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, 1995
[ ] 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 executive offices)(Zip Code)
Registrant's telephone number, including area code: (203) 978-5200
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. 41,577,671 shares of $1 par
value Pittston Services Group Common Stock and 8,484,708 shares of $1 par value
Pittston Minerals Group Common Stock as of August 1, 1995.
<TABLE>
Part I - Financial Information
The Pittston Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<CAPTION>
June 30, Dec. 31,
1995 1994
===========================================================================================================================
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 38,921 42,318
Short-term investments, at lower of cost or market 26,921 25,162
Accounts receivable (net of estimated amount uncollectible:
1995 - $16,138; 1994 -$15,734) 383,471 376,792
Inventories, at lower of cost or market 47,586 34,153
Prepaid expenses 37,156 27,700
Deferred income taxes 52,796 55,850
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 586,851 561,975
Property, plant and equipment, at cost (net of
depletion and amortization: 1995 - $416,125; 1994 - $394,660) 462,630 445,834
Intangibles, net of amortization 331,416 329,441
Deferred pension assets 121,405 118,953
Deferred income taxes 81,299 84,214
Other assets 176,065 197,361
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $1,759,666 1,737,778
===========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 25,430 13,323
Current maturities of long-term debt 11,217 13,748
Accounts payable 250,749 252,615
Accrued liabilities 279,640 294,784
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 567,036 574,470
Long-term debt, less current maturities 162,532 138,071
Postretirement benefits other than pensions 219,599 218,738
Workers' compensation and other claims 130,888 138,793
Deferred income taxes 20,118 19,036
Other liabilities 188,244 200,855
Shareholders' equity:
Preferred stock, par value $10 per share: Authorized: 2,000 shares
$31.25 Series C Cumulative Convertible Preferred Stock:
Issued: 1995 - 140 shares; 1994 - 153 shares 1,399 1,526
Pittston Services Group common stock, par value $1 per share:
Authorized: 100,000 shares;
Issued: 1995 - 41,571 shares; 1994 - 41,595 shares 41,571 41,595
Pittston Minerals Group common stock, par value $1 per share:
Authorized 20,000 shares;
Issued: 1995 - 8,484 shares; 1994 - 8,390 shares 8,484 8,390
Capital in excess of par value 395,686 420,470
Retained earnings 137,650 107,739
Equity adjustment from foreign currency translation (18,616) (14,276)
Employee benefits trust, at market value (94,925) (117,629)
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 471,249 447,815
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,759,666 1,737,778
===========================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
The Pittston Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
- ---------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=========================================================================================================
<S> <C> <C> <C> <C>
Net sales $ 184,211 202,149 379,951 378,891
Operating revenues 527,556 457,351 1,030,900 868,404
- ---------------------------------------------------------------------------------------------------------
Net sales and operating revenues 711,767 659,500 1,410,851 1,247,295
- ---------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 180,860 189,044 374,800 378,825
Operating expenses 441,009 369,935 870,125 716,179
Selling, general and administrative expenses 65,063 62,906 126,621 118,156
Restructuring and other charges - - - 90,806
- ---------------------------------------------------------------------------------------------------------
Total costs and expenses 686,932 621,885 1,371,546 1,303,966
- ---------------------------------------------------------------------------------------------------------
Other operating income 11,150 5,834 19,282 10,835
- ---------------------------------------------------------------------------------------------------------
Operating profit (loss) 35,985 43,449 58,587 (45,836)
Interest income 842 552 1,652 1,208
Interest expense (3,710) (2,644) (6,744) (5,209)
Other income (expense), net (1,455) (1,732) (2,196) (4,067)
- ---------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 31,662 39,625 51,299 (53,904)
Provision (credit) for income taxes 7,054 11,587 12,626 (18,374)
- ---------------------------------------------------------------------------------------------------------
Net income (loss) 24,608 28,038 38,673 (35,530)
Preferred stock dividends, net (1,093) (1,257) (1,176) (2,263)
- ---------------------------------------------------------------------------------------------------------
Net income (loss) attributed to common shares $ 23,515 26,781 37,497 (37,793)
=========================================================================================================
Pittston Services Group:
Net income attributed to common shares $ 19,974 21,288 33,569 31,799
- ---------------------------------------------------------------------------------------------------------
Net income per common share $ .53 .56 .89 .84
- ---------------------------------------------------------------------------------------------------------
Cash dividend per common share $ .05 .05 .10 .10
- ---------------------------------------------------------------------------------------------------------
Pittston Minerals Group:
Net income (loss) attributed to common shares $ 3,541 5,493 3,928 (69,592)
- ---------------------------------------------------------------------------------------------------------
Net income (loss) per common share:
Primary $ .45 .72 .51 (9.20)
Fully diluted $ .45 .67 .51 (9.20)
- ---------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .1625 .1625 .3250 .3250
=========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
The Pittston Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994
=================================================================================================================================
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 38,673 (35,530)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Noncash charges and other write-offs - 46,793
Depreciation, depletion and amortization 51,893 47,191
Provision (credit) for deferred income taxes 6,543 (17,389)
Provision (credit) for pensions, noncurrent (1,730) 642
Provision for uncollectible accounts receivable 1,999 1,766
Equity in earnings of unconsolidated affiliates, net of dividends received (8) (2,248)
Other operating, net (1,427) 1,171
Change in operating assets and liabilities net of effects of acquisitions and dispositions:
Increase in accounts receivable (8,678) (38,610)
Increase in inventories (13,432) (9,095)
Increase in prepaid expenses (9,371) (2,619)
(Decrease) increase in accounts payable and accrued liabilities (11,337) 23,963
Decrease in other assets 704 4,632
Increase (decrease) in other liabilities (14,532) 10,661
Increase (decrease) in workers' compensation and other claims, noncurrent (7,903) 11,608
Other, net (1,120) (314)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 30,274 42,622
- --------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (55,353) (42,276)
Property, plant and equipment pending lease financing (50) 2,047
Proceeds from disposal of property, plant and equipment 10,481 1,562
Acquisitions, net of cash acquired, and related contingent payments (2,410) (157,294)
Other, net 1,825 5,575
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (45,507) (190,386)
- --------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 33,940 112,737
Reductions of debt (7,911) (33,916)
Repurchase of stock of the Company (7,808) (2,953)
Proceeds from exercise of stock options 2,490 4,703
Proceeds from preferred stock issuance, net of cash expenses - 77,359
Cost of Services Stock Proposal - (4)
Dividends paid (8,875) (8,065)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 11,836 149,861
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,397) 2,097
Cash and cash equivalents at beginning of period 42,318 32,412
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 38,921 34,509
================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
The Pittston Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share and employee amounts)
(1) The Pittston Company (the "Company") prepares consolidated financial
statements in addition to separate financial statements for the
Pittston Minerals Group (the "Minerals Group") and the Pittston
Services Group (the "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 Minerals Group consists of the Coal and Mineral Ventures
operations of the Company. The Company's capital structure includes
two issues of common stock, Pittston Minerals Group Common Stock
("Minerals Stock") and Pittston Services Group Common Stock ("Services
Stock"), which are designed to provide shareholders with separate
securities reflecting the performance of the Minerals Group and
Services Group, respectively, without diminishing the benefits of
remaining a single corporation or precluding future transactions
affecting either Group or the Company as a whole. Holders of Services
Stock and Minerals Stock are shareholders of the Company, which is
responsible for all its liabilities. Financial developments affecting
the Services Group or the Minerals Group that affect the Company's
financial condition could affect the results of operations and
financial condition of both Groups.
(2) The average number of shares outstanding used in the earnings per
share computations were as follows:
Second Quarter Six Months
1995 1994 1995 1994
---------------------------------------------------------------------
Services Stock 37,916 37,739 37,912 37,715
Minerals Stock:
Primary 7,811 7,644 7,764 7,565
Fully diluted 9,988 10,148 10,038 9,905
The average number of shares outstanding used in the earnings per
share computations do not include the shares of Services Stock and
Minerals Stock held in the Company's Employee Benefits Trust which
totaled 3,684 (3,793 in 1994) and 659 (739 in 1994), respectively, at
June 30, 1995.
(3) The amounts of depreciation, depletion and amortization of property,
plant and equipment in the second quarter and six month periods were
$19,955 ($17,262 in 1994) and $39,334 ($34,618 in 1994), respectively.
(4) Cash payments made for interest and income taxes (net of refunds
received) were as follows:
Second Quarter Six Months
1995 1994 1995 1994
----------------------------------------------------------------------
Interest $ 4,049 2,750 7,082 5,816
======================================================================
Income taxes $ 6,647 4,567 16,474 11,514
======================================================================
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.
("Addington Acquisition") for $157,324. The acquisition was accounted
for as a purchase; accordingly, the purchase price was allocated to
the underlying assets and liabilities based on their respective
estimated fair values at the date of acquisition. The fair value of
assets acquired was $173,959 and liabilities assumed was $138,518. The
excess of the purchase price over the fair value of the assets
acquired and liabilities
5
<PAGE>
assumed was $121,883 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 $31.25
Series C Cumulative Convertible Preferred Stock, which is 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 the Addington
Acquisition was refinanced with a portion of a five-year term loan.
During the six months ended June 30, 1995 and 1994, capital lease
obligations of $2,886 and $1,968, respectively, were incurred for
leases of property, plant and equipment. In addition, during the six
months ended June 30, 1994, the Company assumed capital lease
obligations of $16,210 as part of the Addington Acquisition.
In June 1995, the Company sold its rights under certain coal reserve
leases and the related equipment for $2,800 in cash and notes totaling
$2,882. The cash proceeds have been included in the Consolidated
Statement of Cash Flows as "Cash flow from investing activities:
Proceeds from disposals of property, plant and equipment".
In March 1995, the Company sold surplus coal reserves for cash of
$2,878 and a note receivable of $2,317. The cash proceeds have been
included in the Consolidated Statement of Cash Flows as "Cash flow
from investing activities: Proceeds from disposals of property, plant
and equipment".
In December 1993, the Company sold the majority of the assets of its
captive mine supply company. Cash proceeds of $8,400 from the sale
were received on January 2, 1994, and have been included in the
Consolidated Statement of Cash Flows under the caption "Cash flow from
investing activities: Other, net".
(5) Restructuring and other charges - After a review of the economic
viability of certain metallurgical coal assets in the first quarter of
1994, management determined that four underground mines were no longer
economically viable and should be closed resulting in significant
economic impairment to three related preparation plants. In addition,
it was determined that one surface steam coal mine, the Heartland
mine, which provided coal to Alabama Power Company under a long-term
sales agreement, would be closed due to rising costs caused by
unfavorable geological conditions.
As a result of these decisions, the Company incurred a pretax charge
of $90,806 in the first quarter of 1994 ($58,116 after tax) which
included a reduction in the carrying value of these assets and related
accruals for mine closure costs. These charges included assets
write-downs of $46,487 which reduced the book carrying value of such
assets to what management believes to be their net realizable value
based on either estimated sales or leasing of such property to
unrelated third parties. In addition, the charges included $3,836 for
required lease payments owed to lessors for machinery and equipment
that would be idled as a result of the mine and facility closures. The
charges also included $19,290 for mine and plant closure costs which
represented estimates for reclamation and other environmental costs to
be incurred to bring the properties in compliance with federal and
state mining and environmental laws. This accrual was required due to
the premature closing of the mines. The accrual also included $21,193
in contractually or statutorily required employee severance and other
benefit costs associated with termination of employees at these
facilities and costs associated with inactive employees at these
facilities. Such employee benefits included severance payments,
medical insurance, workers' compensation and other benefits and have
been calculated in accordance with contractually (collective
bargaining agreements signed by certain coal subsidiaries included in
the Company) and legally required employee severance and other
benefits.
Of the four underground mines, two have ceased coal production (one in
the first half of 1995), while the remaining two mines are expected to
cease coal production during the remainder of 1995. In 1994
6
<PAGE>
the Company reached agreement with Alabama Power Company to transfer
the coal sales contract serviced by the Heartland mine to another
location in West Virginia. The Heartland mine ceased coal production
during 1994 and final reclamation and environmental work is in
process. At the beginning of 1994, there were approximately 750
employees involved in operations at these facilities and other
administrative support. Employment at these facilities has been
reduced by 78% to approximately 165 employees at June 30, 1995.
(6) 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 1995 and 1994 by $1,949 and
$2,149, respectively and for the second quarter of 1995 and 1994 by
$825 and $1,029, respectively. The effect of this change increased net
income per common share of the Services Group for the first six months
of 1995 and 1994 by $.03 and for the second quarter of 1995 and 1994
by $.01 and $.02, respectively.
(7) 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 for the six
months ended June 30, 1994, under the caption "Other income (expense),
net".
(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.
7
<PAGE>
The Pittston Company and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
- -----------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=======================================================================================================================
Revenues: (In thousands)
<S> <C> <C> <C> <C>
Burlington $ 341,950 302,266 665,894 563,750
Brink's 154,543 128,183 303,634 251,948
BHS 31,063 26,902 61,372 52,706
Coal 179,987 198,380 371,270 371,796
Mineral Ventures 4,224 3,769 8,681 7,095
- -----------------------------------------------------------------------------------------------------------------------
Consolidated revenues $ 711,767 659,500 1,410,851 1,247,295
=======================================================================================================================
Operating profit (loss):
Burlington $ 14,406 20,770 22,464 29,780
Brink's 10,236 10,216 17,619 16,349
BHS 9,411 7,897 18,316 15,463
Coal 5,810 8,395 7,121 (99,444)
Mineral Ventures 576 314 1,491 68
- -----------------------------------------------------------------------------------------------------------------------
Segment operating profit (loss) 40,439 47,592 67,011 (37,784)
General corporate expense (4,454) (4,143) (8,424) (8,052)
- -----------------------------------------------------------------------------------------------------------------------
Consolidated operating profit (loss) 35,985 43,449 58,587 (45,836)
=======================================================================================================================
</TABLE>
RESULTS OF OPERATIONS
- ----------------------
In the second quarter of 1995, The Pittston Company (the "Company") reported net
income of $24.6 million compared with $28.0 million in the second quarter of
1994. Operating profit totaled $36.0 million in the 1995 second quarter compared
with $43.4 million in the prior year second quarter. Net income and operating
profit in the 1994 second quarter benefited from unusually strong operating
profits at Burlington Air Express Inc. ("Burlington") due to substantial
additional volumes of freight directed to Burlington during a nationwide
trucking strike in the second quarter of 1994, which added an estimated $8
million to the quarter's operating profit and $5 million to net income.
