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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(MARK ONE)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ________________________ TO
________________________
COMMISSION FILE NUMBER 1-9148
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THE PITTSTON COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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VIRGINIA 54-1317776
(STATE OR OTHER JURISDICTION OF (I. R. S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
P.O. BOX 120070, 100 FIRST STAMFORD PLACE, STAMFORD, CONNECTICUT 06912-0070
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (203) 978-5200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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PITTSTON SERVICES GROUP COMMON STOCK, PAR VALUE $1 NEW YORK STOCK EXCHANGE
PITTSTON MINERALS GROUP COMMON STOCK, PAR VALUE $1 NEW YORK STOCK EXCHANGE
4% SUBORDINATED DEBENTURES DUE JULY 1, 1997 NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES B PARTICIPATING CUMULATIVE PREFERRED STOCK NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
As of March 1, 1995, there were issued and outstanding 41,683,625 shares of
Pittston Services Group common stock and 8,407,538 shares of Pittston Minerals
Group common stock. The aggregate market value of such stocks held by
nonaffiliates, as of that date, was $949,143,582 and $151,216,843,
respectively.
Documents incorporated by reference: Portions of the Registrant's
definitive Proxy Statement to be filed pursuant to Regulation 14A (Part III).
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PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
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As used herein, the 'Company' includes The Pittston Company ('Pittston') and its
direct and indirect subsidiaries, except as otherwise indicated by the context.
The Company's reportable industry segments for 1994 are Burlington Air Express,
Brink's, BHS, Coal and Mineral Ventures. See Note 16 to the Company's
Consolidated Financial Statements. The information set forth under Items 1 and 2
with respect to 'Business' and 'Properties' is as of March 1, 1995 except where
an earlier or later date is expressly stated. Nothing herein should be
considered as implying that such information is correct as of any date other
than March 1, 1995, except as so stated or indicated by the context.
Activities relating to the Burlington segment are carried on by Burlington Air
Express Inc. and its subsidiaries and certain affiliates and associated
companies in foreign countries (together, 'Burlington'). Activities relating to
the Brink's segment (which includes armored car, air courier and related
services) are carried on by Brink's, Incorporated and its subsidiaries and
certain affiliates and associated companies in foreign countries (together,
'Brink's'). Activities relating to the BHS segment are carried on by Brink's
Home Security, Inc. ('BHS'). Activities relating to the Coal segment are carried
on by certain subsidiaries (together, 'Coal operations') of the Company engaged
in the mining, preparation and marketing of bituminous coal, the purchase of
coal for resale and the sale and leasing of coal lands to others. Activities
relating to Mineral Ventures are carried on by Pittston Mineral Ventures Company
and its subsidiaries.
The Company has a total of approximately 23,900 employees.
Pittston Services Group
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DESCRIPTION OF BUSINESSES
Pittston Services Group (the 'Services Group') consists of the air freight and
logistics management services, armored car and home security businesses of the
Company. Activities relating to the air freight and logistics management
services business are carried on by Burlington. Activities relating to the
armored car business (which includes armored car, air courier and related
services) are carried on by Brink's. Activities relating to the home security
business are carried on by BHS.
BURLINGTON
GENERAL:
Burlington is primarily engaged in North American and international overnight
air and sea freight forwarding and logistics management services and
international customs brokerage. In conducting its forwarding business,
Burlington generally picks up or receives freight shipments from its customers,
consolidates the freight of various customers into shipments for common
destinations, arranges for the transportation of the consolidated freight to
such destinations (using either commercial carriers or, in the case of most of
its domestic and Canadian shipments, its own aircraft fleet and hub sorting
facility) and, at the destinations, distributes the consolidated shipments and
effects delivery to consignees. In international shipments, Burlington also
frequently acts as customs broker facilitating the clearance of goods through
customs at international points of entry. Burlington provides transportation
customers with logistics services and operates warehouse and distribution
facilities in several countries.
Burlington specializes in highly customized global freight forwarding and
logistics services. It has concentrated on providing service to customers with
significant logistics needs, such as manufacturers of computer and electronics
equipment. Burlington offers its customers a variety of service and pricing
alternatives for their shipments, such as overnight delivery, second-day
delivery or deferred service in North America. Internationally Burlington offers
a similar variety of services with ocean, door-to-door delivery and standard and
expedited air freight services. Worldwide, a variety of ancillary services, such
as, shipment tracking, inventory control and management reports are also
provided.
Burlington provides air freight service to all major United States cities as
well as most foreign countries through its network of company-operated stations
and agent locations in 112 countries. Burlington markets its services primarily
through its direct sales force but also employs other marketing methods,
including print media advertising and direct mail campaigns. The pickup and
delivery of freight is accomplished principally by independent contractors.
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Burlington's computer system, ARGUS+'r', is a satellite-based, worldwide
communications system which, among other things, provides continuous worldwide
tracking and tracing of shipments and various data for management information
reports, enabling customers to improve efficiency and control costs. Burlington
also utilizes an image processing system to centralize airbill and related
document storage in Burlington's computer for automated retrieval by any
Burlington office. Burlington is in the process of developing a positive
tracking system that will utilize bar code technology and hand-held scanners.
Burlington's air freight business has tended to be seasonal, with a
significantly higher volume of shipments generally experienced during March,
June and the period August through November than during the other periods of the
year. The lowest volume of shipments has generally occurred in January and
February.
AIRCRAFT OPERATIONS:
Burlington utilizes a fleet of 31 leased aircraft providing regularly scheduled
service throughout the United States and certain destinations in Canada from its
freight sorting hub in Toledo, Ohio. Burlington's fleet is also used for
charters and to serve other international markets from time to time. This system
is primarily dedicated to providing reliable next-day service for domestic and
Canadian air cargo customers. At December 31, 1994 Burlington utilized 15 DC8's
(including ten DC8-71 aircraft) and two B727's under lease for terms expiring
between 1995 and 1999. Fourteen additional cargo aircraft (including two DC8-71
aircraft) were under lease at December 31, 1994, for terms of less than two
years. Given the current state of the aircraft leasing market, Burlington
believes that it should be able to renew these leases or enter into new leases
on terms reasonably comparable to those currently in effect. Pittston has
guaranteed Burlington's obligations under certain of these leases covering six
aircraft. The actual operation and routine maintenance of the aircraft leased by
Burlington is contracted out, normally for two- to three-year terms, to
federally certificated operators which supply the pilots and other flight
services.
The nightly capacity in operation at December 31, 1994, was approximately 2.4
million pounds, calculated on an average freight density of 7.5 pounds per cubic
foot. Burlington's nightly lift capacity varies depending upon the number and
type of planes operated by Burlington at any particular time. Including trucking
capacity available to Burlington, the aggregate cargo capacity through the hub
at December 31, 1994, was approximately 3.3 million pounds.
Under its aircraft leases, Burlington is generally responsible for all the costs
of operating and maintaining the aircraft, including any special maintenance or
modifications which may be required by Federal Aviation Administration ('FAA')
regulations or orders. See 'Government Regulation' below. In 1994 Burlington
spent approximately $15 million on routine heavy maintenance of its aircraft
fleet. Burlington has made provision in its financial statements for the
expected costs associated with aircraft operations and maintenance which it
believes to be adequate; however, unanticipated maintenance costs or required
aircraft modifications could adversely affect Burlington's profitability.
The average airframe age of the fleet leased by Burlington under leases with
terms longer than two years is 27 years, although factors other than age, such
as cycles (i.e., numbers of takeoffs and landings) can have a significant impact
on an aircraft's serviceability. Generally, cargo aircraft tend to have fewer
cycles than passenger aircraft over comparable time periods because of fewer
flights per day and longer flight segments.
Fuel costs are a significant element of the total costs of operating
Burlington's aircraft fleet. For each one cent per gallon increase or decrease
in the price of jet fuel, Burlington's airline operating costs may increase or
decrease approximately $60,000 per month. In order to protect against price
increases in jet fuel, from time to time Burlington enters into hedging and
other agreements, including swap contracts and options.
Fuel prices are subject to world, as well as local, market conditions. It is not
possible to predict the impact of future conditions on fuel prices and fuel
availability. Competition in the industry is such that no assurance can be given
that any future increases in fuel costs (including taxes relating thereto) will
be recoverable in whole or in part from customers.
Burlington has a lease expiring in October 2013 with the Toledo-Lucas County
Port Authority covering its freight sorting hub and related facilities (the
'Hub') at Toledo Express Airport in Ohio. The Hub consists of various
facilities, including a technologically advanced material handling system which
is capable of sorting approximately one million pounds of freight per hour.
CUSTOMERS:
Burlington's domestic and foreign customer base includes thousands of industrial
and commercial shippers, both large and small. Shipments by domestic computer
and electronics manufacturers accounted for approximately 22% of total domestic
revenue in 1994. Burlington's customer base also includes major companies in the
automotive, fashion, phar-
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maceutical and other industries where rapid delivery of high-value products is
required. In 1994 Burlington's largest single customer accounted for less than
3% of its total worldwide revenues. Burlington does not have long-term,
noncancellable contracts with any of its customers.
COMPETITION:
The air and sea freight forwarding and logistics industry has been and is
expected to remain highly competitive. The principal competitive factors in both
domestic and international markets are price, the ability to provide
consistently fast and reliable delivery of shipments and the ability to provide
ancillary services such as warehousing, distribution, shipment tracking and
sophisticated information systems and reports. Overcapacity in the domestic air
freight market has led to aggressive price competition, particularly for the
business of high volume shippers. Burlington competes with other integrated air
freight companies that operate their own aircraft, as well as with air freight
forwarders, express delivery services, passenger airlines and other
transportation companies. Domestically, Burlington also competes with package
delivery services provided by ground transportation companies, including
trucking firms, national bus companies and surface freight forwarders, which
offer specialized overnight services within limited geographical areas. As a
freight forwarder to, from and within international markets, Burlington also
competes with government owned or subsidized passenger airlines and ocean
shipping companies. In logistics services Burlington competes with many third
party logistics providers.
GOVERNMENT REGULATION:
The air transportation industry is subject to Federal regulation under the
Federal Aviation Act of 1958, as amended, and pursuant to that statute, the
Department of Transportation ('DOT') may exercise regulatory authority over
Burlington. Although Burlington itself is exempt from most DOT economic
regulations because it is an air freight forwarder, the operation of its
aircraft is subject directly or indirectly to FAA airworthiness directives and
other safety regulations and its Toledo, Ohio, hub operations are directly
affected by the FAA.
Federal statutes authorize the FAA, with the assistance of the Environmental
Protection Agency ('EPA'), to establish aircraft noise standards. Under the
National Emissions Standards Act of 1967, as amended by the Clean Air Act
Amendments of 1970, and the Airport Noise and Capacity Act of 1990 (the 'Noise
Act'), the administrator of the EPA is authorized to issue regulations setting
forth standards for aircraft emissions. Although the Federal government
generally regulates aircraft noise, local airport operators may, under certain
circumstances, regulate airport operations based on aircraft noise
considerations. If airport operators were to restrict arrivals or departures
during certain nighttime hours to reduce or eliminate air traffic noise for
surrounding home areas at airports where Burlington's activities are centered,
Burlington would be required to serve those airports with Stage III equipment.
The Noise Act requires that aircraft not complying with Stage III noise limits
be phased out by December 31, 1999. The Secretary of Transportation may grant a
waiver if it is in the public interest and if the carrier has at least 85% of
its aircraft in compliance with Stage III noise levels by July 1, 1999, and has
a plan with firm orders for making all of its aircraft comply with such noise
levels not later than December 31, 2003. No waiver may permit the operation of
Stage II aircraft in the United States after December 31, 2003.
The Noise Act requires the FAA to promulgate regulations setting forth a
schedule for the gradual phase-out of Stage II aircraft. The FAA has adopted
rules requiring each 'U.S. operator' to reduce the number of its Stage II
aircraft by 25% by the end of 1994, by 50% by the end of 1996, and by 75% by the
end of 1998.
The Noise Act imposes certain conditions and limitations on an airport's right
to impose new noise or access restrictions on Stage II and Stage III aircraft
but exempts present and certain proposed regulations from those requirements.
Twelve of the 17 aircraft in Burlington's fleet held under longer term leases
now comply with the Stage III limits. From 1994 through 1999, Burlington
anticipates either modifying or hush-kitting two DC8-63 aircraft which currently
do not comply with Stage III limits, leasing additional aircraft that do not
meet Stage III limits and hush-kitting such planes as required, or acquiring
aircraft that meet Stage III noise standards. Burlington projects that the cost
of modifying or hush-kitting the remaining aircraft with lease terms of more
than two years in length in its fleet would range from $5 million to $10 million
in the aggregate. In the event additional expenditures are required or costs are
incurred at a rate faster than expected, Burlington could be adversely affected.
Ten of the DC8 cargo aircraft leased by Burlington have been re-engined with CFM
56-2C1 engines which comply with Stage III noise standards.
Ground transportation and logistics services provided by Burlington are
generally exempt from regulation by the Interstate Commerce Commission.
Burlington, however, is subject to
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various other requirements and regulations in connection with the operation of
its motor vehicles, including certain safety regulations promulgated by DOT and
state agencies.
INTERNATIONAL OPERATIONS:
Burlington's international operations accounted for approximately 53% of its
revenues in 1994. Included in international operations are export shipments from
the United States, which accounted for approximately 48% of total international
revenues in 1994, and operations of foreign subsidiaries and agents, which
together accounted for approximately 52% of such international revenues.
Burlington is continuing to develop import/export and logistics business between
shippers and consignees in countries other than the United States. Burlington
currently serves most foreign countries, 112 of which are served by Burlington's
network of company-operated stations and agent locations. Burlington has agents
and sales representatives in many overseas locations, although such agents and
representatives are not subject to long-term, noncancellable contracts.
A significant portion of Burlington'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 Burlington 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. Burlington's international
activity is not concentrated in any single currency, which limits the risks of
foreign rate fluctuation. In addition, foreign currency rate fluctuations may
adversely affect transactions which are denominated in currencies other than the
functional currency. Burlington 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, Burlington uses foreign
exchange forward contracts to hedge the risk associated with certain
transactions denominated in currencies other than the functional currency. In
addition, Burlington is subject to the risks customarily attendant upon
operations owned by United States companies in countries outside the United
States, including local economic conditions, controls on repatriation of
earnings and capital, nationalization, expropriation and other forms of
restrictive action by local governments. The future effects of such risks on
Burlington cannot be predicted.
EMPLOYEE RELATIONS:
Burlington and its subsidiaries have approximately 6,300 employees worldwide, of
whom about 1,500 are classified as part-time. Approximately 200 of these
employees (principally customer service, clerical and/or dock workers) in
Burlington's stations at John F. Kennedy Airport, New York; Newark, New Jersey;
Secaucus, New Jersey; Minneapolis, Minnesota; and Toronto, Canada are
represented by labor unions which in most cases are affiliated with the
International Brotherhood of Teamsters. The collective bargaining agreements
covering such employees expire at various times in 1995 and 1996. Burlington did
not experience any significant strike or work stoppage in 1994 and considers its
employee relations satisfactory.
Substantially all of Burlington's cartage operations are conducted by
independent contractors, and the flight crews for its aircraft are employees of
the independent airline companies which operate such aircraft.
PROPERTIES:
Burlington operates 230 (112 domestic and 118 international) stations with
Burlington personnel, and has agency agreements at an additional 263 (61
domestic and 202 international) stations. These stations are located near
primary shipping areas, generally at or near airports. Burlington-operated
stations, which generally include office space and warehousing facilities, are
located in 47 states and Puerto Rico. Burlington-operated facilities are located
in 26 countries. Most stations serve not only the city in which they are
located, but also nearby cities and towns. Nearly all Burlington-operated
stations are held under lease. The Hub in Toledo, Ohio, is held under a lease
expiring in 2013, with rights of renewal for three five-year periods. Other
facilities, including the corporate headquarters in Irvine, California, are held
under leases having terms of one to ten years.
Burlington owns or leases in the United States and Canada a fleet of 219
automobiles as well as 166 vans and trucks utilized in station work or for
hauling freight between airport facilities and Burlington's stations.
BRINK'S
GENERAL:
The major activities of Brink's are contract carrier armored car, automated
teller machine ('ATM'), air courier, coin wrapping, and currency and deposit
processing services. Brink's serves customers through 145 branches in the United
States and 39 branches in Canada. Service is also provided through subsidiaries,
affiliates and associated companies in 45
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countries outside the United States and Canada. These international operations
contributed approximately 40% of Brink's total 1994 operating profit. Brink's
ownership interest in these companies varies from approximately 5% to 100%; in
some instances local laws limit the extent of Brink's interest.
Representative customers include banks, commercial establishments, industrial
facilities, investment banking and brokerage firms and government agencies.
Brink's provides its individualized services under separate contracts designed
to meet the distinct transportation and security requirements of its customers.
These contracts are usually for an initial term of one year or less, but
generally continue in effect thereafter until canceled by either party.
Brink's armored car services include transportation of money from industrial and
commercial establishments to banks for deposit, and transportation of money,
securities and other negotiable items and valuables between commercial banks,
Federal Reserve Banks and their branches and correspondents, and brokerage
firms. Brink's also transports new currency, coins and precious metals for the
United States Mint, the Federal Reserve System and the Bank of Canada. For
transporting money and other valuables over long distances, Brink's offers a
combined armored car and air courier service linking many cities in the United
States and abroad. Brink's does not own or operate any aircraft, but uses
regularly scheduled or chartered aircraft in connection with its air courier
services.
In addition to its armored car pickup and delivery services, Brink's provides
payroll services, change services, coin wrapping services, currency and deposit
processing services, automated teller machine services, safes and safe control
services, check cashing and pickup and delivery of valuable air cargo shipments.
In certain geographic areas Brink's transports canceled checks between banks or
between a clearing house and its member banks.
Brink's operates a worldwide specialized diamond and jewelry transportation
business and has offices in the major diamond and jewelry centers of the world,
including Antwerp, Bombay, Hong Kong, New York and Tel Aviv.
A wholly owned subsidiary, Brink's SFB Solutions, Inc., operates a business
acquired in 1992 that develops highly flexible deposit processing and vault
management software systems for the personal computer. Brink's offers a total
processing package and the ability to tie together a full range of cash vault,
ATM, transportation, storage, processing, inventory management and reporting
services. Brink's believes that its processing and information capabilities
differentiate its currency and deposit processing services and enable Brink's to
take advantage of the trend by banks, retail business establishments and others
to outsource vaulting and cash room operations.
Brink's activities outside of North America are organized into three regions:
Europe, Latin America and Asia/Pacific. In Europe wholly owned subsidiaries of
Brink's operate in Switzerland and the United Kingdom and in the diamond and
jewelry business in Belgium, Italy and the United Kingdom. Brink's has a 70%
interest in a subsidiary in Israel, a 65% general partnership interest in
Brink's-Nedlloyd VOF in the Netherlands and a majority interest in a subsidiary
in Greece. Brink's also has ownership interests ranging from 24.5% to 50% in
affiliates operating in Belgium, France, Germany, Ireland, Italy, Jordan and
Luxembourg. In Latin America a wholly owned subsidiary operates in Brazil.
