increase over the first half of 1993. The increase in
coal sales and coal produced/purchased in the first half of 1994 as
compared with the first half of 1993 was largely attributable to
Addington operations.
In the first six months of 1994, 34% of total production was derived
from deep mines and 66% was derived from surface mines compared with 59%
and 41% of deep and surface mine production, respectively, in the first
six months of 1993.
Production in the first half 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
interruptions which limited output efficiencies during periods of
performance. Sales also suffered due to lost loading days and were
impeded by closed and 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
shipments during the period. In addition to weather related difficul-
ties, operations in the 1994 first quarter were affected by lost
business due to a utility customer's plant closure and production
shortfalls due to withdrawal of contractors from the market.
The metallurgical coal markets continued their long-term decline with
price reductions of $3.85 per ton negotiated early in the year 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 contracts for metallurgical
coal shipments. Such agreements replace 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. The net margin for coal sold under
such agreements is expected to decrease less than $1 a ton for the
current contract year. Agreements reached with certain customers in
Europe and Brazil are expected to result in margin reductions of up to
$1 per ton. 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 is evidenced by the recent severe price reductions,
the Coal Operation 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 minable steam
coal. After a review of the economic viability of the remaining
metallurgical coal assets, certain underground mines are being closed
resulting in significant economic impairment of the related preparation
plants. In addition, one surface steam coal mine, the Heartland mine,
is being closed due to rising costs caused by unfavorable geological
conditions. During the second quarter of 1994 the Company reached
agreement with Alabama Power Company to transfer the coal sales contract
currently serviced by the Heartland mine to another Company location in
West Virginia, at comparable economics. The Heartland mine will cease
operations by year end. The $90.8 million in charges to operating
earnings in the 1994 first quarter 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, mine closing
costs, including reclamation expenses, estimated at $23.1 million and
contractually or statutorily required employee severance and other
benefit costs estimated at $21.2 million. Of the total charges,
liabilities which are expected to be paid within one year total $16.8
million with the balance over the next several years. Operating results
for the remainder of 1994 and thereafter should benefit from these
measures, as well as the continued integration of Addington operations,
the planned expansion of surface mine operations and cost reductions
resulting from personnel cutbacks and the realignment of administrative
duties which were put in place at the end of the 1994 first quarter.
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
provisionsestablished 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.
Legislation is currently pending in Congress on pneumoconiosis ("black
lung") reform. A bill has been passed by the House of Representatives
that, if enacted, would result in substantial modifications to the
current procedural and substantive framework for black lung claims. The
Senate is currently considering a bill which likewise would create
various reforms to the current black lung laws. The Company is unable
to predict if any such legislation will be passed and what the final
contents will be. At this time, the Company is unable to calculate what
impact, if any, such legislation might have on the Company or the coal
industry as a whole. Should some or all the proposals in either the
House or Senate version of black lung reform eventually be made into
law, there can be no assurance that the legislation would not have a
material adverse effect on the Company.
Mineral Ventures
- - ----------------
Operating profit of Mineral Ventures increased $.4 million in the 1994
second quarter to an operating profit of $.3 million, from an operating
loss of $.1 million in the prior year second quarter. The favorable
change primarily reflected the fourth quarter 1993 closure of the Uley
graphite property in Australia. The Stawell gold mine in western
Victoria, Australia, in which Mineral Ventures has a 67% interest,
produced 18,900 ounces in the period compared to 20,600 ounces in the
second quarter of 1993.
In the first six months of 1994, operating profit of Mineral Ventures
decreased $.2 million to $.1 million from $.3 million in the year
earlier six months. Although costs related to the Uley graphite
property did not affect operating results in the first six months of
1994 as in the first half of 1993, Mineral Ventures operating results
were impacted by increased exploration costs in Nevada as well as lower
production at the Stawell gold mine. The production shortfall at the
Stawell mine was largely due to an operator accident that occurred in
the 1994 first quarter, which also contributed to higher operating costs
for the period. The Stawell gold mine produced 35,800 ounces in the
first six months of 1994 compared with 39,400 ounces in the comparable
period of 1993. Mineral Ventures is continuing gold exploration
projects in Nevada and Australia with its joint venture partner.