In the first six months of 1995, the Company reported a net income of $38.7
million compared with a net loss of $35.5 million in the first six months of
1994. Operating profit totaled $58.6 million in the first six months of 1995
compared to an operating loss of $45.8 million in the prior year period. The net
loss and operating loss in the first six months of 1994 included charges
totaling $58.1 million and $90.8 million, respectively, attributable to the
Company's Coal operations for asset writedowns and accruals for costs related to
facility shutdowns. Net income in the first half of 1995 was positively impacted
by improved results from the Brink's, Incorporated ("Brink's"), Brink's Home
Security, Inc. ("BHS") and Pittston Mineral Ventures businesses, partially
offset by lower results at Burlington. The 1995 first half was also impacted by
lower nonoperating expenses and higher net interest expense compared with the
same period of last year.
8
<PAGE>
BURLINGTON
The following is a table of selected financial data for Burlington on a
comparative basis:
<TABLE>
<CAPTION>
(Dollars in thousands, except Three Months Six Months
per pound/shipment amounts) Ended June 30 Ended June 30
- ---------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
===============================================================================================================
<S> <C> <C> <C> <C>
Revenues:
Airfreight
Domestic U.S. $ 127,816 148,900 257,855 272,539
International 160,813 121,583 312,489 232,951
- ---------------------------------------------------------------------------------------------------------------
Total airfreight 288,629 270,483 570,344 505,490
Other 53,321 31,783 95,550 58,260
- ---------------------------------------------------------------------------------------------------------------
Total revenues 341,950 302,266 665,894 563,750
Operating expenses 299,645 253,417 589,237 482,942
Selling, general and administrative 28,744 28,836 55,562 52,501
- ---------------------------------------------------------------------------------------------------------------
Total costs and expenses 328,389 282,253 644,799 535,443
- ---------------------------------------------------------------------------------------------------------------
Other operating income 845 757 1,369 1,473
- ---------------------------------------------------------------------------------------------------------------
Operating profit $ 14,406 20,770 22,464 29,780
===============================================================================================================
Depreciation and amortization $ 4,907 4,161 9,702 8,233
===============================================================================================================
Cash capital expenditures $ 6,185 5,801 13,500 11,009
===============================================================================================================
Airfreight shipment growth rate (a) 6.4% 13.0% 6.2% 10.4%
Airfreight weight growth rate (a):
Domestic U.S. (12.5%) 39.3% (4.1%) 21.5%
International 21.7% 20.2% 25.1% 24.5%
Worldwide 2.3% 30.3% 9.0% 22.9%
Worldwide airfreight weight (pounds) 322,978 315,672 644,366 591,257
===============================================================================================================
Worldwide airfreight shipments 1,322 1,243 2,538 2,389
===============================================================================================================
Worldwide average airfreight yield
(revenue per pound) $ 0.894 0.857 0.885 0.855
===============================================================================================================
Worldwide average airfreight revenue per shipment $ 218 218 225 212
===============================================================================================================
Worldwide average airfreight weight per
shipment (pounds) 244 254 254 247
===============================================================================================================
</TABLE>
(a) Compared to the same period in the prior year.
Burlington reported an operating profit of $14.4 million in the 1995 second
quarter, a $6.4 million decrease from the $20.8 million reported in the second
quarter of 1994. The second quarter of 1994 benefitted from significant
additional domestic freight as a result of the nationwide trucking strike, which
added an estimated $8 million to the quarter's operating profit. Worldwide
revenues rose 13% to $342.0 million in the current year quarter from $302.3
million in the prior year second quarter. Worldwide airfreight revenues
increased $18.1 million or 7% to $288.6 million in the 1995 second quarter from
$270.5 million in the prior year quarter. The increase was principally from an
increase in international weight shipped, which more than offset the decrease in
domestic U.S. weight shipped attributable to the
9
<PAGE>
positive impact of last year's trucking strike, and an increase in worldwide
average airfreight yields (revenue per pound). Other revenues, which includes
customs clearance and other import related services, as well as ocean freight
services, increased $21.5 million or 68% to $53.3 million in the second quarter
of 1995 from $31.8 million in the prior year quarter, as a result of an increase
in international shipment volume.
Total airfreight weight shipped worldwide increased 2% to 323.0 million pounds
in the current year quarter from 315.7 million pounds in the prior year quarter.
Worldwide average airfreight yields increased by 4% to $.894 in the 1995 second
quarter from $.857 in the same period a year earlier. The increase in
international volume combined with other factors, including favorable impact of
foreign currency translation, resulted in a 32% increase in international
airfreight revenue.
Domestic airfreight revenues decreased by 14% to $127.8 million in the 1995
second quarter from $148.9 million in the prior year second quarter. The
decrease was the result of a nearly 13% decrease in domestic weight shipped and
a modest decrease in average yields. The second quarter of 1994 benefited from
significant additional domestic freight volume resulting from a nationwide
trucking strike in the U.S. Domestic volume, excluding the favorable impact of
last year's trucking strike, declined modestly due to the sluggish domestic
economy. Burlington continues to adjust its domestic dedicated lift capacity to
match volume requirements and also to take measures to reduce its fleet and
station costs.
International airfreight revenues increased by 32% to $160.8 million in the 1995
second quarter from $121.6 million in the prior year second quarter. The
increase was primarily due to a 22% increase in weight shipped and to a lesser
extent increase in international yields. Improving economic conditions
internationally and aggressive expansion of company-owned operations in Europe
and Latin America were largely responsible for the rapid growth. Selective price
increases on U.S. exports were introduced during the quarter to partially
mitigate commercial lift cost increases. Burlington continued to expand its
global freight service network by establishing company-owned operations in the
Philippines and expansion of operations in Mexico.
Operating profit in the first half of 1995 for Burlington was $22.5 million, a
$7.3 million decrease from the $29.8 million operating profit reported in the
first half of 1994, which benefited from significant additional domestic freight
as a result of the nationwide trucking strike which added an estimated $8
million to the quarter's operating profit. Worldwide revenues rose 18% to $665.9
million in the current year period from $563.8 million in the first six months
of 1994. The $102.1 million increase in revenues resulted principally from a 9%
increase in worldwide airfreight pounds shipped.
Domestic airfreight revenues decreased by 5% or $14.7 million to $257.8 in the
first half of 1995 compared to the first half of 1994. The decrease was due to a
4% decrease in domestic volume and a 1% decrease in domestic yields. The
decrease in volume was due primarily to the impact of the U.S. trucking strike
in the second quarter of 1994 which added substantial additional volume.
International airfreight revenues of $312.5 million in the first six months of
1995 were $79.5 million or 34% higher than the $233.0 million reported in the
prior year first half. The increase was primarily due to a 25% increase in
weight shipped compared to the prior year period. The increase in volume can be
largely attributed to improved economic conditions in the international markets
and expansion of company-owned operations.
Other revenue, which includes import transactions such as customs clearance and
import related services, as well as ocean freight services, increased 64% or
$37.3 million to $95.6 million, due to an increase in an increase in
international shipment volume and a continued expansion of ocean freight
services.
10
<PAGE>
BRINK'S
The following is a table of selected financial data for Brink's on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Six Months
(In thousands) Ended June 30 Ended June 30
- --------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
==============================================================================================================
<S> <C> <C> <C> <C>
Revenues $ 154,543 128,183 303,634 251,948
Operating expenses 125,014 101,693 248,224 204,503
Selling, general and administrative 19,981 18,046 38,964 34,200
- --------------------------------------------------------------------------------------------------------------
Total costs and expenses 144,995 119,739 287,188 238,703
- --------------------------------------------------------------------------------------------------------------
Other operating income 688 1,772 1,173 3,104
- --------------------------------------------------------------------------------------------------------------
Operating profit $ 10,236 10,216 17,619 16,349
==============================================================================================================
Depreciation and amortization $ 5,340 5,108 10,496 10,120
==============================================================================================================
Cash capital expenditures $ 5,685 3,738 11,476 6,733
==============================================================================================================
Revenues:
North America (United States and Canada) $ 92,551 82,334 180,981 161,819
International subsidiaries 61,992 45,849 122,653 90,129
- --------------------------------------------------------------------------------------------------------------
Total revenues $ 154,543 128,183 303,634 251,948
==============================================================================================================
Operating profit:
North America (United States and Canada) $ 7,010 5,241 12,526 9,445
International operations 3,226 4,975 5,093 6,904
- --------------------------------------------------------------------------------------------------------------
Total operating profit $ 10,236 10,216 17,619 16,349
==============================================================================================================
</TABLE>
Brink's operating profit of $10.2 million in the second quarter of 1995 was
essentially unchanged from the prior year. The revenue increase of $26.4 million
or 21% in the 1995 second quarter was offset by increased operating expenses and
selling, general and administrative expenses of $25.3 million and decreased
other operating income of $1.1 million.
Revenues from North American operations (United States and Canada) increased
$10.2 million or 12% to $92.5 million in the 1995 second quarter from $82.3
million in the prior year quarter. North American operating profit increased
$1.8 million or 34% to $7.0 million in the current year quarter from $5.2
million in the second quarter of 1994. The profit improvement primarily resulted
from rising volumes and increased market penetration in the armored car
business, which includes ATM servicing.
Revenues from international subsidiaries increased $16.1 million or 35% to $62.0
million in the 1995 second quarter from $45.8 million in the 1994 second
quarter. The increase is primarily due to higher revenues in Brazil as well as
the favorable impact of foreign currency translations. Operating profits from
international subsidiaries and minority owned affiliates declined $1.7 million
to $3.2 million in the current year quarter from $5.0 million in the prior year
second quarter. The earnings decline was primarily due to lower results from
Brink's share of its Mexican affiliate operations, in which Brink's has a 20%
equity interest. Results in Mexico decreased to a loss of $.6 million from the
profit of $1.3 million recorded in the second quarter of 1994. The Mexican
operation continues to be adversely impacted by the local recession and
extraordinarily high interest rates. Local management has begun implementing a
program designed to restore profitability to what is the largest armored car
company in Mexico. Brink's Brazil, a wholly-owned subsidiary, was essentially
break-even in the 1995 second quarter compared to a $.7 million operating profit
in the 1994 second quarter partially as a result of wage increases granted in
advance of price increases which were implemented in June and July of 1995.
11
<PAGE>
Brink's operating profit increased $1.3 million to $17.6 million in the first
six months of 1995 from $16.3 million in the first six months of 1994 with an
increase in revenues of $51.7 million, partially offset by an increase in
operating expenses and selling, general and administrative expenses of totaling
$48.5 million, and a decrease in other operating income of $1.9 million.
Revenue from North American operations increased 12% to $181.0 million in the
first half of 1995 from $161.8 million in the prior year period. North American
operating profit increased $3.1 million to $12.5 million from $9.4 million. The
increase in operating profit was largely attributable to increases in the
armored car business which includes ATM servicing and to a lesser extent to
increases in the diamond and jewelry and coin and currency processing
businesses, partially offset by lower air courier results.
Revenue from international subsidiaries increased $32.5 million or 36% to $122.7
million, while operating profit from international subsidiaries and affiliates
decreased $1.8 million or 26% to $5.1 million in the first half of 1995. The
increase in revenue is primarily due to higher revenues in Brazil as well as the
favorable impact of foreign currency translation. The decline in operating
profit was primarily attributable to operations in Mexico, partially offset by
an increase reported in Brazil. Brink's share of its Mexican affiliates results
was a $1.0 million loss in the first six months of 1995 compared to a $1.7
million profit reported in the same period of 1994. Brink's Brazil reported an
operating profit of $.9 million in the first half of 1995 compared to $.1
million in the prior year period.
BHS
The following is a table of selected financial data for BHS on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Six Months
(Dollars in thousands) Ended June 30 Ended June 30
- ---------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
===============================================================================================================
<S> <C> <C> <C> <C>
Revenues $ 31,063 26,902 61,372 52,706
Operating expenses 16,350 14,825 32,664 28,734
Selling, general and administrative 5,302 4,180 10,392 8,509
- ---------------------------------------------------------------------------------------------------------------
Total costs and expenses 21,652 19,005 43,056 37,243
- ---------------------------------------------------------------------------------------------------------------
Operating profit $ 9,411 7,897 18,316 15,463
===============================================================================================================
Depreciation and amortization $ 5,331 4,429 10,420 8,262
===============================================================================================================
Cash capital expenditures $ 9,214 8,125 19,141 16,664
===============================================================================================================
Annualized service revenues (a) $ 95,810 78,856
===============================================================================================================
Number of subscribers:
Beginning of period 332,434 275,873 318,029 259,551
Installations 19,290 18,291 38,362 37,977
Disconnects, net (5,184) (4,546) (9,851) (7,910)
- ---------------------------------------------------------------------------------------------------------------
End of period 346,540 289,618 346,540 289,618
===============================================================================================================
</TABLE>
(a) Annualized service revenue is calculated based on the number of subscribers
at period end multiplied by the average fee per subscriber received in the last
month of the period for monitoring, maintenance and related services.
Operating profit of BHS increased $1.5 million to $9.4 million in the second
quarter of 1995 from $7.9 million in the second quarter of 1994. In the first
half of 1995, operating profit increased $2.8 million to $18.3 million from
$15.5 million in the first half of 1994. The increase in operating profit for
the second quarter and first half of 1995 compared to the similar periods in
1994 reflected higher monitoring revenues due to an average subscriber base that
was approximately 20% higher for the quarter and year to date 1995, compared to
similar periods in 1994, slightly offset
12
<PAGE>
by higher account servicing and administrative costs. Net new subscribers
totaled approximately 14,100 and 28,500 in the second quarter and first six
months of 1995, respectively, compared with approximately 13,700 and 30,000 in
the second quarter and first six months of 1994, respectively. Subscribers at
June 30, 1995 totaled 346,540.