Brink's owns a 60% interest in subsidiaries in Chile and Bolivia and a 20%
interest in a Mexican company, Servicio Pan Americano de Proteccion, S.A., which
operates one of the world's largest security transportation services with over
1,700 armored vehicles. Brink's also has ownership interests ranging from 5% to
49% in affiliates operating in Colombia, Panama, Peru and Venezuela. In the
Asia/Pacific region a wholly owned subsidiary of Brink's operates in Australia,
and majority owned subsidiaries operate in Hong Kong, Japan and Singapore.
Brink's also has minority interests in affiliates in India, Pakistan and
Thailand and a 50% ownership interest in an affiliate in Taiwan.
COMPETITION:
Brink's is the oldest and largest armored car service company in the United
States and Canada. The foreign subsidiaries, affiliates and associates of
Brink's compete with numerous armored car and courier service companies in many
areas of operation. In the United States, Brink's presently competes with two
companies which operate numerous branches nationally and with many regional and
smaller local companies. Brink's believes that its service, high quality
insurance coverage and company reputation (including the name Brink's) are
important competitive factors. However, the cost of service is in many instances
the controlling factor in obtaining and retaining customers. While Brink's cost
structure is generally competitive, certain competitors of Brink's have lower
costs primarily as a result of lower wage and benefit levels.
See also 'Government Regulation' below.
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SERVICE MARK, PATENTS AND COPYRIGHTS:
Brink's is a registered service mark of Brink's, Incorporated in the United
States and in certain foreign countries. The Brink's mark and name are of
material significance to Brink's business. Brink's owns patents with respect to
certain coin sorting and counting machines and armored truck design. Brink's
holds copyrights on certain software systems developed by Brink's.
INSURANCE:
Brink's carries insurance coverage for losses. Insurance policies cover
liability for loss of various types of property entrusted to Brink's from any
cause except war and nuclear risk. The various layers of insurance are covered
by different groups of participating underwriters. Such insurance is obtained by
Brink's at rates and upon terms negotiated periodically with the underwriters.
The loss experience of Brink's and, to some extent, other armored carriers
affects premium rates charged to Brink's. A significant hardening of the
insurance market coupled with industry loss experience in recent years has
resulted in premium increases. The availability of quality and reliable
insurance coverage is an important factor in the ability of Brink's to obtain
and retain customers. Quality insurance is available to Brink's in major markets
although the premiums charged are subject to fluctuations depending on market
conditions. Less expensive armored car and air courier all-risk insurance is
available, but these policies typically contain unacceptable operating
warranties and limited customer protection.
GOVERNMENT REGULATION:
As an interstate carrier, Brink's is subject to regulation in the United States
by the Interstate Commerce Commission ('ICC'). ICC jurisdiction includes, among
other things, authority over the issuance of operating rights to transport
various commodities. The operations of Brink's are also subject to regulation by
the United States Department of Transportation with respect to safety of
operation and equipment. Intrastate and intraprovince operations in the United
States and Canada are subject to regulation by state and by Canadian Dominion
and provincial regulatory authorities. Recent federal legislation may further
ease entry requirements for armored car and other companies in domestic markets
by essentially limiting ICC and State oversight to issues of safety and
financial responsibility.
EMPLOYEE RELATIONS:
Brink's has approximately 7,500 employees in North America (including
approximately 3,000 classified as part-time employees), of whom approximately
60% are members of armored car crews. Brink's has approximately 6,000 employees
outside North America. Except for three locations, employees in the United
States are no longer covered by collective bargaining agreements. At January 1,
1995, Brink's was a party to two United States and thirteen Canadian collective
bargaining agreements with various local unions covering approximately 1,140
employees, of whom 1,128 (for the most part members of unions affiliated with
the International Brotherhood of Teamsters) are employees in Canada.
Negotiations are continuing for one agreement that expired in 1994. One
agreement will expire in 1995 and the remainder will expire thereafter.
Brink's experienced a nine week strike in British Columbia in 1994 which was
settled on favorable terms. Brink's believes that its employee relations are
generally satisfactory.
PROPERTIES:
Brink's owns 24 branch offices and holds under lease an additional 185 branch
offices, located in 38 states, the District of Columbia, the Commonwealth of
Puerto Rico and nine Canadian provinces. Such branches generally include office
space and garage or vehicle terminals, and serve not only the city in which they
are located but also nearby cities. Brink's corporate headquarters in Darien,
Connecticut, is held under a lease expiring in 2000, with an option to renew for
an additional five-year period. The leased branches include 100 facilities held
under long-term leases, while the remaining 85 branches are held under
short-term leases or month-to-month tenancies.
Brink's owns or leases, in the United States and Canada, approximately 1,800
armored vehicles, 220 panel trucks and 225 other vehicles which are primarily
service cars. In addition, approximately 3,100 Brink's-owned safes are located
on customers' premises. The armored vehicles are of bullet-resistant
construction and are specially designed and equipped to afford security for crew
and cargo. Brink's subsidiaries and affiliated and associated companies located
outside the United States and Canada operate approximately 4,300 armored
vehicles.
BHS
GENERAL:
BHS is engaged in the business of installing, servicing and monitoring
electronic security systems primarily in owner-occupied, single-family
residences. At the end of 1994, BHS was monitoring approximately 318,000
systems, including 75,200 new subscribers, and was servicing 47 metropolitan
areas in 28 states, the District of Columbia and Canada. Three of those areas
were added during 1994.
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BHS markets its alarm systems primarily through media advertising, inbound
telemarketing and a direct sales force. BHS also markets its systems directly to
home builders and has entered into several contracts which extend through 1995.
BHS employees install and service the systems from local BHS branches.
Subcontractors are utilized in some service areas. BHS does not manufacture any
of the equipment used in its security systems; instead, it purchases such
equipment from a small number of suppliers. Equipment inventories are maintained
at each branch office.
BHS's security system consists of sensors and other devices which are installed
at a customer's premises. The equipment is designed to signal intrusion, fire
and medical alerts. When an alarm is triggered, a signal is sent by telephone
line to BHS's central monitoring station near Dallas, Texas. The monitoring
station has been designed and constructed to meet the specifications of
Underwriters' Laboratories, Inc. ('UL') and is UL listed for residential
monitoring. A backup monitoring center in Arlington, Texas, protects against a
catastrophic event at the primary monitoring center. In the event of an
emergency, such as fire, flood, major interruption in telephone service, or any
other calamity affecting the primary facility, monitoring operations can be
transferred to the backup facility.
BHS's alarm service contracts contain provisions limiting BHS's liability to its
customers. Courts have from time to time upheld such provisions, but there can
be no assurance that the limitations contained in BHS's agreements will be
enforced according to their terms in any or all cases. The nature of the service
provided by BHS potentially exposes it to greater risks of liability than may be
borne by other service businesses. However, BHS has not experienced any major
liability losses. BHS carries insurance of various types, including general
liability and errors and omissions insurance, to protect it from product
deficiencies and negligent acts of its employees. Certain of BHS's insurance
policies and the laws of some states limit or prohibit insurance coverage for
punitive or certain other kinds of damages arising from employees' misconduct.
REGULATION:
BHS and its personnel are subject to various Federal, state and local consumer
protection, licensing and other laws and regulations. BHS's business relies upon
the use of telephone lines to communicate signals, and telephone companies are
currently regulated by both the Federal and state governments. BHS's wholly
owned Canadian Subsidiary, Brink's Home Security Canada Limited, is subject to
the laws of Canada, British Columbia and Vancouver. The alarm service industry
has experienced a high incidence of false alarms in some communities, including
communities in which BHS operates. This has caused some local governments to
impose assessments, fines and penalties on subscribers of alarm companies
(including BHS) based upon the number of false alarms reported. There is a
possibility that at some point some police departments may refuse to respond to
calls from alarm companies which would necessitate that private response forces
be used to respond to alarm signals. Regulation of installation and monitoring
of fire detection devices has also increased in several markets.
COMPETITION:
BHS competes in many of its markets with numerous small local companies,
regional companies and several large national firms. BHS believes that it is one
of the leading firms engaged in the business of installing, servicing and
monitoring electronic security systems in the single-family home marketplace.
BHS offers a lower initial price than many of its competitors, although, in
recent years competition has greatly intensified in all of BHS markets. Several
significant competitors offer installation prices which match or are less than
BHS; however, many of the small local competitors in BHS markets continue to
charge significantly more for installation. The regional telecommunication
companies could become significant competitors in the home security business,
depending on regulatory developments affecting those companies. BHS believes
that the quality of its service compares favorably with that provided by
competitors and that the Brink's name and reputation also provide an important
competitive advantage.
EMPLOYEES:
BHS has approximately 1,300 employees, none of whom is covered by a collective
bargaining agreement. BHS believes that its employee relations are satisfactory.
PROPERTIES:
BHS operates from 40 leased offices and warehouse facilities across the United
States. All premises protected by BHS alarm systems are monitored from its
central monitoring station in suburban Dallas which is held by BHS under a lease
expiring in 1996. The adjacent National Support Center, where administrative,
technical, and marketing services are performed to support branch operations, is
also held under a lease expiring in 1996. The lease for the backup monitoring
center
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in Arlington, Texas, expires in 1998. BHS retains ownership of nearly all the
318,000 systems currently being monitored. BHS leases all the vehicles used for
installation and servicing of its security systems.
Pittston Minerals Group
-----------------------------------------------------------------
DESCRIPTION OF BUSINESSES
Pittston Minerals Group (the 'Minerals Group') is primarily engaged in the
mining, preparation and marketing of coal, the purchase of coal for resale and
the sale or leasing of coal lands to others through its Coal operations. The
Minerals Group also explores for and acquires mineral assets other than coal
through its Pittston Mineral Ventures Company ('PMV') operations, although
revenues from such activities currently represent less than 2% of Minerals Group
revenues.
COAL OPERATIONS
GENERAL:
Coal operations produces coal from approximately 26 surface and deep mines
located in Virginia, West Virginia, eastern Kentucky and Ohio for consumption in
the steam and metallurgical markets. Steam coal is sold primarily to utilities
and industrial customers located in the eastern United States. Metallurgical
coal is sold to steel and coke producers primarily located in Japan, Korea, the
United States, Europe, the Mediterranean basin and Brazil.
Coal operations' strategy is to develop its business as a low-cost producer of
steam coal and to reduce its exposure to metallurgical coal markets while
maintaining a presence in such markets. Coal operations has substantial reserves
of low sulphur coal which can be produced primarily from surface mines. Steam
coal is sold primarily to domestic utility customers through long-term contracts
which have the affect of moderating the impact of short-term market forces. Most
of the steam coal consumed in the United States is used to generate electricity.
Coal fuels approximately 500 of the nation's 3,000 electric power plants, with
larger facilities consuming more than 10,000 tons of coal daily. In 1993 coal
accounted for approximately 56% of the electricity generated by the electric
utility industry having increased from approximately 54% in 1983. Given the
absence of any new nuclear power plants under construction and the impact of
certain environmental legislation mandating lower sulphur emissions by power
plants, Coal operations believes that its production of low sulphur steam coals
should be well matched to market dynamics. In addition, reduction in
governmental subsidies for coal production in Europe may provide opportunities
for Coal operations to utilize its export infrastructure to penetrate this
market as well.
By contrast, the market for metallurgical coal, for most of the past fifteen
years, has been characterized by weak demand from primary steel producers and
intense competition from foreign coal producers, especially those in Australia
and Canada who had benefited over this period from a declining currency versus
the U.S. dollar, since coal sales contracts are denominated in U.S. dollars.
Metallurgical coal sales contracts typically are subject to annual price
renegotiation, which increases the exposure to market forces. Nonetheless, it
appears that beginning in late 1994 reductions in the supply of metallurgical
coal and improved operating rates for primary steel producers in Japan and
Europe have improved the current supply-demand balance for metallurgical coal,
and have created some current shortages of certain high-quality mid-volatile
metallurgical coals. Coal operations has not yet reached agreement on pricing
with its principal metallurgical export coal customers for the contract year
beginning April 1, 1995. Certain European metallurgical customers (including two
of Coal operations') have agreed to price increases for the current contract
year. While these recent developments have not changed Coal operations'
fundamental strategy (i.e., reducing its exposure to the metallurgical market),
Coal operations, given its significant reserves of metallurgical coal, long term
customer relations and export infrastructure, expects to maintain a presence in
the metallurgical coal business.
Since 1986 Coal operations has pursued its strategy through a combination of (i)
selected acquisitions of steam coal assets and related sales contracts, (ii)
development of lower-cost surface mines and (iii) divestiture and closures of
uneconomical metallurgical coal mining operations. For example, since 1993 Coal
operations has opened three large surface mines in the vicinity of its Rum Creek
preparation and loading complex in West Virginia and is in the process of
upgrading that facility to load 10,000 ton unit trains in four hours. When
completed in the first half of 1995, the three mines and loading facility will
have the capability of producing, blending and loading over five million tons of
steam coal annually. In March of 1992 Coal operations acquired from Addington
Resources, Inc. ('Addington') for $42.7 million in cash, two long-term contracts
to supply steam coal to a utility as well as certain highwall mining systems.
Subsequently, in January of 1994, Coal operations
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acquired substantially all of the remaining coal mining operations and coal
sales contracts of Addington, adding approximately 8.5 million tons of annual
low sulphur steam coal production and sales and providing additional reserves of
surface mineable low sulphur coal. The sales contracts acquired, some of which
contain terms in excess of five years, provide a broader base of domestic
utility customers.
With regard to divestitures, in 1992 Coal operations sold Sewell Coal Company,
which had conducted deep mine metallurgical coal operations, and sold certain
other coal reserves and coal lands; in February 1993 Coal operations sold a coal
preparation plant and related interests in land, equipment and facilities in
Stone, Kentucky, as well as certain coal lands and mining rights for $24 million
in cash and other property. In early 1995 Coal operations closed its McClure
River longwall mine and preparation facility which had produced metallurgical
coal for the export market. The significant investment required to maintain this
mine could not be justified given the uncertain nature of the metallurgical coal
market.
As a result of such strategic activities, Coal operations' steam coal sales as a
percentage of total coal sales have risen from approximately 35% in 1985 to 65%
for the year ended December 31, 1994. Coal operations' total coal production
from surface mines as a percentage of Coal operations' total coal production has
grown from approximately 2% in 1985 to 69% in 1994.
PRODUCTION:
The following table indicates the approximate tonnage of coal purchased and
produced by the Coal operations in 1994, 1993 and 1992:
<TABLE>
<S> <C> <C> <C>
(In thousands) 1994 1993 1992
----------------------------------------------------------------
PRODUCED:
Deep 4,857 7,061 8,642
Surface 15,107 7,492 5,804
Contract 2,364 2,521 2,792
----------------------------------------------------------------
22,328 17,074 17,238
Purchased 5,826 4,533 3,607
----------------------------------------------------------------
Total 28,154 21,607 20,845
----------------------------------------------------------------
</TABLE>
Of the coal production in 1994 approximately 35% was produced for sale as
metallurgical coal and 65% was produced for sale as steam coal.
In April 1993 Coal operations commenced production at its $15 million Tower
Mountain surface mine in Logan County, West Virginia, employing many former
underground miners who were retrained to operate large scale surface equipment.
Operating under a mining plan known as mountaintop removal, the Tower Mountain
mine utilizes 150 ton trucks to remove rock and overburden and uncover coal at a
low cost. In 1994 this operation produced 1.7 million tons of coal.
Building on the success of Tower Mountain, Coal operations in 1994 opened two
additional surface mines, Boardtree and Bandmill, in the same general area of
West Virginia, also employing retrained underground miners. Taken together these
three mines are expected to produce over five million tons annually of low
sulphur steam coal. The coal produced from these mines will be shipped from the
Rum Creek loading facility which is being upgraded at the cost of $6.8 million
to load 10,000 ton unit trains in four hours, thereby reducing the delivered
cost to the customer.
In connection with the 1994 acquisition of substantially all the coal mining
operations and coal sales contracts of Addington, Coal operations acquired
surface and deep mines, river docks, preparation plants and rail loading
facilities. As part of the acquisition Coal operations entered into a coal
purchase agreement for 4.9 million tons over a four year period. In addition,
Coal operations also purchased four highwall mining systems from an affiliate of
Addington, bringing to eight the total number of such systems owned by Coal
operations. These systems, which follow contour surface mining, achieve
productivity levels which can exceed conventional surface mining methods. During
1994, productivity and costs of the four operating surface mines acquired from
Addington did not meet expectations and adverse geological conditions were
encountered at one of the mines.
In June 1994 Coal operations prematurely terminated operations at its Heartland
surface mine in Lincoln County, West Virginia, due to rising costs caused by
adverse geological conditions that could not be overcome.
Productivity continues to benefit from the operating flexibilities contained in
the labor agreements with the United Mine Workers of America (the 'UMWA'). Since
the signing of the 1990 Agreement, no significant labor disruptions have
occurred. On June 21, 1994, a successor collective bargaining agreement between
Coal operations' union companies and the UMWA was ratified by such companies'
union employees, replacing the principal labor agreement which expired on June
30, 1994.
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SALES:
The following table indicates the approximate tonnage of coal sold by Coal
operations in 1994, 1993 and 1992 in the domestic (North American) and export
markets and by categories of customers:
<TABLE>
<S> <C> <C> <C>
1994 1993 1992
(In thousands, except per ton amounts)
----------------------------------------------------------------
DOMESTIC:
Steel and coke producers 769 1,854 1,931
Utility, industrial and other 18,198 10,277 8,432
----------------------------------------------------------------
18,967 12,131 10,363
EXPORT:
Steel and coke producers 9,115 9,821 10,367
----------------------------------------------------------------
Total sold 28,082 21,952 20,730
----------------------------------------------------------------
Average selling price per ton $27.70 $29.67 $30.96
----------------------------------------------------------------
</TABLE>
In 1994 Coal operations sold approximately 28.1 million tons of coal, of which
approximately 18.8 million tons were sold under contracts having a term of more
than one year ('long-term contract'). At December 31, 1994, approximately 94.3
million tons were committed for sale under long-term contracts expiring at
various times through July 2007. Contracts relating to the greater part of this
tonnage are subject to periodic price renegotiation, which can result in
termination by the purchaser or the seller prior to contract expiration in case
the parties should fail to agree upon price.
The ten largest domestic customers purchased 13.0 million tons of coal in 1994
(46% of total coal sales and 69% of domestic coal sales, by tonnage). The three
largest domestic customers purchased 7.0 million tons of coal in 1994 (25% of
total coal sales and 37% of domestic coal sales, by tonnage). In 1994 American
Electric Power Company purchased 3.6 million tons of coal, accounting for 13% of
total coal sales and 19% of domestic coal sales, by tonnage.
Of the 9.1 million tons of coal sold in the export market in 1994, the ten
largest customers accounted for 5.3 million tons (19% of total coal sales and
59% of export coal sales, by tonnage) and the three largest customers purchased
2.5 million tons (9% of total coal sales and 27% of export coal sales, by
tonnage). Export coal sales are made principally under annual contracts or
long-term contracts that are subject to annual price renegotiation. Under these
export contracts, the price for coal is expressed and paid in United States
dollars.