Other Operating Income
- - ----------------------
Other operating income for the second quarter of 1994 increased $.8
million to $3.3 million from $2.5 million recognized in the year earlier
quarter and increased $1.0 million to $6.3 million in the first half of
1994 from $5.3 million in the first six 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.
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
$1.6 million and $1.5 million for the second quarter of 1994 and 1993,
respectively and were $3.3 million and $3.5 million for the first six
months of 1994 and 1993, respectively. General corporate expenses in
the second quarter and first six months of 1993 included costs incurred
for the Company's then proposed reclassification of its common stock
into two classes.
Interest Expense
- - ----------------
Interest expense for the second quarter of 1994 increased $1.1 million
to $1.3 million from $.2 million in the second quarter of 1993 and
increased $.9 million to $2.1 million in the first six months of 1994
from $1.2 million in the first six months of 1993. Interest expense in
the second quarter and first six months of 1994 included interest
incurred on borrowings used to finance the Addington acquisition and
initial working capital requirements. Interest expense in the first six
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
attributed 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 half of 1994 used cash of $28.1
million, while operations in the first half of 1993 provided cash of
$10.2 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 half of 1994 were significantly affected by after-tax special and
other charges of $58.1 million which had an impact of approximately $4.1
million in the first six months on cash generated by operations. Of the
total $90.8 million of the 1994 first half pre-tax charges, $46.5
million was for noncash writedowns of assets and the remainder repre-
sents liabilities, of which $16.8 million are expected to be paid within
one year with the balance to be paid over the next several years.
Capital Expenditures
- - --------------------
Cash capital expenditures for the first six months of 1994 totaled $7.8
million, excluding equipment expenditures that have been or are expected
to be financed through capital and operating leases, and any acquisition
expenditures. 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 half of 1994 used net cash
of $149.1 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.
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 financially 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 June 30, 1994, borrowings of $100 million were
outstanding under the five-year term loan portion of the New Facility
with an additional $10.0 million of borrowings outstanding under the
remainder of the facility. Of the total amount outstanding under the
New Facility, $86.6 million was attributed to the Minerals Group, of
which $76.6 million related to the term-loan portion of the facility and
$10.0 million related to the remainder of the facility.
Debt
- - ----
Net cash proceeds from external outstanding debt and net lending from
the Services Group totaled $115.1 million for the first six months of
1994, including borrowings under the New Facility which were attributed
to the Minerals Group aggregating $86.6 million at June 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 six
months of 1994, resulting in additional borrowings under the Company's
revolving credit agreements. Net payments from the Services Group of
$28.8 million represents repayment of the December 31, 1993 balance of
$13.3 million and additional lending from the Services Group of $15.5
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 July 31, 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
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 June 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 repurchased in the first half 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, respectively. 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 half of 1994, the Board of Directors declared and the
Company paid cash dividends of 32.5 cents per share of Minerals Stock.
On an equivalent basis, during the first half of 1993 the Company paid
dividends of 29.54 cents per share of Minerals Stock. Dividends paid on
the cumulative convertible preferred stock in the first six months of
1994 totaled $1.8 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 defendants are obligated to contribute to
the Funds in accordance with the provisions 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 contribu-
tions, 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. 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* Employment agreement dated as of
June 1, 1994, between the Registrant
and D. L. Marshall.
11 Statement re Computation of
Earnings Per Common Share.
- - ------------------------
* Management contract or compensatory plan or arrangement.
(b) A report on Form 8-K dated June 15, 1994, was filed with respect to
the Company's announcement that it expects second quarter earnings
for the Company's Services Group to significantly exceed results
for 1993's second quarter.
A report on Form 8-K dated June 17, 1994, was filed with respect to
the Company's announcement that certain of its coal subsidiaries
had reached agreement with the United Mine Workers of America for
a successor collective bargaining agreement, subject to ratifica-
tion by the subsidiaries' union employees.