COAL
The following is a table of selected financial data for the Coal operations on a
comparative basis:
<TABLE>
<CAPTION>
Three Months Six Months
(In thousands) Ended June 30 Ended June 30
- ------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
==================================================================================================================
<S> <C> <C> <C> <C>
Net sales $ 179,987 198,380 371,270 371,796
Cost of sales 177,978 186,385 368,945 373,659
Selling, general and administrative expenses 5,622 6,742 11,702 12,963
Restructuring and other charges - - - 90,806
- ------------------------------------------------------------------------------------------------------------------
Total costs and expenses 183,600 193,127 380,647 477,428
- ------------------------------------------------------------------------------------------------------------------
Other operating income 9,423 3,142 16,498 6,188
- ------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 5,810 8,395 7,121 (99,444)
==================================================================================================================
Coal sales (tons):
Metallurgical 2,244 2,415 4,633 4,876
Utility and industrial 4,025 4,779 8,528 8,387
- ------------------------------------------------------------------------------------------------------------------
Total coal sales 6,269 7,194 13,161 13,263
==================================================================================================================
Production/purchased (tons)
Deep 984 1,174 2,041 2,622
Surface 3,276 3,931 7,129 7,004
Contract 508 643 1,041 1,126
- ------------------------------------------------------------------------------------------------------------------
4,768 5,748 10,211 10,752
Purchased 1,765 1,413 3,502 2,786
- ------------------------------------------------------------------------------------------------------------------
Total 6,533 7,161 13,713 13,538
==================================================================================================================
</TABLE>
Operations - Coal operations had an operating profit totaling $5.8 million in
the second quarter of 1995 compared to an operating profit of $8.4 million in
the second quarter of 1994. Included in the current quarter results are a pretax
gain of $5.3 million from the disposition of surplus coal reserves and a $2.5
million benefit from a favorable litigation decision which reduced previously
expensed employee benefit costs.
Sales volume of 6.3 million tons in the second quarter of 1995 was 13% or .9
million tons less than the 7.2 million tons sold in the 1994 second quarter. The
decrease reflected weaker steam coal markets and the timing of metallurgical
coal shipments. Steam coal sales volume declined 16% or .8 million tons to 4.0
million tons and metallurgical coal sales volume declined by 6% or .1 million
tons to 2.3 million tons compared to the second quarter of 1994. Steam coal
sales represented 64% of total volume in the second quarter of 1995, compared to
67% in the prior year quarter.
Production in the second quarter of 1995 totaled 4.8 million tons, a 17%
decrease compared to the second quarter of 1994, principally reflecting the
scheduled reduction in underground mine production during 1994 and early 1995
and the idling of surface steam coal mines including a surface mine in Kentucky
in the second quarter. Surface production accounted for approximately 70% of
total production in the second quarters of 1995 and 1994. Productivity of 36.1
tons per man day represented a 3% increase over the comparable period in 1994.
Domestic steam coal markets continue to be depressed, with spot pricing at
exceptionally low levels.
Coal margin (realization less current production costs of coal sold) of $9.4
million or $1.50 per ton for the second quarter of 1995, decreased $10.4 million
or $1.26 per ton from the prior year second quarter. This was caused by a 9%
13
<PAGE>
or $2.33 per ton increase in average current production costs of coal sold to
$27.13 per ton partially offset by a 4% or $1.07 per ton increase in the average
realization to $28.63 per ton. Coal operations continued to incur higher than
expected costs at several mines during the quarter, thereby increasing the
average cost of coal mined. The increase in average cost per ton was primarily
caused by: (i) 17% reduction in company production; (ii) higher costs incurred
at mines idled or scheduled to close; (iii) increased costs for purchased coal;
and (iv) temporarily less favorable mining and geological conditions occurring
at several surface mines. Several remediation efforts have been undertaken,
including the closure during the current quarter of one surface mine in
Virginia.
Excluding the positive impact from both the sale of surplus coal reserves and
the favorable employee benefits litigation decision, Coal operations incurred an
operating loss of $2.0 million in the second quarter of 1995. As part of its
strategy to achieve positive operating profit on a sustainable basis for the
long-term, the following steps are being implemented: (i) reduction of overhead;
(ii) evaluation of non-strategic assets for sale; (iii) improvement of margin at
continuing operations; (iv) review of unprofitable mines for possible closure;
and (v) review of new mine openings to take advantage of specific market
opportunities.
Coal operations had an operating profit of $7.1 million in the first six months
of 1995 compared to an operating loss of $99.4 million in the prior year period.
The 1994 first six months operating loss included $90.8 million of charges for
asset writedowns and accruals for costs related to facilities which are being
closed (discussed further below) and $6.7 million of operating losses incurred
during the first half related to those facilities.
Sales volume of 13.2 million tons in the first half of 1995, was .1 million tons
less than the 13.3 million tons sold in the first half of 1994. Steam coal sales
increased by .1 million tons to 8.5 million tons and metallurgical coal sales
declined by .2 million tons to 4.6 million tons compared to the prior year.
Steam coal sales represented 65% of total volume in the first half of 1995,
compared to 63% in the prior year.
Production in the first half of 1995 totaled 10.2 million tons, a 5% decrease
compared to the first half of 1994, principally reflecting the scheduled
reduction in underground mine production during 1994 and early 1995 and the
idling of surface steam coal mines. Surface production accounted for 71% and 66%
of total production in the first half of 1995 and 1994, respectively.
Productivity of 36 tons per man day represented a 9% increase over the
comparable period in 1994.
Coal operations reached contract agreements with most of its metallurgical
customers for the coal year that began April 1, 1995 calling for price increases
of approximately $4.00 to $5.50 per metric ton, depending upon coal quality.
These price increases had the effect of realigning pricing to levels in effect
prior to last year's unusually large decline. Sales volume is expected to
decline modestly from the level in the prior contract year. The price increases
were in effect during a portion of the 1995 second quarter as a result of the
timing of metallurgical coal shipments and were partially offset by the higher
costs of purchased coal as well as increased transportation costs.
Restructuring and Other charges - As a result of the continuing long-term
decline of the metallurgical coal markets, in the first quarter of 1994,
management determined that four underground mines were no longer economically
viable and should be closed, resulting in significant economic impairment to
three related preparation plants. In addition, it was determined that one
surface steam coal mine, the Heartland mine, which provided coal to Alabama
Power under a long-term sales agreement, would be closed due to rising costs
caused by unfavorable geological conditions.
As a result of these decisions, the Coal operations incurred pretax charges of
$90.8 million ($58.1 million after tax) in the first quarter of 1994 which
included a reduction in the carrying value of these assets and related accruals
for mine closure costs. These charges included asset writedowns of $46.5 million
which reduced the book carrying value of such assets to what management believes
to be their net realizable value based on either estimated sales or leasing of
such property to unrelated third parties. In addition, the charges included $3.8
million for required lease payments owed to lessors for machinery and equipment
that would be idled as a result of the mine and facility closures. The charges
also included $19.3 million for mine and plant closure costs which represented
estimates of reclamation and other environmental costs to be incurred to bring
the properties in compliance with federal and state mining and environmental
laws. This accrual was required due to the premature closing of the mines. The
accrual also included $21.2 million of contractually or statutorily required
employee severance and other benefit costs associated with
14
<PAGE>
termination of employees at these facilities and costs associated with inactive
employees at these facilities. Such employee benefits include severance
payments, medical insurance, workers' compensation and other benefits and have
been calculated in accordance with contractually (collective bargaining
agreements signed by certain coal subsidiaries included in the Coal operations)
and legally required employee severance and other benefits.
Of the four underground mines, two have ceased coal production (one in the first
half of 1995), while the remaining two mines are expected to cease coal
production during the remainder of 1995. In 1994, Coal operations reached
agreement with Alabama Power Company to transfer the coal sales contract
serviced by the Heartland mine to another location in West Virginia. The
Heartland mine ceased coal production during 1994, and final reclamation and
environmental work is in process. At the beginning of 1994 there were
approximately 750 employees involved in operations at these facilities and other
administrative support. Employment at these facilities has been reduced by 78%
to approximately 165 employees at June 30, 1995.
After coal production ceases at the mines contemplated in the accrual, the
Company will continue to pay reclamation and environmental costs for several
years to bring these properties into compliance with federal and state
environmental laws. In addition, employee termination and medical payments will
continue to be made for several years after the facilities have been closed. The
significant portion of these employee liabilities is for statutorily provided
workers' compensation costs for inactive employees. Such benefits include
indemnity and medical payments as required under state workers' compensation
laws. The long payment periods are based on continued, and in some cases,
lifetime indemnity and medical payments to injured former employees and their
surviving spouses. Management believes that the charges incurred in 1994 should
be sufficient to provide for these future payments and does not anticipate
material additional future charges to operating earnings for these facilities,
although continual cash funding will be required over the next several years.
The following table analyzes the changes in liabilities during 1994 and 1995 for
facility closure costs recorded as restructuring and other charges:
<TABLE>
<CAPTION>
Employee
Mine Termination,
Leased and Medical
Machinery Plant and
and Closure Severance
Equipment Costs Costs Total
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance as of December 31, 1993 (a) $ 3,092 28,434 34,217 65,743
Additions 3,836 19,290 21,193 44,319
Payments (b) 3,141 9,468 12,038 24,647
- ----------------------------------------------------------------------------------------------
Balance as of December 31, 1994 3,787 38,256 43,372 85,415
Payments (c) 1,018 6,294 4,198 11,510
- ----------------------------------------------------------------------------------------------
Balance as of June 30, 1995 $ 2,769 31,962 39,174 73,905
- ----------------------------------------------------------------------------------------------
</TABLE>
(a) These amounts represent the remaining liabilities for facility closure costs
recorded as restructuring and other charges in prior years. The original charges
included $5,094 for leased machinery and equipment, $52,243 principally for
incremental facility closing costs including reclamation and $54,108 for
employee benefit costs, primarily workers' compensation, which will continue to
be paid for several years.
(b) These amounts represent total cash payments made during 1994 for these
charges. Of the total payments made, $14,494 was for liabilities recorded in
years prior to 1994 and $10,153 was for liabilities recorded in 1994.
(c) Payments made in the first six months of 1995 included $6,401 related to
pre-1994 liabilities and $5,109 for liabilities recorded in the first quarter of
1994.
During the next twelve months, expected cash funding of these charges is
approximately $15 to $20 million. Management estimates that the remaining
liability for leased machinery and equipment will be fully paid over the next
two years. The liability for mine and plant closure costs is expected to be
satisfied over the next ten years of which approximately 70% is expected to be
paid over the first three years. The liability for employee related costs, which
is
15
<PAGE>
primarily workers' compensation, is estimated to be 70% settled over the next
five years with the balance paid during the following five to ten years.
MINERAL VENTURES
The following is a table of selected financial data for the Mineral Ventures
operations on a comparative basis:
<TABLE>
<CAPTION>
(Dollars in thousands, Three Months Six Months
except per ounce data) Ended June 30 Ended June 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C>
Net sales $ 4,224 3,769 8,681 7,095
Cost of sales 2,882 2,659 5,855 5,166
Selling, general and administrative costs 960 959 1,577 1,931
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 3,842 3,618 7,432 7,097
Other operating income (expense) 194 163 242 70
- ---------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 576 314 1,491 68
=====================================================================================================================
Stawell Gold Mine:
PMV's 50% direct share ounces sold 10,646 9,120 21,492 17,820
Average realized gold price per ounce (US$) $ 394 401 397 396
</TABLE>
Operating profit of Mineral Ventures operations increased $.3 million in the
1995 second quarter to $.6 million, from $.3 million in the second quarter of
1994. The Stawell gold mine in western Victoria, Australia, in which Mineral
Ventures has a 67% net equity interest, produced 21,379 ounces in the current
quarter at an average cost of $293 per ounce compared to 18,879 ounces in the
second quarter of 1994 at an average cost of $282.
In the first six months of 1995, operating profit of Mineral Ventures increased
$1.4 million to $1.5 million from $.1 million in the first six months of 1994.
The increase in operating profit was primarily the result of increased
production at the Stawell Gold Mine. An operator accident that occurred in the
1994 first quarter hindered production in 1994 and also contributed to higher
operating costs for the period. The Stawell gold mine produced 42,576 ounces in
the first six months of 1995 compared with 35,734 ounces in the comparable
period of 1994. Mineral Ventures is continuing exploration projects in Nevada
and Australia with its joint venture partner.
Successful exploration efforts indicate an increase of approximately 68,000
ounces of additional proven and probable gold reserves at the Stawell mine. At
June 30, 1995, remaining proven and probable gold reserves are estimated at
480,000 ounces.
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 transactions in the
normal course of its business. Although the diversity of its foreign operations
limits the risks associated with such transactions, the Company uses foreign
exchange forward contracts to hedge the risks associated with certain
transactions denominated in currencies other than the functional currency.
Realized and unrealized gains and losses on these contracts are deferred and
recognized as part of the specific transaction hedged. In addition, cumulative
translation adjustments relating to operations in countries with highly
inflationary economies are included in net income, along with all transaction
gains or losses for the period. Subsidiaries in Brazil operate in such a highly
inflationary economy.
16
<PAGE>
Additionally, the Company is subject to other risks customarily associated with
doing business in foreign countries, including economic conditions, controls on
repatriation of earnings and capital, nationalization, 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 primarily includes the Company's share of net income of
unconsolidated affiliates, which are substantially attributable to equity
affiliates of Brink's, royalty income and gains and losses from sales of coal
assets. The $5.4 million increase in other operating income in the second
quarter of 1995 compared to the second quarter of 1994 is primarily attributable
to the $5.3 million gain on the sale of surplus coal reserves. Other operating
income for the first half of 1995 increased $8.5 million to $19.3 million from
$10.8 million in the prior year. The $2.5 million decrease in equity in earnings
of unconsolidated affiliates was more than offset by gains of $8.3 million on
the dispositions of surplus coal reserves.
CORPORATE EXPENSES
General corporate expenses increased $.4 million to $4.5 million for the 1995
second quarter from $4.1 million in the 1994 second quarter. In the first six
months of 1995, general corporate expenses were $8.4 million compared with the
$8.1 million in the prior year period.
INTEREST EXPENSE
Interest expense increased $1.1 million to $3.7 million in the second quarter of
1995 from $2.6 million in the prior year quarter. Interest expense totaled $6.7
million in the first six months of 1995 compared with $5.2 million in the first
half of 1994. The increase in the 1995 quarter and six month periods is due to
higher interest rates on higher average debt balances.
