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 March 31, 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 (Zip Code)
executive offices)
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. 41,674,875 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 May 1, 1995.
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
THE PITTSTON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<CAPTION>
Mar. 31, Dec. 31,
1995 1994
============================================================================================
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 34,003 42,318
Short-term investments, at lower of cost or market 25,241 25,162
Accounts receivable (net of estimated
amount uncollectible: 1995 - $15,763; 1994 - $15,734) 374,528 376,792
Inventories, at lower of cost or market 40,905 34,153
Prepaid expenses 36,460 27,700
Deferred income taxes 55,726 55,850
- --------------------------------------------------------------------------------------------
Total current assets 566,863 561,975
Property, plant and equipment,
at cost (net of accumulated depreciation,
depletion and amortization:
1995 - $406,430; 1994 - $394,660) 459,969 445,834
Intangibles, net of amortization 332,925 329,441
Deferred pension assets 120,375 118,953
Deferred income taxes 87,516 84,214
Other assets 182,089 197,361
- --------------------------------------------------------------------------------------------
Total assets $1,749,737 1,737,778
============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 17,184 13,323
Current maturities of long-term debt 11,401 13,748
Accounts payable 255,628 252,615
Accrued liabilities 288,156 294,784
- --------------------------------------------------------------------------------------------
Total current liabilities 572,369 574,470
Long-term debt, less current maturities 156,257 138,071
Postretirement benefits other than pensions 219,100 218,738
Workers' compensation and other claims 133,897 138,793
Deferred income taxes 21,464 19,036
Other liabilities 194,662 200,855
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 - 41,671 shares;
1994 - 41,595 shares 41,671 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 415,984 420,470
Retained earnings 118,491 107,739
Equity adjustment from foreign currency translation (19,304) (14,276)
Employee benefits trust, at market value (114,737) (117,629)
- --------------------------------------------------------------------------------------------
Total shareholders' equity 451,988 447,815
- --------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,749,737 1,737,778
============================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
THE PITTSTON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<CAPTION>
Quarter Ended
March 31
- -------------------------------------------------------------------------------------------
1995 1994
===========================================================================================
<S> <C> <C>
Net sales $195,740 176,742
Operating revenues 503,344 411,053
- -------------------------------------------------------------------------------------------
Net sales and operating revenues 699,084 587,795
- -------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 193,940 189,781
Operating expenses 429,116 346,244
Selling, general and administrative expenses 61,558 55,250
Restructuring and other charges - 90,806
- -------------------------------------------------------------------------------------------
Total costs and expenses 684,614 682,081
- -------------------------------------------------------------------------------------------
Other operating income 8,132 5,001
- -------------------------------------------------------------------------------------------
Operating profit (loss) 22,602 (89,285)
Interest income 810 656
Interest expense (3,034) (2,565)
Other income (expense), net (741) (2,335)
- -------------------------------------------------------------------------------------------
Income (loss) before income taxes 19,637 (93,529)
Provision (credit) for income taxes 5,572 (29,961)
- -------------------------------------------------------------------------------------------
Net income (loss) 14,065 (63,568)
Preferred stock dividends, net (83) (1,006)
- -------------------------------------------------------------------------------------------
Net income (loss) attributed to common shares $ 13,982 (64,574)
===========================================================================================
Pittston Services Group:
Net income attributed to common shares $ 13,595 10,511
- -------------------------------------------------------------------------------------------
Net income per common share $ .36 .28
- -------------------------------------------------------------------------------------------
Cash dividends per common share $ .05 .05
- -------------------------------------------------------------------------------------------
Pittston Minerals Group:
Net income (loss) attributed to common shares $ 387 (75,085)
- -------------------------------------------------------------------------------------------
Net income (loss) per common share $ .05 (9.96)
- -------------------------------------------------------------------------------------------
Cash dividends per common share $ .1625 .1625
- -------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
THE PITTSTON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Quarter Ended
March 31
- ------------------------------------------------------------------------------------------
1995 1994
==========================================================================================
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $14,065 (63,568)
Adjustments to reconcile net income
(loss) to net cash provided by operating activities:
Noncash charges and other write-offs - 46,826
Depreciation, depletion and amortization 25,716 23,166
Credit for deferred income taxes (1,327) (30,619)
Provision (credit) for pensions, noncurrent (711) 593
Provision for uncollectible accounts
receivable 1,030 532
Equity in earnings of unconsolidated affiliates,
net of dividends received (207) (1,437)
Other operating, net (2,444) 138
Change in operating assets and liabilities
net of effects of acquisitions and dispositions:
Decrease (increase) in accounts receivable 1,518 (16,964)
Increase in inventories (6,752) (7,662)
Increase in prepaid expenses (7,907) (3,496)
Increase (decrease) in accounts payable
and accrued liabilities (31) 23,613
Decrease (increase) in other assets (528) 3,594
Increase (decrease) in other liabilities (6,503) 18,090
Increase (decrease) in workers' compensation
and other claims, noncurrent (4,896) 15,196
Other, net (374) (192)
- -------------------------------------------------------------------------------------------
Net cash provided by operating activities 10,649 7,810
- -------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (28,526) (19,420)
Proceeds from disposal of property,
plant and equipment 4,861 443
Acquisitions, net of cash acquired,
and related contingent payments (2,410) (157,308)
Other, net 1,799 10,679
- -------------------------------------------------------------------------------------------
Net cash used by investing activities (24,276) (165,606)
- -------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 16,622 101,167
Reductions of debt (3,913) (4,855)
Repurchase of stock of the Company (5,022) (270)
Proceeds from exercise of stock options 1,949 2,927
Dividends paid (4,324) (3,703)
Proceeds from preferred stock issuance,
net of cash expenses - 77,578
Cost of Services Stock Proposal - (4)
- -------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,312 172,840
- -------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (8,315) 15,044
Cash and cash equivalents at beginning of period 42,318 32,412
- -------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $34,003 47,456
===========================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
THE PITTSTON COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
(1) 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:
First Quarter
1995 1994
----------------------------------------------------------------------
Services Stock 37,931 37,662
Minerals Stock 7,727 7,541
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 3,715
(3,846 in 1994) and 686 (763 in 1994), respectively, at March 31 1995.
(3) The amounts of depreciation, depletion and amortization of property,
plant and equipment in the first quarters of 1995 and 1994 were $19,379
and $17,356, respectively.
(4) Cash payments made for interest and income taxes (net of refunds
received) were as follows:
First Quarter
1995 1994
-----------------------------------------------------------------------
Interest $ 3,033 3,066
=======================================================================
Income taxes $ 9,827 6,947
=======================================================================
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 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 three months ended March 31, 1995 and 1994, capital lease
obligations of $2,564 and $1,204, respectively, were incurred for leases
of property, plant and equipment. In addition, during the three months
ended March 31, 1994, the Company assumed capital lease obligations of
$16,210 as part of the Addington Acquisition.
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 - As a result of the continuing
long-term decline in the metallurgical coal markets, in the first
quarter of 1994, the Coal operations accelerated its strategy of
decreasing its exposure to these markets. After a review of the economic
viability of certain metallurgical coal assets in early 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 quarter of 1995), while the remaining two mines are expected
to cease coal production during the remainder of 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 63% to approximately
275 employees at March 31, 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 three months of 1995 and 1994 by $1,124 and $1,120, respectively.
The effect of this change increased net income per common share of the
Services Group for the first three months of 1995 and 1994 by $.02.
(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 were
accrued at March 31, 1994 and have been included in the first quarter
1994 Consolidated Statement of Operations 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.
THE PITTSTON COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
<TABLE>
<CAPTION>
Quarter Ended
March 31
- ------------------------------------------------------------------------------
1995 1994
==============================================================================
Revenues: (In thousands)
<S> <C> <C>
Burlington $323,944 261,484
Brink's 149,091 123,765
BHS 30,309 25,804
Coal 191,283 173,416
Mineral Ventures 4,457 3,326
- ------------------------------------------------------------------------------
Consolidated revenues $699,084 587,795
==============================================================================
Operating profit (loss):
Burlington $ 8,058 9,010
Brink's 7,383 6,133
BHS 8,905 7,566
Coal 1,311 (107,839)
Mineral Ventures 915 (246)
- ------------------------------------------------------------------------------
Segment operating profit (loss) 26,572 (85,376)
General corporate expense (3,970) (3,909)
- ------------------------------------------------------------------------------
Consolidated operating profit (loss) $ 22,602 (89,285)
==============================================================================
</TABLE>
RESULTS OF OPERATIONS
In the first quarter of 1995, The Pittston Company (the "Company") reported
net income of $14.1 million compared with a net loss of $63.6 million in the
first quarter of 1994. Operating profit totaled $22.6 million in the first
quarter of 1995 compared to an operating loss of $89.3 million in the prior
year quarter. The operating loss and net loss in the 1994 first quarter
included charges totaling $90.8 million and $58.1 million, respectively,
attributable to the Company's Coal operations for asset writedowns and
accruals for costs related to facility shutdowns. Net income and operating
profit in the 1995 first quarter was positively impacted by improved operating
results from the Coal and Mineral Ventures operations, Brink's, Inc.
("Brink's") and Brink's Home Security, Inc. ("BHS") businesses, partially
offset by decreased operating results from Burlington Air Express
("Burlington"). The 1995 first quarter was also impacted by decreased
nonoperating expenses and higher net interest expense compared with the same
period of last year.