Virtually all coal sales in the domestic utility market pursuant to long-term
contracts are subject to periodic price adjustment on the basis of provisions
which permit an increase or decrease periodically in the price of coal sold
thereunder to reflect increases and decreases in certain price indices and, in
certain cases, such items as changes in taxes other than income taxes and, when
the coal is sold other than FOB the mine, changes in railroad and barge freight
rates. The provisions, however, are not identical in all of such contracts, and
the selling price of the coal does not necessarily reflect every change in
production cost incurred by the seller. These contracts are also generally
subject to periodic price renegotiation.
Contracts for the sale of metallurgical coal in the domestic and export markets
are generally subject to price renegotiation on an annual basis. Approximately
2.5 million tons, or 27%, of Coal operations' 1994 export coal sales of
metallurgical coal were made to Japanese customers under similar long-term
contracts which continue in effect through various dates, the latest of which is
March 31, 1996, in each case subject to annual negotiation of price and other
terms. Agreements as to price have not been reached with the principal Japanese
customers for the contract year commencing April 1, 1995. However, it is
anticipated that prices are expected to increase over 1994 levels.
COMPETITION:
The bituminous coal industry is highly competitive. Coal operations competes
with many other large coal producers and with hundreds of small producers in the
United States and abroad.
In the export market many foreign competitors, particularly Australian, South
African and Canadian coal producers, benefit from certain competitive advantages
existing in the countries in which they operate, such as less difficult mining
conditions, less severe government regulation and lower labor and health benefit
costs, as well as currencies which had generally depreciated against the United
States dollar, although the Australian dollar strengthened in 1994. While the
metallurgical coal produced by Coal operations is generally of higher quality
and is often used by foreign steel producers to blend with coals from other
sources to improve the quality of coke and coke oven efficiency, in recent years
steel producers have developed facilities and techniques which, to some extent,
enable them to accept lower quality metallurgical coal in their coke ovens.
Moreover, new technologies for steel production using pulverized coal injection,
direct reduction iron and the electric arc furnace may reduce the demand for
metallurgical coal of all types.
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Coal operations competes domestically on the basis of the high quality of its
coal which is not only valuable in the making of steel but, because of low
sulphur and high heat content, is also an attractive source of fuel to the
electric utility and other coal burning industries.
Other factors which affect competition include the price, availability and
public acceptance of alternative energy sources (in particular, oil, natural
gas, hydroelectric power and nuclear power), as well as the impact of federal
energy policies. Coal operations is not able to predict the effect, if any, on
its business (especially with respect to sales to domestic utilities) of
particular price levels for such alternative energy sources, especially oil and
natural gas. However, any sustained and marked decline in such prices could have
a material adverse effect on such business.
ENVIRONMENTAL MATTERS:
The Surface Mining Control and Reclamation Act of 1977 and the regulations
promulgated thereunder ('SMCRA') by the Federal Office of Surface Mining
Reclamation and Enforcement ('OSM'), and the enforcement thereof by the U.S.
Department of the Interior, establish mining and reclamation standards for all
aspects of surface mining as well as many aspects of deep mining. SMCRA also
imposes a tax of $0.35 on each ton of surface-mined coal and $0.15 on each ton
of deep-mined coal. OSM and its state counterparts monitor compliance with SMCRA
and its regulations by the routine issuance of 'notices of violation' which
direct the mine operator to correct the cited conditions within a stated period
of time. Coal operations' policy is to correct the conditions that are the
subject of these notices or to contest those believed to be without merit in
appropriate proceedings.
Coal operations is involved in previously reported litigation with the state and
federal agencies that regulate the environmental aspects of underground and
surface mining. The litigation arises from the agencies' attempt to hold Coal
operations liable for the unabated violations, civil penalties, and AML fees of
other companies ('contractors') that have contracted in the past to mine Coal
operations' coal. In so doing, the agencies are retroactively applying
'ownership or control' regulations first promulgated in 1988, to past
transactions and ended relationships. The regulations are designed to 'block' or
deny mining permits to any company that is 'linked' by 'ownership or control' to
another company that has outstanding violations, penalties or fees. The company
that is so linked cannot obtain new permits until the outstanding liabilities of
the violator are satisfied.
In 1991, Coal operations filed an action against the Secretary of Interior and
the State of Virginia to enjoin the agencies from blocking Coal operations'
permits without first providing due process. The district court ruled that the
United States Constitution requires the government to give Coal operations
notice and an opportunity to contest the charges before blocking permits or
taking other action to hold Coal operations liable for the alleged contractor
violations. However, the court later ruled against Coal operations on a
jurisdictional issue, holding that the case was a challenge to the ownership and
control regulations themselves which had to be filed in the District of
Columbia.
Coal operations has appealed the district court's decision on jurisdiction to
the Fourth Circuit Court of Appeals. At the request of Coal operations, the
district court left its injunction in force during the appeal to the Fourth
Circuit, and the Fourth Circuit denied the government's motion to dissolve the
injunction pending appeal. Following briefing and oral argument in October of
1992, the Fourth Circuit stayed its ultimate decision in the case pending a
final disposition in a District of Columbia case in which industry groups have
challenged the validity of the ownership or control rules. The District of
Columbia case is awaiting decision on motions for summary judgment, which have
been fully briefed and argued.
It has been over two years since the Fourth Circuit stayed its decision. How
long the court will continue to do so is unknown. If the case is decided
adversely to Coal operations, Coal operations may seek transfer to Washington or
further review in the Supreme Court. If the injunction is dissolved and a permit
block results, Coal operations will have to pay or settle the claims involving
these contractors.
While the total liabilities of these contractors has not been determined at this
time, it is estimated that they have outstanding civil penalties of
approximately $2.0 million and unpaid AML fees of approximately $1.5 million (as
of March 1994). In addition, the contractors may have outstanding reclamation
obligations of several million dollars. Firm figures of the reclamation costs
have not been determined at this time.
Coal operations is subject to various federal environmental laws, including the
Clean Water Act, the Clean Air Act and the Safe Drinking Water Act, as well as
state laws of similar scope in Virginia, West Virginia, Kentucky and Ohio. These
laws require approval of many aspects of coal mining operations,
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and both federal and state inspectors regularly visit Coal operations' mines and
other facilities to assure compliance.
While it is not possible to quantify the costs of compliance with all applicable
federal and state laws, those costs have been and are expected to continue to be
significant. In that connection, it is estimated that Coal operations will make
capital expenditures for environmental control facilities in the amount of
approximately $1.7 million in 1995 and $1.7 million in 1996. Compliance with
these laws has substantially increased the cost of coal mining, but is, in
general, a cost common to all domestic coal producers. Pittston believes that
the competitive position of Coal operations has not been and should not be
adversely affected except in the export market where Coal operations competes
with various foreign producers subject to less stringent environmental
regulation.
Federal, state and local authorities strictly monitor the sulphur dioxide and
particulate emissions from electric power plants served by Coal operations. In
1990 Congress enacted the Clean Air Act Amendments of 1990, which, among other
things, permit utilities to use low sulphur coals in lieu of constructing
expensive sulphur dioxide removal systems. Pittston believes that such Act
should have a favorable impact on the marketability of Coal operations'
extensive reserves of low sulphur coals. However, Pittston cannot predict at
this time the timing or extent of such favorable impact.
MINE HEALTH AND SAFETY LAWS:
The coal operating companies included within Coal operations are generally
liable under federal laws requiring payment of benefits to coal miners with
pneumoconiosis ('black lung'). The Black Lung Benefits Revenue Act of 1977 and
the Black Lung Benefits Reform Act of 1977 (the '1977 Act'), as amended by the
Black Lung Benefits and Revenue Amendments Act of 1981 (the '1981 Act'),
expanded the benefits for black lung disease and levied a tax on coal production
of $1.10 per ton for deep-mined coal and $0.55 per ton for surface-mined coal,
but not to exceed 4.4% of the sales price. In addition, the 1981 Act provides
that certain claims for which coal operators had previously been responsible
will be obligations of the government trust funded by the tax. The 1981 Act also
tightens standards set by the 1977 Act for establishing and maintaining
eligibility for benefits. The Revenue Act of 1987 extended the termination date
of the tax from January 1, 1996 to the earlier of January 1, 2014 or the date on
which the government trust becomes solvent. Pittston cannot predict whether any
future legislation effecting changes in the tax will be enacted.
Stringent safety and health standards have been imposed by federal legislation
since 1969 when the Federal Coal Mine Health and Safety Act was adopted, which
resulted in increased operating costs and reduced productivity. The Federal Mine
Safety and Health Act of 1977 significantly expanded the enforcement of health
and safety standards.
Compliance with health and safety laws is, in general, a cost common to all
domestic coal producers. Pittston believes that the competitive position of Coal
operations has not been and should not be adversely affected except in the
export market where Coal operations competes with various foreign producers
subject to less stringent health and safety regulations.
LABOR AGREEMENTS; EMPLOYEE RELATIONS:
In January 1990, after a 46-week strike, various coal subsidiaries of Pittston
(collectively, the 'Coal Subsidiaries') entered into the 1990 Agreement with the
UMWA. The 1990 Agreement provided for increases in wages and benefits, expanded
job security for the Coal Subsidiaries' employees, new health care cost
containment measures and operational flexibility for the Coal Subsidiaries,
including the right to operate 24 hours per day, seven days per week. The 1990
Agreement expired on June 30, 1994.
On June 21, 1994, a successor collective bargaining agreement between the Coal
Subsidiaries' union companies and the UMWA was ratified by such companies' union
employees, replacing the 1990 Agreement. The new agreement will remain in effect
until December 31, 1998. This agreement continues the basic principles and
provisions established in the 1990 Agreement with respect to the areas of job
security, work rules and scheduling. The new agreement provides for, among other
things, wage increases of $.40 per hour on December 15 of each of the years 1994
to 1997 and includes improvements in certain employee benefit programs.
In January 1993 the Coal Subsidiaries entered into a Memorandum of Understanding
which modified the 1990 Agreement to cover the terms and conditions of
employment at Coal operations' Tower Mountain and other surface mines located in
Logan and Boone Counties, West Virginia. Such Memorandum expires on January 31,
1997.
At March 1, 1995 approximately 820 of the 2,729 employees of Coal operations
were members of the UMWA. The remainder of such employees are either supervisory
personnel or unrepresented hourly employees. Since the signing of the
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1990 Agreement, no significant labor disruptions have occurred. Pittston
believes that its employee relations are satisfactory.
HEALTH BENEFIT ACT:
In October 1992 the Coal Industry Retiree Health Benefit Act of 1992 (the
'Health Benefit Act') was enacted as part of the Energy Policy Act of 1992. The
Health Benefit Act established rules for the payment of future health care
benefits for thousands of retired union mine workers and their dependents. Part
of the burden for these payments was shifted by the Health Benefit Act from
certain coal producers, which had a contractual obligation to fund such
payments, to producers such as Pittston which have collective bargaining
agreements with the UMWA that do not require such payments and to numerous other
companies which are no longer in the coal business. The Health Benefit Act
established a trust fund to which 'signatory operators' and 'related persons',
including Pittston and certain of its coal subsidiaries (collectively, the
'Pittston Companies'), are obligated to pay annual premiums for assigned
beneficiaries, together with a pro rata share for certain beneficiaries who
never worked for such employers, including, in Pittston's case, the Pittston
Companies ('unassigned beneficiaries'), in amounts determined by the Secretary
of Health and Human Services on the basis set forth in the Health Benefit Act.
In October 1993 the Pittston Companies received notices from the Social Security
Administration (the 'SSA') with regard to their assigned beneficiaries for which
they are responsible under the Health Benefit Act. For 1993 and 1994 these
amounts were approximately $9.1 million and $11.0 million, respectively.
Pittston believes that the annual cash funding under the Health Benefit Act for
the Pittston Companies' assigned beneficiaries will continue in the $10 to $11
million range for the next eight years and should begin to decline thereafter as
the number of such assigned beneficiaries decreases.
Based on the number of beneficiaries actually assigned by the SSA, Pittston
estimates the aggregate pretax liability relating to the Pittston Companies'
assigned beneficiaries at December 31, 1994 at approximately $250 million, which
when discounted at 8.75% provides a present value estimate of approximately $100
million.
The ultimate obligation that will be incurred by Pittston could be significantly
affected by, among other things, increased medical costs, decreased number of
beneficiaries, governmental funding arrangements, and such federal health
benefit legislation of general application as may be enacted. In addition, the
Health Benefit Act requires the Pittston Companies to fund, pro rata according
to the total number of assigned beneficiaries, a portion of the health benefits
for unassigned beneficiaries. At this time, the funding for such health benefits
is being provided from another source and for this and other reasons the
Pittston Companies' ultimate obligation for the unassigned beneficiaries cannot
be determined. Pittston accounts for the obligation under the Health Benefit Act
as a participant in a multi-employer plan and recognizes the annual cost on a
pay-as-you-go basis.
EVERGREEN CASE:
In 1988 the trustees of certain pension and benefit trust funds (the 'Funds')
established under collective bargaining agreements with the UMWA brought an
action (the 'Evergreen Case') against Pittston and a number of its coal
subsidiaries in the United States District Court for the District of Columbia,
claiming that the defendants are obligated to contribute to the Funds in
accordance with the provisions of the 1988 and subsequent National Bituminous
Coal Wage Agreements, to which neither Pittston nor any of its subsidiaries is a
signatory. In January 1992 the District Court issued an order granting summary
judgment on the issue of liability which was thereafter affirmed by the Court of
Appeals. In June 1993 the United States Supreme Court denied a petition for a
writ of certiorari. The case has been remanded to the District Court, and damage
and other issues remain to be decided. In September 1993 the Company filed a
motion seeking relief from the District Court's grant of summary judgment to
plaintiffs based on, among other things, the Company's allegation that
plaintiffs improperly withheld evidence that directly refutes plaintiffs'
representations to the District Court and the Court of Appeals in this case. In
December 1993 that motion was denied. On May 23, 1994, the trustees filed a
Motion for Entry of Final Judgment seeking approximately $71.1 million in
delinquent contributions, interest and liquidated damages through May 31, 1994,
plus approximately $17.4 thousand additional interest and liquidated damages for
each day between May 31, 1994 and the date final judgment is entered, plus
ongoing contributions to the 1974 Pension Plan. The Company has opposed this
motion. There has been no decision on this motion or final judgment entered to
date.
In furtherance of its ongoing effort to identify other available legal options
for seeking relief from what it believes to be an erroneous finding of liability
in the Evergreen Case, the Company has filed suit against the Bituminous Coal
Operators Association and others (the 'BCOA Case') to hold them
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responsible for any damages sustained by the Company as a result of the
Evergreen Case. Although the Company is continuing that effort, the Company,
following the District Court's ruling in December 1993, recognized the potential
liability that may result from an adverse judgment in the Evergreen Case. In any
event, any final judgment in the Evergreen Case will be subject to appeal.
In December 1994, the District Court ordered that the Evergreen Case, as well as
related cases filed against other coal companies, and the BCOA Case be submitted
to mediation before a Federal judge in an effort to obtain a settlement. The
mediation process is ongoing.
As a result of the Health Benefit Act described above, there is no continuing
liability in this case in respect of health benefit funding after February 1,
1993.
PROPERTIES:
The principal properties of Coal operations are coal reserves, coal mines and
coal preparation plants, all of which are located in Virginia, West Virginia,
eastern Kentucky and Ohio. Such reserves are either owned or leased. Leases of
land or coal mining rights generally are either for a long-term period or until
exhaustion of the reserves, and require the payment of a royalty based generally
on the sales price and/or tonnage of coal mined from a particular property. Many
leases or rights provide for payment of minimum royalties.
Pittston estimates that Coal operations' proved and probable surface mining,
deep mining and total coal reserves as of December 31, 1994 were 158 million,
228 million and 386 million tons*, respectively. Such estimates represent
economically recoverable and minable tonnage and include allowances for
extraction and processing.
Of the 386 million tons of proved and probable coal reserves as of December 31,
1994, approximately 75% has a sulphur content of less than 1% (which is
generally regarded in the industry as low sulphur coal) and approximately 25%
has a sulphur content greater than 1%. Approximately 24% of such reserves
consists of primarily metallurgical grade coal.
As of December 31, 1994, Coal operations controlled approximately 963 million
tons of additional coal deposits in the eastern United States, which cannot be
expected to be economically recovered without market improvement and/or the
application of new technologies. Coal operations also owns substantial
quantities of low sulphur coal deposits in Sheridan County, Wyoming.
Most of the oil and gas rights associated with Coal operations' properties are
managed by an indirect wholly owned subsidiary of Pittston which, in general,
receives royalty and other income from oil and gas development and operation by
third parties. Coal operations also receives incidental income from the sale of
timber cutting rights on certain properties.
Coal operations owns a 32.5% interest in Dominion Terminal Associates ('DTA'),
which leases and operates a ground storage-to-vessel coal transloading facility
in Newport News, Virginia. DTA has a throughput capacity of 22.0 million tons of
coal per year and ground storage capacity of 2.0 million tons. A portion of Coal
operations' share of the throughput and ground storage capacity of the DTA
facility is subject to user rights of third parties which pay Coal operations a
fee. The DTA facility serves export customers, as well as domestic coal users
located on the eastern seaboard of the United States. For information relating
to the financing arrangements for DTA, see Note 12 to Minerals Group Financial
Statements included in Part II hereof.
MINERAL VENTURES
PMV's business is directed at locating and acquiring mineral assets, advanced
stage projects and operating mines. PMV is currently evaluating gold projects in
the United States and Australia. An exploration office has been opened in Reno,
Nevada, to coordinate PMV's expanded exploration program in the Western United
States. In 1994 PMV expended approximately $2.8 million on all of such programs.
The Stawell gold mine, located in the Australian state of Victoria, in which PMV
has a net equity interest of 67%, produced 77,966 ounces of gold in 1994. PMV
estimates that on December 31, 1994, the Stawell gold mine had approximately
3,860,000 tons of proved and probable gold ore reserves at an average grade of
about .115 of an ounce per ton. In-mine exploration at Stawell continues to
generate positive results.
------------------------------------
* As referred to herein, 'tons' are defined as short tons of 2,000 pounds
unless otherwise indicated.
---
14
<PAGE>
--------------------------------------------------------------------------------
The Pittston Company and Subsidiaries
-----------------------------------------------------------------
MATTERS RELATING TO FORMER
OPERATIONS
In April 1990 the Company entered into a settlement agreement to resolve certain
environmental claims against the Company arising from hydrocarbon contamination
at a petroleum terminal facility ('Tankport') in Jersey City, New Jersey, which
operations were sold in 1983. Under the settlement agreement the Company is
obligated to pay for 80% of the remediation costs. Based on data available to
the Company and its environmental consultants, the Company estimates its portion
of the clean-up costs, on an undiscounted basis, using existing technologies to
be between $6.7 million and $14.1 million over a period of up to five years.
Management is unable to determine that any amount within that range is a better
estimate due to a variety of uncertainties, which include the extent of the
contamination at the site, the permitted technologies for remediation and the
regulatory standards by which the clean-up will be conducted. The clean-up
estimates have been modified in light of certain regulatory changes promulgated
in December 1994.