OTHER INCOME (EXPENSE), NET
Other net expense for the first six months of 1995 decreased $1.9 million to a
net expense of $2.2 million from a net expense of $4.1 million. The 1994 first
half included expenses of $1.2 million 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 1995
totaled $30.3 million compared with $42.6 million in the first six months of
1994. The decrease in cash provided occurred, despite higher net income,
partially as a result of additional investment in working capital at Burlington.
Such requirements primarily reflected initial working capital needs of recently
acquired foreign subsidiaries, a relatively larger seasonal volume increase and
increased international revenues, which tend to have longer payment terms. Cash
provided by operating activities in the first six months of 1994 was negatively
impacted by the integration of operating activities of Addington which required
cash to finance working capital. Net income, noncash charges and changes in
operating assets and liabilities in the 1994 first half were significantly
affected by after-tax restructuring and other charges of $58.1 million which had
minimal effect in the first half on cash generated by operations.
CAPITAL EXPENDITURES
Cash capital expenditures for the first six months of 1995 totaled $55.4
million. Of that amount, $13.5 million was spent by Burlington, $11.5 million
was spent by Brink's, $19.1 million was spent by BHS, $9.7 million was spent by
Coal and $1.1 million was spent by Mineral Ventures. Expenditures incurred by
BHS in the first half of 1995 were primarily for customer installations,
representing the expansion in the subscriber base. For the full year 1995,
capital expenditures are estimated to approximate $150 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.
Increased expenditures in 1995 are expected at Burlington to support new
airfreight stations and implementation of positive tracking systems and at BHS
resulting from continued expansion of the subscriber base.
17
<PAGE>
OTHER INVESTING ACTIVITIES
All other investing activities in the first six months of 1995 provided net cash
of $9.8 million which primarily relates to proceeds from disposal of property,
plant and equipment. 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 revolving credit agreements.
FINANCING
The Company intends to fund its capital expenditure requirements during the
remainder of 1995 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, other borrowing arrangements or borrowings from the Minerals
Group. The Company has a $350 million revolving credit agreement with a
syndicate of banks (the "Facility"). The Facility includes a $100 million term
loan, which matures in May 2000. The Facility also permits additional
borrowings, repayments, and reborrowings of up to an aggregate of $250 million
until May 2000. As of June 30, 1995, borrowings of $100 million were outstanding
under the term loan portion of the Facility and $28.6 million of additional
borrowings was outstanding under the remainder of the facility. The Company, on
behalf of the Minerals Group, maintains agreements with financial institutions
whereby it has the right to sell certain coal receivables with recourse to those
institutions. In June 1995, coal receivables of approximately $10 million were
sold under these agreements.
DEBT
Outstanding debt, including borrowings under revolving credit agreements,
aggregated $199.2 million at June 30, 1995, up from $165.1 million at year-end
1994. Cash proceeds from operating activities, other investing activities and
the proceeds from the exercise of stock options were not sufficient to fund
capital expenditures, the repurchase of stock and dividends payments, resulting
in additional borrowings under the Company's revolving 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 attributable 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 (the "Board") 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 June 30, 1995, 21,020 shares at a total cost
of $8.4 million were repurchased of which 12,670 shares at a cost of $5.0
million were repurchased in the first half of 1995.
The Company is also authorized to repurchase 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"), not to exceed $43 million. As of
June 30, 1995 a total of 376,100 ($9.0 million) of Services Stock and 38,500
shares ($.8 million) of Minerals Stock have been acquired pursuant to the
authorization. During the six months ended June 30, 1995 120,000 shares of
Services Stock were repurchased at a total cost of $2.8 million. No shares of
Minerals Stock were repurchased in the first six months of 1995.
18
<PAGE>
DIVIDENDS
The Board 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 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, financial
developments of 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, which is adjusted by net
income or losses and other equity transactions, as defined in the Company's
Articles of Incorporation. At June 30, 1995 the Available Minerals Dividend
Amount was at least $20.8 million.
During the 1995 and 1994 six month periods, the Board declared and paid cash
dividends of 10 cents per share of Services Stock and 32.5 cents per share of
Minerals Stock. Dividends paid on the cumulative convertible preferred stock in
the first six months of 1995 were $2.3 million. Preferred dividends included on
the Company's Statement of Operations for the six months ended June 30, 1995,
are net of $1.0 million which was the excess of the carrying amount of the
preferred stock over the cash paid to holders of the preferred stock.
19
<PAGE>
Pittston Services Group
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1995 1994
===========================================================================================================================
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 34,065 38,610
Short-term investments, at lower of cost or market 2,346 2,041
Accounts receivable (net of estimated amount uncollectible:
1995 - $14,244; 1994 - $13,854) 294,533 267,869
Receivable - Pittston Minerals Group 21,324 32,170
Inventories, at lower of cost or market 4,243 4,006
Prepaid expenses 27,209 16,311
Deferred income taxes 22,929 25,325
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 406,649 386,332
Property, plant and equipment, at cost (net of accumulated depreciation
and amortization: 1995 - $251,947; 1994 - $234,722) 254,518 225,372
Intangibles, net of amortization 212,316 208,792
Deferred pension assets 43,787 43,150
Deferred income taxes 1,699 1,323
Other assets 60,778 75,707
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 979,747 940,676
===========================================================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings $ 25,430 13,323
Current maturities of long-term debt 6,541 6,194
Accounts payable 185,275 175,844
Accrued liabilities 125,220 137,555
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 342,466 332,916
Long-term debt, less current maturities 56,660 49,896
Postretirement benefits other than pensions 5,919 5,761
Workers' compensation and other claims 10,512 9,929
Deferred income taxes 31,240 34,090
Payable - Pittston Minerals Group 18,223 23,186
Other liabilities 30,777 28,487
Shareholder's equity 483,950 456,411
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 979,747 940,676
===========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
Pittston Services Group
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
- ----------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
======================================================================================================================
<S> <C> <C> <C> <C>
Operating revenues $ 527,556 457,351 1,030,900 868,404
Operating expenses 441,009 369,935 870,125 716,179
Selling, general and administrative expenses 56,557 53,558 109,701 99,921
- ----------------------------------------------------------------------------------------------------------------------
Total costs and expenses 497,566 423,493 979,826 816,100
- ----------------------------------------------------------------------------------------------------------------------
Other operating income 1,533 2,529 2,542 4,577
- ----------------------------------------------------------------------------------------------------------------------
Operating profit 31,523 36,387 53,616 56,881
Interest income 1,456 590 2,973 1,212
Interest expense (1,674) (1,406) (3,174) (3,175)
Other income (expense), net (1,236) (1,514) (1,766) (3,630)
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 30,069 34,057 51,649 51,288
Provision for income taxes 10,095 12,769 18,080 19,489
- ----------------------------------------------------------------------------------------------------------------------
Net income $ 19,974 21,288 33,569 31,799
======================================================================================================================
Per common share:
Net income $ .53 .56 .89 .84
======================================================================================================================
Cash dividends $ .05 .05 .10 .10
======================================================================================================================
Average shares outstanding 37,916 37,739 37,912 37,715
======================================================================================================================
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
Pittston Services Group
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994
====================================================================================================================================
<S> <C> <C>
Cash flows from operating activities:
Net income $ 33,569 31,799
Adjustments to reconcile net income to net cash provided by operating activities:
Noncash charges and other write-offs - 306
Depreciation and amortization 30,723 26,717
Provision (credit) for deferred income taxes (1,042) 1,539
Provision for pensions, noncurrent 23 1,467
Provision for uncollectible accounts receivable 1,899 1,634
Equity in earnings of unconsolidated affiliates, net of dividends received 234 (2,178)
Other operating, net 1,323 1,314
Change in operating assets and liabilities:
Increase in accounts receivable (28,563) (22,031)
Increase in inventories (237) (876)
Increase in prepaid expenses (10,813) (1,532)
(Decrease) increase in accounts payable and accrued liabilities (1,035) 29,202
Decrease (increase) in other assets (277) 3,773
Decrease (increase) in other liabilities 1,105 (816)
Other, net (536) (157)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 26,373 70,161
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (44,331) (34,509)
Property, plant and equipment pending lease financing (50) 2,047
Proceeds from disposal of property, plant and equipment 1,531 1,267
Acquisitions, net of cash acquired, and related contingent payments (1,688) (63)
Other, net 2,066 (2,287)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (42,472) (33,545)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 14,740 26,171
Reductions of debt (3,571) (33,666)
Payments (to) from - Minerals Group 5,846 (28,777)
Repurchase of stock of the Company (2,786) (2,552)
Proceeds from exercise of stock options 1,288 3,756
Proceeds from sale of stock to Minerals Group - 322
Dividends paid (3,963) (3,768)
Cost of Services Stock Proposal - (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 11,554 (38,516)
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (4,545) (1,900)
Cash and cash equivalents at beginning of period 38,610 30,271
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 34,065 28,371
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
Pittston Services Group
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
(1) The financial statements of the Pittston Services Group (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 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 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 a reasonable and equitable allocation of
such expenses and credits.
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. Holders of Services Stock are shareholders of the
Company, which is responsible for all its liabilities. Therefore,
financial developments affecting the Pittston Minerals Group (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 Company and the BHS
segment for the first six months of 1995 and 1994 by $1,949 and
$2,149, respectively and for the second quarter of 1995 and 1994 by
$825 and $1,029, respectively. The effect of this change increased net
income per common share of the Services Group for the first six months
of 1995 and 1994 by $.03 and for the second quarter of 1995 and 1994
by $.01 and $.02, respectively.
(3) The amounts of depreciation and amortization of property, plant and
equipment in the second quarter and six month period of 1995 totaled
$13,573 ($11,582 in 1994) and $26,687 ($22,306 in 1994), respectively.
(4) Cash payments made for interest and income taxes (net of refunds
received) were as follows:
Second Quarter Six Months
1995 1994 1995 1994
----------------------------------------------------------------------
Interest $ 1,732 1,951 3,425 4,404
======================================================================
Income taxes $ 19,604 12,054 28,720 18,887
======================================================================
During the six month periods ended June 30, 1995 and 1994, capital
lease obligations of $2,886 and $1,222, 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) Certain prior period amounts have been reclassified to conform to
current period financial statement presentation.
23
<PAGE>
(7) 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.
24
<PAGE>
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. Holders of Services Stock are
shareholders of the Company, which continues to be responsible for all its
liabilities. Therefore, financial developments affecting the Pittston Minerals
Group (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.
SEGMENT INFORMATION
(In thousands)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
- ---------------------------------------------------------------------------------------------------
1995 1994 1995 1994
===================================================================================================
<S> <C> <C> <C> <C>
Revenues:
Burlington $ 341 950 302,266 665,894 563,750
Brink's 154,543 128,183 303,634 251,948
BHS 31,063 26,902 61,372 52,706
- ---------------------------------------------------------------------------------------------------
Revenues $ 527,556 457,351 1,030,900 868,404
===================================================================================================
Operating profit:
Burlington $ 14,406 20,770 22,464 29,780
Brink's 10,236 10,216 17,619 16,349
BHS 9,411 7,897 18,316 15,463
- ---------------------------------------------------------------------------------------------------
Segment operating profit 34,053 38,883 58,399 61,592
General corporate expense (2,530) (2,496) (4,783) (4,711)
- ---------------------------------------------------------------------------------------------------
Operating profit $ 31,523 36,387 53,616 56,881
===================================================================================================
</TABLE>
25
<PAGE>
RESULTS OF OPERATIONS
- ----------------------
In the second quarter of 1995, the Services Group reported net income of $20.0
million or $.53 per share compared with $21.3 million or $.56 per share in the
second quarter of 1994. Operating profit totaled $31.5 million in the 1995
second quarter compared with $36.4 million in the prior year second quarter. Net
income and operating profit in the 1994 second quarter benefited from unusually
strong operating profits at Burlington due to substantial additional volumes of
freight directed to Burlington during a nationwide trucking strike in the second
quarter of 1994, which added an estimated $8 million to the quarter's operating
profit and $5 million to net income. Revenues for the 1995 second quarter
increased $70.2 million or 15% compared with the 1994 second quarter, of which
$39.7 million was from Burlington, $26.3 million from Brink's and $4.2 million
from BHS. Operating expenses and selling general and administrative expenses for
the 1995 second quarter increased $74.1 million or 17% compared with the same
period last year, of which $46.1 million was from Burlington, $25.3 million was
from Brink's and $2.7 million was from BHS.
In the first six months of 1995, the Services Group reported a net income of
$33.6 million of $.89 per share compared with net income of $31.8 million or
$.84 per share in the first six months of 1994. Operating profit totaled $53.6
million in the first six months of 1995 compared with $56.9 million in the first
six months of 1994. Net income and operating profit were positively impacted by
improved results from the Brink's and BHS businesses, partially offset by
decreased results at Burlington. The 1995 first half was favorably impacted by
lower nonoperating and net interest expenses compared with the same period of
last year. Revenues for the first six months of 1995 increased $162.5 million or
19% compared with the first six months of 1994, of which $102.1 million was from
Burlington, $51.7 million was from Brink's and $8.7 million was from BHS.
Operating expenses and selling general and administrative expenses for the first
six months of 1995 increased $163.7 million or 20% over the same period last
year, of which $109.4 million was from Burlington, $48.5 million from Brink's
and $5.8 million from BHS.
26
<PAGE>
BURLINGTON
The following is a table of selected financial data for Burlington on a
comparative basis:
<TABLE>
<CAPTION>
(Dollars in thousands, except Three Months Six Months
per pound/shipment amounts) Ended June 30 Ended June 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C>
Revenues:
Airfreight
Domestic U.S. $ 127,816 148,900 257,855 272,539
International 160,813 121,583 312,489 232,951
- ---------------------------------------------------------------------------------------------------------------------
Total airfreight 288,629 270,483 570,344 505,490
Other 53,321 31,783 95,550 58,260
- ---------------------------------------------------------------------------------------------------------------------
Total revenues 341,950 302,266 665,894 563,750
Operating expenses 299,645 253,417 589,237 482,942
Selling, general and administrative 28,744 28,836 55,562 52,501
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 328,389 282,253 644,799 535,443
- ---------------------------------------------------------------------------------------------------------------------
Other operating income 845 757 1,369 1,473
- ---------------------------------------------------------------------------------------------------------------------
Operating profit $ 14,406 20,770 22,464 29,780
=====================================================================================================================
Depreciation and amortization $ 4,907 4,161 9,702 8,233
=====================================================================================================================
Cash capital expenditures $ 6,185 5,801 13,500 11,009
=====================================================================================================================
Airfreight shipment growth rate (a) 6.4% 13.0% 6.2% 10.4%
Airfreight weight growth rate (a):
Domestic U.S. (12.5%) 39.3% (4.1%) 21.5%
International 21.7% 20.2% 25.1% 24.5%
Worldwide 2.3% 30.3% 9.0% 22.9%
Worldwide airfreight weight (pounds) 322,978 315,672 644,366 591,257
=====================================================================================================================
Worldwide airfreight shipments 1,322 1,243 2,538 2,389
=====================================================================================================================
Worldwide average airfreight yield
(revenue per pound) $ 0.894 0.857 0.885 0.855
=====================================================================================================================
Worldwide average airfreight revenue per shipment $ 218 218 225 212
=====================================================================================================================
Worldwide average airfreight weight per
shipment (pounds) 244 254 254 247
=====================================================================================================================
</TABLE>
(a) Compared to the same period in the prior year.