Burlington
- ----------
The following is a table of selected financial data for Burlington on a
comparative basis:
<TABLE>
<CAPTION>
(Dollars in thousands, Quarter Ended
except per pound/shipment amounts) March 31
- ------------------------------------------------------------------------------
1995 1994
==============================================================================
<S> <C> <C>
Revenues:
Airfreight
Domestic U.S. $130,039 123,639
International 151,676 111,368
- ------------------------------------------------------------------------------
Total airfreight 281,715 235,007
Other 42,229 26,477
- ------------------------------------------------------------------------------
Total revenues 323,944 261,484
Operating expenses 289,592 229,525
Selling, general and administrative 26,818 23,665
- ------------------------------------------------------------------------------
Total costs and expenses 316,410 253,190
- ------------------------------------------------------------------------------
Other operating income 524 716
- ------------------------------------------------------------------------------
Operating profit $ 8,058 9,010
==============================================================================
Depreciation and amortization $ 4,795 4,072
==============================================================================
Cash capital expenditures $ 7,315 5,208
==============================================================================
Airfreight shipment growth rate (a) 6.1% 6.9%
Airfreight weight growth rate (a):
Domestic U.S. 6.0% 21.2%
International 28.8% 12.2%
Worldwide 16.6% 16.8%
Worldwide airfreight weight (pounds) 321,388 275,585
==============================================================================
Worldwide airfreight shipments 1,216 1,146
==============================================================================
Worldwide average airfreight yield
(revenue per pound) $ 0.877 0.853
==============================================================================
Worldwide average airfreight revenue
per shipment $ 232 205
==============================================================================
Worldwide average airfreight weight
per shipment (pounds) 264 240
==============================================================================
(a) Compared to the same period in the prior year.
</TABLE>
Burlington reported an operating profit of $8.1 million in the 1995 first
quarter, a $.9 million decrease over the $9.0 million profit reported in the
first quarter of 1994. Worldwide revenues rose 24% to $323.9 million in the
current year quarter from $261.5 million in the prior year first quarter. A
significant portion of this increase is attributable to worldwide airfreight
revenue which increased 20%, or $46.7 million, to $281.7 million compared to
the first quarter of 1994. This increase was principally from an increase in
weight shipped in both domestic and international markets. In addition, other
revenues increased $15.8 million as a result of higher import transactions,
including customs clearance and related services.
Total weight shipped worldwide, excluding ocean forwarding, increased 17% to
321.4 million pounds in the 1995 first quarter from the 275.6 million pounds
in the same period a year earlier. Worldwide average airfreight yields
(revenue per pound) increased by 3% to $.877 from $.853 per pound. The
increase in yields is attributable to the international transactions
principally due to the positive impact on revenue caused by the weaker U.S.
dollar in the current year first quarter versus the same period last year.
Domestic airfreight revenues increased by 5% to $130 million due to a 6%
increase in weight shipped, partially offset by modest declines in domestic
yields. A significant portion of the increased volume was from increased
retail, electronics and automotive industry shipments compared to the first
quarter of 1994. The first quarter of 1994 included freight directed to
Burlington in anticipation of a nation-wide trucking strike which occurred in
April. Operating expenses increased quarter to quarter due to the increased
volume of business and the incremental costs incurred from the expansion of
lift capacity implemented in the third quarter of 1994 to fulfill customer
needs and expand market coverage during seasonally strong shipping periods.
Revenue increases from increased volume were not sufficient to completely
offset higher operating costs thereby decreasing the domestic margin per pound
shipped. Burlington's management is reviewing areas to reduce expenses,
including reconfiguring the private fleet where appropriate, in order to
maintain its margins.
International airfreight revenues increased 36% to $151.7 million primarily
from a 29% increase in weight shipped and to a lesser extent from a weaker
U.S. dollar. The increase in weight was attributable to a large extent to an
increase in U.S. exports and the addition of new foreign operations at the end
of 1994. International operating profit in the first three months of 1995
benefitted in part from the recovering foreign economies and the expansion of
Burlington's international operations. Price competition among forwarders and
transportation cost increases resulted in a decline in margin, partially
mitigating the favorable impact of the volume growth. In the 1995 first
quarter, Burlington continued to enhance its international freight forwarding
capabilities, signing new agents in eight Middle Eastern countries and
expanding its facilities in China and Hong Kong to accommodate growing volume.
Brink's
- -------
The following is a table of selected financial data for Brink's on a
comparative basis:
<TABLE>
<CAPTION>
Quarter Ended
(In thousands) March 31
- ------------------------------------------------------------------------------
1995 1994
==============================================================================
<S> <C> <C>
Revenues $149,091 123,765
Operating expenses 123,210 102,810
Selling, general and administrative 18,983 16,154
- ------------------------------------------------------------------------------
Total costs and expenses 142,193 118,964
- ------------------------------------------------------------------------------
Other operating income 485 1,332
- ------------------------------------------------------------------------------
Operating profit $ 7,383 6,133
==============================================================================
Depreciation and amortization $ 5,156 5,012
==============================================================================
Cash capital expenditures $ 5,791 2,995
==============================================================================
Revenues:
North America (United States and Canada) $ 88,430 79,485
International subsidiaries 60,661 44,280
- ------------------------------------------------------------------------------
Total revenues $149,091 123,765
==============================================================================
Operating profit:
North America (United States and Canada) $ 5,516 4,204
International operations 1,867 1,929
- ------------------------------------------------------------------------------
Total operating profit $ 7,383 6,133
==============================================================================
</TABLE>
Brink's operating profit increased $1.3 million, or 20%, to $7.4 million in
the first quarter of 1995 from $6.1 million in the first quarter of 1994 with
an increase in revenues of $25.3 million, or 20%, to $149.1 million, partially
offset by increases in operating expenses and selling, general and
administrative expenses of $23.2 million and a decrease in other operating
income of $.8 million. Both operating expenses and selling, general and
administrative expenses have decreased as a percentage of revenue in the first
quarter of 1995 compared to the 1994 first quarter.
Revenues from North American operations ( United States and Canada) increased
$8.9 million or 11% in the first quarter of 1995 to $88.4 million when
compared to the first quarter of 1994. The increase was largely from armored
car, coin wrapping and currency processing operations. North American
operating profits increased by $1.3 million or 31% to $5.5 million in the 1995
first quarter compared with the same period last year. The increase in
operating profit for North American operations was largely attributable to
North American armored car which includes ATM servicing, and to a lesser
extent, diamond and jewelry, coin wrapping and currency processing businesses,
partially offset by a decrease in the air courier operations.
Revenues from international subsidiaries increased $16.4 million or 37% in the
first quarter of 1995 to $60.7 million when compared to the first year quarter
of 1994 primarily reflecting improved business conditions in Brazil as well as
the favorable impact of foreign currency rate fluctuations. International
subsidiaries and affiliates contributed $1.9 million to operating profit in
both periods. Higher operating profits in Latin America were more than offset
by a decline in operating results in Europe and Mexico. Equity in earnings
of foreign affiliates, which is included in other operating income, decreased
$1.1 million. Brink's share of results of its Mexican affiliate, in which
Brink's has a 20% equity interest, decreased to a loss of $.4 million in the
first quarter of 1995 from income of $.5 million in the 1994 first quarter.
The 1995 results were adversely impacted by the recession in the local
economy, which followed the dramatic devaluation of the peso in December 1994,
accompanied by very high interest rates. Brink's Brazil, a wholly-owned
subsidiary, reported operating income of $.9 million in 1995 first quarter
compared with an operating loss of $.6 million in the prior year first
quarter. The 1994 first quarter loss reflected the costs of extra security
measures made necessary by the significant increase in attacks on the armored
car industry in Brazil as well as the industry-wide strike in Rio de Janeiro.
BHS
- ---
The following is a table of selected financial data for BHS on a comparative
basis:
<TABLE>
<CAPTION>
Quarter Ended
(Dollars in thousands) March 31
- ------------------------------------------------------------------------------
1995 1994
==============================================================================
<S> <C> <C>
Revenues $ 30,309 25,804
Operating expenses 16,314 13,909
Selling, general and administrative 5,090 4,329
- ------------------------------------------------------------------------------
Total costs and expenses 21,404 18,238
- ------------------------------------------------------------------------------
Operating profit $ 8,905 7,566
==============================================================================
Depreciation and amortization $ 5,089 3,833
==============================================================================
Cash capital expenditures $ 9,927 8,539
==============================================================================
Annualized service revenues (a) $ 91,034 73,426
==============================================================================
Number of subscribers:
Beginning of period 318,029 259,551
Installations 19,072 19,686
Disconnects, net (4,667) (3,364)
- ------------------------------------------------------------------------------
End of period 332,434 275,873
==============================================================================
</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 for monitoring, maintenance and related services.
Operating profit of BHS increased $1.3 million or 18% to $8.9 million in the
first quarter of 1995 from $7.6 million in the prior year quarter. The
operating profit increase was primarily due to a 23% increase in service
revenues, partially offset by increased installation expenses and servicing
and overhead costs. The increase in the service revenues reflects a 21%
higher average subscriber base in the first quarter of 1995 compared with the
first quarter of 1994. Net new subscribers totaled 14,400 in the first
quarter of 1995 compared with 16,300 in the first quarter of 1994.
Subscribers at March 31, 1995 totaled 332,400.
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. Because 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 highly inflationary economies.
Additionally, the Company is subject to other risks customarily associated
with doing business in foreign countries, including economic conditions,
controls on repatriation of earnings and capital, nationalization,
expropriation and other forms of restrictive action by local governments. The
future effects, if any, of such risks on the Company cannot be predicted.