The Company commenced an insurance coverage litigation in 1990, in the United
States District Court for the District of New Jersey, seeking a declaratory
judgment that all amounts payable by the Company pursuant to the Tankport
obligation were reimbursable under comprehensive general liability and pollution
liability policies maintained by the Company. Although the underwriters have
disputed this claim, management and its legal counsel believe that recovery is
probable of realization in the full amount of the claim. This conclusion is
based upon, among other things, the nature of the pollution policies which were
broadly designed to cover such contingent liabilities, the favorable state of
the law in the State of New Jersey (whose laws were held by the court to control
the interpretation of the policies), and numerous other factual considerations
which support the Company's analysis of the insurance contracts and rebut the
underwriters' defenses. Accordingly, there is no net liability in regard to the
Tankport obligation.
ITEM 3. LEGAL PROCEEDINGS
--------------------------------------------------------------------------------
For a description of the Evergreen Case, see Items 1 and 2: 'Pittston Minerals
Group -- Description of Businesses -- Coal Operations -- Evergreen Case.'
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
--------------------------------------------------------------------------------
Not applicable.
---
15
<PAGE>
The Pittston Company and Subsidiaries
--------------------------------------------------------------------------------
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list as of March 15, 1995, of the names and ages of the
executive and other officers of Pittston and the names and ages of certain
officers of its subsidiaries, indicating the principal positions and offices
held by each. There is no family relationship between any of the officers named.
<TABLE>
<CAPTION>
Name Age Positions and Offices Held Held Since
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EXECUTIVE OFFICERS:
Joseph C. Farrell 59 Chairman, President and Chief Executive Officer 1991
James B. Hartough 47 Vice President - Corporate Finance and Treasurer 1988
Frank T. Lennon 53 Vice President - Human Resources and Administration 1985
Gary R. Rogliano 43 Vice President - Controllership and Taxes 1991
OTHER OFFICERS:
Austin F. Reed 43 Vice President, General Counsel and Secretary 1994
Jonathan M. Sturman 52 Vice President - Corporate Development 1995
Arthur E. Wheatley 52 Vice President and Director of Risk Management 1988
SUBSIDIARY OFFICERS:
Michael T. Dan 44 President and Chief Executive Officer of Brink's, Incorporated 1993
Karl K. Kindig 43 President and Chief Executive Officer of Pittston Coal Company 1995
Peter A. Michel 52 President and Chief Executive Officer of Brink's Home Security, Inc. 1988
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Executive and other officers of Pittston are elected annually and serve at the
pleasure of its Board of Directors.
Mr. Farrell was elected to his present position effective October 1, 1991. From
July 1990 through September 1991, he served as President and Chief Operating
Officer of Pittston, and from 1984 to 1990, he served as Executive Vice
President of Pittston.
Mr. Reed has served as Vice President and Secretary since September 1993 and was
elected General Counsel in March 1994. Since 1989 he has served as General
Counsel to Brink's, Incorporated and Burlington Air Express Inc.
Mr. Rogliano was elected to his present position in October 1991. From 1986 to
1991, he served as Vice President and Director of Taxes of Pittston.
Messrs. Hartough, Lennon and Wheatley have served in their present positions for
more than the past five years.
Mr. Sturman was elected to his present position on February 3, 1995, having
served from December 1993 as Assistant to the Chairman of Pittston. Mr. Sturman
was Chief Financial Officer of Brink's, Incorporated, from August 1992 to
December 1993, Vice President, Operations Review of Pittston from October 1991
to August 1992 and Vice President and Controller of Pittston from 1986 through
October 1991.
Mr. Dan was elected President and Chief Executive Officer of Brink's,
Incorporated in July 1993. From August 1992 to July 1993 he served as President
of North American operations of Brink's, Incorporated and as Executive Vice
President of Brink's, Incorporated from 1985 to 1992.
Mr. Kindig was elected President and Chief Executive Officer of Pittston Coal
Company on January 1, 1995. He served as Vice President - Corporate Development
of Pittston from October 1991 to January 15, 1995. From 1990 to 1991 he served
as Vice President and General Counsel of Pittston Coal Management Company, and
from 1986 to 1990 he served as Counsel to Coal Operations.
Mr. Michel was elected President and Chief Executive Officer of Brink's Home
Security, Inc. in April 1988. From 1985 to 1987 he served as President and Chief
Executive Officer of Penn Central Technical Security Company.
---
16
<PAGE>
---------------------------------------------
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
--------------------------------------------------------------------------------
COMMON STOCK
-----------------------------------------------------------------
<TABLE>
<CAPTION>
Market Price Declared
High Low Dividends
---------------------------------------------------------------------
<S> <C> <C> <C>
THE PITTSTON COMPANY
1993
1st Quarter $17.25 13.63 $.075
2nd Quarter 19.00 15.63 .075
3rd Quarter (through July 26) 22.63 16.50 --
---------------------------------------------------------------------
PITTSTON SERVICES GROUP
1993
3rd Quarter (commencing July 6) $22.00 14.50 $.05
4th Quarter 29.75 21.00 .05
1994
1st Quarter $31.25 21.38 $.05
2nd Quarter 31.13 21.63 .05
3rd Quarter 31.25 27.00 .05
4th Quarter 29.00 23.13 .05
---------------------------------------------------------------------
PITTSTON MINERALS GROUP
1993
3rd Quarter (commencing July 6) $24.50 11.50 $.1625
4th Quarter 24.25 20.50 .1625
1994
1st Quarter $30.50 17.50 $.1625
2nd Quarter 22.00 17.25 .1625
3rd Quarter 24.25 17.75 .1625
4th Quarter 26.38 20.63 .1625
---------------------------------------------------------------------
</TABLE>
On July 26, 1993, the outstanding shares of the Company's common stock were
redesignated as Services Stock on a share-for-share basis and a second class of
common stock, designated as Minerals Stock, was distributed on a basis of one-
fifth of one share of Minerals Stock for each share of the Company's common
stock. The common stock prices represent the actual historical high and low
market prices. When issued trading for Services Stock and Minerals Stock
commenced on July 6, 1993.
Services Stock and Minerals Stock are traded on the New York Stock Exchange
under the ticker symbols 'PZS' and 'PZM', respectively. As of March 1, 1995,
there were approximately 5,802 and 4,567 shareholders of record of Services
Stock and Minerals Stock, respectively.
---
17
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
--------------------------------------------------------------------------------
The Pittston Company and Subsidiaries
--------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
FIVE YEARS IN REVIEW
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1994 1993 1992 1991
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES AND INCOME:
Net sales and operating revenues $2,667,275 2,256,121 2,073,041 1,884,408
Income (loss) before extraordinary credit
and cumulative effect of accounting changes 26,897(b) 14,146(b) 49,087(b) (28,835)
Extraordinary credit -- -- -- --
Cumulative effect of accounting changes -- -- -- (123,017)(d)
Net income (loss) 26,897(b) 14,146(b) 49,087(b) (151,852)
--------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION:
Net property, plant and equipment $ 445,834 369,821 376,872 332,232
Total assets 1,737,778 1,361,501 1,322,288 1,240,085
Long-term debt, less current maturities 138,071 58,388 91,208 71,962
Shareholders' equity $ 447,815 353,512 341,460 316,515
--------------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING (a):
Pittston Services Group 37,784 36,907 37,081 37,284
Pittston Minerals Group 7,564 7,381 7,416 7,457
--------------------------------------------------------------------------------------------------------------------------
PER PITTSTON SERVICES GROUP
COMMON SHARE (a):
Income before extraordinary credit and
cumulative effect of accounting changes $ 2.11(b) 1.28(b) .74(b) .56
Extraordinary credit -- -- -- --
Cumulative effect of accounting changes -- -- -- .01(d)
Net income 2.11(b) 1.28(b) .74(b) .57
Cash dividends .20 .1909 .1515 .1212
Book value $ 12.07(c) 10.07(c) 9.00(c) 9.64
--------------------------------------------------------------------------------------------------------------------------
PER PITTSTON MINERALS GROUP
COMMON SHARE (a):
Income (loss) before extraordinary credit and
cumulative effect of accounting changes $ (7.50) (4.47) 2.94 (6.66)
Extraordinary credit -- -- -- --
Cumulative effect of accounting changes -- -- -- (16.54)(d)
Net income (loss) (7.50) (4.47) 2.94 (23.20)
Cash dividends .65 .6204 .4924 .3939
Book value $ (10.74)(c) (3.31)(c) 1.68(c) (5.80)
<CAPTION>
(In thousands, except per share amounts) 1990
---------------------------------------------------------------------
<S> <C>
SALES AND INCOME:
Net sales and operating revenues 1,806,050
Income (loss) before extraordinary credit
and cumulative effect of accounting changes 46,192
Extraordinary credit 14,876
Cumulative effect of accounting changes --
Net income (loss) 61,068
---------------------------------------------------------------------
FINANCIAL POSITION:
Net property, plant and equipment 319,348
Total assets 1,120,471
Long-term debt, less current maturities 110,709
Shareholders' equity 479,732
---------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING (a):
Pittston Services Group 37,282
Pittston Minerals Group 7,456
---------------------------------------------------------------------
PER PITTSTON SERVICES GROUP
COMMON SHARE (a):
Income before extraordinary credit and
cumulative effect of accounting changes .31
Extraordinary credit .30
Cumulative effect of accounting changes --
Net income .61
Cash dividends .1212
Book value 9.60
---------------------------------------------------------------------
PER PITTSTON MINERALS GROUP
COMMON SHARE (a):
Income (loss) before extraordinary credit and
cumulative effect of accounting changes 4.63
Extraordinary credit .50
Cumulative effect of accounting changes --
Net income (loss) 5.13
Cash dividends .3939
Book value 16.35
</TABLE>
(a) For purposes of computing net income (loss) per common share and book value
per share for Pittston Services Group ('Services Group') and Pittston Minerals
Group ('Minerals Group') for the periods prior to July 1, 1993, the number of
shares of Pittston Services Group Common Stock ('Services Stock') are assumed to
be the same as the total corresponding number of shares of The Pittston
Company's (the 'Company') common stock. The number of shares of Pittston
Minerals Group Common Stock ('Minerals Stock') are assumed to equal one-fifth of
the number of shares of the Company's common stock (Note 9).
The initial dividends on the Services Stock and Minerals Stock were paid on
September 1, 1993. Dividends paid by the Company prior to September 1, 1993,
have been attributed to the Services and Minerals Groups in relation to the
initial dividends paid on the Services Stock and Minerals Stock.
(b) As of January 1, 1992, Brink's Home Security, Inc. elected to capitalize
categories of costs not previously capitalized for home security installations
to more accurately reflect subscriber installation costs. The effect of this
change in accounting principle was to increase income (loss) before
extraordinary credit and cumulative effect of accounting changes and net income
of the Company and the Services Group by $2,486 or $.07 per share of Services
Stock in 1994, $2,435 or $.07 per share of Services Stock in 1993 and by $2,596
or $.07 per share of Services Stock in 1992 (Note 4).
(c) Calculated based on the number of shares outstanding at end of the period
excluding shares outstanding under the Company's Employee Benefits Trust (Note
9).
(d) As of January 1, 1991, the Company adopted Statement of Financial Accounting
Standard No. 106 'Employers' Accounting for Postretirement Benefits Other Than
Pensions' and Statement of Financial Accounting Standard No. 109 'Accounting for
Income Taxes'.
---
18
<PAGE>
Pittston Services Group
--------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
The following Selected Financial Data reflects the results of operations and
financial position of the businesses which comprise Pittston Services Group
('Services Group') and should be read in connection with the Services Group's
financial statements. The financial information of the Services Group and
Pittston Minerals Group ('Minerals Group') supplements the consolidated
financial information of The Pittston Company and Subsidiaries (the 'Company')
and, taken together, includes all accounts which comprise the corresponding
consolidated financial information of the Company.
FIVE YEARS IN REVIEW
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1994 1993 1992 1991
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES AND INCOME:
Operating revenues $1,872,277 1,569,032 1,415,170 1,302,308
Income before extraordinary credit and
cumulative effect of accounting changes 79,845(b) 47,126(b) 27,277(b) 20,841
Extraordinary credit -- -- -- --
Cumulative effect of accounting changes -- -- -- 311(c)
Net income $ 79,845(b) 47,126(b) 27,277(b) 21,152
--------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION:
Net property, plant and equipment $ 225,372 188,076 169,736 160,783
Total assets 940,676 806,941 767,020 731,973
Long-term debt, less current maturities 49,896 58,109 91,208 71,962
Shareholder's equity $ 456,411 378,369 329,158 359,813
--------------------------------------------------------------------------------------------------------------------------
AVERAGE PITTSTON SERVICES GROUP COMMON
SHARES OUTSTANDING (a) 37,784 36,907 37,081 37,284
PITTSTON SERVICES GROUP COMMON SHARES
OUTSTANDING (a) 41,595 41,429 40,533 37,317
--------------------------------------------------------------------------------------------------------------------------
PER PITTSTON SERVICES GROUP COMMON SHARE (a):
Income before extraordinary credit and
cumulative effect of accounting changes $ 2.11(b) 1.28(b) .74(b) .56
Extraordinary credit -- -- -- --
Cumulative effect of accounting changes -- -- -- .01(c)
Net income 2.11(b) 1.28(b) .74(b) .57
Cash dividends .2000 .1909 .1515 .1212
Book value $ 12.07 10.07 9.00 9.64
<CAPTION>
(In thousands, except per share amounts) 1990
<S> <C>
-------------------------------------------------------------------
SALES AND INCOME:
Operating revenues 1,252,509
Income before extraordinary credit and
cumulative effect of accounting changes 11,636
Extraordinary credit 11,147
Cumulative effect of accounting changes --
Net income 22,783
-------------------------------------------------------------------
FINANCIAL POSITION:
Net property, plant and equipment 158,151
Total assets 719,304
Long-term debt, less current maturities 104,709
Shareholder's equity 357,858
-------------------------------------------------------------------
AVERAGE PITTSTON SERVICES GROUP COMMON
SHARES OUTSTANDING (a) 37,282
PITTSTON SERVICES GROUP COMMON SHARES
OUTSTANDING (a) 37,278
-------------------------------------------------------------------
PER PITTSTON SERVICES GROUP COMMON SHARE (A):
Income before extraordinary credit and
cumulative effect of accounting changes .31
Extraordinary credit .30
Cumulative effect of accounting changes --
Net income .61
Cash dividends .1212
Book value 9.60
</TABLE>
(a) For the periods prior to July 1, 1993, the number of shares of Pittston
Services Group Common Stock ('Services Stock') are assumed to be the same as the
total corresponding number of shares of the Company's common stock. Shares
outstanding at the end of the period include shares outstanding under the
Company's Employee Benefits Trust of 3,779 shares, 3,854 shares and 3,951 shares
at December 31, 1994, 1993 and 1992, respectively. Average shares outstanding do
not include these shares. The initial dividend on Services Stock was paid on
September 1, 1993. Dividends paid by the Company prior to September 1, 1993,
have been attributed to the Services Group in relation to the initial dividend
paid on the Services Stock. Book value per share is calculated based on the
number of shares outstanding at the end of the period excluding shares
outstanding under the Company's Employee Benefits Trust.
(b) As of January 1, 1992, Brink's Home Security, Inc. ('BHS') elected to
capitalize categories of costs not previously capitalized for home security
installations to more accurately reflect subscriber installation costs. The
effect of this change in accounting principle was to increase income before
extraordinary credit and cumulative effect of accounting changes and net income
by $2,486 or $.07 per share in 1994, $2,435 or $.07 per share in 1993 and by
$2,596 or $.07 per share in 1992 (Note 4).
(c) As of January 1, 1991, the Services Group adopted Statement of Financial
Accounting Standard No. 106 'Employers' Accounting for Postretirement Benefits
Other Than Pensions' and Statement of Financial Accounting Standard No. 109
'Accounting for Income Taxes'.
---
19
<PAGE>
Pittston Minerals Group
--------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
The following Selected Financial Data reflects the results of operations and
financial position of the businesses which comprise Pittston Minerals Group
('Minerals Group') and should be read in connection with the Minerals Group's
financial statements. The financial information of Minerals Group and Pittston
Services Group ('Services Group') supplements the consolidated financial
information of The Pittston Company and Subsidiaries (the 'Company') and, taken
together, includes all accounts which comprise the corresponding consolidated
financial information of the Company.
FIVE YEARS IN REVIEW
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1994 1993 1992 1991
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES AND INCOME:
Net sales $794,998 687,089 657,871 582,100
Income (loss) before extraordinary credit
and cumulative effect of accounting
changes (52,948) (32,980) 21,810 (49,676)
Extraordinary credit -- -- -- --
Cumulative effect of accounting changes -- -- -- (123,328)(b)
Net income (loss) $(52,948) (32,980) 21,810 (173,004)
--------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION:
Net property, plant and equipment $220,462 181,745 207,136 171,449
Total assets 867,512 606,247 587,696 528,176
Long-term debt, less current maturities 88,175 279 -- --
Shareholder's equity $ (8,596) (24,857) 12,302 (43,298)
--------------------------------------------------------------------------------------------------------------------------
AVERAGE PITTSTON MINERALS GROUP COMMON
SHARES OUTSTANDING (a) 7,594 7,381 7,416 7,457
PITTSTON MINERALS GROUP COMMON SHARES
OUTSTANDING (a) 8,390 8,281 8,107 7,463
--------------------------------------------------------------------------------------------------------------------------
PER PITTSTON MINERALS GROUP COMMON SHARE (a):
Income (loss) before extraordinary credit
and cumulative effect of accounting
changes $ (7.50) (4.47) 2.94 (6.66)
Extraordinary credit -- -- -- --
Cumulative effect of accounting changes -- -- -- (16.54)(b)
Net income (loss) (7.50) (4.47) 2.94 (23.20)
Cash dividends .65 .6204 .4924 .3939
Book value $ (10.74) (3.31) 1.68 (5.80)
<CAPTION>
(In thousands, except per share amounts) 1990
<S> <C>
-------------------------------------------------------------------
SALES AND INCOME:
Net sales 553,541
Income (loss) before extraordinary credit
and cumulative effect of accounting
changes 34,556
Extraordinary credit 3,729
Cumulative effect of accounting changes --
Net income (loss) 38,285
-------------------------------------------------------------------
FINANCIAL POSITION:
Net property, plant and equipment 161,197
Total assets 401,167
Long-term debt, less current maturities 6,000
Shareholder's equity 121,874
-------------------------------------------------------------------
AVERAGE PITTSTON MINERALS GROUP COMMON
SHARES OUTSTANDING (a) 7,456
PITTSTON MINERALS GROUP COMMON SHARES
OUTSTANDING (a) 7,456
-------------------------------------------------------------------
PER PITTSTON MINERALS GROUP COMMON SHARE (a):
Income (loss) before extraordinary credit
and cumulative effect of accounting
changes 4.63
Extraordinary credit .50
Cumulative effect of accounting changes --
Net income (loss) 5.13
Cash dividends .3939
Book value 16.35
</TABLE>
(a) For the periods prior to July 1, 1993, the number of shares of Pittston
Minerals Group Common Stock ('Minerals Stock') are assumed to equal one-fifth of
the number of shares of the Company's common stock. Shares outstanding at the
end of the period include shares outstanding under the Company's Employee
Benefits Trust of 723 shares, 770 shares and 790 shares at December 31, 1994,
1993 and 1992, respectively. Average shares outstanding do not include these
shares. The initial dividend on Minerals Stock was paid on September 1, 1993.