Burlington reported an operating profit of $14.4 million in the 1995 second
quarter, a $6.4 million decrease from the $20.8 million reported in the second
quarter of 1994. The second quarter of 1994 benefitted from significant
additional domestic freight as a result of the nationwide trucking strike, which
added an estimated $8 million to the quarter's operating profit. Worldwide
revenues rose 13% to $342.0 million in the current year quarter from $302.3
million in the prior year second quarter. Worldwide airfreight revenues
increased $18.1 million or 7% to $288.6 million in the 1995 second quarter from
$270.5 million in the prior year quarter. The increase was principally from an
increase in international weight shipped, which more than offset the decrease in
domestic U.S. weight shipped attributable to the positive impact of last year's
trucking strike, and an increase in worldwide average airfreight yields (revenue
per pound).
27
<PAGE>
Other revenues, which includes customs clearance and other import related
services, as well as ocean freight services, increased $21.5 million or 68% to
$53.3 million in the second quarter of 1995 from $31.8 million in the prior year
quarter, as a result of an increase in international shipment volume.
Total airfreight weight shipped worldwide increased 2% to 323.0 million pounds
in the current year quarter from 315.7 million pounds in the prior year quarter.
Worldwide average airfreight yields increased by 4% to $.894 in the 1995 second
quarter from $.857 in the same period a year earlier. The increase in
international volume combined with other factors, including favorable impact of
foreign currency translation, resulted in a 32% increase in international
airfreight revenue.
Domestic airfreight revenues decreased by 14% to $127.8 million in the 1995
second quarter from $148.9 million in the prior year second quarter. The
decrease was the result of a nearly 13% decrease in domestic weight shipped and
a modest decrease in average yields. The second quarter of 1994 benefited from
significant additional domestic freight volume resulting from a nationwide
trucking strike in the U.S. Domestic volume, excluding the favorable impact of
last year's trucking strike declined modestly due to the sluggish domestic
economy. Burlington continues to adjust its domestic dedicated lift capacity to
match volume requirements and also to take measures to reduce its fleet and
station costs.
International airfreight revenues increased by 32% to $160.8 million in the 1995
second quarter from $121.6 million in the prior year second quarter. The
increase was primarily due to a 22% increase in weight shipped and to a lesser
extent increase in international yields. Improving economic conditions
internationally and aggressive expansion of company-owned operations in Europe
and Latin America were largely responsible for the rapid growth. Selective price
increases on U.S. exports were introduced during the quarter to partially
mitigate commercial lift cost increases. Burlington continued to expand its
global freight service network by establishing company-owned operations in the
Philippines and expansion of operations in Mexico.
Operating profit in the first half of 1995 for Burlington was $22.5 million, a
$7.3 million decrease from the $29.8 million operating profit reported in the
first half of 1994, which benefitted from significant additional domestic
freight as a result of the nationwide trucking strike which added an estimated
$8 million to the quarter's operating profit. Worldwide revenues rose 18% to
$665.9 million in the current year period from $563.8 million in the first six
months of 1994. The $102.1 million increase in revenues resulted principally
from a 9% increase in worldwide airfreight pounds shipped.
Domestic airfreight revenues decreased by 5% or $14.7 million to $257.8 million
in the first half of 1995 compared to the first half of 1994. The decrease was
due to a 4% decrease in domestic volume and a 1% decrease in domestic yields.
The decrease in volume was due primarily to the impact of the U.S. trucking
strike in the second quarter of 1994 which added substantial additional volume.
International airfreight revenues of $312.5 million in the first six months of
1995 were $79.5 million or 34% higher than the $233.0 million reported in the
prior year first half. The increase was primarily due to a 25% increase in
weight shipped compared to the prior year period. The increase in volume can be
largely attributed to improved economic conditions in the international markets
and expansion of company-owned operations.
Other revenue, which includes import transactions such as customs clearance and
import related services, as well as ocean freight services, increased 64% or
$37.3 million to $95.6 million, due to an increase in international shipment
volume and a continual expansion of ocean freight services.
28
<PAGE>
BRINK'S
The following is a table of selected financial data for Brink's on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Six Months
(In thousands) Ended June 30 Ended June 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C>
Revenues $ 154,543 128,183 303,634 251,948
Operating expenses 125,014 101,693 248,224 204,503
Selling, general and administrative 19,981 18,046 38,964 34,200
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 144,995 119,739 287,188 238,703
- ---------------------------------------------------------------------------------------------------------------------
Other operating income 688 1,772 1,173 3,104
- ---------------------------------------------------------------------------------------------------------------------
Operating profit $ 10,236 10,216 17,619 16,349
=====================================================================================================================
Depreciation and amortization $ 5,340 5,108 10,496 10,120
=====================================================================================================================
Cash capital expenditures $ 5,685 3,738 11,476 6,733
=====================================================================================================================
Revenues:
North America (United States and Canada) $ 92,551 82,334 180,981 161,819
International subsidiaries 61,992 45,849 122,653 90,129
- ---------------------------------------------------------------------------------------------------------------------
Total revenues $ 154,543 128,183 303,634 251,948
=====================================================================================================================
Operating profit:
North America (United States and Canada) $ 7,010 5,241 12,526 9,445
International operations 3,226 4,975 5,093 6,904
- ---------------------------------------------------------------------------------------------------------------------
Total operating profit $ 10,236 10,216 17,619 16,349
=====================================================================================================================
</TABLE>
Brink's operating profit of $10.2 million in the second quarter of 1995 was
essentially unchanged from the prior year. The revenue increase of $26.4 million
or 21% in the 1995 second quarter was offset by increased operating expenses and
selling, general and administrative expenses of $25.3 million and decreased
other operating income of $1.1 million.
Revenues from North American operations (United States and Canada) increased
$10.2 million or 12% to $92.5 million in the 1995 second quarter from $82.3
million in the prior year quarter. North American operating profit increased
$1.8 million or 34% to $7.0 million in the current year quarter from $5.2
million in the second quarter of 1994. The profit improvement primarily resulted
from rising volumes and increased market penetration in the armored car
business, which includes ATM servicing.
Revenues from international subsidiaries increased $16.1 million or 35% to $62.0
million in the 1995 second quarter from $45.8 million in the 1994 second
quarter. The increase is primarily due to higher revenues in Brazil as well as
the favorable impact of foreign currency translations. Operating profits from
international subsidiaries and minority owned affiliates declined $1.7 million
to $3.2 million in the current year quarter from $5.0 million in the prior year
second quarter. The earnings decline was primarily due to lower results from
Brink's share of its Mexican affiliate operations, in which Brink's has a 20%
equity interest. Results in Mexico decreased to a loss of $.6 million from the
profit of $1.3 million recorded in the second quarter of 1994. The Mexican
operation continues to be adversely impacted by the local recession and
extraordinarily high interest rates. Local management has begun implementing a
program designed to restore profitability to what is the largest armored car
company in Mexico. Brink's Brazil, a wholly-owned subsidiary, was essentially
break-even in the 1995 second quarter compared to a $.7 million operating profit
in the 1994 second quarter partially as a result of wage increases granted in
advance of price increases which were implemented in June and July of 1995.
29
<PAGE>
Brink's operating profit increased $1.3 million to $17.6 million in the first
six months of 1995 from $16.3 million in the first six months of 1994 with an
increase in revenues of $51.7 million, partially offset by an increase in
operating expenses and selling, general and administrative expenses totaling
$48.5 million, and a decrease in other operating income of $1.9 million.
Revenue from North American operations increased 12% to $181.0 million in the
first half of 1995 from $161.8 million in the prior year period. North American
operating profit increased $3.1 million to $12.5 million from $9.4 million. The
increase in operating profit was largely attributable to increases in the
armored car business which includes ATM servicing and to a lesser extent to
increases in the diamond and jewelry and coin and currency processing
businesses, partially offset by lower air courier results.
Revenue from international subsidiaries increased $32.5 million or 36% to $122.7
million, while operating profit from international subsidiaries and affiliates
decreased $1.8 million or 26% to $5.1 million in the first half of 1995. The
increase in revenue is primarily due to higher revenues in Brazil as well as the
favorable impact of foreign currency translation. The decline in operating
profit was primarily attributable to operations in Mexico, partially offset by
an increase reported in Brazil. Brink's share of its Mexican affiliates results
was a $1.0 million loss in the first six months of 1995 compared to a $1.7
million profit reported in the same period of 1994. Brink's Brazil reported an
operating profit of $.9 million in the first half of 1995 compared to $.1
million in the prior year period.
BHS
The following is a table of selected financial data for BHS on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Six Months
(Dollars in thousands) Ended June 30 Ended June 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C>
Revenues $ 31,063 26,902 61,372 52,706
Operating expenses 16,350 14,825 32,664 28,734
Selling, general and administrative 5,302 4,180 10,392 8,509
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 21,652 19,005 43,056 37,243
- ---------------------------------------------------------------------------------------------------------------------
Operating profit $ 9,411 7,897 18,316 15,463
=====================================================================================================================
Depreciation and amortization $ 5,331 4,429 10,420 8,262
=====================================================================================================================
Cash capital expenditures $ 9,214 8,125 19,141 16,664
=====================================================================================================================
Annualized service revenues (a) $ 95,810 78,856
=====================================================================================================================
Number of subscribers:
Beginning of period 332,434 275,873 318,029 259,551
Installations 19,290 18,291 38,362 37,977
Disconnects, net (5,184) (4,546) (9,851) (7,910)
- ---------------------------------------------------------------------------------------------------------------------
End of period 346,540 289,618 346,540 289,618
=====================================================================================================================
</TABLE>
(a) Annualized service revenue is calculated based on the number of subscribers
at period end multiplied by the average fee per subscriber received in the last
month of the period for monitoring, maintenance and related services.
Operating profit of BHS increased $1.5 million to $9.4 million in the second
quarter of 1995 from $7.9 million in the second quarter of 1994. In the first
half of 1995, operating profit increased $2.8 million to $18.3 million from
$15.5 million in the first half of 1994. The increase in operating profit for
the second quarter and first half of 1995 compared to the similar periods in
1994 reflected higher monitoring revenues due to an average subscriber base that
was approximately 20% higher for the quarter and year to date 1995, compared to
similar periods in 1994, slightly offset by higher account servicing and
administrative costs. Net new subscribers totaled approximately 14,100 and
28,500 in
30
<PAGE>
the second quarter and first six months of 1995, respectively, compared with
approximately 13,700 and 30,000 in the second quarter and first six months of
1994, respectively. Subscribers at June 30, 1995 totaled 346,540.
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 transactions in the
normal course of its business. Although the diversity of its foreign operations
limits the risks associated with such transactions, the Company uses foreign
exchange forward contracts to hedge the risks associated with certain
transactions denominated in currencies other than the functional currency.
Realized and unrealized gains and losses on these contracts are deferred and
recognized as part of the specific transaction hedged. In addition, cumulative
translation adjustments relating to operations in countries with highly
inflationary economies are included in net income, along with all transaction
gains or losses for the period. Subsidiaries in Brazil operate in such a highly
inflationary economy.
Additionally, the Company is subject to other risks customarily associated with
doing business in foreign countries, including economic conditions, controls on
repatriation of earnings and capital, nationalization, expropriation and other
forms of restrictive action by local governments. The future effects, if any, of
such risks on the Company 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 a
reasonable and equitable estimate of the costs attributable to the Services
Group. These allocations were $2.5 million in the second quarter of 1995 and
1994 and $4.8 million and $4.7 million in the first six months of 1995 and 1994,
respectively.
OTHER OPERATING INCOME
Other operating income decreased $1.0 million to $1.5 million in the 1995 second
quarter from $2.5 million in the second quarter of 1994. Other operating income
totaled $2.5 million in the first half of 1995 compared with $4.6 million in the
first six months of 1994. 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 $.4 million and $.9 million in the
second quarter and first six months of 1995, respectively, compared with $1.8
million and $3.4 million in the second quarter and first half of 1994,
respectively. The decrease is due in large part to the $2.7 million decrease in
Brink's share of earnings from its affiliate in Mexico in the first six months
of 1995 compared to 1994.
INTEREST INCOME
Interest income increased $.9 million to $1.5 million in the second quarter of
1995 from $.6 million in the prior year's second quarter. The increase is
attributable to interest earned of $.8 million and $.1 million in the second
quarter of 1995 and 1994, respectively, on amounts owed by the Minerals Group.
For the six months ended June 30, 1995, interest income increased $1.8 million
to $3.0 million from $1.2 million in the first half of 1994. The increase is
primarily attributed to $1.5 million of interest income earned from amounts owed
by the Minerals Group in the first six months of 1995.
INTEREST EXPENSE
Interest expense increased $.3 million to $1.7 million in the second quarter of
1995 from $1.4 million in the prior year second quarter. Interest expense
totaled $3.2 million in the first six months of 1995 and 1994. The increase in
the 1995 second quarter was due to higher average interest rates and average
debt balances.
31
<PAGE>
OTHER INCOME (EXPENSE), NET
Other net expense for the first six months of 1995 decreased $1.8 million to a
net expense of $1.8 million from a net expense of $3.6 million in the first six
months of 1994. 1994 included expenses of $1.2 million recognized in the 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.