Coal
- ----
The following is a table of selected financial data for the Coal operations on
a comparative basis:
<TABLE>
<CAPTION>
Quarter Ended
(In thousands) March 31
- ------------------------------------------------------------------------------
1995 1994
==============================================================================
<S> <C> <C>
Net sales $191,283 173,416
Cost of sales 190,967 187,274
Selling, general and administrative expenses 6,080 6,221
Restructuring and other charges - 90,806
- ------------------------------------------------------------------------------
Total costs and expenses 197,047 284,301
- ------------------------------------------------------------------------------
Other operating income 7,075 3,046
- ------------------------------------------------------------------------------
Operating profit (loss) $ 1,311 (107,839)
==============================================================================
Coal sales (tons):
Metallurgical 2,389 2,461
Utility and industrial 4,503 3,608
- ------------------------------------------------------------------------------
Total coal sales 6,892 6,069
==============================================================================
Production/purchased (tons)
Deep 1,057 1,448
Surface 3,853 3,073
Contract 533 483
- ------------------------------------------------------------------------------
5,443 5,004
Purchased 1,737 1,373
- ------------------------------------------------------------------------------
Total 7,180 6,377
==============================================================================
</TABLE>
OPERATIONS - Coal operations had an operating profit totaling $1.3 million in
the first quarter of 1995 compared with an operating loss of $107.8 million in
the 1994 first quarter. The 1995 first quarter operating profit included a
pretax gain of $3.0 million from the disposition of surplus coal reserves.
The 1994 first quarter 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 quarter related to those facilities.
Sales volume of 6.9 million tons for the 1995 first quarter was 14% or .8
million tons greater than sales volume in the 1994 first quarter. The
increased sales were attributable to steam coal with sales of 4.5 million tons
(65% of total sales) up from 3.6 million tons (59% of total sales) in the
first quarter of 1994 while metallurgical coal sales decreased 3% from 2.5
million tons to 2.4 million tons. Coal produced (5.5 million tons) and
purchased (1.7 million tons) totaled 7.2 million tons for the 1995 first
quarter, a 13% or .8 million ton increase over the 1994 first quarter.
In the 1995 first quarter, 28% of total production was derived from
underground mines compared with 38% in the first quarter of 1994. The decrease
in underground mine production is the result of the decision made in the 1994
first quarter to close four underground mines. Coal production derived from
surface mines was 72% in the first quarter of 1995 compared with 62% in the
first quarter of 1994.
Coal margin (realization less current production costs of coal sold), of $6.6
million or $.96 per ton for the first quarter of 1995, increased $12.4 million
or $1.91 per ton from the prior year first quarter. This was caused by a 3%
or $.77 per ton decrease in average realization to $27.68 per ton more than
offset by a 9% or $2.68 per ton decrease in average current production costs
of coal sold to $26.72 per ton. The higher percentage of steam coal sales and
declines in export metallurgical coal prices contributed to the decline in
average realization. Average current production costs of coal sold was
unusually high in the first quarter of 1994 primarily due to adverse weather
conditions, which significantly reduced planned production, and unusually high
costs incurred at mines which were in the process of being closed.
In early 1995, domestic steam coal markets weakened significantly. Spot
prices of virtually all coal qualities have declined significantly,
principally due to the mild winter which reduced the utility coal burn and
allowed increased coal production, which together increased inventories. Coal
operations is responding to the weak market conditions by curtailing
production at two surface mines. While the weak market has adversely affected
certain of the Company's coal operations, the impact is projected to be
moderated by the 85% of 1995 steam coal production expected to be sold under
long-term contracts.
Coal operations has 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 will generally be effective beginning in the second quarter of
1995 but will be partially offset by higher costs of purchased coal.
Coal operations continued to incur higher than expected costs at several mines
during the quarter, thereby increasing the average cost of coal mined. While
the categories of unfavorable costs varied from mine to mine, they generally
reflected adverse geological conditions, additional washing and trucking
costs, and in some cases, higher labor and equipment costs. Several
remediation efforts have been undertaken, including the planned closure of two
surface mines in Virginia. In addition, after higher than planned mining
costs in the first quarter and a modified mine plan, a surface mine in West
Virginia has been reconfigured to produce more efficiently once the spot steam
coal market improves.
Excluding the sale of surplus coal reserves, Coal operations incurred an
operating loss of $1.7 million in the first quarter of 1995. As part of its
strategy to return to positive operating earnings, management has reorganized
Coal operations into four functional units defined by production and
geographic area. Each of these units will be responsible for optimizing the
mix of sales and production opportunities within its area of responsibility.
In addition, 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. As discussed previously, Coal operations has
targeted two surface mines for closure and the idling of a third mine. All of
these strategies are being implemented with the objective to achieve positive
operating profit on a sustainable basis for the long-term.
RESTRUCTURING AND OTHER CHARGES - As a result of the continuing long-term
decline of the metallurgical coal markets, in the first quarter 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
in contractually or statutorily required employee severance and other benefit
costs associated with termination of employees at these facilities and costs
associated with inactive employees at these facilities. Such employee benefits
include severance payments, medical insurance, workers compensation and other
benefits and have been calculated in accordance with contractually (collective
bargaining agreements signed by certain coal subsidiaries included in the Coal
operations) and legally required employee severance and other benefits.
Of the four underground mines, two have ceased coal production (one in the
first quarter of 1995), while the remaining two mines are expected to cease
coal production during the remainder of 1995. In 1994 the 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 63% to approximately 275 employees at March 31, 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) 424 2,451 2,418 5,293
- -----------------------------------------------------------------------------
Balance as of March
31, 1995 $ 3,363 35,805 40,954 80,122
=============================================================================
</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 quarter of 1995 included $2,567 related to pre-
1994 liabilities and $2,726 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 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.
The first quarter of 1995 includes $.4 million of losses which were incurred
in connection with closed facilities and other idled property and equipment.
Mineral Ventures
- ----------------
The following is a table of selected financial data for the Mineral Ventures
on a comparative basis:
<TABLE>
<CAPTION>
Quarter Ended
(Dollars in thousands, except ounce data) March 31
- ------------------------------------------------------------------------------
1995 1994
==============================================================================
<S> <C> <C>
Net sales $ 4,457 3,326
Cost of sales 2,973 2,507
Selling, general and administrative costs 617 972
- ------------------------------------------------------------------------------
Total costs and expenses 3,590 3,479
Other operating income (expense) 48 (93)
- ------------------------------------------------------------------------------
Operating profit (loss) $ 915 (246)
==============================================================================
Stawell Gold Mine:
PMV's 50% direct share ounces sold 10,846 8,700
Average realized gold price per ounce (US$) $ 400 391
</TABLE>
Operating profit of Mineral Ventures increased $1.1 million in the 1995 first
quarter to $.9 million compared to an operating loss of $.2 million in the
prior year first quarter. The increase in operating profit principally
reflects increased production levels at the Stawell gold mine. The operating
loss in the first quarter of 1994 was the result of a production shortfall at
the Stawell mine, largely due to an operator accident during the 1994 first
quarter, which also contributed to higher operating costs for the period. The
Stawell gold mine, in which Mineral Ventures has a 67% net equity interest,
produced 21,197 ounces in the 1995 first quarter compared with 16,855 ounces
in the comparable 1994 period. Joint ventures in which Mineral Ventures also
has 67% net equity interests continued gold exploration in Nevada and
Australia during the 1995 first quarter.
Other Operating Income
- ----------------------
Other operating income principally includes the Company's share of net income
of unconsolidated affiliates, which are substantially attributable to equity
affiliates of Brink's, royalty income and gains and losses from sales of coal
assets. Other operating income for the first quarter of 1995 increased $3.1
million to $8.1 million from $5.0 million in the year earlier quarter. The
decrease in equity in earnings of unconsolidated affiliates was more that
offset by the gain on the disposition of surplus coal reserves.
Interest Expense
- ----------------
Interest expense for the first quarter of 1995 increased by $.4 million or 18%
to $3.0 million from $2.6 million in the first quarter of 1994. The increase
in interest expense is due to higher interest rates on higher average
outstanding debt balances.
Other Income (Expense), Net
- ---------------------------
Other net expense for the first quarter of 1995 decreased $1.6 million to a
net expense of $.7 million from $2.3 million in the first quarter of 1994.
The 1994 first quarter included expenses of $1.2 million recognized on the
Company's redemption of its 9.2% Convertible Subordinated Debentures.
FINANCIAL CONDITION
Cash Provided by Operating Activities
- -------------------------------------
Cash provided by operating activities during the first three months of 1995
totaled $10.6 million compared with $7.8 million in the first three months of
1994. Cash provided by operating activities in the first quarter of 1994 was
negatively impacted by the integration of operating activities of Addington
which required cash to finance working capital needs since acquisition. While
net income, noncash charges and changes in operating assets and liabilities in
the 1994 first quarter were significantly affected by the restructuring and
other charges recorded in the first quarter of 1994, they had no effect on
cash generated by operations. Of the total $90.8 million of 1994 first
quarter pretax charges, $46.5 million was for noncash writedowns of assets and
the remainder represented liabilities, which are expected to be paid over the
next several years. Cash flow from operating activities was negatively
impacted in the first quarter of 1995 as a result of additional working
capital required 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 three months of 1995 totaled $28.5
million. Of that amount, $9.9 million was spent by BHS, $7.3 million was
spent by Burlington, $5.8 million was spent by Brink's, $4.7 million was spent
by Coal and $.5 million was spent by Mineral Ventures. Expenditures incurred
by BHS in the 1995 first quarter were primarily for customer installations,
representing the expansion in the subscriber base. For the remainder of 1995,
capital expenditures are estimated to approximate $130 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.