Dividends paid by the Company prior to September 1, 1993, have been attributed
to the Minerals Group in relation to the initial dividend paid on the Minerals
Stock. Book value per common share is calculated based on the number of shares
outstanding at the end of the period excluding shares outstanding under the
Company's Employee Benefits Trust.
(b) As of January 1, 1991, the Minerals Group adopted Statement of Financial
Accounting Standards No. 106 'Employers' Accounting for Postretirement Benefits
Other Than Pensions' and Statement of Accounting Standards No. 109 'Accounting
for Income Taxes'.
---
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
--------------------------------------------------------------------------------
The Pittston Company and Subsidiaries
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net income for The Pittston Company, (the 'Company'), for 1994 was $26.9 million
compared with $14.1 million for 1993. Operating profit totaled $42.9 million for
1994 compared with $26.1 million for 1993. Net income and operating profit for
1994 included charges totalling $58.1 million and $90.8 million, respectively,
attributable to the Company's Coal operations for asset writedowns and accruals
for costs related to facility shutdowns. Net income and operating profit for
1993 reflected similar charges, in addition to a litigation accrual, totalling
$48.9 million and $78.6 million, respectively. Such charges in 1993 impacted the
Company's Coal and Mineral Ventures operations. Net income and operating profit
for 1994 compared with 1993 were positively impacted by improved results from
each of the Company's services businesses, which include the operations of
Burlington Air Express Inc. ('Burlington'), Brink's, Incorporated ('Brink's')
and Brink's Home Security, Inc. ('BHS'), and from the Company's Mineral Ventures
business. In addition to the impact of asset writedowns and other restructuring
charges year to year, operating results for Coal operations declined for 1994
compared with 1993.
Net income and operating profit for 1992 was $49.1 million and $89.5 million,
respectively. The comparison of net income and operating profit for 1993 is also
affected by charges incurred beginning in 1993 for legislated health care
benefits for retired union mine workers and their dependents. In 1993, the
Company recognized a pre-tax charge of $10 million ($6.5 million after tax) for
these benefits. Net income and operating profit for 1992 were positively
impacted by a pension credit of $7.0 million and $11.1 million, respectively,
relating to the final year of amortization of the unrecognized initial net
pension asset at the date of adoption of Statement of Financial Accounting
Standards ('SFAS') No. 87, 'Employers Accounting for Pensions'. This credit was
recognized over the estimated remaining average service life of the Company's
employees at the date of adoption.
BURLINGTON
Operating profit of Burlington increased $31.2 million to $69.2 million in 1994
from $38.0 million in 1993. Worldwide revenues rose 22% to $1.2 billion in the
current year from $998.1 million in the prior year. The $217.2 million increase
in revenues resulted principally from higher volume in both domestic and
international markets.
Increased revenues from higher volumes were partially offset by lower average
yields (revenues per pound). Total weight shipped worldwide increased 22% to
1,248.5 million pounds in 1994 from 1,020.4 million pounds a year earlier.
Global average yield decreased less than 1% or $.01 to $.97 in 1994 compared
with a year earlier, whereas, total cost per pound decreased 2% or $.02 to $.92
for the year. Total operating expenses and selling, general and administrative
expenses increased in 1994 compared with 1993 largely resulting from the
increased volume of business.
Operating profit in the Americas' region for 1994 benefited from North American
volume increases, a significant portion of which was from increased shipping
levels. Such increases were aided by a strong economy and limited lift capacity
available to forwarders. Higher volume, in part, also reflected the impact of
the 24 day Teamsters strike in 1994. Export volumes also increased during 1994,
while pricing for U.S. exports was adversely impacted by competitive pricing.
Operating profit in the Americas' region benefited from growth in the North
American market for heavy airfreight, increased market share, a shift in mix
toward Burlington's premium next-day service, and, on a per pound basis, lower
private fleet, common carriage and cartage costs. Increased capacity as a result
of the fourth quarter 1993 expansion of Burlington's airfreight hub in Toledo,
Ohio, as well as the 1994 fleet expansion assisted in increasing efficiency and
provided additional capacity in existing and new next morning markets. Gains for
Americas' operations from increased business volume including a 23% increase in
domestic weight shipped and efficiencies were partially offset by decreased
average yields in 1994. Average yields continue to reflect a highly competitive
pricing environment.
Foreign operating results in 1994 decreased from the 1993 level. Although
foreign operations benefited from a 21% increase in international weight
shipped, the benefit of increased volumes was more than offset by lower yields,
additional costs incurred in connection with offering complete global logistics
services, and startup costs incurred in providing services in additional foreign
markets.
Operating profit of Burlington increased $22.9 million to $38.0 million in 1993
from $15.1 million in 1992. Worldwide revenues increased $97.8 million or 11% to
$998.1 million in 1993 from $900.3 million in 1992. The increase in revenues
primarily reflects volume increases only partially offset by lower average
yields. Total weight shipped worldwide for 1993
---
21
<PAGE>
--------------------------------------------------------------------------------
increased 14% to 1,020.4 million pounds from 893.0 million pounds in 1992.
Global average yield decreased 3% or $.03 to $.98 in 1993 compared to 1992 while
total cost per pound decreased 5% or $.05 to $.94. Total operating expenses
increased, while selling, general and administrative expenses decreased in 1993
compared with the prior year. Higher operating expenses resulting from the
increased volume of business in 1993 were, however, favorably impacted by
increased efficiency in private fleet operations achieved as a result of a fleet
upgrade to DC8-71 aircraft replacing B707 aircraft, accomplished by lease
transactions at year-end 1992 and in early 1993. During the 1993 fourth quarter
Burlington also completed a 30% expansion of its airfreight hub in Toledo, Ohio.
This expansion assisted in increasing efficiency, including higher average
weight shipped per container. Selling, general and administrative expenses in
1992 were adversely affected by charges for costs related to organizational
downsizing in both domestic and foreign operations.
Americas' operating profit in 1993 increased compared with 1992 largely due to
increased domestic and export volume and lower transportation costs per pound,
partially offset by decreased average yields. While average yields decreased in
1993 compared with 1992 reflecting a highly competitive pricing environment,
market improvement was evident during the last quarter of 1993 as load factors
increased.
Foreign operating results in 1993 also increased compared with results in 1992.
These operations benefited from a 16% increase in international weight shipped,
however such gains were partially offset by lower yields.
BRINK'S
Operating profit of Brink's increased $4.7 million to $39.7 million in 1994 from
$35.0 million in 1993. An increase in revenues of $65.1 million was offset to a
large extent by increases in operating expenses and selling, general and
administrative expenses of $59.4 million and a decrease in other operating
income of $1.0 million.
The increase in operating profit in 1994 was largely due to North American
operations. Revenue from North American operations increased $36.9 million or
12% to $337.6 million and operating profit increased $3.2 million or 16% to
$23.2 million. Air courier, diamond and jewelry, armored car, automated teller
machine ('ATM') servicing and coin wrapping operations each contributed to the
increase in North American operating profit in 1994, while results for currency
processing operations remained comparable to the prior year.
Revenue from international subsidiaries increased $28.2 million or 16% to $209.4
million, while operating earnings from international subsidiaries and affiliates
increased $1.5 million or 10% to $16.5 million compared to 1993. The most
significant improvements were recorded by operations in Brazil (100% owned) and
Israel (70% owned). Improvements were also recorded in the United Kingdom (100%
owned), Colombia (46% owned), Hong Kong (67% owned) and the Company's
international diamond and jewelry operations. Results for Holland (65% owned),
France (38% owned) and Chile (60% owned) declined from the prior year. Brazil's
operating profit for 1994 totaled $3.2 million in 1994 compared with $1.4
million in 1993. Brazil's earnings in 1994 were augmented by the large volume of
one-time special shipments of the new Brazilian currency and to a lesser extent
from increased volume due to the growth of money in circulation. Results for
Brazil in 1994 also included price increases obtained during the year to defray
the substantially higher security costs made necessary by the dramatic increase
in attacks on the armored car industry in Brazil. Although results were positive
during 1994, operational and inflationary problems caused by the Brazilian
economy make it uncertain as to whether this favorable trend in earnings will
continue. Brink's share of the equity in earnings from their Mexican affiliate
(20% owned) of $2.8 million in 1994 was comparable to the 1993 level. These
results were impacted by the local economic recession, and costs incurred to
streamline the operation, including work force reductions. Results in Mexico for
1994 were not significantly impacted by the devaluation of the peso in late
December 1994, however, if the foreign exchange value of the peso and general
economic conditions do not improve, results from this operation in the near term
could be significantly impacted.
In 1993, Brink's operating profit increased $4.6 million to $35.0 million from
$30.4 million in 1992. Worldwide operating revenues increased 9% or $37.9
million to $481.9 million with increased operating expenses and selling, general
and administrative expenses of $31.7 million and decreased other operating
income of $1.5 million.
A significant portion of the increase in revenues and operating profit in 1993
compared with 1992 was attributable to North American operations. Revenue from
North American operations increased $29.5 million or 11% to $300.7 million and
operating profit increased $4.2 million or 27% to $20.0 million. Increases in
ATM, armored car, air courier and coin wrapping results were partially offset by
a decrease in currency processing results.
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Revenue from international subsidiaries increased $8.4 million or 5% to $181.2
million, while operating results for international subsidiaries and affiliates
for 1993 remained comparable to 1992 results. Increased earnings from operations
in Brazil were offset by decreased results from the U.K. operation and Brink's
equity affiliate in Mexico. Operations in Brazil reported a $1.4 million
operating profit in 1993 compared with a $.3 million operating loss in 1992.
Results in the U.K. were affected by competitive price pressures, recessionary
pressures and the cost of a labor settlement. Operations of Brink's equity
affiliate in Mexico were affected by a recessionary economy, competitive
pressures, losses from new business ventures and severance costs incurred in
streamlining the work force.
BHS
Operating profit of BHS aggregated $32.4 million in 1994 compared with $26.4
million in 1993 and $16.5 million in 1992. The $6.0 million increase in
operating profit in 1994 compared with 1993 reflects increased monitoring
revenues, partially offset by increased installation expenses and increased
overhead costs. The $9.9 million increase in operating profit in 1993 compared
with 1992 reflects increased monitoring revenues, partially offset by increases
in installation expenses and servicing and overhead costs.
The increased monitoring revenue in 1994 as in 1993 was largely attributable to
an expanding subscriber base. Although total costs, including installation
expenses, increased as a result of the expanding subscriber base, such growth
contributed to improved economies of scale and other cost efficiencies achieved
in servicing BHS's subscribers. At year-end 1994, BHS had approximately 318,000
subscribers, 47% more than the year-end 1992 subscriber base. New subscribers
totaled 75,200 in 1994 and 59,700 in 1993. As a result, BHS's average subscriber
base increased by 21% in 1994 and 20% in 1993 as compared with each prior year.
As of January 1, 1992, BHS elected to capitalize categories of costs not
previously capitalized for home security installations to more accurately
reflect subscriber installation costs included as capitalized installation
costs, which added $4.1 million to operating profit in 1994 and 1993 and $4.3
million to operating profit in 1992. 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 (in the amount of $2.6 million in 1994 and 1993 and $2.3 million in
1992) and costs incurred in maintaining facilities and vehicles dedicated to the
installation process (in the amount of $1.5 million in 1994 and 1993 and $2.0
million in 1992). The increase in the amount capitalized, while adding to
current period profitability comparisons, defers recognition of expenses
over the estimated useful life of the installation. The additional subscriber
installation costs which are currently capitalized were expensed in prior years
for subscribers in those years. Because capitalized subscriber installation
costs for periods prior to January 1, 1992 were not adjusted for the change in
accounting principle, installation costs for subscribers in those years will
continue to be depreciated based on the lesser amounts capitalized in those
periods. Consequently, depreciation of capitalized subscriber installation costs
in the current year and until such capitalized costs prior to January 1, 1992
are fully depreciated will be less than if such prior periods' capitalized costs
had been adjusted for the change in accounting. However, the Company believes
the effect on net income in 1994, 1993 and in 1992 was immaterial. While the
amounts of the costs incurred which are capitalized vary based on current market
and operating conditions, the types of such costs which are currently
capitalized will not change. The change in the amount capitalized has no
additional effect on current or future cash flows or liquidity.
COAL
Coal operations had an $83.4 million operating loss in 1994 compared with an
operating loss of $48.2 million in 1993. Results for 1994 included the operating
results from substantially all the coal mining operations and coal sales
contracts of Addington Resources, Inc. ('Addington'), which were acquired by the
Coal operations on January 14, 1994. The Coal operating loss in 1994 included
$90.8 million of charges for asset writedowns and accruals for costs related to
facilities which are being closed (further discussed below). In addition,
operating results for 1994 reflected the adverse impact of the severe winter
weather in early 1994 which particularly hampered surface mine production and
river transportation. Operating profit in the current year included other
operating income primarily from third party royalties and sales of properties
and equipment of $15.1 million compared with $9.8 million in 1993. The operating
loss in 1993 included a $70.7 million charge related to mines which were closed
at the end of 1993 or early 1994, including employee benefit costs and certain
other noncash charges, together with the estimated liability in connection with
previously reported litigation (the 'Evergreen Case'), discussed later, brought
against the Company and a number of its coal subsidiaries by the trustees of
certain pension and benefit trust funds established under collective bargaining
agreements with the United Mine Workers of America ('UMWA'). Operating profit in
1993 was also negatively impacted by a $1.8 million charge to settle litigation
related to the moisture content of tonnage used to compute royalty payments to
the UMWA pension and benefit funds during the period ending February 1, 1988.
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Sales volume of 28.1 million tons for 1994 was 28% or 6.1 million tons higher
than sales volume in 1993. The increased sales were attributable to steam coal
with sales of 18.2 million tons (65% of total sales), up from 10.3 million tons
(47% of total sales) in 1993, while metallurgical coal sales decreased 15% from
11.7 million tons to 9.9 million tons. Coal produced (22.3 million tons) and
purchased (5.8 million tons) totaled 28.2 million tons for 1994, a 30% or 6.5
million ton increase over 1993. The increase in coal sales and coal
produced/purchased in 1994 as compared with 1993 was largely attributable to the
addition of the Addington operations.
In 1994, 31% of total production was derived from deep mines and 69% was derived
from surface mines compared with 54% and 46% of deep and surface mine
production, respectively, in 1993.
Average coal margin (realization less current production cost of coal sold),
which was $1.72 per ton in 1994 decreased $1.03 or 38% from the 1993 level with
a 7% or $1.91 per ton decrease in average realization, only partially offset by
a 3% or $.88 per ton decrease in average current production cost of coal sold.
The higher percentage of steam coal sales and declines in export metallurgical
coal prices contributed to the decline in average realization. The decrease in
average cost is largely due to the shift to lower cost surface production.
However, margins were negatively impacted by costs that have continued at higher
than expected levels, particularly at the Addington operations. In addition,
adverse geological conditions were also encountered at one of the mines acquired
from Addington. It is anticipated that for the 1995 first quarter continued
higher than expected costs will result in further margin deterioration and
operating losses. Management is reviewing its options of sources used to fulfill
its coal sales agreements and to reduce costs in an effort to improve margins.
Production and related costs in early 1994 were adversely impacted by the
extreme cold weather and above-normal precipitation which resulted in a large
number of lost production days and interruptions which limited output
efficiencies during periods of performance. Sales also suffered during this
period due to lost loading days and were impeded by restricted road
accessibility. Sales were further impacted by the lack of rail car availability
and the disruption of river barge service initially due to frozen waterways and
subsequently due to the heavy snow melt and rain, which raised the rivers above
operational levels. The severe weather early in the year also reduced output
from purchased coal suppliers, which hindered the ability to meet customer
shipments during the period. In addition to weather related difficulties,
operations in early 1994 were affected by lost business due to a utility
customer's plant closure and production shortfalls due to the withdrawal of
contract producers from the market.
Early in 1994 the metallurgical coal markets continued their long-term decline
with significant price reductions negotiated between Canadian and Australian
producers and Japanese steel mills. During the 1994 second quarter Coal
operations reached agreement with its major Japanese steel customers for new
three-year agreements (subject to annual price renegotiations) for metallurgical
coal shipments. Such agreements replaced sales contracts which expired on March
31, 1994. Pricing under the new agreements for the coal year beginning April 1,
1994, was impacted by the price reductions accepted by foreign producers, but
was largely offset by modifications in coal quality specifications which allows
the Coal operation flexibility in sourcing and blending of coals. Although Coal
operations has not yet reached price agreements with its significant
metallurgical export coal customers for the contract year beginning April 1,
1995, certain European metallurgical coal customers have agreed to price
increases.
The market for metallurgical coal, for most of the past fifteen years, has been
characterized by weak demand from primary steel producers and intense
competition from foreign coal producers, especially those in Australia and
Canada. Metallurgical coal sales contracts typically are subject to annual price
negotiations, which increase the risk of market forces. As a result of the
continuing long-term decline in the metallurgical coal markets, which was
further evidenced by the previously discussed significant price reductions in
early 1994, the Coal operations accelerated its strategy of decreasing its
exposure to these markets. After a review of the economic viability of the
remaining 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 under a long-term sales
agreement, would be closed due to rising costs caused by unfavorable geological
conditions.
As a result of these decisions, the Coal operations incurred pre-tax charges of
$90.8 million ($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
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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. During the remainder of 1994, the Company paid $10.2 million of these
liabilities, of which $1.5 million was for idled leased equipment; $5.3 million
was for facility closure costs and $3.4 million was for employee-related costs.
Of the four underground mines, one has ceased coal production, while the
remaining three mines are expected to cease coal production in 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
52% to approximately 360 employees.
As discussed previously, the effects of this strategy have been to decrease Coal
operations' exposure to the metallurgical coal markets and to increase its
production and sales of lower cost surface minable steam coal. As previously
mentioned, for 1994, steam coal sales rose to approximately 65% of total coal
sales up from less than 50% in the prior year. In addition, production from
surface mines has increased to 69% for 1994 as compared to 45% for last year. In
addition, metallurgical coal produced/purchased decreased to 9.9 million tons
versus 11.7 million tons when comparing 1994 to 1993.
Although coal production has or will cease at the mines contemplated in the
accrual, the Coal operations will incur reclamation and environmental costs for
several years to bring these properties into compliance with federal and state
environmental laws. In addition, employee termination and medical costs will
continue to be incurred for several years after the facilities have been closed.
The significant portion of these employee liabilities is for statutorily
provided workers' compensation costs for inactive employees. Such benefits
include indemnity and medical costs as required under state workers'
compensation laws. The long 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 the
first quarter of 1994 should be sufficient to provide for these future costs and
does not anticipate material additional future charges to operating earnings for
these facilities, although continual cash funding will be required over the next
several years.
The following table analyzes the changes in liabilities during the last three
years 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 January
1, 1993 (a) $1,146 35,499 35,413 72,058
Additions 2,782 1,598 6,267 10,647
Payments (b) 836 8,663 7,463 16,962
-----------------------------------------------------------------
Balance as of
December
31, 1993 3,092 28,434 34,217 65,743
Additions 3,836 19,290 21,193 44,319
Payments (c) 3,141 9,468 12,038 24,647
-----------------------------------------------------------------
Balance as of
December
31, 1994 $3,787 38,256 43,372 85,415
-----------------------------------------------------------------
</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 $2,312 for leased machinery and equipment, $50,645 principally for
incremental facility closing costs, including reclamation and $47,841 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 the year for
liabilities recorded in prior years.