A report on Form 8-K dated June 21, 1994, was filed with respect to
the Company's announcement that a new collective bargaining
agreement between certain of the Company's Coal Group subsidiaries
and the United Mine Workers of America, replacing the current
agreement which expired on June 30 and which will remain in effect
until December 31, 1998, was ratified by the subsidiaries' union
employees.
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
August 12, 1994 By G. R. Rogliano
---------------------------------
(G. R. Rogliano)
Vice President -
Controllership and Taxes
(Duly Authorized Officer and
Chief Accounting Officer)
As of June 1, 1994
Mr. David L. Marshall
11 Old Parish Road
Darien, CT 06820
Dear Dave:
This will set forth the terms and conditions of
your employment by The Pittston Company (the "Company") from
and after the date of this agreement.
1. Employment. The Company agrees to employ you,
and you agree to serve in the Company's employ, on and
subject to the terms and conditions hereinafter set forth,
for the period commencing on the date of this agreement and
ending on May 31, 1995 (the "Employment Period"). This
agreement shall replace all prior and/or existing employment
agreements between the Company and you, including, without
limitation, the Agreement dated as of September 1, 1992, and
the Supplemental Agreement dated February 27, 1984, includ-
ing any amendments or modifications to such agreements
(together, the "Prior or Existing Agreements"). As of the
effective date of the Employment Period, all such Prior or
Existing Agreements shall terminate.
2. Duties. Subject to the further provisions of
this Section 2, during the Employment Period you will, as
and to the extent hereinafter provided, render services to
the Company and, at its request, to one or more of its
affiliates ("Affiliates"). All such services will be
rendered at the request of and subject to the direction and
control of the Chairman of the Board of the Company. Such
services may include, among other things, representation of
the Company and its Affiliates in the negotiation and com-
pletion of mergers and acquisitions and the provision of
advice to and consultation with members of management of the
Company and its Affiliates with respect to various matters.
During the Employment Period you will use your
best efforts to perform faithfully and efficiently the
responsibilities assigned to you hereunder, except for
temporary periods of illness or incapacity.
It is understood and agreed, with respect to the
services to the Company which you shall render pursuant to
this Section 2, that
(i) the Chairman of the Board will,
insofar as reasonably practicable, consider your
convenience in the timing of requests, and your
failure or inability, by reason of temporary
illness or other cause beyond your control, to
respond to such requests during any such temporary
period shall not be deemed to constitute a default
on your part in the performance hereunder of such
services; and
(ii) except as and to the extent that the
Chairman of the Board or his designee may other-
wise prescribe in writing, you shall not have any
authority to negotiate or conclude any contracts
on behalf of, or otherwise to bind, the Company or
any of its Affiliates.
3. Compensation. (a) During the Employment
Period you will receive a salary of $200,000 per year for
all of such services, payable in equal installments no less
frequently than monthly.
(b) Eligibility for Certain Benefit Plans. In
addition to your salary, during the Employment Period you
will be entitled to participate in the Company's Pension-
Retirement Plan, Savings-Investment Plan and all other
employee benefit plans in which you participate as of the
day prior to the Employment Period, in accordance with the
terms and conditions of each such plan.
(c) Supplement Retirement Benefit. You have been
provided with a Supplemental Retirement Plan pursuant to
which you shall be entitled to receive a pension calculated
in accordance with the provisions of the Pension-Retirement
Plan of The Pittston Company and Its Subsidiaries (the
"Pittston Pension Plan") (except that the limitations set
forth in Section 13.01(a) thereof and in the second
paragraph of Section 13.07 thereof shall be disregarded)
with full credit for determining your benefit accrual for
the period of your employment with Freeport-McMoRan Inc.,
the Company or any of their respective Affiliates (as
hereinafter defined) or predecessor companies. The amount
of such Supplemental Retirement Benefit will be offset by
the following:
-- the amount of any benefit payable to you in
respect to the Freeport-McMoRan Retirement Plan;
-- the amount of any benefit payable to you under the
Pittston Pension Plan and any other pension plan
of the Company; and
-- the amount of any general offset specifically set
forth in the Pittston Pension Plan (it being
understood and agreed that any such offset shall
be applied without duplication of any offset
(whether in respect of the Social Security taxable
wage base or otherwise) taken into account in
calculating benefits under such Plan).