Other Investing Activities
- --------------------------
All other investing activities in the 1995 first quarter provided cash of $4.2
million which primarily relates to proceeds from disposals 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 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 five-year term loan, which
matures in March 1999. The Facility also permits additional borrowing,
repayments and reborrowings of up to an aggregate of $250 million until March
1999. As of March 31, 1995, borrowings of $100 million were outstanding under
the five-year term loan portion of the Facility with $22 million additional
borrowings outstanding under the remainder of the facility.
Debt
- ----
Outstanding debt, including borrowing under revolving credit agreements,
aggregated $184.8 million at March 31, 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 preferred shares and dividend
payments, resulting in additional borrowing under the Company's revolving
credit agreements.
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
convertible preferred stock pays an annual cumulative dividend of $31.25 per
share payable quarterly, in cash, in arrears, out of all funds of the Company
legally available therefor, when, as and if declared by the Board of Directors
of the Company, 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 1994, the Board of Directors of the Company (the "Board") authorized the
repurchase from time to time of up to $15 million of the new series of
cumulative convertible preferred stock. As of March 31, 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 quarter 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 March 31, 1995, a total of 256,100 shares ($6.2 million) of
Services Stock and 38,500 shares ($.8 million) of Minerals Stock had been
acquired pursuant to the authorization. No shares of Services or Minerals
Stock were repurchased in the first quarter 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 March 31, 1995, the
Available Minerals Dividend Amount was at least $18.9 million.
During the 1995 and 1994 first quarters, the Board declared and paid cash
dividends of 5 cents per share of Services Stock and 16.25 cents per share of
Minerals Stock. Dividends paid on the cumulative convertible preferred stock
in the 1995 and 1994 first quarter totaled $1.2 million and $.6 million,
respectively. The Company's repurchase of its cumulative convertible
preferred stock in the 1995 first quarter was at less than issue cost, which
resulted in a $1.0 million reduction in reported preferred stock dividends.
<TABLE>
PITTSTON SERVICES GROUP
BALANCE SHEETS
(In thousands)
<CAPTION>
Mar. 31, Dec. 31,
1995 1994
============================================================================================
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 31,860 38,610
Short-term investments, at lower of cost or market 1,228 2,041
Accounts receivable (net of estimated
amount uncollectible:
1995 - $13,947; 1994 - $13,854) 275,794 267,869
Receivable - Pittston Minerals Group 34,278 32,170
Inventories, at lower of cost or market 4,024 4,006
Prepaid expenses 22,900 16,311
Deferred income taxes 25,089 25,325
- --------------------------------------------------------------------------------------------
Total current assets 395,173 386,332
Property, plant and equipment, at cost (net of
accumulated depreciation and amortization:
1995 - $244,116; 1994 - $234,722) 245,359 225,372
Intangibles, net of amortization 213,050 208,792
Deferred pension assets 43,695 43,150
Deferred income taxes 1,541 1,323
Other assets 62,700 75,707
- --------------------------------------------------------------------------------------------
Total assets $ 961,518 940,676
============================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings $17,184 13,323
Current maturities of long-term debt 6,197 6,194
Accounts payable 182,981 175,844
Accrued liabilities 129,579 137,555
- --------------------------------------------------------------------------------------------
Total current liabilities 335,941 332,916
Long-term debt, less current maturities 55,756 49,896
Postretirement benefits other than pensions 5,750 5,761
Workers' compensation and other claims 9,861 9,929
Deferred income taxes 34,869 34,090
Payable - Pittston Minerals Group 23,827 23,186
Other liabilities 28,939 28,487
Shareholder's equity 466,575 456,411
- --------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 961,518 940,676
============================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
PITTSTON SERVICES GROUP
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Quarter Ended
March 31
- --------------------------------------------------------------------------------------------
1995 1994
============================================================================================
<S> <C> <C>
Operating revenues $503,344 411,053
- --------------------------------------------------------------------------------------------
Cost and expenses:
Operating expenses 429,116 346,244
Selling, general and administrative expenses 53,144 46,363
- --------------------------------------------------------------------------------------------
Total costs and expenses 482,260 392,607
- --------------------------------------------------------------------------------------------
Other operating income 1,009 2,048
- --------------------------------------------------------------------------------------------
Operating profit 22,093 20,494
Interest income 1,517 622
Interest expense (1,500) (1,769)
Other income (expense), net (530) (2,116)
- --------------------------------------------------------------------------------------------
Income before income taxes 21,580 17,231
Provision for income taxes 7,985 6,720
- --------------------------------------------------------------------------------------------
Net income $ 13,595 10,511
============================================================================================
Per common share:
Net income $ .36 .28
============================================================================================
Cash dividends $ .05 .05
============================================================================================
Average shares outstanding 37,931 37,662
============================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
PITTSTON SERVICES GROUP
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Quarter Ended
March 31
- --------------------------------------------------------------------------------------------
1995 1994
============================================================================================
<S> <C> <C>
Cash flows from operating activities:
Net income $13,595 10,511
Adjustments to reconcile net income to net
cash provided by operating activities:
Noncash charges and other write-offs - 339
Depreciation and amortization 15,096 12,973
Provision for deferred income taxes 406 276
Provision for pensions, noncurrent 165 1,008
Provision for uncollectible accounts receivable 1,018 502
Equity in earnings of unconsolidated affiliates,
net of dividends received (159) (1,530)
Other operating, net 431 301
Change in operating assets and liabilities:
Increase in accounts receivable (8,943) (2,076)
Increase in inventories (18) (866)
Increase in prepaid expenses (6,589) (266)
Increase in accounts payable and accrued liabilities 652 7,928
Decrease (increase) in other assets (1,119) 3,231
Increase (decrease) in other liabilities 589 (1,619)
Other, net (431) (114)
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities 14,693 30,598
- --------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (23,141) (16,754)
Property, plant and equipment pending lease financing - 2,047
Proceeds from disposal of property, plant and equipment 1,514 267
Acquisitions, net of cash acquired,
and related contingent payments (1,688) (63)
Other, net 2,125 2,079
- --------------------------------------------------------------------------------------------
Net cash used by investing activities (21,190) (12,424)
- --------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 4,022 24,601
Reductions of debt (1,315) (4,327)
Payment from (to) - Minerals Group (2,108) (23,672)
Proceeds from exercise of stock options 1,033 2,151
Dividends paid (1,885) (1,887)
Proceeds from sale of stock to Minerals Group - 74
Cost of Services Stock Proposal - (2)
- --------------------------------------------------------------------------------------------
Net cash used by financing activities (253) (3,062)
- --------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (6,750) 15,112
Cash and cash equivalents at beginning of period 38,610 30,271
- --------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $31,860 45,383
============================================================================================
See accompanying notes to financial statements.
</TABLE>
<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 Services Group and the BHS segment for
the first three months of 1995 and 1994 by $1,124 and $1,120,
respectively. The effect of this change increased net income per common
share of the Services Group for the first three months of 1995 and 1994
by $.02.
(3) The amounts of depreciation and amortization of property, plant and
equipment in the first quarter 1995 and 1994 totaled $13,114 and
$10,724, respectively.
(4) Cash payments made for interest and income taxes (net of refunds
received) were as follows:
First Quarter
1995 1994
-----------------------------------------------------------------------
Interest $ 1,693 2,453
=======================================================================
Income taxes $ 9,116 6,833
=======================================================================
During the three month periods ended March 31, 1995 and 1994, capital
lease obligations of $2,564 and $925, 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 Subordinate 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 were accrued at March 31,
1994 and have been included in the Services Group Statement of
Operations under the caption "Other income (expense), net.
(6) Certain prior period amounts have been reclassified to conform to
current period financial statement presentation.
(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.
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 a reasonable and 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.
<TABLE>
SEGMENT INFORMATION
(In thousands of dollars)
<CAPTION>
Quarter Ended
March 31
- ------------------------------------------------------------------------------
1995 1994
==============================================================================
<S> <C> <C>
Revenues:
Burlington $323,944 261,484
Brink's 149,091 123,765
BHS 30,309 25,804
- ------------------------------------------------------------------------------
Revenues $503,344 411,053
==============================================================================
Operating profit:
Burlington $ 8,058 9,010
Brink's 7,383 6,133
BHS 8,905 7,566
- ------------------------------------------------------------------------------
Segment operating profit 24,346 22,709
General corporate expense (2,253) (2,215)
- ------------------------------------------------------------------------------
Operating profit $ 22,093 20,494
==============================================================================
</TABLE>
RESULTS OF OPERATIONS
Net income totaled $13.5 million in the first quarter of 1995 compared with
$10.5 million in the first quarter of 1994. Operating profit for the 1995
first quarter increased to $22.1 million from $20.5 million in the first
quarter of 1994. The increase in net income and operating profit for the 1995
first quarter compared with the same period of 1994 was largely attributable
to improved operating earnings for Brink's and BHS businesses, partially
offset by decreased operating results of Burlington. Revenues for the 1995
first quarter increased $92.3 million or 22% compared with the 1994 first
quarter, of which $62.5 million was from Burlington, $25.3 million was from
Brink's and $4.5 million was from BHS. Operating expenses and selling general
and administrative expenses for the 1995 first quarter increased $89.7 million
or 23% compared with the same period last year, of which $63.2 million was
from Burlington, $23.2 million was from Brink's and $3.2 million was from BHS.