(c) These amounts represent total cash payments made during the year for these
charges. Of the total payments made, $8,672 was for liabilities recorded in
years prior to 1993, $5,822 was for liabilities recorded in 1993 and $10,153 was
for liabilities recorded in 1994.
During the next twelve months, expected cash funding of these charges is
approximately $21 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.
For 1994, Coal operations' closed facilities (including those
facilities for which the decision to close was made earlier this
year) incurred operating losses of $4.4 million.
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On June 21, 1994, a successor collective bargaining agreement between the Coal
operations' union companies and the UMWA was ratified by such companies' union
employees, replacing the principal labor agreement which expired on June 30,
1994. The successor agreement will remain in effect until December 31, 1998.
This agreement continues the basic principles and provisions established in the
predecessor 1990 Agreement with respect to areas of job security, work rules and
scheduling. The new agreement provides for, among other things, wage increases
of $.40 per hour on December 15 of each of the years 1994 to 1997 and includes
improvements in certain employee benefit programs.
Operating profit for Coal operations totaled $36.9 million in 1992 compared to
an operating loss of $48.2 million in 1993. Operating results in 1993 were
negatively impacted by the $70.7 million in charges, as discussed earlier, $10.0
million in expenses relating to retiree health benefits required by federal
legislation enacted in October 1992 (discussed later) and the $1.8 million
charge to settle litigation related to the moisture content of tonnage used to
compute royalty payments to the UMWA pension and benefit funds for the period
ended February 1, 1988. Coal operating profit in 1993 also included other
operating income of $9.8 million compared with $9.0 million in the year-earlier
period primarily for third party royalties and sales of properties and
equipment.
Sales volume of 22.0 million tons in 1993 was 6% or 1.2 million tons higher than
sales volume in the year earlier. The increased sales were attributable to steam
coal sales of 10.3 million tons (47% of total sales), up from 8.4 million tons
(41% of total sales), while metallurgical coal sales decreased 5% from 12.3
million tons to 11.7 million tons. Coal produced (17.1 million tons) and
purchased (4.5 million tons) totaled 21.6 million tons in 1993, which was
slightly lower than production in 1992. In 1993, 54% of total production was
derived from deep mines and 46% was derived from surface mines compared with 65%
and 35% of deep and surface mine production, respectively, in 1992.
Average margin in 1993 of $2.75 per ton decreased 12% or $.37 per ton compared
to 1992, as a 4% or $1.30 per ton decrease in average realization was only
partially offset by a 4% or $.93 per ton decrease in average current production
costs of coal sold. The decrease in average realization in 1993 reflected
lower export pricing and a downward price revision on a domestic utility
contract. The decrease in average current production costs of coal sold
in 1993 was mainly due to a higher proportion of production sourced
from company surface mine operations.
The strike by the UMWA against certain coal producers in the eastern United
States, which lasted throughout a significant portion of 1993, was settled in
late 1993. None of the operations of the Company's coal subsidiaries were
involved in the strike. Although the supply of metallurgical coal was
appreciably reduced as a result of the strike, Australian producers increased
production to absorb the shortfall. The strike had little impact on Coal
operating profits during 1993 since a large proportion of production is under
contract. Coal operations benefited from improved spot prices for domestic steam
coal on relatively small amounts of uncommitted tonnage available for this
market.
In October 1992, the Coal Industry Retiree Health Benefit Act of 1992 (the
'Health Benefit Act') was enacted as part of the Energy Policy Act of 1992. The
Health Benefit Act established rules for the payment of future health care
benefits for thousands of retired union mine workers and their dependents. Part
of the burden for these payments was shifted by the Health Benefit Act from
certain coal producers, which had a contractual obligation to fund such
payments, to producers such as the Company which have collective bargaining
agreements with the UMWA that do not require such payments and to numerous other
companies which are no longer in the coal business. The Health Benefit Act
established a trust fund to which 'signatory operators' and 'related persons',
including the Company and certain of its coal subsidiaries (the 'Pittston
Companies') are obligated to pay annual premiums for assigned beneficiaries,
together with a pro rata share for certain beneficiaries who never worked for
such employers ('unassigned beneficiaries'), in amounts determined by the
Secretary of Health and Human Services on the basis set forth in the Health
Benefit Act. For 1993 and 1994, these amounts were approximately $9.1 million
and $11.0 million, respectively. In addition, in 1993, the Company incurred
costs of $.9 million to review the accuracy of beneficiaries assigned. The
Company believes that the annual cash funding under the Health Benefit Act for
the Pittston Companies' assigned beneficiaries will continue in the $10 to $11
million range for the next eight years and should begin to decline thereafter as
the number of such assigned beneficiaries decreases.
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Based on the number of beneficiaries actually assigned by the Social Security
Administration, the Company estimates the aggregate pre-tax liability relating
to the Pittston Companies' assigned beneficiaries remaining at December 31, 1994
at approximately $250 million, which when discounted at 8.75% provides a present
value estimate of approximately $100 million.
The ultimate obligation that will be incurred by the Company could be
significantly affected by, among other things, increased medical costs,
decreased number of beneficiaries, governmental funding arrangements and such
federal health benefit legislation of general application as may be enacted. In
addition, the Health Benefit Act requires the Pittston Companies to fund, pro
rata according to the total number of assigned beneficiaries, a portion of the
health benefits for unassigned beneficiaries. At this time, the funding for such
health benefits is being provided from another source and for this and other
reasons the Pittston Companies' ultimate obligation for the unassigned
beneficiaries cannot be determined. The Company accounts for its obligations
under the Health Benefit Act as a participant in a multi-employer plan and
recognizes the annual cost on a pay-as-you-go basis.
In February 1990, the Pittston Coal Group companies and the UMWA entered into a
collective bargaining agreement that resolved a labor dispute and related strike
of Pittston Coal Group operations by UMWA-represented employees that began on
April 5, 1989. As part of the agreement, the Pittston Coal Group companies
agreed to make a $10 million lump sum payment to the 1950 Benefit Trust Fund and
to renew participation in the 1974 Pension and Benefit Trust Funds at specified
contribution rates. These aspects of the agreement were subject to formal
approval by the trustees of the funds. The trustees did not accept the terms of
the agreement and, therefore, payments were made to escrow accounts for the
benefit of union employees. Under the new 1994 Agreement, the Pittston Coal
Group companies agreed to continue participation in the 1974 Pension Plan at
specified contribution rates, again subject to trustee approval. At this time,
payments continue to be made to the escrow accounts for the benefit of union
employees. The escrow accounts balances as of December 31, 1994 totaled $23.1
million.
In 1988, the trustees of certain pension and benefit trust funds established
under collective bargaining agreements with the UMWA brought an action (the
'Evergreen Case') against the Company and a number of its coal subsidiaries in
the United States District Court for the District of Columbia, claiming that the
defendants are obligated to contribute to such trust funds in accordance with
the provisions of the 1988 and subsequent National Bituminous Coal Wage
Agreements, to which neither the Company nor any of its subsidiaries is a
signatory. In January 1992, the Court issued an order granting summary
judgment in favor of the trustees on the issue of liability, which was
thereafter affirmed by the Court of Appeals. In June 1993 the United
States Supreme Court denied a petition for a writ of certiorari. The case has
been remanded to District Court, and damage and other issues remain to be
decided. In September 1993, the Company filed a motion seeking relief from the
District Court's grant of summary judgment based on, among other things, the
Company's allegation that plaintiffs improperly withheld evidence that directly
refutes plaintiffs' representations to the District Court and the Court of
Appeals in this case. In December 1993, that motion was denied. On May 23, 1994,
the trustees filed a Motion for Entry of Final Judgment seeking approximately
$71.1 million in delinquent contributions, interest and liquidated damages
through May 31, 1994, plus approximately $17 thousand additional interest and
liquidated damages for each day between May 31, 1994 and the date final judgment
is entered, plus on-going contributions to the 1974 Pension Plan. The Company
has opposed this motion. There has been no decision on this motion or final
judgment entered to date.
In furtherance of its ongoing effort to identify other available legal options
for seeking relief from what it believes to be an erroneous finding of liability
in the Evergreen Case, the Company has filed suit against the Bituminous Coal
Operators Association ('BCOA') and others to hold them responsible for any
damages sustained by the Company as a result of the Evergreen Case. Although the
Company is continuing that effort, the Company, following the District Court's
ruling in December 1993, recognized the potential liability that may result from
an adverse judgment in the Evergreen Case. In any event, any final judgment in
the Evergreen Case will be subject to appeal. In December 1994, the District
Court ordered that the Evergreen Case, as well as related cases filed against
other coal companies, and the BCOA case, be submitted to mediation before a
federal judge in an effort to obtain a settlement. The mediation process is
on-going.
As a result of the Health Benefit Act, there is no continuing liability in this
case in respect of health benefit funding after February 1, 1993.
MINERAL VENTURES
Mineral Ventures reported operating income of $1.1 million for 1994 compared
with an operating loss of $8.3 million for 1993. Operating results in 1993
included a $7.9 million charge related to the write-down of the company's
investment in the Uley graphite mine in Australia. Although reserve drilling of
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the Uley property indicated substantial graphite deposits, graphite prices which
remained significantly below the level prevailing at the start of the project,
processing difficulties and an analysis of various technical and marketing
conditions affecting the project resulted in the determination that the assets
had been impaired and that loss recognition was appropriate. Excluding the $7.9
million charge, Mineral Ventures operations incurred a $.4 million operating
loss in 1993. Operating results for 1994 and 1993 also reflected production from
the Stawell gold mine. Mineral Ventures has a 67% net equity interest in the
Stawell mine and its adjacent exploration acreage. In December 1992, Mineral
Ventures acquired its 50% direct ownership in the Stawell property through its
participation in a joint venture with Mining Project Investors Pty Ltd., (in
which Mineral Ventures holds a 34% interest). At December 31, 1994, the Stawell
gold mine, which is in western Victoria, Australia, had remaining proven and
probable gold reserves estimated at 444,000 ounces. The joint venture also has
exploration rights in the highly prospective district around the mine. In 1994
and 1993, the Stawell mine produced 77,966 ounces and 73,765 ounces of gold,
respectively, with Mineral Ventures' share of the operating profit amounting to
$5.0 million and $4.9 million, in 1994 and 1993, respectively. The contribution
to operating profit from the Stawell mine in both 1994 and 1993 was offset by
exploration expenditures related chiefly to other potential gold mining projects
in addition to administrative overhead. Operating results for 1994 were also
impacted by higher operating costs incurred as a result of an operator accident
at Stawell which occurred early in the year. Mineral Ventures is continuing gold
exploration projects in Nevada and Australia with its joint venture partner.
In 1992, Mineral Ventures operations reported operating losses of $3.4 million,
which primarily related to expenses for project review and exploration.
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
currency rate fluctuations. In addition, these 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.
OTHER OPERATING INCOME
Other operating income increased $4.4 million to $24.4 million in 1994 and
increased $.9 million to $20.0 million in 1993 from $19.1 million in 1992. Other
operating income principally includes the Company's share of net income of
unconsolidated foreign affiliates, which are substantially attributable to
equity affiliates of Brink's, royalty income and gains and losses from sales of
coal assets. The increase in 1994 compared to 1993 was largely due to increased
sales of coal assets and royalty income from coal and natural gas properties,
partially offset by decreased earnings of equity affiliates. Equity earnings of
foreign affiliates totaled $6.3 million, $7.5 million and $8.0 million in 1994,
1993 and 1992, respectively.
CORPORATE AND OTHER EXPENSES
General corporate expenses continued to decline, aggregating $16.2 million,
$16.7 million and $17.1 million for 1994, 1993 and 1992, respectively.
Other net expense was $5.6 million, $4.6 million and $4.0 million in 1994, 1993
and 1992, respectively. In 1994, $1.2 million of expenses were recognized on the
Company's redemption of its 9.2% Convertible Subordinated Debentures. Other net
expense in 1992 included a gain of $2.3 million from the sale of investments in
leveraged leases.
INTEREST EXPENSE
Interest expense totaled $11.5 million, $10.2 million and $11.1 million in 1994,
1993 and 1992, respectively. Interest expense in 1994 increased due to higher
average borrowings under revolving credit and term loan facilities resulting
from the Addington acquisition and higher average interest rates, partially
offset by a decrease resulting from the Company's redemption of its 9.2%
Convertible Subordinated Debentures in April 1994. Interest expense in 1993 also
included interest assessed on settlement of coal litigation related to the
moisture content of tonnage used
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to compute royalty payments to UMWA pension and benefit funds. The $1.1 million
decrease for 1993 compared with 1992 was largely a result of lower interest
rates worldwide.
INCOME TAXES
In 1994, the provision for income taxes was less than the statutory federal
income tax rate of 35% due to the tax benefits of percentage depletion, lower
taxes on foreign income and a reduction in the valuation allowance for deferred
tax assets primarily in state jurisdictions. These benefits were partially
offset by state income taxes and goodwill amortization. In 1993, the provision
for income taxes was less than the statutory federal income tax rate of 35% due
to the tax benefits of percentage depletion, favorable adjustments to the
Company's deferred tax assets as a result of the increase in the statutory U.S.
federal income tax rate and a reduction in the valuation allowance for deferred
tax assets primarily in foreign jurisdictions. These benefits were partially
offset by state income taxes and goodwill amortization. In 1992, the provision
for income taxes exceeded the statutory federal income tax rate of 34% primarily
due to provisions for state income taxes, goodwill amortization and the increase
in the valuation allowance for deferred tax assets.
Based on the Company's historical and expected taxable earnings, management
believes it is more likely than not that the Company will realize the benefit of
the existing deferred tax asset at December 31, 1994.
FINANCIAL CONDITION
CASH PROVIDED BY OPERATING ACTIVITIES
Cash provided by operating activities for 1994 totaled $139.3 million compared
with $119.9 million in 1993. Cash flow from operations was negatively impacted
by the integration of the operations of Addington, which required cash to
finance initial working capital needs. Net income, noncash charges and changes
in operating assets and liabilities in 1994 were significantly affected by
after-tax restructuring and other charges of $58.1 million which used cash of
approximately $10.2 million in 1994. Of the total $90.8 million of 1994 pre-tax
charges, $46.5 million was for noncash writedowns of assets and the remainder
represents liabilities which are expected to be paid over the next several
years. In addition, during 1994, $14.5 million was paid for similar charges
reported in prior periods. As discussed under Coal operations, funding
requirements for these charges are expected to be approximately $21 million
during the next twelve months. The Company intends to fund any cash
requirements during 1995 with anticipated cash flows from operations, and
shortfalls, if any, financed through borrowings under revolving credit
agreements or short-term borrowing arrangements.
CAPITAL EXPENDITURES
Cash capital expenditures totaled $106.3 million in 1994. An additional $41.2
million of expenditures were made through capital and operating leases.
Approximately 32% of the 1994 gross capital expenditures were incurred in the
Coal segment. Of that amount, approximately 75% of the expenditures was for
business expansion, and the remainder was for replacement and maintenance of
ongoing business operations. Expenditures made by Mineral Ventures approximated
2% of the Company's total capital expenditures and were primarily costs incurred
for project development. Capital expenditures made by both Burlington and
Brink's during 1994 were primarily for replacement and maintenance of current
ongoing business operations and comprised approximately 17% and 24%,
respectively, of the Company's total. Expenditures incurred by BHS during 1994
were 25% of total expenditures and were primarily for customer installations,
resulting from expansion of the subscriber base.
OTHER INVESTING ACTIVITIES
All other investing activities in 1994 used net cash of $150.2 million. In
January 1994, the Company paid approximately $157 million in cash for the
acquisition of substantially all the coal mining operations and coal sales
contracts of Addington. The purchase price of the acquisition was financed
through the issuance of $80.5 million of a new series of convertible preferred
stock, which is convertible into Pittston Minerals Group Common Stock, and
additional debt under credit agreements. Other investing activities also
included $8.4 million of cash received in 1994 from the December 1993 sale of
the majority of the assets of a captive mine supply company. Disposal of
property, plant and equipment provided $7.6 million in cash in 1994.
FINANCING
Gross capital expenditures in 1995 are currently expected to increase over 1994
levels. The increase is expected to result largely from expenditures at
Burlington, supporting new airfreight stations and implementation of positive
tracking systems, and expenditures at BHS resulting from continued expansion of
the subscriber base. The Company intends to fund such expenditures through cash
flow from operating activities or through
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operating leases if the latter are financially attractive. Any shortfalls will
be financed through the Company's revolving credit agreements or short-term
borrowing arrangements.
In March 1994, the Company entered into a $350 million credit agreement with a
syndicate of banks (the 'New Facility'), replacing the Company's previously
existing $250 million of revolving credit agreements. The New Facility includes
a $100 million five-year term loan, which matures in March 1999. The New
Facility also permits additional borrowings, repayments and reborrowings of up
to an aggregate of $250 million until March 1999. At December 31, 1994,
borrowings of $100 million were outstanding under the five-year term loan
portion of the New Facility and borrowings of $9.4 million were outstanding
under the remainder of the facility.
DEBT
Outstanding debt, including borrowings under revolving credit agreements,
aggregated $165.1 million at December 31, 1994, compared to $75.8 million at
year-end 1993. Cash generated from operating activities and proceeds from the
issuance of preferred stock were not sufficient to fund capital expenditures and
the Addington acquisition, resulting in additional borrowings under the
Company's credit agreements.
On April 15, 1994, the Company redeemed all outstanding 9.2% Convertible
Subordinated Debentures due July 1, 2004. The principal amount outstanding was
$27.8 million and the premium paid to call the debt totaled $.8 million. The
Company used cash provided under its revolving credit agreements to redeem the
debentures. The premium paid in addition to other charges related to the
redemption are included in the Company's 1994 Consolidated Statement of
Operations.
OFF-BALANCE SHEET INSTRUMENTS
The Company enters into various off-balance sheet financial instruments, as
discussed below, to hedge its foreign currency and other market exposures. The
risk that counterparties to such instruments may be unable to perform is
minimized by limiting the counterparties to major financial institutions. The
Company does not expect any losses due to such counterparty default.
Foreign currency forward contracts -- The Company enters into foreign currency
forward contracts with a duration of 30 to 60 days as a hedge against
transactions denominated in various currencies. These contracts do not subject
the Company to risk due to exchange rate movements because gains and losses on
these contracts offset losses and gains on the liabilities being hedged. At
December 31, 1994, the total notional value of foreign currency forward
contracts outstanding was $7.4 million. As of such date, the fair value of
foreign currency forward contracts was not significant.
Gold contracts -- In order to protect itself against downward movements in gold
prices, the Company hedges a portion of its recoverable proved and probable
reserves primarily through forward sales contracts. At December 31, 1994, 60,056
ounces of gold, representing approximately 30% of the Company's recoverable
proved and probable reserves, were sold forward under forward sales contracts
with a total notional value of $24.7 million. Because only a portion of its
future production is currently sold forward, the Company can take advantage of
increases, if any, in the spot price of gold. At December 31, 1994, the fair
value of the Company's forward sales contracts was not significant.