CASH PROVIDED BY OPERATIONS
Cash provided by operating activities during the first six months of 1995
totaled $26.4 million compared with $70.2 million in the first six months of
1994. The decrease in cash provided occurred, despite higher net income and
noncash charges, principally as a result of additional investment in working
capital at Burlington. Such requirements primarily reflected initial working
capital needs of recently acquired foreign subsidiaries, a relatively larger
seasonal volume increase and increased international revenues, which tend to
have longer payment terms.
CAPITAL EXPENDITURES
Cash capital expenditures for the first six months of 1995 totaled $44.3
million. Of that amount, $19.1 million was spent by BHS, $13.5 million was spent
by Burlington and $11.5 million was spent by Brink's. Expenditures incurred by
BHS in the first half of 1995 were primarily for customer installations,
representing the expansion in the subscriber base. For the full year 1995,
capital expenditures are projected to approximate $125 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.
Increased expenditures in 1995 are expected at Burlington to support new
airfreight stations and implementation of positive tracking systems and at BHS
resulting from continued expansion of the subscriber base.
FINANCING
The Services Group intends to fund its capital expenditure requirements during
the remainder of 1995 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 other borrowing arrangements. The Company has a $350
million revolving credit agreement with a syndicate of banks (the "Facility").
The Facility includes a $100 million term loan, which matures in May 2000. The
Facility also permits additional borrowings, repayments, and reborrowings of up
to an aggregate of $250 million until May 2000. Of the total amount outstanding
under the Facility at June 30, 1995 $23.4 million was attributed to the Services
Group.
DEBT
Outstanding debt totaled $88.6 million at June 30, 1995 up $19.2 million from
the $69.4 million reported at year-end. The amount of the $100 million term loan
attributed to the Services Group was $23.4 million at June 30, 1995.
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 Services Group's Statement of Operations for the
six months ended June 30, 1994.
RELATED PARTY TRANSACTIONS
At June 30, 1995 the Minerals Group owed the Services Group $42.3 million, a
decrease of $5.9 million from the $48.2 million owed at December 31, 1994.
At June 30, 1995 the Services Group owed the Minerals Group $39.2 million for
tax benefits, of which $21.0 million is expected to be paid within one year.
32
<PAGE>
CAPITALIZATION
The Company is also authorized to repurchase up to 1,250,000 shares of Services
Stock and 250,000 shares of Minerals Stock, not to exceed $43 million. As of
June 30, 1995 a total of 376,100 shares ($9.0 million) of Services Stock have
been acquired pursuant to the authorization. During the six months ended June
30, 1995 120,000 shares ($2.8 million) of Services Stock were repurchased.
DIVIDENDS
The Board 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, financial developments of 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 in to 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 therefore, when, and
if declared by the Board which commenced March 1, 1994. Such stock also bears a
liquidation preference of $500 per share, plus an amount equal to accrued and
unpaid dividends thereon.
During the 1995 and 1994 six month periods, the Board declared and paid cash
dividends of 10 cents per share of Services Stock.
33
<PAGE>
Pittston Minerals Group
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1995 1994
====================================================================================================================================
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,856 3,708
Short-term investments, at lower of cost or market 24,575 23,121
Accounts receivable (net of estimated amount uncollectible: 1995 - $1,894; 1994 - $1,880) 88,938 108,923
Inventories, at lower of cost or market:
Coal 39,022 25,518
Other 4,320 4,629
- ------------------------------------------------------------------------------------------------------------------------------------
43,342 30,147
Prepaid expenses 9,947 11,389
Deferred income taxes 29,867 30,525
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 201,525 207,813
Property, plant and equipment, at cost (net of accumulated depreciation,
depletion and amortization: 1995 - $164,178; 1994 - $159,938) 208,112 220,462
Deferred pension assets 77,618 75,803
Deferred income taxes 92,429 97,945
Coal supply contracts 75,385 82,240
Intangibles, net of amortization 119,100 120,649
Receivable - Pittston Services Group 18,223 23,186
Other assets 39,903 39,414
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $ 832,295 867,512
====================================================================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 4,676 7,554
Accounts payable 65,474 76,771
Payable - Pittston Services Group 21,324 32,170
Accrued liabilities 154,420 157,229
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 245,894 273,724
Long-term debt, less current maturities 105,872 88,175
Postretirement benefits other than pensions 213,680 212,977
Workers' compensation and other claims 120,376 128,864
Deferred income taxes 1,707 -
Other liabilities 157,467 172,368
Shareholder's equity (12,701) (8,596)
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 832,295 867,512
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
34
<PAGE>
Pittston Minerals Group
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C>
Net sales $ 184,211 202,149 379,951 378,891
- ---------------------------------------------------------------------------------------------------------------------
Cost and expenses:
Cost of sales 180,860 189,044 374,800 378,825
Selling, general and administrative expenses 8,506 9,348 16,920 18,235
Restructuring and other charges - - - 90,806
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 189,366 198,392 391,720 487,866
- ---------------------------------------------------------------------------------------------------------------------
Other operating income 9,617 3,305 16,740 6,258
- ---------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 4,462 7,062 4,971 (102,717)
Interest income 154 49 194 100
Interest expense (2,804) (1,325) (5,085) (2,138)
Other income (expense), net (219) (218) (430) (437)
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,593 5,568 (350) (105,192)
Provision (credit) for income taxes (3,041) (1,182) (5,454) (37,863)
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) 4,634 6,750 5,104 (67,329)
Preferred stock dividends, net (1,093) (1,257) (1,176) (2,263)
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) attributed to common shares $ 3,541 5,493 3,928 (69,592)
=====================================================================================================================
Net income (loss) per common share:
Primary $ .45 .72 .51 (9.20)
Fully diluted $ .45 .67 .51 (9.20)
=====================================================================================================================
Cash dividends $ .1625 .1625 .3250 .3250
=====================================================================================================================
Average common shares outstanding:
Primary 7,811 7,644 7,764 7,565
Fully diluted 9,988 10,148 10,038 9,905
=====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
Pittston Minerals Group
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1994
====================================================================================================================================
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ 5,104 (67,329)
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 21,170 20,474
Provision (credit) for deferred income taxes 7,585 (18,928)
Credit for pensions, noncurrent (1,753) (825)
Provision for uncollectible accounts receivable 100 132
Equity in (earnings) loss of unconsolidated affiliates, net of dividends received (242) (70)
Other operating, net (2,750) (333)
Change in operating assets and liabilities net of effects of acquisitions and dispositions:
Decrease (increase) in accounts receivable 19,885 (16,579)
Increase in inventories (13,195) (8,219)
Decrease (increase) in prepaid expenses 1,442 (1,087)
Decrease in accounts payable and accrued liabilities (10,302) (5,239)
Decrease in other assets 981 859
(Decrease) increase in other liabilities (15,637) 11,092
(Decrease) increase in workers' compensation and other claims, noncurrent (8,486) 11,636
Other, net (1) (185)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 3,901 (28,114)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (11,022) (7,767)
Proceeds from disposal of property, plant and equipment 8,950 295
Acquisitions, net of cash acquired, and related contingent payments (722) (157,231)
Other, net (241) 7,862
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (3,035) (156,841)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 19,200 86,566
Reductions of debt (4,340) (251)
Payments (to) from - Services Group (5,846) 28,777
Repurchase of stock of the Company (5,022) (401)
Proceeds from exercise of stock options 1,202 947
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 (4,912) (4,297)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 282 188,952
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,148 3,997
Cash and cash equivalents at beginning of period 3,708 2,141
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 4,856 6,138
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
Pittston Minerals Group
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share and employee amounts)
(1) 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 a reasonable and
equitable allocation of such expenses and credits.
The Company provides holders of 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. 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
Pittston Services Group (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) The amounts of depreciation, depletion and amortization of property,
plant and equipment in the second quarter and six month periods of
1995 and 1994 totaled $6,382 ($5,680 in 1994) and $12,647 ($12,312 in
1994), respectively.
(3) Cash payments made for interest and income taxes (net of refunds
received) were as follows:
Second Quarter Six Months
1995 1994 1995 1994
----------------------------------------------------------------------
Interest $ 3,085 886 5,172 1,516
======================================================================
Income taxes $ (12,958) (7,487) (12,247) (7,373)
======================================================================
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. ("Addington Acquisition") for $157,324. The
acquisition was accounted for as a purchase; accordingly, the purchase
price was allocated to the underlying assets and liabilities based on
their respective estimated fair values at the date of acquisition. The
fair value of assets acquired was $173,959 and liabilities assumed was
$138,518. The excess of the purchase price over the fair value of the
assets acquired and liabilities assumed was $121,883 and is being
amortized over a period of 40 years. The results of operations of the
acquired company have been included in the Minerals Group's results of
operations since the date of acquisition.
The acquisition was financed by the issuance of $80,500 of $31.25
Series C Cumulative Convertible Preferred Stock, which is 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 the Addington
Acquisition was refinanced with a portion of a five-year term loan.
During the six months ended June 30, 1994, capital lease obligations
of $746 were incurred for leases of property, plant and equipment. In
addition, during the six months ended June 30, 1994, the Minerals
Group assumed capital lease obligations of $16,210 as part of the
Addington Acquisition.
37
<PAGE>
In June 1995, the Company sold its rights under certain coal reserve
leases and the related equipment for $2,800 in cash and notes totaling
$2,882. The cash proceeds have been included in the Consolidated
Statement of Cash Flows as "Cash flow from investing activities:
Proceeds from disposals of property, plant and equipment".
In March 1995, the Minerals Group sold surplus coal reserves for cash
of $2,878 and a note receivable of $2,317. The cash proceeds have been
included in the Statement of Cash Flows as "Cash flow from investing
activities: Proceeds from disposals of property, plant and equipment".
In December 1993, the Minerals Group sold the majority of the assets
of its captive mine supply company. Cash proceeds of $8,400 from the
sale were received on January 2, 1994, and have been included in the
Statement of Cash Flows under the caption "Cash flow from investing
activities: Other, net".
(4) Restructuring and other charges - After a review of the economic
viability of certain metallurgical coal assets in the first quarter of
1994, management determined that four underground mines were no longer
economically viable and should be closed resulting in significant
economic impairment to three related preparation plants. In addition,
it was determined that one surface steam coal mine, the Heartland
mine, which provided coal to Alabama Power Company under a long-term
sales agreement, would be closed due to rising costs caused by
unfavorable geological conditions.
As a result of these decisions, the Company incurred a pre-tax charge
of $90,806 in the first quarter of 1994 ($58,116 after tax) which
included a reduction in the carrying value of these assets and related
accruals for mine closure costs. These charges included assets
write-downs of $46,487 which reduced the book carrying value of such
assets to what management believes to be their net realizable value
based on either estimated sales or leasing of such property to
unrelated third parties. In addition, the charges included $3,836 for
required lease payments owed to lessors for machinery and equipment
that would be idled as a result of the mine and facility closures. The
charges also included $19,290 for mine and plant closure costs which
represented estimates for reclamation and other environmental costs to
be incurred to bring the properties in compliance with federal and
state mining and environmental laws. This accrual was required due to
the premature closing of the mines. The accrual also included $21,193
in contractually or statutorily required employee severance and other
benefit costs associated with termination of employees at these
facilities and costs associated with inactive employees at these
facilities. Such employee benefits included severance payments,
medical insurance, workers' compensation and other benefits and have
been calculated in accordance with contractually (collective
bargaining agreements signed by certain coal subsidiaries included in
the Company) and legally required employee severance and other
benefits.
Of the four underground mines, two have ceased coal production (one in
the first half of 1995), while the remaining two mines are expected to
cease coal production in 1995. In 1994 the Company reached agreement
with Alabama Power Company to transfer the coal sales contract
serviced by the Heartland mine to another location in West Virginia.
The Heartland mine ceased coal production during 1994 and final
reclamation and environmental work is in process. At the beginning of
1994, there were approximately 750 employees involved in operations at
these facilities and other administrative support. Employment at these
facilities has been reduced by 78% to approximately 165 employees at
June 30, 1995.
(5) Certain prior period amounts have been reclassified to conform to
current period financial statement presentation.
(6) 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.
38
<PAGE>
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. 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 Pittston Services Group (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.
SEGMENT INFORMATION
(In thousands)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
- --------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
Coal $ 179,987 198,380 371,270 371,796
Mineral Ventures 4,224 3,769 8,681 7,095
- --------------------------------------------------------------------------------------------------------
Net sales $ 184,211 202,149 379,951 378,891
========================================================================================================
Operating profit (loss):
Coal $ 5,810 8,395 7,121 (99,444)
Mineral Ventures 576 314 1,491 68
- --------------------------------------------------------------------------------------------------------
Segment operating profit (loss) 6,386 8,709 8,612 (99,376)
General corporate expense (1,924) (1,647) (3,641) (3,341)
- --------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 4,462 7,062 4,971 (102,717)
========================================================================================================
</TABLE>
RESULTS OF OPERATIONS
- ----------------------
In the second quarter of 1995, the Minerals Group reported net income of $4.6
million compared with $6.8 million in the second quarter of 1994. Operating
profit totaled $4.5 million in the 1995 second quarter compared with $7.1
million in the prior year second quarter. The decrease in net income and
operating profit in the second quarter was primarily due to weaker steam coal
markets and the timing of metallurgical coal shipments.
39
<PAGE>
In the first six months of 1995, the Minerals Group reported net income of $5.1
million compared to a net loss of $67.3 million in the first six months of 1994.
Operating profit totaled $5.0 million in the first six months of 1995 compared
to an operating loss of $102.7 million in the first six months of 1994. The
increase in both operating profit and net income is primarily attributable to
the Coal operations whose 1994 results included charges for asset writedowns,
accruals for costs related to facility shutdowns and operating losses incurred
related to these facilities, which in the aggregate reduced operating profit and
net income by $97.5 million and $63.4 million, respectively.