Burlington
- ----------
The following is a table of selected financial data for Burlington on a
comparative basis:
<TABLE>
<CAPTION>
(Dollars in thousands, Quarter Ended
except per pound/shipment amounts) March 31
- ------------------------------------------------------------------------------
1995 1994
==============================================================================
<S> <C> <C>
Revenues:
Airfreight
Domestic U.S. $130,039 123,639
International 151,676 111,368
- ------------------------------------------------------------------------------
Total airfreight 281,715 235,007
Other 42,229 26,477
- ------------------------------------------------------------------------------
Total revenues 323,944 261,484
Operating expenses 289,592 229,525
Selling, general and administrative 26,818 23,665
- ------------------------------------------------------------------------------
Total costs and expenses 316,410 253,190
- ------------------------------------------------------------------------------
Other operating income 524 716
- ------------------------------------------------------------------------------
Operating profit $ 8,058 9,010
==============================================================================
Depreciation and amortization $ 4,795 4,072
==============================================================================
Cash capital expenditures $ 7,315 5,208
==============================================================================
Airfreight shipment growth rate (a) 6.1% 6.9%
Airfreight weight growth rate (a):
Domestic U.S. 6.0% 21.2%
International 28.8% 12.2%
Worldwide 16.6% 16.8%
Worldwide airfreight weight (pounds) 321,388 275,585
==============================================================================
Worldwide airfreight shipments 1,216 1,146
==============================================================================
Worldwide average airfreight yield
(revenue per pound) $ 0.877 0.853
==============================================================================
Worldwide average airfreight
revenue per shipment $ 232 205
==============================================================================
Worldwide average airfreight weight
per shipment (pounds) 264 240
==============================================================================
(a) Compared to the same period in the prior year.
</TABLE>
Burlington reported an operating profit of $8.1 million in the 1995 first
quarter, a $.9 million decrease over the $9.0 million profit reported in the
first quarter of 1994. Worldwide revenues rose 24% to $323.9 million in the
current year quarter from $261.5 million in the prior year first quarter. A
significant portion of this increase is attributable to worldwide airfreight
revenue which increased 20%, or $46.7 million, to $281.7 million compared to
the first quarter of 1994. This increase was principally from an increase in
weight shipped in both domestic and international markets. In addition, other
revenues increased $15.8 million as a result of higher import transactions,
including custom clearance and related services.
Total weight shipped worldwide, excluding ocean forwarding, increased 17% to
321.4 million pounds in the 1995 first quarter from the 275.6 million pounds
in the same period a year earlier. Worldwide average airfreight yields
(revenue per pound) increased by 3% to $.877 from $.853 per pound. The
increase in yields is attributable to the international transactions
principally due to the positive impact on revenue caused by the weaker U.S.
dollar in the current year first quarter versus the same period last year.
Domestic airfreight revenues increased 5% to $130 million due to a 6%
increase in weight shipped, partially offset by modest declines in domestic
yields. A significant portion of the increased volume was from increased
retail, electronics and automotive industry shipments compared to the first
quarter of 1994. The first quarter of 1994 included freight directed to
Burlington in anticipation of a nation-wide trucking strike which occurred in
April. Operating expenses increased quarter to quarter due to the increased
volume of business and the incremental costs incurred from the expansion of
lift capacity implemented in the third quarter of 1994 to fulfill customer
needs and expand market coverage during seasonally strong shipping periods.
Revenue increases from increased volume were not sufficient to completely
offset higher operating costs thereby decreasing the domestic margin per pound
shipped. Burlington's management is reviewing areas to reduce expenses,
including reconfiguring the private fleet where appropriate in order to
maintain its margins.
International airfreight revenues increased 36% to $151.7 million primarily
from a 29% increase in weight shipped and to a lesser extent from a weaker
U.S. dollar. The increase in weight was attributable to an increase in U.S.
exports and the addition of new foreign operations at the end of 1994.
International operating profit in the first three months of 1995 benefitted in
part from the recovering foreign economies and the expansion of Burlington's
international operations. Price competition among forwarders and
transportation cost increases resulted in a decline in margin, partially
mitigating the favorable impact of the volume growth. In the 1995 first
quarter, Burlington continued to enhance its international freight forwarding
capabilities, signing new agents in eight Middle Eastern countries and
expanding its facilities in China and Hong Kong to accommodate growing volume.
Brink's
- -------
The following is a table of selected financial data for Brink's on a
comparative basis:
<TABLE>
<CAPTION>
Quarter Ended
(In thousands) March 31
- ------------------------------------------------------------------------------
1995 1994
==============================================================================
<S> <C> <C>
Revenues $149,091 123,765
Operating expenses 123,210 102,810
Selling, general and administrative 18,983 16,154
- ------------------------------------------------------------------------------
Total costs and expenses 142,193 118,964
- ------------------------------------------------------------------------------
Other operating income 485 1,332
- ------------------------------------------------------------------------------
Operating profit $ 7,383 6,133
==============================================================================
Depreciation and amortization $ 5,156 5,012
==============================================================================
Cash capital expenditures $ 5,791 2,995
==============================================================================
Revenues:
North America (United States and Canada) $ 88,430 79,485
International subsidiaries 60,661 44,280
- ------------------------------------------------------------------------------
Total revenues $149,091 123,765
==============================================================================
Operating profit:
North America (United States and Canada) $ 5,516 4,204
International operations 1,867 1,929
- ------------------------------------------------------------------------------
Total operating profit $ 7,383 6,133
==============================================================================
</TABLE>
Brink's operating profit increased $1.3 million, or 20%, to $7.4 million in
the first quarter of 1995 from $6.1 million in the first quarter of 1994 with
an increase in revenues of $25.3 million, or 20%, to $149.1 million, partially
offset by increases in operating expenses and selling, general and
administrative expenses of $23.2 million and a decrease in other operating
income of $.8 million. Both operating expenses and selling, general and
administrative expenses have decreased as a percentage of revenue in the first
quarter of 1995 compared to the 1994 first quarter.
Revenues from North American operations (United States and Canada) increased
$8.9 million or 11% in the first quarter of 1995 to $88.4 million when
compared to the first quarter of 1994. The increase was largely from armored
car, coin wrapping and currency processing operations. North American
operating profits increased by $1.3 million or 31% to $5.5 million in 1995
first quarter compared with the same period last year. The increase in
operating profit for North American operations was largely attributable to
North American armored car which includes ATM servicing, and to a lesser
extent, diamond and jewelry, coin wrapping and currency processing businesses,
partially offset by a decrease in the air courier operations.
Revenues from international subsidiaries increased $16.4 million or 37% in the
first quarter of 1995 to $60.7 million when compared to the first year quarter
of 1994 primarily reflecting improved business conditions in Brazil as well as
the favorable impact of foreign currency rate fluctuations. International
subsidiaries and affiliates contributed $1.9 million to operating profit in
both periods. Higher operating profits in Latin America were more than offset
by a decline in operating results in Europe and Mexico. Equity in earnings
of foreign affiliates, which is included in other operating income, decreased
$1.1 million. Brink's share of results of its Mexican affiliate, in which
Brink's has a 20% equity interest, decreased to a loss of $.4 million in the
first quarter of 1995 from income of $.5 million in the 1994 first quarter.
The 1995 results were adversely impacted by the recession in the local
economy, which followed the dramatic devaluation of the peso in December 1994,
accompanied by very high interest rates. Brink's Brazil, a wholly-owned
subsidiary, reported operating income of $.9 million in the 1995 first quarter
compared with an operating loss of $.6 million in the prior year first
quarter. The 1994 first quarter loss reflected the costs of extra security
measures made necessary by the significant increase in attacks on the armored
car industry in Brazil as well as the industry-wide strike in Rio de Janeiro.
BHS
- ---
The following is a table of selected financial data for BHS on a comparative
basis:
<TABLE>
<CAPTION>
Quarter Ended
(Dollars in thousands) March 31
- ------------------------------------------------------------------------------
1995 1994
==============================================================================
<S> <C> <C>
Revenues $ 30,309 25,804
Operating expenses 16,314 13,909
Selling, general and administrative 5,090 4,329
- ------------------------------------------------------------------------------
Total costs and expenses 21,404 18,238
- ------------------------------------------------------------------------------
Operating profit $ 8,905 7,566
==============================================================================
Depreciation and amortization $ 5,089 3,833
==============================================================================
Cash capital expenditures $ 9,927 8,539
==============================================================================
Annualized service revenues (a) $ 91,034 73,426
==============================================================================
Number of subscribers:
Beginning of period 318,029 259,551
Installations 19,072 19,686
Disconnects, net (4,667) (3,364)
- ------------------------------------------------------------------------------
End of period 332,434 275,873
==============================================================================
</TABLE>
(a) Annualized service revenue is calculated based on the number of
subscribers at period end multiplied by the average service fee per subscriber
received in the last month for monitoring, maintenance and related services.
Operating profit of BHS increased $1.3 million or 18% to $8.9 million in the
first quarter of 1995 from $7.6 million in the prior year quarter. The
operating profit increase was primarily due to a 23% increase in service
revenues, partially offset by increased installation expenses and servicing
and overhead costs. The increase in the service revenues reflects a 21%
higher average subscriber base in the first quarter of 1995 compared with the
first quarter of 1994. Net new subscribers totaled 14,400 in the first
quarter of 1995 compared with 16,300 in the first quarter of 1994.
Subscribers at March 31, 1995 totaled 332,400.