Fuel contracts -- The Company has hedged a portion of its jet fuel requirements
through a swap contract. At December 31, 1994, the notional value of the jet
fuel swap, aggregating 12.5 million gallons, through March 31, 1995 was $6.5
million. In addition, the Company has entered into several commodity options
transactions that are intended to protect against significant increases in jet
fuel prices. These transactions, aggregate 23.3 million gallons with a notional
value of $15.8 million and are applicable throughout 1995 in amounts ranging
from 3.5 million gallons per month in the first quarter of 1995 to 2.1 million
gallons per month in the fourth quarter of 1995. The Company has also entered
into a collar transaction, applicable to 7.2 million gallons that provides for a
minimum and maximum per gallon price. This transaction is settled monthly based
upon the average of the high and low prices during each period.
The fair value of these fuel hedge transactions may fluctuate over the course of
the contract period due to changes in the supply and demand for oil and refined
products. Thus, the economic gain or loss, if any, upon settlement of the
contracts may differ from the fair value of the contracts at an interim date. At
December 31, 1994, the fair value of these contracts was not significant.
Interest rate contracts -- In connection with the aircraft leasing by Burlington
in 1993, the Company entered into interest rate cap agreements. These agreements
have a notional amount of $60 million and cap the Company's interest rate on
certain aircraft leases at 8.5% through April 1, 1996. In addition, in 1994, the
Company entered into a standard three year variable to fixed interest rate swap
agreement. This agreement fixed the Company's interest rate at 5% on current
borrowings of $40.0 million in principal. The amount to which the 5% interest
rate applies declines periodically throughout the term of the agreement. The
fair value of these contracts was $1.8 million at December 31, 1994.
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CONTINGENT LIABILITIES
In April 1990, the Company entered into a settlement agreement to resolve
certain environmental claims against the Company arising from hydrocarbon
contamination at a petroleum terminal facility ('Tankport') in Jersey City, New
Jersey, which operations were sold in 1983. Under the settlement agreement, the
Company is obligated to pay 80% of the remediation costs. Based on data
available to the Company and its environmental consultants, the Company
estimates its portion of the cleanup costs on an undiscounted basis using
existing technologies to be between $6.7 million and $14.1 million over a period
of up to five years. Management is unable to determine that any amount within
that range is a better estimate due to a variety of uncertainties, which include
the extent of the contamination at the site, the permitted technologies for
remediation and the regulatory standards by which cleanup will be conducted. The
cleanup estimates have been modified in light of certain regulatory changes
promulgated in December 1994.
The Company commenced insurance coverage litigation in 1990, in the United
States District Court for the District of New Jersey, seeking a declaratory
judgment that all amounts payable by the Company pursuant to the Tankport
obligation were reimbursable under comprehensive general liability and pollution
liability policies maintained by the Company. Although the underwriters have
disputed this claim, management and its legal counsel believe that recovery is
probable of realization in the full amount of the claim. This conclusion is
based upon, among other things, the nature of the pollution policies which were
broadly designed to cover such contingent liabilities, the favorable state of
the law in the State of New Jersey (whose laws have been found to control the
interpretation of the policies), and numerous other factual considerations which
support the Company's analysis of the insurance contracts and rebut the
underwriters' defenses. Accordingly, there is no net liability in regard to the
Tankport obligation.
CAPITALIZATION
On July 26, 1993, the Company's shareholders approved the Services Stock
Proposal, as described in the Company's proxy statement dated June 24, 1993,
which resulted in the reclassification of the Company's common stock. The
outstanding shares of common stock of the Company were redesignated as Pittston
Services Group Common Stock ('Services Stock') on a share-for-share basis and a
second class of common stock, designated as Pittston Minerals Group Common Stock
('Minerals Stock'), was distributed on the basis of one-fifth of one share of
Minerals Stock for each share of the Company's previous common stock held by
shareholders of record on July 26, 1993. Minerals Stock and Services Stock are
designed to provide shareholders with separate securities reflecting the
performance of the Pittston Minerals Group (the 'Minerals Group') and the
Pittston Services Group (the 'Services Group'), respectively, without
diminishing the benefits of remaining a single corporation or precluding
future transactions affecting either Group.
The redesignation of the Company's common stock as Services Stock and the
distribution of Minerals Stock as a result of the approval of the Services Stock
Proposal did not result in any transfer of assets and liabilities of the Company
or any of its subsidiaries. Holders of Services Stock and Minerals Stock are
shareholders of the Company, which continues to be responsible for all its
liabilities. Therefore, financial developments affecting the Minerals Group or
the Services Group that affect the Company's financial condition could affect
the results of operations and financial condition of both Groups. The change in
the capital structure of the Company had no effect on the Company's total
capital, except as to expenses incurred in the execution of the Services Stock
Proposal. Since the approval of the Services Stock Proposal, capitalization of
the Company has been affected by the share activity related to each of the
classes of common stock.
In 1993, the Board of Directors of the Company (the 'Board') authorized the
repurchase of up to 1,250,000 shares of Services Stock and 250,000 shares of
Minerals Stock, not to exceed an aggregate purchase price of $43 million. As of
December 31, 1994, a total of 256,100 shares of Services Stock and 38,500 shares
of Minerals Stock had been acquired pursuant to the authorization. Of those
amounts, 256,100 shares of Services Stock and 19,700 shares of Minerals Stock
were repurchased in 1994 at an aggregate cost of $6.6 million.
In January 1994, the Company issued $80.5 million (161,000 shares) of a new
series of cumulative preferred stock, convertible into Minerals Stock. The
cumulative convertible preferred stock, which is attributable to the Minerals
Group, pays an annual cumulative dividend of $31.25 per share payable quarterly,
in cash, in arrears, out of all funds of the Company legally available
therefore, when, as and if declared by the Board, which commenced March 1, 1994,
and bears a liquidation preference of $500 per share, plus an amount equal to
accrued and unpaid dividends thereon.
In July 1994, the Board authorized the repurchase from time to time of up to $15
million of the new series of cumulative convertible preferred stock. As of
December 31, 1994, 8,350 shares at a total cost of $3.4 million were
repurchased.
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Pittston Services Group
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The financial statements of the Pittston Services Group (the 'Services Group')
include the balance sheets, results of operations and cash flows of Burlington
Air Express Inc. ('Burlington'), Brink's, Incorporated ('Brink's') and Brink's
Home Security, Inc. ('BHS'), and a portion of The Pittston Company's (the
'Company') corporate assets and liabilities and related transactions which are
not separately identified with operations of a specific segment. The Services
Group's financial statements are prepared using the amounts included in the
Company's consolidated financial statements. Corporate allocations reflected in
these financial statements are determined based upon methods which management
believes to be an equitable allocation of such expenses and credits. The
accounting policies applicable to the preparation of the Services Group's
financial statements may be modified or rescinded at the sole discretion of the
Company's Board of Directors (the 'Board') without the approval of the
shareholders, although there is no intention to do so.
The Company will provide to holders of Pittston Services Group Common Stock
('Services Stock') separate financial statements, financial reviews,
descriptions of business and other relevant information for the Services Group
in addition to consolidated financial information of the Company.
Notwithstanding the attribution of assets and liabilities (including contingent
liabilities) between the Pittston Minerals Group (the 'Minerals Group') and the
Services Group for the purpose of preparing their financial statements, this
attribution and the change in the capital structure of the Company as a result
of the approval of the Services Stock Proposal, as described in the Company's
proxy statement dated June 24, 1993, did not result in any transfer of assets
and liabilities of the Company or any of its subsidiaries. Holders of Services
Stock are shareholders of the Company, which continues to be responsible for all
its liabilities. Therefore, financial developments affecting the Minerals Group
or the Services Group that affect the Company's financial condition could affect
the results of operations and financial condition of both Groups. Accordingly,
the Company's consolidated financial statements must be read in connection with
the Services Group's financial statements.
The following discussion is a summary of the key factors management considers
necessary in reviewing the Services Group's results of operations, liquidity and
capital resources. This discussion should be read in conjunction with the
financial statements and related notes of the Company.
RESULTS OF OPERATIONS
Net income for the Services Group for 1994 was $79.8 million compared with $47.1
million for 1993. Operating profit for 1994 was $132.0 million compared with
$89.9 million in 1993. Each of the segments of the Services Group contributed to
the increase in operating profit for the current year compared with the prior
year. Revenues for 1994 increased $303.2 million compared with 1993, of which
$217.2 million was from Burlington, $65.1 million was from Brink's and $20.9
million was from BHS. Operating expenses and selling, general and administrative
expenses for 1994 increased $260.5 million, of which $186.3 million was from
Burlington and $59.5 million was from Brink's and $14.9 million was from BHS,
partially offset by a $.2 million decrease in the allocation of corporate
expenses.
In 1993, net income increased $19.8 million to $47.1 million from $27.3 million
in 1992. Operating profit for 1993 was $89.9 million compared with $57.4 million
in the prior year. Each of the segments in the Services Group contributed to the
increase in operating profit for 1993 compared with 1992. Net income and
operating profit in 1992 were positively impacted by a pension credit of $2.5
million and $4.0 million, respectively, relating to the amortization of the
unrecognized initial net pension asset at the date of adoption of Statement of
Financial Accounting Standards No. 87, 'Employers' Accounting for Pensions'.
This credit was recognized over the estimated remaining average service life of
employees since the date of adoption, which expired at the end of 1992. Revenues
for 1993 increased $153.9 million compared with 1992, of which $97.7 million was
from Burlington, $37.9 million was from Brink's and $18.3 million was from BHS.
Operating expenses and selling, general and administrative expenses for 1993
increased $116.7 million, of which $75.7 million was from Burlington, $31.7
million was from Brink's, $8.3 million was from BHS and $1.0 million was due to
an increase in the allocation of corporate expenses.
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BURLINGTON
Operating profit of Burlington increased $31.2 million to $69.2 million in 1994
from $38.0 million in 1993. Worldwide revenues rose 22% to $1.2 billion in the
current year from $998.1 million in the prior year. The $217.2 million increase
in revenues resulted principally from higher volume in both domestic and
international markets.
Increased revenues from higher volumes were partially offset by lower average
yields (revenues per pound). Total weight shipped worldwide increased 22% to
1,248.5 million pounds in 1994 from 1,020.4 million pounds a year earlier.
Global average yield decreased less than 1% or $.01 to $.97 in 1994 compared
with a year earlier, whereas, total cost per pound decreased 2% or $.02 to $.92
for the year. Total operating expenses and selling, general and administrative
expenses increased in 1994 compared with 1993 largely resulting from the
increased volume of business.
Operating profit in the Americas' region for 1994 benefited from North American
volume increases, a significant portion of which was from increased shipping
levels. Such increases were aided by a strong economy and limited lift capacity
available to forwarders. Higher volume, in part, also reflected the impact of
the 24 day Teamsters strike in 1994. Export volumes also increased during 1994,
while pricing for U.S. exports was adversely impacted by competitive pricing.
Operating profit in the Americas' region benefited from growth in the North
American market for heavy airfreight, increased market share, a shift in mix
toward Burlington's premium next-day service, and, on a per pound basis, lower
private fleet, common carriage and cartage costs. Increased capacity as a result
of the fourth quarter 1993 expansion of Burlington's airfreight hub in Toledo,
Ohio, as well as the 1994 fleet expansion assisted in increasing efficiency and
provided additional capacity in existing and new next morning markets. Gains for
Americas' operations from increased business volume including a 23% increase in
domestic weight shipped and efficiencies were partially offset by decreased
average yields in 1994. Average yields continue to reflect a highly competitive
pricing environment.
Foreign operating results in 1994 decreased from the 1993 level. Although
foreign operations benefited from a 21% increase in international weight
shipped, the benefit of increased volumes was more than offset by lower yields,
additional costs incurred in connection with offering complete global logistics
services, and startup costs incurred in providing services in additional foreign
markets.
Operating profit of Burlington increased $22.9 million to $38.0 million in 1993
from $15.1 million in 1992. Worldwide revenues increased $97.8 million or 11% to
$998.1 million in 1993 from $900.3 million in 1992. The increase in revenues
primarily reflects volume increases only partially offset by lower average
yields. Total weight shipped worldwide for 1993 increased 14% to 1,020.4 million
pounds from 893.0 million pounds in 1992. Global average yield decreased 3% or
$.03 to $.98 in 1993 compared to 1992 while total cost per pound decreased 5% or
$.05 to $.94. Total operating expenses increased, while selling, general and
administrative expenses decreased in 1993 compared with the prior year. Higher
operating expenses resulting from the increased volume of business in 1993 were,
however, favorably impacted by increased efficiency in private fleet operations
achieved as a result of a fleet upgrade to DC8-71 aircraft replacing B707
aircraft, accomplished by lease transactions at year-end 1992 and in early 1993.
During the 1993 fourth quarter, Burlington also completed a 30% expansion of its
airfreight hub in Toledo, Ohio. This expansion assisted in increasing
efficiency, including higher average weight shipped per container. Selling,
general and administrative expenses in 1992 were adversely affected by charges
for costs related to organizational downsizing in both domestic and foreign
operations.
Americas' operating profit in 1993 increased compared with 1992 largely due to
increased domestic and export volume and lower transportation costs per pound,
partially offset by decreased average yields. While average yields decreased in
1993 compared with 1992 reflecting a highly competitive pricing environment,
market improvement was evident during the last quarter of 1993 as load factors
increased.
Foreign operating results in 1993 also increased compared with results in 1992.
These operations benefited from a 16% increase in international weight shipped,
however, such gains were partially offset by lower yields.
BRINK'S
Operating profit of Brink's increased $4.7 million to $39.7 million in 1994 from
$35.0 million in 1993. An increase in revenues of $65.1 million was offset to a
large extent by increases in operating expenses and selling, general and
administrative expenses of $59.4 million and a decrease in other operating
income of $1.0 million.
The increase in operating profit in 1994 was largely due to North American
operations. Revenue from North American operations increased $36.9 million or
12% to $337.6
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million and operating profit increased $3.2 million or 16% to $23.2 million. Air
courier, diamond and jewelry, armored car, automated teller machine ('ATM')
servicing and coin wrapping operations each contributed to the increase in North
American operating profit in 1994, while results for currency processing
operations remained comparable to the prior year.
Revenue from international subsidiaries increased $28.2 million or 16% to $209.4
million, while operating earnings from international subsidiaries and affiliates
increased $1.5 million or 10% to $16.5 million compared to 1993. The most
significant improvements were recorded by operations in Brazil (100% owned) and
Israel (70% owned). Improvements were also recorded in the United Kingdom (100%
owned), Colombia (46% owned), Hong Kong (67% owned) and the Company's
international diamond and jewelry operations. Results for Holland (65% owned),
France (38% owned) and Chile (60% owned) declined from the prior year. Brazil's
operating profit for 1994 totaled $3.2 million in 1994 compared with $1.4
million in 1993. Brazil's earnings in 1994 were augmented by the large volume of
one-time special shipments of the new Brazilian currency and to a lesser extent
from increased volume due to the growth of money in circulation. Results for
Brazil in 1994 also included price increases obtained during the year to defray
the substantially higher security costs made necessary by the dramatic increase
in attacks on the armored car industry in Brazil. Although results were positive
during 1994, operational and inflationary problems caused by the Brazilian
economy make it uncertain as to whether this favorable trend in earnings will
continue. Brink's share of the equity in earnings from their Mexican affiliate
(20% owned) of $2.8 million in 1994 was comparable to the 1993 level. These
results were impacted by the local economic recession, and costs incurred to
streamline the operation, including work force reductions. Results in Mexico for
1994 were not significantly impacted by the devaluation of the peso in late
December 1994, however, if the foreign exchange value of the peso and general
economic conditions do not improve, results from this operation in the near term
could be significantly impacted.
In 1993, Brink's operating profit increased $4.6 million to $35.0 million from
$30.4 million in 1992. Worldwide operating revenues increased 9% or $37.9
million to $481.9 million with increased operating expenses and selling, general
and administrative expenses of $31.7 million and decreased other operating
income of $1.5 million.
A significant portion of the increase in revenues and operating profit in 1993
compared with 1992 was attributable to North American operations. Revenue from
North American operations increased $29.5 million or 11% to $300.7 million and
operating profit increased $4.2 million or 27% to $20.0 million. Increases in
ATM, armored car, air courier and coin wrapping results were partially offset by
a decrease in currency processing results.
Revenue from international subsidiaries increased $8.4 million or 5% to $181.2
million, while operating results for international subsidiaries and affiliates
for 1993 remained comparable to 1992 results. Increased earnings from operations
in Brazil were offset by decreased results from the U.K. operation and Brink's
equity affiliate in Mexico. Operations in Brazil reported a $1.4 million
operating profit in 1993 compared with a $.3 million operating loss in 1992.
Results in the U.K. were affected by competitive price pressures, recessionary
pressures and the cost of a labor settlement. Operations of Brink's equity
affiliate in Mexico were affected by a recessionary economy, competitive
pressures, losses from new business ventures and severance costs incurred in
streamlining the work force.
BHS
Operating profit of BHS aggregated $32.4 million in 1994 compared with $26.4
million in 1993 and $16.5 million in 1992. The $6.0 million increase in
operating profit in 1994 compared with 1993 reflects increased monitoring
revenues, partially offset by increased installation expenses and increased
overhead costs. The $9.9 million increase in operating profit in 1993 compared
with 1992 reflects increased monitoring revenues, partially offset by increases
in installation expenses and servicing and overhead costs.
The increased monitoring revenue in 1994 as in 1993 was largely attributable to
an expanding subscriber base. Although total costs, including installation
expenses, increased as a result of the expanding subscriber base, such growth
contributed to improved economies of scale and other cost efficiencies achieved
in servicing BHS's subscribers. At year-end 1994, BHS had approximately 318,000
subscribers, 47% more than the year-end 1992 subscriber base. New subscribers
totaled 75,200 in 1994 and 59,700 in 1993. As a result, BHS's average subscriber
base increased by 21% in 1994 and 20% in 1993 as compared with each prior year.
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As of January 1, 1992, BHS elected to capitalize categories of costs not
previously capitalized for home security installations to more accurately
reflect subscriber installation costs included as capitalized installation
costs, which added $4.1 million to operating profit in 1994 and 1993 and $4.3
million to operating profit in 1992. 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 (in the amount of $2.6 million in 1994 and 1993 and $2.3 million in
1992) and costs incurred in maintaining facilities and vehicles dedicated to the
installation process (in the amount of $1.5 million in 1994 and 1993 and $2.0
million in 1992). The increase in the amount capitalized, while adding to
current period profitability comparisons, defers recognition of expenses over
the estimated useful life of the installation. The additional subscriber
installation costs which are currently capitalized were expensed in prior years
for subscribers in those years. Because capitalized subscriber installation
costs for periods prior to January 1, 1992, were not adjusted for the change in
accounting principle, installation costs for subscribers in those years will
continue to be depreciated based on the lesser amounts capitalized in those
periods. Consequently, depreciation of capitalized subscriber installation costs
in the current year and until such capitalized costs prior to January 1, 1992,
are fully depreciated will be less than if such prior periods' capitalized costs
had been adjusted for the change in accounting. However, the Company believes
the effect on net income in 1994, 1993 and in 1992 was immaterial. While the
amounts of the costs incurred which are capitalized vary based on current market
and operating conditions, the types of such costs which are currently
capitalized will not change. The change in the amount capitalized has no
additional effect on current or future cash flows or liquidity.