For purposes of determining the net Supplemental Retirement
Benefit under this Paragraph 3(c), the Supplemental Retire-
ment Benefit before offset and the amount of the benefits
which offset the Supplemental Retirement Benefit shall be
calculated on an actuarially equivalent basis (i.e., assum-
ing the same frequency of payments (e.g., monthly), the same
commencement date for payments, and to the extent feasible
the same form of annuity (e.g., single life annuity)).
It is the intention of the parties that payments
under this Paragraph 3(c) shall be made to you (or your
beneficiary) at such time and in such manner as provided for
under the Pittston Pension Plan and that the procedures,
terms and provisions of that Plan, generally, shall be
applicable hereunder. The obligation of the Company under
this Paragraph 3(c) to provide a pension shall continue in
effect notwithstanding the termination of your employment
with the Company and its Affiliates.
Anything contained in this Agreement to the
contrary notwithstanding, the Company shall not have any
obligations under this Paragraph 3(c), if your employment
shall be terminated for Cause (as hereinafter defined).
As used in this Agreement, the term "affiliate"
shall have the meaning ascribed thereto in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange
Act of 1934 as in effect on the date of this Agreement.
(d) Eligibility for Retiree Medical Benefits. In
the event that your employment shall terminate for any
reason, or if you shall, at any time, elect to retire on an
Early Retirement Date under the Pittston Pension Plan, you
shall be deemed to be eligible for early retiree medical
coverage under the Company's Comprehensive Medical Expense
Benefits Plan (the "Medical Plan"), anything in this
Agreement or the Medical Plan to the contrary notwithstand-
ing. The obligation of the Company under this Paragraph
3(d) to provide such coverage shall continue in effect
notwithstanding the termination of your employment with the
Company and its Affiliates; provided, however, that nothing
herein shall affect in any way the Company's right to make
future changes in the Medical Plan or to terminate the Plan
entirely; and provided, further, that any such change which
relates to your eligibility for such coverage under the Plan
(including the so-called "rule of 75") or which has the
purpose or effect of discriminating against you or your
beneficiaries as to benefits under such Plan shall not
adversely affect such eligibility or benefits as applicable
immediately prior to such change.
(e) Business Expenses. During the Employment
Period the Company shall, in accordance with policies then
in effect with respect to payments of expenses, pay or
reimburse you for all reasonable out-of-pocket travel and
other expenses (other than ordinary commuting expenses)
incurred by you in performing services hereunder. All such
expenses shall be accounted for in such reasonable detail as
the Company may require.
(f) Stock Option Exercise Dates. The Company
shall amend the terms of all stock option grants awarded to
you prior to 1993 to permit all such grants to be exercis-
able by April 15, 1994.
4. Termination. (a) Death. This agreement
shall terminate automatically upon your death.
(b) Cause. The Company may terminate your
employment for Cause. For purposes of this agreement,
"Cause" means (i) an act or acts of dishonesty or disloyalty
on your part which are intended to result in your
substantial personal enrichment at the expense of the
Company or any of its Affiliates or to adversely affect the
business of any of them or (ii) a violation or violations by
you of your obligations under Section 2, Section 7 or
Section 8 other than any insubstantial and inadvertent
violation remedied by you promptly after receipt of notice
thereof given by the Company.
5. Obligations of the Company upon Termination.
(a) Death. If your employment is terminated by
reason of your death, this agreement shall terminate without
further obligations to your legal representatives under this
agreement other than those obligations accrued hereunder at
the date of your death.
(b) Cause. If your employment is terminated for
Cause, the Company shall pay you your full salary through
the date of such termination at the rate in effect at such
date, and the Company shall have no further obligations to
you under this agreement, anything contained in this
agreement to the contrary notwithstanding.