COAL
The following is a table of selected financial data for the Coal operations on a
comparative basis:
<TABLE>
<CAPTION>
Three Months Six Months
(In thousands) Ended June 30 Ended June 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C>
Net sales $ 179,987 198,380 371,270 371,796
Cost of sales 177,978 186,385 368,945 373,659
Selling, general and administrative expenses 5,622 6,742 11,702 12,963
Restructuring and other charges - - - 90,806
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 183,600 193,127 380,647 477,428
- ---------------------------------------------------------------------------------------------------------------------
Other operating income 9,423 3,142 16,498 6,188
- ---------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 5,810 8,395 7,121 (99,444)
=====================================================================================================================
Coal sales (tons):
Metallurgical 2,244 2,415 4,633 4,876
Utility and industrial 4,025 4,779 8,528 8,387
- ---------------------------------------------------------------------------------------------------------------------
Total coal sales 6,269 7,194 13,161 13,263
=====================================================================================================================
Production/purchased (tons)
Deep 984 1,174 2,041 2,622
Surface 3,276 3,931 7,129 7,004
Contract 508 643 1,041 1,126
- ---------------------------------------------------------------------------------------------------------------------
4,768 5,748 10,211 10,752
Purchased 1,765 1,413 3,502 2,786
- ---------------------------------------------------------------------------------------------------------------------
Total 6,533 7,161 13,713 13,538
=====================================================================================================================
</TABLE>
Operations - Coal operations had an operating profit totaling $5.8 million in
the second quarter of 1995 compared to an operating profit of $8.4 million in
the second quarter of 1994. Included in the current quarter results are a pretax
gain of $5.3 million from the disposition of surplus coal reserves and a $2.5
million benefit from a favorable litigation decision which reduced previously
expensed employee benefit costs.
Sales volume of 6.3 million tons in the second quarter of 1995 was 13% or .9
million tons less than the 7.2 million tons sold in the 1994 second quarter. The
decrease reflected weaker steam coal markets and the timing of metallurgical
coal shipments. Steam coal sales volume declined 16% or .8 million tons to 4.0
million tons and metallurgical coal sales volume declined by 6% or .1 million
tons to 2.3 million tons compared to the second quarter of 1994. Steam coal
sales represented 64% of total volume in the second quarter of 1995, compared to
67% in the prior year quarter.
Production in the second quarter of 1995 totaled 4.8 million tons, a 17%
decrease compared to the second quarter of 1994, principally reflecting the
scheduled reduction in underground mine production during 1994 and early 1995
and the idling of surface steam coal mines including a surface mine in Kentucky
in the second quarter. Surface production accounted for approximately 70% of
total production in the second quarters of 1995 and 1994. Productivity of 36.1
tons per man day represented a 3% increase over the comparable period in 1994.
Domestic steam coal markets continue to be depressed, with spot pricing at
exceptionally low levels.
40
<PAGE>
Coal margin (realization less current production costs of coal sold) of $9.4
million or $1.50 per ton for the second quarter of 1995, decreased $10.4 million
or $1.26 per ton from the prior year second quarter. This was caused by a 9% or
$2.33 per ton increase in average current production costs of coal sold to
$27.13 per ton partially offset by a 4% or $1.07 per ton increase in the average
realization to $28.63 per ton. Coal operations continued to incur higher than
expected costs at several mines during the quarter, thereby increasing the
average cost of coal mined. The increase in average cost per ton was primarily
caused by: (i) 17% reduction in company production; (ii) higher costs incurred
at mines idled or scheduled to close; (iii) increased costs for purchased coal;
and (iv) temporarily less favorable mining and geological conditions occurring
at several surface mines. Several remediation efforts have been undertaken,
including the closure during the current quarter of one surface mine in
Virginia.
Excluding the positive impact from both the sale of surplus coal reserves and
the favorable employee benefits litigation decision, Coal operations incurred an
operating loss of $2.0 million in the second quarter of 1995. As part of its
strategy to achieve positive operating profit on a sustainable basis for the
long-term, the following steps are being implemented: (i) reduction of overhead;
(ii) evaluation of non-strategic assets for sale; (iii) improvement of margin at
continuing operations; (iv) review of unprofitable mines for possible closure;
and (v) review of new mine openings to take advantage of specific market
opportunities.
Coal operations had an operating profit of $7.1 million in the first six months
of 1995 compared to an operating loss of $99.4 million in the prior year period.
The 1994 first six months operating loss included $90.8 million of charges for
asset writedowns and accruals for costs related to facilities which are being
closed (discussed further below) and $6.7 million of operating losses incurred
during the first half related to those facilities.
Sales volume of 13.2 million tons in the first half of 1995, was .1 million tons
less than the 13.3 million tons sold in the first half of 1994. Steam coal sales
increased by .1 million tons to 8.5 million tons and metallurgical coal sales
declined by .2 million tons to 4.6 million tons compared to the prior year.
Steam coal sales represented 65% of total volume in the first half of 1995,
compared to 63% in the prior year.
Production in the first half of 1995 totaled 10.2 million tons, a 5% decrease
compared to the first half of 1994, principally reflecting the scheduled
reduction in underground mine production during 1994 and early 1995 and the
idling of surface steam coal mines. Surface production accounted for 71% and 66%
of total production in the first half of 1995 and 1994, respectively.
Productivity of 36 tons per man day represented a 9% increase over the
comparable period in 1994.
Coal operations reached contract agreements with most of its metallurgical
customers for the coal year that began April 1, 1995 calling for price increases
of approximately $4.00 to $5.50 per metric ton, depending upon coal quality.
These price increases had the effect of realigning pricing to levels in effect
prior to last year's unusually large decline. Sales volume is expected to
decline modestly from the level in the prior contract year. The price increases
were in effect during a portion of the 1995 second quarter as a result of the
timing of metallurgical coal shipments and were partially offset by the higher
costs of purchased coal as well as increased transportation costs.
Restructuring and Other charges - As a result of the continuing long-term
decline of the metallurgical coal markets, in the first quarter of 1994,
management determined that four underground mines were no longer economically
viable and should be closed, resulting in significant economic impairment to
three related preparation plants. In addition, it was determined that one
surface steam coal mine, the Heartland mine, which provided coal to Alabama
Power under a long-term sales agreement, would be closed due to rising costs
caused by unfavorable geological conditions.
As a result of these decisions, the Coal operations incurred pretax charges of
$90.8 million ($58.1 million after tax) in the first quarter of 1994 which
included a reduction in the carrying value of these assets and related accruals
for mine closure costs. These charges included asset writedowns of $46.5 million
which reduced the book carrying value of such assets to what management believes
to be their net realizable value based on either estimated sales or leasing of
such property to unrelated third parties. In addition, the charges included $3.8
million for required lease payments owed to lessors for machinery and equipment
that would be idled as a result of the mine and facility closures. The charges
also included $19.3 million for mine and plant closure costs which represented
estimates of reclamation and other environmental costs to be incurred to bring
the properties in compliance with federal and state mining and
41
<PAGE>
environmental laws. This accrual was required due to the premature closing of
the mines. The accrual also included $21.2 million of contractually or
statutorily required employee severance and other benefit costs associated with
termination of employees at these facilities and costs associated with inactive
employees at these facilities. Such employee benefits include severance
payments, medical insurance, workers' compensation and other benefits and have
been calculated in accordance with contractually (collective bargaining
agreements signed by certain coal subsidiaries included in the Coal operations)
and legally required employee severance and other benefits.
Of the four underground mines, two have ceased coal production (one in the first
half of 1995), while the remaining two mines are expected to cease coal
production during the remainder of 1995. In 1994, Coal operations reached
agreement with Alabama Power Company to transfer the coal sales contract
serviced by the Heartland mine to another location in West Virginia. The
Heartland mine ceased coal production during 1994, and final reclamation and
environmental work is in process. At the beginning of 1994 there were
approximately 750 employees involved in operations at these facilities and other
administrative support. Employment at these facilities has been reduced by 78%
to approximately 165 employees at June 30, 1995.
After coal production ceases at the mines contemplated in the accrual, the
Company will continue to pay reclamation and environmental costs for several
years to bring these properties into compliance with federal and state
environmental laws. In addition, employee termination and medical payments will
continue to be made for several years after the facilities have been closed. The
significant portion of these employee liabilities is for statutorily provided
workers' compensation costs for inactive employees. Such benefits include
indemnity and medical payments as required under state workers' compensation
laws. The long payment periods are based on continued, and in some cases,
lifetime indemnity and medical payments to injured former employees and their
surviving spouses. Management believes that the charges incurred in 1994 should
be sufficient to provide for these future payments and does not anticipate
material additional future charges to operating earnings for these facilities,
although continual cash funding will be required over the next several years.
The following table analyzes the changes in liabilities during 1994 and 1995 for
facility closure costs recorded as restructuring and other charges:
<TABLE>
<CAPTION>
Employee
Mine Termination,
Leased and Medical
Machinery Plant and
and Closure Severance
Equipment Costs Costs Total
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance as of December 31, 1993 (a) $ 3,092 28,434 34,217 65,743
Additions 3,836 19,290 21,193 44,319
Payments (b) 3,141 9,468 12,038 24,647
----------------------------------------------------------------------------------------------
Balance as of December 31, 1994 3,787 38,256 43,372 85,415
Payments (c) 1,018 6,294 4,198 11,510
----------------------------------------------------------------------------------------------
Balance as of June 30, 1995 $ 2,769 31,962 39,174 73,905
==============================================================================================
</TABLE>
(a) These amounts represent the remaining liabilities for facility closure costs
recorded as restructuring and other charges in prior years. The original charges
included $5,094 for leased machinery and equipment, $52,243 principally for
incremental facility closing costs including reclamation and $54,108 for
employee benefit costs, primarily workers' compensation, which will continue to
be paid for several years.
(b) These amounts represent total cash payments made during 1994 for these
charges. Of the total payments made, $14,494 was for liabilities recorded in
years prior to 1994 and $10,153 was for liabilities recorded in 1994.
(c) Payments made in the first six months of 1995 included $6,401 related to
pre-1994 liabilities and $5,109 for liabilities recorded in the first quarter of
1994.
During the next twelve months, expected cash funding of these charges is
approximately $15 to $20 million. Management estimates that the remaining
liability for leased machinery and equipment will be fully paid over the next
42
<PAGE>
two years. The liability for mine and plant closure costs is expected to be
satisfied over the next ten years of which approximately 70% is expected to be
paid over the first three years. The liability for employee related costs, which
is primarily workers' compensation, is estimated to be 70% settled over the next
five years with the balance paid during the following five to ten years.
MINERAL VENTURES
The following is a table of selected financial data for the Mineral Ventures
operations on a comparative basis:
<TABLE>
<CAPTION>
(Dollars in thousands, Three Months Six Months
except per ounce data) Ended June 30 Ended June 30
- ------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
============================================================================================================
<S> <C> <C> <C> <C>
Net sales $ 4,224 3,769 8,681 7,095
Cost of sales 2,882 2,659 5,855 5,166
Selling, general and administrative costs 960 959 1,577 1,931
- ------------------------------------------------------------------------------------------------------------
Total costs and expenses 3,842 3,618 7,432 7,097
Other operating income (expense) 194 163 242 70
- ------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 576 314 1,491 68
============================================================================================================
Stawell Gold Mine:
PMV's 50% direct share ounces sold 10,646 9,120 21,492 17,820
Average realized gold price per ounce (US$) $ 394 401 397 396
</TABLE>
Operating profit of Mineral Ventures operations increased $.3 million in the
1995 second quarter to $.6 million, from $.3 million in the second quarter of
1994. The Stawell gold mine in western Victoria, Australia, in which Mineral
Ventures has a 67% net equity interest, produced 21,379 ounces in the current
quarter at an average cost of $293 per ounce compared to 18,879 ounces in the
second quarter of 1994 at an average cost of $282.
In the first six months of 1995, operating profit of Mineral Ventures increased
$1.4 million to $1.5 million from $.1 million in the first six months of 1994.
The increase in operating profit was primarily the result of increased
production at the Stawell Gold Mine. An operator accident that occurred in the
1994 first quarter hindered production in 1994 and also contributed to higher
operating costs for the period. The Stawell gold mine produced 42,576 ounces in
the first six months of 1995 compared with 35,734 ounces in the comparable
period of 1994. Mineral Ventures is continuing exploration projects in Nevada
and Australia with its joint venture partner.
Successful exploration efforts indicate an increase of approximately 68,000
ounces of additional proven and probable gold reserves at the Stawell mine. At
June 30, 1995, remaining proven and probable gold reserves are estimated at
480,000 ounces.
OTHER OPERATING INCOME
Other operating income increased $6.3 million to $9.6 million in the 1995 second
quarter from $3.3 million in the second quarter of 1994. Other operating income
totaled $16.7 million in the first six months of 1995 a $10.4 million increase
over the $6.3 million recorded in the first six months of 1994. Other operating
income primarily includes royalty income and gains and losses from sales of coal
assets. The increase is principally the result of a $5.3 million and $8.3
million gains from the sales of surplus coal reserves in the second quarter and
six month periods of 1995, respectively.
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 a
43
<PAGE>
reasonable and equitable estimate of the costs attributable to the Minerals
Group. These allocations were $1.9 million and $1.6 million in the second
quarter of 1995 and 1994, respectively, and $3.6 million and $3.3 million in the
first six months of 1995 and 1994, respectively.
INTEREST EXPENSE
Interest expense increased $1.5 million to $2.8 million in the second quarter of
1995 from $1.3 million in the prior year quarter. Second quarter interest
expense includes $.8 million in 1995 and $.1 million in 1994 on borrowings from
the Services Group. Interest expense totaled $5.1 million in the first six
months of 1995 and $2.1 million in the first six months of 1994. Interest
expense in the first six months of 1995 and 1994 included interest on borrowings
from the Services Group totaling $1.5 million and $.1 million, respectively. The
increase in the 1995 quarter and six month periods is due to higher average
interest rates on higher average debt balances.
INCOME TAXES
Net income in the second quarter and six month periods ended June 30, 1995
includes a tax credit which exceeds the amount calculated based on the statutory
federal income tax rate of 35% as a result of the tax benefits of percentage
depletion.
FINANCIAL CONDITION
- --------------------
A portion of the Company's corporate assets and liabilities has ben 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.
Cash Provided by Operations
Cash provided by operating activities during the first six months of 1995
totaled $3.9 million compared to a cash requirement of $28.1 million in the
first six months of 1994. Cash used by operating activities in the first six
months of 1994 was negatively impacted by the integration of operating
activities of Addington which required cash to finance working capital. Net
income, noncash charges and changes in operating assets and liabilities in the
1994 first half were significantly affected by after-tax restructuring and other
charges of $58.1 million which had minimal effect on cash generated by
operations. Of the total $90.8 million of the 1994 first quarter pre-tax
charges, $46.5 million was for noncash writedowns of assets and remainder
represents liabilities, which are expected to be paid over the next several
years.