Foreign Operations
- ------------------
A portion of the Services Group's financial results is derived from activities
in several foreign countries, each with a local currency other than the U.S.
dollar. Because the financial results of the Services Group are reported in
U.S. dollars, they are affected by the changes in the value of the various
foreign currencies in relation to the U.S. dollar. The Services Group's
international activity is not concentrated in any single currency, which
limits the risks of foreign rate fluctuations. In addition, foreign currency
rate fluctuations may adversely affect transactions which are denominated in
currencies other than the functional currency. The Services Group routinely
enters into such transactions in the normal course of its business. Although
the diversity of its foreign operations limits the risks associated with such
transactions, the Company, on behalf of the Services Group, uses foreign
exchange forward contracts to hedge the risks associated with certain
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 highly inflationary economies.
Additionally, the Services Group is subject to other risks customarily
associated with doing business in foreign countries, including economic
conditions, controls on repatriation of earnings and capital, nationalization,
expropriation and other forms of restrictive action by local governments. The
future effects, if any, of such risks on the Services Group cannot be
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 $2.3 million and $2.2 million for the first
quarter of 1995 and 1994, respectively.
Other Operating Income
- ----------------------
Other operating income decreased $1 million to $1 million in the 1995 first
quarter from $2 million in the 1994 first quarter. 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
$.5 million and $1.6 million for the first quarter of 1995 and 1994,
respectively.
Interest Expense
- ----------------
Interest expense for the first quarter of 1995 decreased by $.3 million to
$1.5 million from $1.8 million in the first quarter of 1994. The decrease in
the 1995 first quarter is due to the retirement in April 1994 of the 9.2%
Convertible Subordinated Debentures and lower average debt balances.
Other Income (Expense), Net
- ---------------------------
Other net expense for the first quarter of 1995 decreased by $1.6 million to a
net expense of $.5 million from $2.1 million in the first quarter of 1994.
This first quarter of 1994 included expenses of $1.2 million recognized on the
Company's redemption of its 9.2% Convertible Subordinated Debentures, which
were attributed to the Services Group.
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 Operating Activities
- -------------------------------------
Cash flow from operating activities amounted to $14.7 million in the 1995
first quarter, representing a $15.9 million decline from the prior year
period. The unfavorable change in cash flow principally occurred, despite
higher net income and noncash charges, 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 quarter of 1995 totaled $23.1 million,
excluding equipment expenditures that have been or are expected to be financed
through capital and operating leases, and any acquisition expenditures. Of
that amount, $9.9 million was spent by BHS, $7.3 million was made by
Burlington, $5.8 million was made by Brink's. Expenditures incurred by BHS in
the 1995 first quarter were primarily for customer installations, representing
the expansion in the subscriber base. For the remainder of 1995, capital
expenditures excluding expenditures that have been or are expected to be
financed through capital and operating leases as well as acquisition
expenditures, are estimated to approximate $110 million. 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 and capital leases if the latter are
financially attractive. Shortfalls, if any, will be financed through the
Company's revolving credit agreements or short-term borrowing arrangements or
borrowings from the Minerals Group. The Company has a $350 million revolving
credit agreement with a syndicate of banks (the "Facility"). The Facility
includes a $100 million five-year term loan, which matures in March 1999. The
Facility also permits additional borrowings, repayments and reborrowings of up
to an aggregate of $250 million until March 1999. Of the total amount
outstanding under the Facility at March 31, 1995 $23.4 million was attributed
to the Services Group.
Debt
- ----
Outstanding debt totalled $79.1 million up $9.7 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 March 31, 1995.
On April 15, 1994, the Company redeemed all outstanding 9.2% Convertible
Subordinated Debentures due July 1, 2004. Such debt had been attributed to
the Services Group. The principal amount outstanding was $27.8 million and
the premium paid to call the debt totaled $.8 million. The Company used cash
provided under its revolving credit agreements to redeem the debentures. The
premium paid in addition to other charges related to the redemption were
accrued at March 31, 1994 and were included in the statement of operations.
Related Party Transactions
- --------------------------
At March 31, 1995, the Minerals Group owed the Services Group $50.3 million,
an increase of $2.1 million from the $48.2 million owed at December 31, 1994.
At March 31, 1995, the Services Group owed the Minerals Group $39.8 million
for tax benefits, of which $16 million is expected to be paid within one year.
Capitalization
- --------------
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
March 31, 1995, a total of 256,100 shares ($6.2 million) of Services Stock had
been acquired pursuant to the authorization. No shares of Services Stock were
repurchased in the first quarter of 1995.
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 into Minerals Stock, the Company
pays an annual cumulative dividend of $31.25 per share payable quarterly, in
cash, in arrears, out of all funds of the Company legally available therefor,
when, and if declared by the Board of Directors of the Company which commenced
March 1, 1994. Such stock also bears a liquidation preference of $500 per
share, plus an amount equal to accrued and unpaid dividends thereon.
During the first quarters of 1995 and 1994, the Board declared and paid cash
dividends of 5 cents per share of Services Stock.
<TABLE>
PITTSTON MINERALS GROUP
BALANCE SHEETS
(In thousands)
<CAPTION>
Mar. 31, Dec. 31,
1995 1994
============================================================================================
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,143 3,708
Short-term investments, at lower of cost or market 24,013 23,121
Accounts receivable (net of estimated
amount uncollectible: 1995 - $1,816; 1994 - $1,880) 98,734 108,923
Inventories, at lower of cost or market:
Coal 32,401 25,518
Other 4,480 4,629
- --------------------------------------------------------------------------------------------
36,881 30,147
Prepaid expenses 13,560 11,389
Deferred income taxes 30,638 30,525
- --------------------------------------------------------------------------------------------
Total current assets 205,969 207,813
Property, plant and equipment, at cost
(net of accumulated depreciation, depletion
and amortization: 1995 - $162,314; 1994 - $159,938) 214,610 220,462
Deferred pension assets 76,680 75,803
Deferred income taxes 100,756 97,945
Coal supply contracts, net of amortization 78,715 82,240
Intangibles, net 119,875 120,649
Receivable - Pittston Services Group 23,827 23,186
Other assets 40,674 39,414
- --------------------------------------------------------------------------------------------
Total assets $ 861,106 867,512
============================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 5,204 7,554
Accounts payable 72,647 76,771
Payable - Pittston Services Group 34,278 32,170
Accrued liabilities 158,577 157,229
- --------------------------------------------------------------------------------------------
Total current liabilities 270,706 273,724
Long-term debt, less current maturities 100,501 88,175
Postretirement benefits other than pensions 213,350 212,977
Workers' compensation and other claims 124,036 128,864
Deferred income taxes 1,377 -
Other liabilities 165,723 172,368
Shareholder's equity (14,587) (8,596)
- --------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 861,106 867,512
============================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
PITTSTON MINERALS GROUP
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Quarter Ended
March 31
- --------------------------------------------------------------------------------------------
1995 1994
============================================================================================
<S> <C> <C>
Net sales $ 195,740 176,742
- --------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 193,940 189,781
Selling, general and administrative expenses 8,414 8,887
Restructuring and other charges - 90,806
- --------------------------------------------------------------------------------------------
Total costs and expenses 202,354 289,474
- --------------------------------------------------------------------------------------------
Other operating income 7,123 2,953
- --------------------------------------------------------------------------------------------
Operating profit (loss) 509 (109,779)
Interest income 40 51
Interest expense (2,281) (813)
Other income (expense), net (211) (219)
- --------------------------------------------------------------------------------------------
Income (loss) before income taxes (1,943) (110,760)
Provision (credit) for income taxes (2,413) (36,681)
- --------------------------------------------------------------------------------------------
Net income (loss) 470 (74,079)
Preferred stock dividends, net (83) (1,006)
- --------------------------------------------------------------------------------------------
Net income (loss) attributed to common shares $ 387 (75,085)
============================================================================================
Per common share:
Net income (loss) $ .05 (9.96)
============================================================================================
Cash dividends $ .1625 .1625
============================================================================================
Average shares outstanding 7,727 7,541
============================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
PITTSTON MINERALS GROUP
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Quarter Ended
March 31
- --------------------------------------------------------------------------------------------
1995 1994
============================================================================================
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 470 (74,079)
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Noncash charges and other write-offs - 46,487
Depreciation, depletion and amortization 10,620 10,193
Credit for deferred income taxes (1,733) (30,895)
Credit for pensions, noncurrent (876) (415)
Provision for uncollectible accounts receivable 12 30
Equity in (earnings) loss of unconsolidated affiliates,
net of dividends received (48) 93
Other operating, net (2,875) (352)
Change in operating assets and liabilities net of
effects of acquisitions and dispositions:
Decrease (increase) in accounts receivable 10,461 (14,888)
Inrease in inventories (6,734) (6,796)
Increase in prepaid expenses (1,318) (3,230)
Increase (decrease) in accounts payable
and accrued liabilities (683) 15,685
Decrease in other assets 591 363
Increase (decrease) in other liabilities (7,092) 19,709
Increase (decrease) in workers'
compensation and other claims, noncurrent (4,828) 15,224
Other, net (11) (106)
- --------------------------------------------------------------------------------------------
Net cash used by operating activities (4,044) (22,977)
- --------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (5,385) (2,666)
Proceeds from disposal of property,
plant and equipment 3,347 176
Acquisitions, net of cash acquired,
and related contingent payments (722) (157,245)
Other, net (326) 6,553
- --------------------------------------------------------------------------------------------
Net cash used by investing activities (3,086) (153,182)
- --------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 12,600 76,566
Reductions of debt (2,598) (528)
Payments from (to) - Services Group 2,108 23,672
Repurchase of stock (5,022) (270)
Proceeds from exercise of stock options 916 776
Dividends paid (2,439) (1,816)
Proceeds from sale of stock to Services Group - 115
Proceeds from the issuance of preferred stock,
net of cash expenses - 77,578
Cost of Services Stock Proposal - (2)
- --------------------------------------------------------------------------------------------
Net cash provided by financing activities 5,565 176,091
- --------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,565) (68)
Cash and cash equivalents at beginning of period 3,708 2,141
- --------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,143 2,073
============================================================================================
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PITTSTON MINERALS GROUP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share 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 first quarter 1995 and 1994 totaled $6,265
and $6,632, respectively.