6. Full Settlement. Subject to full compliance
by the Company with all of its obligations under this agree-
ment, this agreement shall be deemed to constitute the
settlement of such claims as you might otherwise be entitled
to assert against the Company by reason of the termination
of your employment for any reason during or after the
Employment Period, including, without limitation, all claims
for discrimination on the basis of age, sex or race or for
any other alleged violation of public policy arising out of
such termination. The Company agrees to pay, to the fullest
extent permitted by law, all expenses (including, without
limitation, counsel fees) which you may reasonably incur as
a result of your successful contest, by judicial proceedings
or otherwise, of the validity or enforceability of, or
liability under, any provision of this agreement. The
parties acknowledge and agree that the foregoing constitutes
a complete release of all such claims.
7. Covenant Not to Compete. You agree that
during the Employment Period and during the period ending
three years thereafter (the "Non-Compete Period"), you shall
not compete with any business then conducted by the Company
or any Affiliate within the Pittston Services Group (the
"Business"). For purposes of this Agreement, the term
"compete" shall mean engaging in a business as a more than
ten percent (10%) stockholder, an officer, a director, an
employee, a partner, an agent, a consultant, or any other
individual or representative capacity if it involves:
(i) engaging in the Business in
competition with the Company or an Affiliate
within the Pittston Services Group in any state of
the United States in which the Company or any of
such Affiliates (which shall mean for purposes of
this Paragraph 7 any such Affiliate in which the
Company owns, directly or indirectly, an equity
interest of twenty percent (20%) or more) operates
at anytime during the Non-Compete Period; or
(ii) rendering services or advice
pertaining to the Business to or on behalf of any
person, firm or corporation which is in competi-
tion with the Company or any Affiliate within the
Pittston Services Group at any time during the
Non-Compete Period in any state of the United
States.
In the event the restrictions against engaging in
a competitive activity contained in this Paragraph 7 shall
be determined by any court of competent jurisdiction to be
unenforceable by reason of its extending for too great a
period of time or over too great a geographic area or by
reason of its being too extensive in any other respect, it
shall be interpreted to extend only over the maximum period
of time for which it may be enforceable, and over the maxi-
mum geographic area as to which it may be enforceable and to
the maximum extent in all other respects as to which it may
be enforceable, all as determined by such court in such
action.
Clauses (i) and (ii), above, are intended by the
Company as separate and divisible provisions, and if for any
reason any one is held to be invalid or unenforceable,
neither the validity nor the enforceability of the other
shall thereby be affected.
8. Confidential Information. (a) You acknowledge
that in the course of your employment you may receive, have
access to, or develop confidential or proprietary informa-
tion or trade secrets relating to the business of the
Company or its Affiliates. You will hold in a fiduciary
capacity for the benefit of the Company and such Affiliates
all such confidential or proprietary information, secrets,
knowledge or data relating to their respective businesses,
including, without limitation, information relating to
strategic plans, public and shareholder relations, market-
ing, pricing, purchasing of transportation (ground or air)
arrangements, plans or programs, computer programs, communi-
cation systems, cost data, or customer lists, obtained by
you prior to, during or after the Employment Period, and you
will not, during the Employment Period or thereafter, commu-
nicate or divulge any such information, secrets, knowledge
or data to any other person, firm or corporation without the
prior written consent of the Chairman of the Board of the
Company. All records, files, drawings, documents, notes,
equipment and the like relating to the business or activi-
ties of the Company or any of such Affiliates which you
shall prepare or use or come into contact with shall be and
remain the sole property of the Company or such Affiliates,
as the case may be, and upon termination of your employment
with the Company all of such property shall be returned to
the Company in accordance with the directions given by it.
(b) Equitable Relief. You acknowledge that the
foregoing provisions of Sections 7 and 8 are essential to
the Company and are reasonable and necessary to protect the
legitimate interests of the Company and its Affiliates and
that damages sustained by the breach of such provisions
would cause irreparable harm to the Company because of the
special services that have been performed by you and that
recovery of damages at law would not be an adequate remedy.