CAPITAL EXPENDITURES
Cash capital expenditures for the first six months of 1995 totaled $11 million,
excluding equipment expenditures that have been or are expected to be financed
through operating leases. For the remainder of 1995, capital expenditures,
excluding operating leases are projected to be approximately $15 million.
OTHER INVESTING ACTIVITIES
All other investing activities in the first six months of 1995 provided net cash
of $8.0 million primarily from cash proceeds received in 1995 from the sale of
coal assets. 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 Minerals Stock, and additional debt under
revolving credit agreements.
FINANCING
The Minerals Group intends to fund its capital expenditure requirements during
the remainder of 1995 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, other borrowing arrangements or borrowings from the Services
Group. The Company has a $350 million revolving credit agreement with a
syndicate of banks (the "Facility"). The Facility includes a $100 million term
loan, which matures in May 2000. The Facility also permits additional
borrowings, repayments, and reborrowings of up to an aggregate of $250 million
until May 2000. As of June 30, 1995, borrowings of $100 million were outstanding
under the term loan portion
44
<PAGE>
of the Facility with $28.6 million of additional borrowings outstanding under
the remainder of the facility. Of the total amount outstanding under the
Facility, $105.2 million was attributed to the Minerals Group. The Company, on
behalf of the Minerals Group, maintains agreements with financial institutions
whereby it has the right to sell certain coal receivables with recourse to those
institutions. In June 1995, coal receivables of approximately $10 million were
sold under these agreements.
DEBT
Outstanding debt totaled $110.5 million at June 30, 1995 up $14.8 million from
the $95.7 million reported at year-end. Net cash provided by operating
activities was not sufficient to fund capital expenditures and share activity,
resulting in additional borrowings under the Company's revolving credit
agreements.
RELATED PARTY TRANSACTIONS
At June 30, 1995 the Minerals Group owed the Services Group $42.3 million, a
decrease of $5.9 million from the $48.2 million owed at December 31, 1995.
At June 30, 1995 the Services Group owed the Minerals Group $39.2 million for
tax benefits, of which $21.0 million is expected to be paid within one year.
CAPITALIZATION
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 1994, the Board authorized the repurchase from time to time of up to $15.0
million of the new series of cumulative convertible preferred stock. As of June
30, 1995, 21,020 shares at a total cost of $8.4 million were repurchased of
which 12,670 shares at cost of $5.0 million were repurchased in the first six
months of 1995.
The Company is authorized to repurchase up to 1,250,000 shares of Services Stock
and 250,000 shares of Minerals Stock, not to exceed $43 million. As of June 30,
1995, 38,500 shares ($.8 million) of Minerals Stock have been acquired pursuant
to the authorization. No shares of Minerals Stock were repurchased in the first
six months of 1995.
DIVIDENDS
The Board 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, financial
developments of 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, which is adjusted by net
income or losses and other equity transactions, as defined in the Company's
Articles of Incorporation. At June 30, 1995 the Available Minerals Dividend
Amount was at least $20.8 million.
As a result of the Company's issuance in January 1994 of 161,000 shares of a new
series of preferred stock, convertible in to Minerals Stock, the Company pays
annual cumulative dividends of $31.25 per share payable quarterly, in cash, in
arrears, out of all funds of the Company legally available therefore, when, and
if declared by the Board which commenced March 1, 1994. Such stock also bears a
liquidation preference of $500 per share, plus an amount equal to accrued and
unpaid dividends thereon.
During the 1995 and 1994 six month periods, the Board declared and paid cash
dividends of .325 cents per share of Minerals Stock. Dividends paid on the
cumulative convertible preferred stock in the first six months of 1995 were $2.3
million. Preferred dividends included on the Minerals Group's Statement of
Operations for the six months ended June 30,1995 are net of $1.0 million which
was the excess of the carrying amount of the preferred stock over the cash paid
to holders of the preferred stock.
45
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number
10* Employment agreement dated as of
June 1, 1995, between the Registrant
and D. L. Marshall.
11 Statement re Computation of
Earnings Per Common Share.
(b) No reports on Form 8-K were filed during the second quarter of 1995.
- --------------------
*Management contract or compensatory plan or arrangement
46
<PAGE>
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 11, 1995 By G. R. Rogliano
---------------------------------------------
(G. R. Rogliano)
Vice President -
Controllership and Taxes
(Duly Authorized Officer and
Chief Accounting Officer)
47
<PAGE>
The Pittston Company and Subsidiaries Exhibit 11
Computation of Earnings Per Common Share
(In thousands, except per share amounts)
Fully Diluted Earnings Per Common Share: (a)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
- ----------------------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
==================================================================================================================================
<S> <C> <C> <C> <C>
PITTSTON SERVICES GROUP:
Net income attributed to common shares $ 19,974 21,288 33,569 31,799
==================================================================================================================================
Average common shares outstanding 37,916 37,739 37,912 37,715
Incremental shares of stock options 323 483 353 505
- ----------------------------------------------------------------------------------------------------------------------------------
Pro forma common shares outstanding 38,239 38,222 38,265 38,220
==================================================================================================================================
Fully diluted earnings per common share: $ .52 .56 .88 .83
==================================================================================================================================
PITTSTON MINERALS GROUP:
Net income (loss) attributed to common shares $ 3,541 5,493 3,928 (69,592)
Preferred stock dividends, net 1,093 1,257 1,176 2,263
- ----------------------------------------------------------------------------------------------------------------------------------
Fully diluted net income (loss) attributed to common shares $ 4,634 6,750 5,104 (67,329)
==================================================================================================================================
Average common shares outstanding 7,811 7,577 7,764 7,565
Incremental shares of stock options 2 67 28 87
Conversion of preferred stock 2,175 2,504 2,246 2,253
- ----------------------------------------------------------------------------------------------------------------------------------
Pro forma common shares outstanding 9,988 10,148 10,038 9,905
==================================================================================================================================
Fully diluted earnings (loss) per common share: $ .45 (a) .67 .51 (9.20)(a)
==================================================================================================================================
</TABLE>
(a) 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.
Exhibit 10
As of June 1, 1995
Mr. David L. Marshall
28 Glenmoor Place
Hilton Head Island
South Carolina 29926
Dear David:
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, 1998 (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, the
Supplemental Agreement dated February 27, 1984, including
any amendments or modifications to such agreements, the
Agreement dated as of June 1, 1994 and the Amendment to the
June 1, 1994 Agreement dated as of September 16, 1994
(together, the "Prior or Existing Agreements"). As of the
effective date of the Employment Period, all such Prior or
Existing Agreements shall terminate to the extent they have
not already been terminated. It is understood that your
employment pursuant to the terms and conditions of this
Agreement shall continue notwithstanding your election as of
June 1, 1996 to retire, an Early Retirement Date under the
Pittston Pension Plan, which election you hereby confirm.
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
completion 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.
In addition, you agree, if nominated and elected, to serve
as a director of the Company.
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; provided, however, that after June 1,
1996, the number of hours that you will be
required to devote to fulfilling your obligations
under this Agreement will be fewer than forty
hours per calendar month; and
(ii) except as and to the extent that the
Chairman of the Board or his designee may
otherwise 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 for all services to be rendered by
you pursuant to Section 2 above (i) for the period ending
May 31, 1996, a salary at the rate of $150,000 per year and
(ii) thereafter a salary at the rate of $40,000 per year,
payable in equal installments no less frequently than
monthly.
(b) Eligibility for Certain Benefit Plans. In
addition to your salary, during the period ending May 31,
1996 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. On and after
June 1, 1996, you will participate in all employee benefit
plans in which you will be eligible, but only in accordance
with the terms and conditions of each such plan, subject to
the provisions of Section 3(d) below. On and after June 1,
1996, the Company will provide you with $300,000 of group
term life insurance.
(c) Supplemental Retirement Benefit. You have
been provided with a Supplemental Retirement Benefit
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 Section 3(c), the Supplemental Retirement
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.,
assuming 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 Section 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 Section 3(c) to provide a pension and the obligations
of the Company under Section 4 below shall continue in
effect notwithstanding the termination (for any reason) of
your employment with the Company and its Affiliates.
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
notwithstanding. The obligation of the Company under this
Section 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.
4. Supplemental Retirement Benefits; Change in
Control. The provisions of this Section 4 shall be
controlling, anything in the other provisions of this
Agreement to the contrary notwithstanding.
(a) In the event that a Change in Control (as
hereinafter defined in subparagraph (b) of this Section 4
shall occur or the Company's Board of Directors shall in its
discretion determine that a Change in Control is anticipated
within 90 days from the date of such determination, the
Company shall forthwith take such action as shall be
necessary or appropriate to activate the trust agreement
dated as of September 16, 1994 between the Company and The
Chase Manhattan Bank (National Association), as trustee, by
the payment in cash to the trustee under such trust
agreement of the aggregate amount which A. Foster Higgins &
Co. Inc. (or another nationally recognized firm of actuaries
selected by the Board) shall determine, on the basis of
mortality and other assumptions at the time applicable under
the Pittston Pension Plan, to be required to provide all
projected benefit obligations to you (or your beneficiary)
under Section 3(c) of this Agreement, as of the date the
Change in Control occurs or as of the date of such
determination, as the case may be. All expenses and income
and other taxes in connection with the establishment and
operation of such trust shall be paid by the Company.
(b) For purposes of this Section 4, a Change in
Control shall be deemed to occur if either (i) any person,
or any two or more persons acting as a group, and all
affiliates of such person or persons, shall own beneficially
more than 20% of the total voting power in the election of
directors of the Company of shares of all classes of Common
Stock of the Company outstanding (exclusive of shares held
by any corporation of which shares representing at least 50%
of the ordinary voting power are owned, directly or
indirectly by the Company) pursuant to a tender offer,
exchange offer or series of purchases or other acquisitions,
or any combination of those transactions, or (ii) there
shall be a change in the composition of the Company's Board
of Directors at any time within two years after any tender
offer, exchange offer, merger, consolidation, share
exchange, sale of assets or contested election, or any
combination of those transactions (a "Transaction"), so that
(i) the persons who were directors of the Company
immediately before the first such Transaction cease to
constitute a majority of the board of directors of the
corporation which shall thereafter be in control of the
companies or other entities that were parties to or
otherwise involved in such first Transaction, or (ii) the
number of persons who shall thereafter be directors of such
corporation shall be fewer than two-thirds of the number of
directors of the Company immediately prior to such first
Transaction. A Change in Control shall be deemed to take
place upon the first to occur of the events specified in the
foregoing clauses (i) and (ii).
(c) In addition to all other rights under
applicable law, you shall, from and after the date on which
a Change in Control shall occur or be anticipated as
provided in subparagraph (b) above, have the right to bring
an action to enforce the provisions of this Section 4 by
seeking injunctive relief and/or damages, and the Company
shall be obligated to pay or reimburse you to the extent
that you prevail, in whole or in substantial part, for all
reasonable expenses, including attorney's fees, in
connection with such action.
(d) The foregoing provisions of this Section 4
shall be construed liberally to the end that accrued
benefits under this Section 4 shall be assured to the
fullest extent practicable; provided, however, that nothing
in this Section 4 shall be construed in a manner that would
subject you to current taxation on establishment of the
trust.
(e) Nothing in this Section 4 shall of itself be
deemed to increase the amount of any accrued benefits to
which you shall have become entitled under Section 3(c) of
this Agreement. The establishment and activation of the
trust agreement referred to in subparagraph (a) of this
Section 4 shall not be deemed to relieve the Company of its
obligations to you under such Section 3(c) except pro tanto
to the extent that amounts in respect thereof are paid under
such trust agreement to you.
5. 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 8 or Section 9 other
than any insubstantial and inadvertent violation remedied by
you promptly after receipt of notice thereof given by the
Company.
6. 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 Sections 3(a), (b) or (e) of this agreement;
provided, however, that the Company's obligations under
Sections 3(c) and (d) shall continue notwithstanding
termination under either Section 6(a) or (b).
7. Full Settlement. Subject to full compliance
by the Company with all of its obligations under this
agreement, 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.
8. Covenant Not to Compete. You agree that
during the Employment Period and during the period ending
two 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 Section 8 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
competition 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 Section 8 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
maximum 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.
9. Confidential Information. (a) You acknowledge
that in the course of your employment you may receive, have
access to, or develop confidential or proprietary
information 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,
marketing, pricing, purchasing of transportation (ground or
air) arrangements, plans or programs, computer programs,
communication 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, communicate 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 activities 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 8 and 9 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
injunctive and other equitable relief to prevent to curtail
any breach of any such provision. If any provision of
Sections 8 or 9 shall be deemed to be invalid, illegal or
unenforceable 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 9 shall
survive the termination of this agreement.
10. 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.
11. Governing Law. This agreement shall be
governed by and construed in accordance with the substantive
and procedural law of New York without reference to
principles 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.
12. 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:
28 Glenmoor Place
Hilton Head Island
South Carolina 29926
If to the Company:
100 First Stamford Place
P. O. Box 120070
Stamford, CT 06912-0070
Attention: Chairman of the Board
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, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from The Pittston Company
Form 10-Q for the quarterly period ended June 30, 1995, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 38,921
<SECURITIES> 26,921
<RECEIVABLES> 355,528
<ALLOWANCES> 16,138
<INVENTORY> 47,586
<CURRENT-ASSETS> 586,851
<PP&E> 878,755
<DEPRECIATION> 416,125
<TOTAL-ASSETS> 1,759,666
<CURRENT-LIABILITIES> 567,036
<BONDS> 162,532
<COMMON> 50,055
0
1,399
<OTHER-SE> 419,795
<TOTAL-LIABILITY-AND-EQUITY> 1,759,666
<SALES> 379,951
<TOTAL-REVENUES> 1,410,851
<CGS> 374,800
<TOTAL-COSTS> 1,244,925
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,999
<INTEREST-EXPENSE> 6,744
<INCOME-PRETAX> 51,299
<INCOME-TAX> 12,626
<INCOME-CONTINUING> 38,673
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,673
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Pittston Services Group - Primary - .89
Pittston Minerals Group - Primary - .51
<F2>Pittston Services Group - Diluted - .89
Pittston Minerals Group - Diluted - .51
</FN>
</TABLE>