(3) Cash payments made for interest and income taxes (net of refunds
received) were as follows:
First Quarter
1995 1994
-----------------------------------------------------------------------
Interest $ 2,087 630
=======================================================================
Income taxes $ 711 114
=======================================================================
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 three months ended March 31, 1994, capital lease obligations
of $279 were incurred for leases of property, plant and equipment. In
addition, during the three months ended March 31, 1994, the Minerals
Group assumed capital lease obligations of $16,210 as part of the
Addington Acquisition.
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 - As a result of the continuing
long-term decline in the metallurgical coal markets, in the first
quarter of 1994, the Coal operations accelerated its strategy of
decreasing its exposure to these markets. After a review of the economic
viability of certain metallurgical coal assets in early 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, 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 63% to approximately 275 employees at March 31, 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.
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.
<TABLE>
SEGMENT INFORMATION
(In thousands of dollars)
<CAPTION>
Quarter Ended
March 31
- ------------------------------------------------------------------------------
1995 1994
==============================================================================
<S> <C> <C>
Revenues:
Coal $191,283 173,416
Mineral Ventures 4,457 3,326
- ------------------------------------------------------------------------------
Consolidated revenues $195,740 176,742
==============================================================================
Operating profit (loss):
Coal $ 1,311 (107,839)
Mineral Ventures 915 (246)
- ------------------------------------------------------------------------------
Segment operating profit (loss) 2,226 (108,085)
General corporate expense (1,717) (1,694)
- ------------------------------------------------------------------------------
Operating profit (loss) $ 509 (109,779)
==============================================================================
</TABLE>
RESULTS OF OPERATIONS
In the first quarter of 1995, the Minerals Group reported net income of $.5
million compared with a net loss of $74.1 million in the first quarter of
1994. The increase is primarily attributable to the Coal operations whose
first quarter 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>
Quarter Ended
(In thousands) March 31
- ------------------------------------------------------------------------------
1995 1994
==============================================================================
<S> <C> <C>
Net sales $191,283 173,416
Cost of sales 190,967 187,274
Selling, general and administrative expenses 6,080 6,221
Restructuring and other charges - 90,806
- ------------------------------------------------------------------------------
Total costs and expenses 197,047 284,301
- ------------------------------------------------------------------------------
Other operating income 7,075 3,046
- ------------------------------------------------------------------------------
Operating profit (loss) $ 1,311 (107,839)
==============================================================================
Coal sales (tons):
Metallurgical 2,389 2,461
Utility and industrial 4,503 3,608
- ------------------------------------------------------------------------------
Total coal sales 6,892 6,069
==============================================================================
Production/purchased (tons)
Deep 1,057 1,448
Surface 3,853 3,073
Contract 533 483
- ------------------------------------------------------------------------------
5,443 5,004
Purchased 1,737 1,373
- ------------------------------------------------------------------------------
Total 7,180 6,377
==============================================================================
</TABLE>
OPERATIONS - Coal operations had an operating profit totaling $1.3 million in
the first quarter of 1995 compared with an operating loss of $107.8 million in
the 1994 first quarter. The 1995 first quarter operating profit included a
pretax gain of $3.0 million from the disposition of surplus coal reserves.
The 1994 first quarter 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 quarter related to those facilities.
Sales volume of 6.9 million tons for the 1995 first quarter was 14% or .8
million tons greater than sales volume in the 1994 first quarter. The
increased sales were attributable to steam coal with sales of 4.5 million tons
(65% of total sales) up from 3.6 million tons (59% of total sales) in the
first quarter of 1994 while metallurgical coal sales decreased 3% from 2.5
million tons to 2.4 million tons. Coal produced (5.5 million tons) and
purchased (1.7 million tons) totaled 7.2 million tons for the 1995 first
quarter, a 13% or .8 million ton increase over the 1994 first quarter.
In the 1995 first quarter, 28% of total production was derived from
underground mines compared with 38% in the first quarter of 1994. The decrease
in underground mine production is the result of the decision made in the 1994
first quarter to close four underground mines. Coal production derived from
surface mines was 72% in the first quarter of 1995 compared with 62% in the
first quarter of 1994.
Coal margin (realization less current production costs of coal sold), of $6.6
million or $.96 per ton for the first quarter of 1995, increased $12.4 million
or $1.91 per ton from the prior year first quarter. This was caused by a 3%
or $.77 per ton decrease in average realization to $27.68 per ton more than
offset by a 9% or $2.68 per ton decrease in average current production costs
of coal sold to $26.72 per ton. The higher percentage of steam coal sales and
declines in export metallurgical coal prices contributed to the decline in
average realization. Average current production costs of coal sold was
unusually high in the first quarter of 1994 primarily due to adverse weather
conditions, which significantly reduced planned production, and unusually high
costs incurred at mines which were in the process of being closed.
In early 1995, domestic steam coal markets weakened significantly. Spot
prices of virtually all coal qualities have declined significantly,
principally due to the mild winter which reduced the utility coal burn and
allowed increased coal production, which together increased inventories. Coal
operations is responding to the weak market conditions by curtailing
production at two surface mines. While the weak market has adversely affected
certain of the Company's coal operations, the impact is projected to be
moderated by the 85% of 1995 steam coal production expected to be sold under
long-term contracts.
Coal operations has 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 large decline. Sales volume is expected to
decline modestly from the level in the prior contract year. The price
increases will generally be effective beginning in the second quarter of 1995
but will be partially offset by higher costs of purchased coal.
Coal operations continued to incur higher than expected costs at several mines
during the quarter, thereby increasing the average cost of coal mined. While
the categories of unfavorable costs varied from mine to mine, they generally
reflected adverse geological conditions, additional washing and trucking
costs, and in some cases, higher labor and equipment costs. Several
remediation efforts have been undertaken, including the planned closure of two
surface mines in Virginia. In addition, after higher than planned mining
costs in the first quarter and a modified mine plan, a surface mine in West
Virginia has been reconfigured to produce more efficiently once the spot steam
coal market improves.
Excluding the sale of surplus coal reserves, Coal operations incurred an
operating loss of $1.7 million in the first quarter of 1995. As part of its
strategy to return to positive operating earnings, management has reorganized
Coal operations into four functional units defined by production and
geographic area. Each of these units will be responsible for optimizing the
mix of sales and production opportunities within its area of responsibility.
In addition, 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. As discussed previously, Coal operations has
targeted two surface mines for closure and the idling of a third mine. All of
these strategies are being implemented with the objective to achieve positive
operating profit on a sustainable basis for the long-term.
RESTRUCTURING AND OTHER CHARGES - As a result of the continuing long-term
decline of the metallurgical coal markets, in the first quarter 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
in contractually or statutorily required employee severance and other benefit
costs associated with termination of employees at these facilities and costs
associated with inactive employees at these facilities. Such employee benefits
include severance payments, medical insurance, workers compensation and other
benefits and have been calculated in accordance with contractually (collective
bargaining agreements signed by certain coal subsidiaries included in the Coal
operations) and legally required employee severance and other benefits.
Of the four underground mines, two have ceased coal production (one in the
first quarter of 1995), while the remaining two mines are expected to cease
coal production during the remainder of 1995. In 1994 the 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 63% to approximately 275 employees at March 31, 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) 424 2,451 2,418 5,293
- -----------------------------------------------------------------------------
Balance as of March
31, 1995 $ 3,363 35,805 40,954 80,122
=============================================================================
</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 quarter of 1995 included $2,567 related to pre-
1994 liabilities and $2,726 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 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.
The first quarter of 1995 includes $.4 million of losses which were incurred
in connection with closed facilities and other idled property and equipment.
Mineral Ventures
- ----------------
The following is a table of selected financial data for the Mineral Ventures
on a comparative basis:
<TABLE>
<CAPTION>
Quarter Ended
(Dollars in thousands, except ounce data) March 31
- ------------------------------------------------------------------------------
1995 1994
==============================================================================
<S> <C> <C>
Net sales $ 4,457 3,326
Cost of sales 2,973 2,507
Selling, general and administrative costs 617 972
- ------------------------------------------------------------------------------
Total costs and expenses 3,590 3,479
- ------------------------------------------------------------------------------
Other operating income (expense) 48 (93)
- ------------------------------------------------------------------------------
Operating profit (loss) $ 915 (246)
==============================================================================
Stawell Gold Mine:
PMV's 50% direct share ounces sold 10,846 8,700
Average realized gold price per ounce (US$) $ 400 391
</TABLE>
Operating profit of Mineral Ventures increased $1.1 million in the 1995 first
quarter to $.9 million compared to an operating loss of $.2 million in the
prior year first quarter. The increase in operating profit principally
reflects increased production levels at the Stawell gold mine. The operating
loss in the first quarter of 1994 was the result of a production shortfall at
the Stawell mine, largely due to an operator accident during the 1994 first
quarter, which also contributed to higher operating costs for the period. The
Stawell gold mine, in which Mineral Ventures has a 67% net equity interest,
produced 21,197 ounces in the 1995 first quarter compared with 16,855 ounces
in the comparable 1994 period. Joint ventures in which Mineral Ventures also
has 67% net equity interests continued gold exploration in Nevada and
Australia during the 1995 first quarter.