You further agree that the Company and its Affiliates, in
addition to any other remedy which any of them may have
under this agreement or at law, shall be entitled to injunc-
tive and other equitable relief to prevent to curtail any
breach of any such provision. If any provision of Sections
7 or 8 shall be deemed to be invalid, illegal or unenforce-
able as written by reason of the extent or duration thereof,
or otherwise, the determining body or authority making such
determination shall be empowered to reduce such provision so
as to be enforceable to the greatest extent possible and, as
so reduced, such provision shall then be deemed to be
rewritten and enforced as reduced.
(c) The provisions of this Section 8 shall
survive the termination of this agreement.
9. Successors. (a) This agreement is personal
to you and without the prior written consent of the Company
shall not be assignable by you or otherwise than by will or
the laws of descent and distribution. This agreement shall
inure to the benefit of and be enforceable by your legal
representatives.
(b) This agreement shall inure to the benefit of
and be binding upon the Company and its successors.
10. Governing Law. This agreement shall be
governed by and construed in accordance with the substantive
and procedural law of New York without reference to princi-
ples of conflict of laws. The parties hereto agree that any
dispute hereunder may be submitted to any court of competent
jurisdiction in New York and for purposes thereof each party
hereto submits to such jurisdiction.
11. Miscellaneous. (a) This agreement contains
the entire understanding with you with respect to the
subject matter hereof and supersedes any and all prior
agreements or understandings, written or oral, relating to
such subject matter. This agreement may not be amended or
modified otherwise than by a written agreement executed by
the parties hereto or their respective successors and legal
representatives. The captions of this agreement are not
part of the provisions hereof and shall have no force or
effect.
(b) All notices and other communications
hereunder shall be in writing and shall be given by hand
delivery to the other party or by registered or certified
mail, return receipt requested, postage prepared, addressed
as follows:
If to you:
11 Old Parish Road
Darien, CT 06820
If to the Company:
100 First Stamford Place
P. O. Box 120070
Stamford, CT 06912-0070
or to such other address as either party shall have
furnished to the other in writing in accordance herewith.
Notices and communications shall be deemed to be given when
mailed by certified or registered mail, return receipt
requested.
(c) The invalidity or unenforceability of any
provision of this agreement shall not affect the validity or
enforceability of any other provision of this agreement.
(d) The Company may withhold from any amounts
payable under this agreement such federal, state or local
taxes for which withholding is provided pursuant to any
applicable law or regulation.
Please confirm that the foregoing is in accordance
with our agreement.
Very truly yours,
THE PITTSTON COMPANY
By___________________________
Chairman of the Board
I hereby confirm that the foregoing is in
accordance with our agreement.
_________________________
David L. Marshall
Dated as of June 1, 1994
<TABLE>
The Pittston Company and Subsidiaries Exhibit 11
Computation of Earnings Per Common Share
(In thousands, except per share amounts)
<CAPTION>
Fully Diluted Earnings Per Common Share: (a)
- - --------------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
------------------ -----------------
1994 1993 1994 1993
-------- ------- ------ ------
PITTSTON SERVICES GROUP:
<S> <C> <C> <C> <C>
Net income attributed to common shares $21,288 10,970 31,799 16,384
======= ====== ====== ======
Average common shares outstanding 37,739 36,656 37,715 36,607
Incremental shares of stock options 483 272 505 215
------- ------ ------ ------
Pro forma common shares outstanding 38,222 36,928 38,220 36,822
======= ====== ====== ======
Fully diluted earnings per common share: $ .56 .30 .83 .45
======= ====== ====== ======
PITTSTON MINERALS GROUP:
Net income (loss) attributed to common shares $ 5,493 3,170 (69,592) 5,912
Preferred stock dividends 1,257 - 2,263 -
------- ------ ------ ------
Fully diluted net income (loss)
attributed to common shares $ 6,750 3,170 (67,329) 5,912
======= ====== ====== ======
Average common shares outstanding 7,577 7,331 7,565 7,321
Incremental shares of stock options 67 54 87 43
Conversion of preferred stock 2,504 - 2,253 -
------- ------ ------ ------
Pro forma common shares outstanding 10,148 7,385 9,905 7,364
======= ====== ====== ======
Fully diluted earnings (loss) per common share: $ .67 .43 (9.20)(b) .80
======= ====== ====== ======
(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.
</TABLE>