Other Operating Income
- ----------------------
Other operating income for the first quarter of 1995 increased $4.1 million to
$7.1 million from $3.0 million recognized in the year earlier quarter. Other
operating income principally includes royalty income and gains and losses from
sales of coal assets. The increase in the 1995 first quarter principally is
the result of a $3.0 million gain from the sale of surplus coal reserves.
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
reasonable and equitable estimate of the costs attributable to the Minerals
Group. These allocations were $1.7 million for the first quarter of 1995 and
1994.
Interest Expense
- ----------------
Interest expense for the first quarter of 1995 increased to $1.5 million to
$2.3 million from $.8 million in the first quarter of 1994. The increase in
interest expense in 1995 is the result of higher interest rates on higher
average debt balances.
Income Taxes
- ------------
Net income in the 1995 first quarter 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 been
attributed to the Minerals Group based upon utilization of the shared services
from which assets and liabilities are generated, which management believes to
be equitable and a reasonable estimate.
Cash Provided by Operating Activities
- -------------------------------------
Operating activities for the first quarter of 1995 used cash of $4 million,
while operations in the first quarter of 1994 used cash of $23 million. Cash
provided by operating activities in the first quarter 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 quarter were
significantly affected by after-tax special and other charges of $58.1 million
which had no effect in the first quarter 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 the remainder represents
liabilities, which are expected to be paid over the next several years.
Capital Expenditures
- --------------------
Cash capital expenditures for the first quarter of 1994 totaled $5.4 million,
excluding equipment expenditures that have been or are expected to be financed
through capital and operating leases, and any acquisition expenditures. For
the remainder of 1995, capital expenditures, excluding expenditures that have
been or are expected to be financed through capital and operating leases as
well as acquisition expenditures, are estimated to approximate $20 million.
Other Investing Activities
- --------------------------
All other investing activities in the 1995 first quarter provided net cash of
$2.3 million primarily from the $2.9 million cash proceeds received in 1995
from the sale of surplus coal reserves. In January 1994, the Company paid
approximately $157 million in cash for the acquisition of substantially all
the coal mining operations and coal sales contracts of Addington. The
purchase price of the acquisition was subsequently financed through the
issuance of $80.5 million of a new series of preferred stock, convertible into
Pittston Minerals Group Common Stock, and additional debt under revolving
credit agreements.
Financing
- ---------
The Minerals Group intends to fund its capital expenditure requirements during
the remainder of 1995 primarily with anticipated cash flows from operating
activities and through operating and capital leases if the latter are
financially attractive. Shortfalls, if any, will be financed through the
Company's revolving credit agreements or 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 five-year term loan, which matures in March 1999. The
Facility also permits additional borrowings, repayments and reborrowings of up
to an aggregate of $250 million until March 1999. As of March 31, 1995,
borrowings of $100 million were outstanding under the five-year term loan
portion of the Facility with $22 million of additional borrowings outstanding
under the remainder of the facility. Of the total amount outstanding under
the Facility, $98.6 million was attributed to the Minerals Group.
Debt
- ----
Total debt outstanding at March 31, 1995 was $105.7 million, an increase of
$10.0 million from the $95.7 million reported at year end. Borrowings from
the Services Group were not sufficient to fund current operating activities,
capital expenditures and net costs related to share activity during the 1995
first quarter, resulting in additional borrowings under the Company's
revolving credit agreements.
Related Party Transactions
- --------------------------
At March 31, 1995, the Minerals Group owed the Services Group $50.3 million,
an increase of $2.1 million from the $48.2 million owed at December 31, 1994.
At March 31, 1995, the Services Group owed the Minerals Group $39.8 million
for tax benefits, of which $16 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
million of the new series of cumulative convertible preferred stock. As of
March 31, 1995, 21,020 shares at a total cost of $8.4 million were repurchased
of which 12,670 shares at a cost of $5 million were repurchased in the first
quarter 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 $43 million. As of
March 31, 1995 38,500 shares ($.8 million) of Minerals Stock have been
acquired pursuant to the authorization. No shares of Minerals Stock were
repurchased in the first quarter 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 March 31, 1995 the
Available Minerals Dividend Amount was at least $18.9 million.
As a result of the Company's issuance in January 1994 of 161,000 shares of a
new series of preferred stock, convertible into Minerals Stock, the Company
pays an annual cumulative dividend of $31.25 per share payable quarterly, in
cash, in arrears, out of all funds of the Company legally available therefor,
when, and if declared by the Board of Directors of the Company which commenced
March 1, 1994. Such stock also bears a liquidation preference of $500 per
share, plus an amount equal to accrued and unpaid dividends thereon.
During the 1995 and 1994 first quarters, the Board declared and paid cash
dividends of 16.25 cents per share of Minerals Stock. Dividends paid on the
cumulative convertible preferred stock in the 1995 and 1994 first quarter
totaled $1.2 million and $.6 million, respectively. The Company's repurchase
of it cumulative convertible preferred stock in the 1995 first quarter was at
less than issue cost, which resulted in a $1.0 million reduction in reported
preferred stock dividends.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
(a) The Company's annual meeting of shareholders was held on May 5, 1995.
(b) Not required.
(c) The following persons were elected directors for terms expiring in
1998, by the following votes:
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
J. R. Barker 44,362,704 272,391
J. L. Broadhead 44,360,127 274,968
R. M. Gross 44,324,322 310,773
D. L. Marshall 43,931,965 703,130
</TABLE>
The selection of KPMG Peat Marwick LLP as independent certified public
accountants to audit the accounts of the Company and its subsidiaries for
the year 1995 was approved by the following vote:
<TABLE>
<CAPTION>
Broker
For Against Abstentions Non-votes
--- ------- ----------- ---------
<C> <C> <C> <C>
44,258,079 168,169 208,847 - 0 -
</TABLE>
Amendment and restatement of the Company's Key Employees' Deferred
Compensation Program generally to provide that in the event of a deferral
under the Plan the Company will provide to certain participants a
matching contribution equal to 100% of the first 10% of such
participants' (a) cash incentive payment and (b) salary (the matching
contribution in no event to exceed the amount deferred) was approved by
the following vote:
<TABLE>
<CAPTION>
Broker
For Against Abstentions Non-votes
--- ------- ----------- ---------
<C> <C> <C> <C>
42,666,422 1,296,766 671,907 - 0 -
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
<TABLE>
<C> <C> <C>
(a) Exhibits:
Exhibit
Number
10* The Company's Key Employees'
Deferred Compensation Program,
as amended and restated. Incorporated by
reference to Exhibit A of the Registrant's Proxy
Statement filed March 29, 1995.
11 Statement re Computation of
Per Shares Earnings.
(b) No reports on Form 8-K were filed during the first quarter of 1995.
</TABLE>
- -------------------
* Management contract or compensatory plan or arrangement.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE PITTSTON COMPANY
May 12, 1995 By G. R. Rogliano
--------------------------
(G. R. Rogliano)
Vice President -
Controllership and Taxes
(Duly Authorized Officer and
Chief Accounting Officer)
<TABLE>
THE PITTSTON COMPANY AND SUBSIDIARIES EXHIBIT 11
Computation of Earnings Per Common Share
(In thousands, except per share amounts)
<CAPTION>
FULLY DILUTED EARNINGS PER COMMON SHARE:
- ----------------------------------------
Quarter Ended
March 31,
- ----------------------------------------------------------------------------
1995 1994
============================================================================
<S> <C> <C> <C>
PITTSTON SERVICES GROUP:
Net income attributed to common shares $13,595 10,511
============================================================================
Average common shares outstanding 37,931 37,662
Incremental shares of stock options 382 656
- ----------------------------------------------------------------------------
Pro forma common shares outstanding 38,313 38,318
============================================================================
Fully diluted earnings per common share: $ 0.36 0.27
============================================================================
PITTSTON MINERALS GROUP:
Net income (loss) attributed to common shares $ 387 (75,085)
Preferred stock dividends, net (83) (1,006)
- ----------------------------------------------------------------------------
Fully diluted net income (loss) attributed
to common shares $ 470 (74,079)
============================================================================
Average common shares outstanding 7,727 7,541
Incremental shares of stock options 53 106
Conversion of preferred stock 2,317 2,108
- ----------------------------------------------------------------------------
Pro forma common shares outstanding 10,097 9,755
============================================================================
Fully diluted earnings (loss) per common share: $ 0.05 (9.96) (a)
============================================================================
(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.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from The Pittston Company
Form 10-Q for the quarterly period ended March 31, 1995, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 34,003
<SECURITIES> 25,241
<RECEIVABLES> 352,765
<ALLOWANCES> 15,763
<INVENTORY> 40,905
<CURRENT-ASSETS> 566,863
<PP&E> 866,399
<DEPRECIATION> 406,430
<TOTAL-ASSETS> 1,749,737
<CURRENT-LIABILITIES> 572,369
<BONDS> 156,257
<COMMON> 50,155
0
1,399
<OTHER-SE> 400,434
<TOTAL-LIABILITY-AND-EQUITY> 1,749,737
<SALES> 195,740
<TOTAL-REVENUES> 699,084
<CGS> 193,940
<TOTAL-COSTS> 623,056
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,030
<INTEREST-EXPENSE> 3,034
<INCOME-PRETAX> 19,637
<INCOME-TAX> 5,572
<INCOME-CONTINUING> 14,065
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,065
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Pittston Services Group - Primary - .36
Pittston Minerals Group - Primary - .05
<F2>Pittston Services Group - Diluted - .36
Pittston Minerals Group - Diluted - .05
</FN>
</TABLE>