FOREIGN OPERATIONS
A significant 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 currency rate fluctuation. In addition, these 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
currency forward contracts to hedge the risk 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 upon
utilization and other methods and criteria which management believes to be
equitable and a reasonable estimate of the cost attributable to the Services
Group. These allocations were $9.3 million, $9.5 million and $8.6 million in
1994, 1993 and 1992, respectively.
OTHER OPERATING INCOME
Other operating income decreased $.6 million to $9.1 million in 1994 from $9.7
million in 1993 and decreased $.6 million in 1993 from $10.3 million in 1992.
Other operating income principally includes the equity earnings of foreign
affiliates. These earnings, which are primarily attributable to equity
affiliates of Brink's, amounted to $6.0 million, $7.0 million and $8.2 million
1994, 1993 and 1992, respectively.
OTHER INCOME (EXPENSE), NET
Other income (expense) net decreased by $.6 million to a net expense of $4.7
million in 1994 from $4.1 million in 1993. In 1993 other net expense improved by
$1.9 million from $6.0 million in 1992. In 1994, $1.2 million of expenses was
recognized on the Company's redemption of its 9.2% Convertible Subordinated
Debentures. Other net expense in 1992 included losses on asset sales. Other
changes for the comparable periods are largely due to fluctuations in foreign
translation losses.
INTEREST EXPENSE
Interest expense for 1994 decreased $2.5 million to $6.3 million from $8.8
million and in 1993 interest expense increased $1.2 million from $7.6 million a
year earlier. The
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35
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decrease in 1994 compared with 1993 was primarily due to significantly lower
average borrowings, a portion of which resulted from the redemption in April
1994 of the Company's 9.2% Convertible Subordinated Debentures.
INCOME TAXES
In 1994 the provision for income taxes exceeded the statutory federal income tax
rate of 35% primarily due to provisions for state income taxes and goodwill
amortization, partially offset by lower taxes on foreign income. In 1993 and
1992, the provision for income taxes exceeded the statutory federal income tax
rate of 35% in 1993 and 34% in 1992 primarily because of provisions for state
income taxes and goodwill amortization.
FINANCIAL CONDITION
A portion of the Company's corporate assets and liabilities has been attributed
to the Services Group based upon utilization of the shared services from which
assets and liabilities are generated, which management believes to be equitable
and a reasonable estimate of the cost attributable to the Services Group.
Corporate assets which were allocated to the Services Group consisted primarily
of pension assets and deferred income taxes and amounted to $70.0 million and
$33.8 million at December 31, 1994 and 1993, respectively.
CASH FLOW PROVIDED BY OPERATING ACTIVITIES
Cash provided by operating activities totaled $172.0 million in 1994, increasing
from $91.4 million in 1993. The net increase in 1994 compared with 1993 was due
to the increase in net income for the current year and a significant increase in
net cash provided by operating assets and liabilities.
Cash generated from operations of the Services Group exceeded cash requirements
for investing and financing activities including $61.4 million loaned to the
Minerals Group and, as a result, cash and cash equivalents increased $8.3
million during 1994 to a year-end total of $38.6 million.
CAPITAL EXPENDITURES
Cash capital expenditures totaled $80.4 million in 1994. An additional $17.4
million of expenditures were made through capital and operating leases. A
substantial portion of the Services Group's total cash capital expenditures was
attributable to BHS customer installations representing expansion of the
subscriber base. Of the total cash capital expenditures, $34.0 million or 42%
related to these costs. Capital expenditures made by both Burlington and Brink's
during 1994 were primarily for replacement and maintenance of current ongoing
business operations.
Cash capital expenditures for 1994 were funded by cash flow from operating
activities, with any shortfalls financed through the Company by borrowings under
its revolving credit agreements or short-term borrowing arrangements, which were
thereby attributed to the Services Group.
FINANCING
Gross capital expenditures in 1995 are currently expected to increase over 1994
levels. The increase is expected to result largely from expenditures at
Burlington supporting new airfreight stations and implementation of positive
tracking systems and expenditures at BHS resulting from continued expansion of
the subscriber base. The Services Group intends to fund such expenditures
through cash flow from operating activities or through operating leases if the
latter are financially attractive. Any shortfalls will be financed through the
Company's revolving credit agreements or short-term borrowing arrangements or
borrowings from the Minerals Group.
In March 1994, the Company entered into a $350 million credit agreement with a
syndicate of banks (the 'New Facility'), replacing the Company's previously
existing $250 million of revolving credit agreements. The New Facility includes
a $100 million five-year term loan, which matures in March 1999. The New
Facility also permits additional borrowings, repayments and reborrowings of up
to an aggregate of $250 million until March 1999. At December 31, 1994,
borrowings of $100 million were outstanding under the five-year term loan
portion of the New Facility and borrowings of $9.4 million were outstanding
under the remainder of the facility. Of the total amount outstanding under the
Facility, $23.4 million was attributed to the Services Group.
DEBT
Total debt outstanding for the Services Group amounted to $69.4 million at
year-end 1994, no portion of which was payable to the Minerals Group. During
1994, cash generated from operations exceeded requirements for investing
activities and as a result, net debt repayments totaled $8.8 million.
OFF-BALANCE SHEET INSTRUMENTS
The Services Group utilizes various off-balance sheet financial instruments, as
discussed below, to hedge its foreign currency and other market exposures. The
risk that counterparties to such instruments may be unable to perform is
minimized by limiting the counterparties to major financial institutions. The
Services Group does not expect any losses due to such counterparty default.
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Foreign currency forward contracts -- The Company enters into foreign currency
forward contracts with a duration of 30 to 60 days as a hedge against
transactions denominated in various currencies. These contracts do not subject
the Company to risk due to exchange rate movements because gains and losses on
these contracts offset losses and gains on the payables being hedged. At
December 31, 1994, the total contract value of foreign currency forward
contracts outstanding was $7.4 million. As of such date, the fair value of the
foreign currency forward contracts was not significant.
Fuel contracts -- The Services Group has hedged a portion of its jet fuel
requirements through a swap contract. At December 31, 1994, the notional value
of the jet fuel swap, aggregating 12.5 million gallons, through March 31, 1995,
was $6.5 million. In addition, the Company has entered into several commodity
option transactions that are intended to protect against significant increases
in jet fuel prices. These transactions, aggregate 23.3 million gallons with a
notional value of $15.8 million and are applicable throughout 1995 in amounts
ranging from 3.5 million gallons per month in the first quarter of 1995 to 2.1
million gallons per month in the fourth quarter of 1995. The Company has also
entered into a collar transaction applicable to 7.2 million gallons that
provides a minimum and maximum per gallon price. This transaction is settled
monthly based upon the average of the high and low prices during each period.
The fair value of these fuel hedge transactions may fluctuate over the course of
the contract period due to changes in the supply and demand for oil and refined
products. Thus, the economic gain or loss, if any, upon settlement of the
contracts may differ from the fair value of the contracts at an interim date. At
December 31, 1994, the fair value of these contracts was not significant.
Interest rate contracts -- In connection with the aircraft leasing by Burlington
in 1993, the Company entered into interest rate cap agreements. These agreements
have a notional amount of $60 million and cap the Company's interest rate on
certain aircraft leases at 8.5% through April 1, 1996. At December 31, 1994, the
fair value of these contracts was not significant.
CONTINGENT LIABILITIES
Under the Coal Industry Retiree Health Benefit Act of 1992 (the 'Health Benefit
Act'), the Company and its majority-owned subsidiaries at July 20, 1992,
including the Services Group are jointly and severally liable with the Minerals
Group for the costs of health care coverage provided for by that Act. For a
description of the Health Benefit Act and a calculation of certain of such
costs, see Note 13 to the Company's consolidated financial statements. At this
time, the Company expects the Minerals Group to generate sufficient cash flow to
discharge its obligations under the Act.
In April 1990, the Company entered into a settlement agreement to resolve
certain environmental claims against the Company arising from hydrocarbon
contamination at a petroleum terminal facility ('Tankport') in Jersey City, New
Jersey, which operations were sold in 1983. Under the settlement agreement, the
Company is obligated to pay 80% of the remediation costs. Based on data
available to the Company and its environmental consultants, the Company
estimates its portion of the cleanup costs on an undiscounted basis using
existing technologies to be between $6.7 million and $14.1 million over a period
of up to five years. Management is unable to determine that any amount within
that range is a better estimate due to a variety of uncertainties, which include
the extent of the contamination at the site, the permitted technologies for
remediation and the regulatory standards by which the cleanup will be conducted.
The cleanup estimates have been modified in light of certain regulatory changes
promulgated in December 1994.
The Company commenced insurance coverage litigation in 1990, in the United
States District Court for the District of New Jersey, seeking a declaratory
judgment that all amounts payable by the Company pursuant to the Tankport
obligation were reimbursable under comprehensive general liability and pollution
liability policies maintained by the Company. Although the underwriters have
disputed this claim, management and its legal counsel believe that recovery is
probable of realization in the full amount of the claim. This conclusion is
based upon, among other things, the nature of the pollution policies which were
broadly designed to cover such contingent liabilities, the favorable state of
the law in the State of New Jersey (whose laws have been found to control the
interpretation of the policies), and numerous other factual considerations which
support the Company's analysis of the insurance contracts and rebut the
underwriters' defenses. Accordingly, there is no net liability in regard to the
Tankport obligation.
CAPITALIZATION
On July 26, 1993, the Company's shareholders approved the Services Stock
Proposal, as described in the Company's proxy statement dated June 24, 1993,
which resulted in the reclassification of the Company's common stock. The
outstanding shares of common stock of the Company were redesignated as Services
Stock on a share-for-share basis and a second class of common stock, designated
as Pittston Mineral Group Common Stock ('Minerals Stock'), was distributed on
the basis of one-fifth of one share of Minerals Stock for each share of the
Company's previous common stock held by shareholders of
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37
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record on July 26, 1993. Minerals Stock and Services Stock are designed to
provide shareholders with separate securities reflecting the performance of the
Minerals Group and the Services Group, respectively, without diminishing the
benefits of remaining a single corporation or precluding future transactions
affecting either Group.
The redesignation of the Company's common stock as Services Stock and the
distribution of Minerals Stock as a result of the approval of the Services Stock
Proposal did not result in any transfer of assets and liabilities of the Company
or any of its subsidiaries. Holders of Services Stock and Minerals Stock are
shareholders of the Company, which continues to be responsible for all its
liabilities. Therefore, financial developments affecting the Minerals Group or
the Services Group that affect the Company's financial condition could affect
the results of operations and financial condition of both Groups. The change in
the capital structure of the Company had no effect on the Company's total
capital, except as to expenses incurred in the execution of the Services Stock
Proposal. Since the approval of the Services Stock Proposal, capitalization of
the Services Group has been affected by all share activity related to Services
Stock.
In 1993, the Board authorized the repurchase of up to 1,250,000 shares of
Services Stock and 250,000 shares of Minerals Stock, not to exceed an aggregate
purchase price of $43.0 million. As of December 31, 1994, a total of 256,100
shares of Services Stock had been acquired pursuant to the authorization, all of
which were acquired in 1994 at an aggregate cost of $6.2 million.
DIVIDENDS
The Board intends to declare and pay dividends on Services Stock based on the
earnings, financial condition, cash flow and business requirements of the
Services Group. Since the Company remains subject to Virginia law limitations on
dividends and to dividend restrictions in its public debt and bank credit
agreements, losses by the Minerals Group could affect the Company's ability to
pay dividends in respect of stock relating to the Services Group.
In 1994, the Board declared and the Company paid cash dividends of 20 cents per
share of Services Stock. On an equivalent basis, in 1993 the Company paid
dividends of 19.09 cents per share of Services Stock.
In January 1994, the Company issued 161,000 shares or $80.5 million of a new
series of convertible preferred stock, which is convertible into Minerals Stock,
to finance a portion of a coal acquisition. While the issuance of the preferred
stock had no effect on the capitalization of the Services Group, annual
cumulative dividends of $31.25 per share of convertible preferred stock are
payable quarterly, in cash, out of all funds of the Company legally available
therefore, when, as and if declared by the Board, which commenced March 1, 1994.
Such stock also bears a liquidation preference of $500 per share plus an amount
equal to accrued and unpaid dividends thereon.
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<PAGE>
Pittston Minerals Group
--------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The financial statements of the Pittston Minerals Group (the 'Minerals Group')
include the balance sheets, results of operations and cash flows of the Coal and
Mineral Ventures operations of The Pittston Company (the 'Company'), and a
portion of the Company's corporate assets and liabilities and related
transactions which are not separately identified with operations of a specific
segment. The Minerals Group's financial statements are prepared using the
amounts included in the Company's consolidated financial statements. Corporate
allocations reflected in these financial statements are determined based upon
methods which management believes to be an equitable allocation of such expenses
and credits. The accounting policies applicable to the preparation of the
Minerals Group's financial statements may be modified or rescinded at the sole
discretion of the Company's Board of Directors (the 'Board') without the
approval of the shareholders, although there is no intention to do so.
The Company will provide to holders of the Pittston Minerals Group Common Stock
('Minerals Stock') separate financial statements, financial reviews,
descriptions of business and other relevant information for the Minerals Group
in addition to consolidated financial information of the Company.
Notwithstanding the attribution of assets and liabilities (including contingent
liabilities) between the Minerals Group and the Pittston Services Group (the
'Services Group') for the purpose of preparing their financial statements, this
attribution and the change in the capital structure of the Company as a result
of the approval of the Services Stock Proposal, as described in the Company's
proxy statement dated June 24, 1993, did not result in any transfer of assets
and liabilities of the Company or any of its subsidiaries. Holders of Minerals
Stock are shareholders of the Company, which continues to be responsible for all
its liabilities. Therefore, financial developments affecting the Minerals Group
or the Services Group that affect the Company's financial condition could affect
the results of operations and financial condition of both Groups. Accordingly,
the Company's consolidated financial statements must be read in connection with
the Minerals Group's financial statements.
The following discussion is a summary of the key factors management considers
necessary in reviewing the Minerals Group's results of operations, liquidity and
capital resources. This discussion should be read in conjunction with the
financial statements and related notes of the Company.
RESULTS OF OPERATIONS
In 1994, the Minerals Group had a net loss of $52.9 million and an operating
loss of $89.2 million. In 1993, the Minerals Group had a net loss of $33.0
million and an operating loss of $63.8 million. Net income and operating profit
for 1994 included charges totalling $58.1 million and $90.8 million,
respectively, attributable to Coal operations for asset writedowns and accruals
for costs related to facility shutdowns. Net income and operating profit for
1993 reflected similar charges, in addition to including a litigation accrual,
totalling $48.9 million and $78.6 million, respectively. Such charges in 1993
impacted both Coal and Mineral Ventures operating results. Net income and
operating profit for 1994 compared with 1993 were positively impacted by
improved results from Mineral Ventures operations. In addition to the impact of
asset writedowns and other restructuring charges year to year, operating results
for Coal operations declined for 1994 compared with 1993.
Net income and operating profit for 1992 were $21.8 million and $32.1 million,
respectively. The comparison of net income and operating profit for 1993 is
affected by charges incurred beginning in 1993 for legislated health care
benefits for retired union mine workers and their dependents. In 1993, the
Minerals Group recognized a pretax charge of $10.0 million ($6.5 million after
tax) for these benefits. Net income and operating profit for 1992 were
positively impacted by a pension credit of $4.4 million and $7.0 million,
respectively, relating to the final year of amortization of the unrecognized
initial net pension asset at the date of adoption of Statement of Financial
Accounting Standards No. 87, 'Employers' Accounting for Pensions'. This credit
was recognized over the estimated remaining average service life of the
Company's employees at the date of adoption.
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COAL
Coal operations had an $83.4 million operating loss in 1994 compared with an
operating loss of $48.2 million in 1993. Results for 1994 included the operating
results from substantially all the coal mining operations and coal sales
contracts of Addington Resources, Inc. ('Addington'), which were acquired by the
Coal operations on January 14, 1994. The Coal operating loss in 1994 included
$90.8 million of charges for asset writedowns and accruals for costs related to
facilities which are being closed (further discussed below). In addition,
operating results for 1994 reflected the adverse impact of the severe winter
weather in early 1994 which particularly hampered surface mine production and
river transportation. Operating profit in the current year included other
operating income primarily from third party royalties and sales of properties
and equipment of $15.1 million compared with $9.8 million in 1993. The operating
loss in 1993 included a $70.7 million charge related to mines which were closed
at the end of 1993 or early 1994, including employee benefit costs and certain
other noncash charges, together with the estimated liability in connection with
previously reported litigation (the 'Evergreen Case'), discussed later, brought
against the Company and a number of its coal subsidiaries by the trustees of
certain pension and benefit trust funds established under collective bargaining
agreements with the United Mine Workers of America ('UMWA'). Operating profit in
1993 was also negatively impacted by a $1.8 million charge to settle litigation
related to the moisture content of tonnage used to compute royalty payments to
the UMWA pension and benefit funds during the period ending February 1, 1988.
Sales volume of 28.1 million tons for 1994 was 28% or 6.1 million tons higher
than sales volume in 1993. The increased sales were attributable to steam coal
with sales of 18.2 million tons (65% of total sales), up from 10.3 million tons
(47% of total sales) in 1993, while metallurgical coal sales decreased 15% from
11.7 million tons to 9.9 million tons. Coal produced (22.3 million tons) and
purchased (5.8 million tons) totaled 28.2 million tons for 1994, a 30% or 6.5
million ton increase over 1993. The increase in coal sales and coal
produced/purchased in 1994 as compared with 1993 was largely attributable to the
addition of Addington operations.
In 1994, 31% of total production was derived from deep mines and 69% was derived
from surface mines compared with 54% and 46% of deep and surface mine
production, respectively, in 1993.
Average coal margin (realization less current production cost of coal sold),
which was $1.72 per ton in 1994 decreased $1.03 or 38% from the 1993 level with
a 7% or $1.91 per ton decrease in average realization, only partially offset by
a 3% or $.88 per ton decrease in average current production cost of coal sold.
The higher percentage of steam coal sales and declines in export metallurgical
coal prices contributed to the decline in average realization. The decrease in
average cost is largely due to the shift to lower cost surface production.
However, margins were negatively impacted by costs that have continued at higher
than expected levels, particularly at the Addington operations. In addition,
adverse geological conditions were also encountered at one of the mines acquired
from Addington. It is anticipated that for the 1995 first quarter continued
higher than expected costs will result in further margin deterioration and
operating losses. Management is reviewing its options of sources used to fulfill
its coal sales agreements and to reduce costs in an effort to improve margins.
Production and related costs in early 1994 were adversely impacted by the
extreme cold weather and above-normal precipitation which resulted in a large
number of lost production days and interruptions which limited output
efficiencies during periods of performance. Sales also suffered during this
period due to lost loading days and were impeded by restricted road
accessibility. Sales were further impacted by the lack of rail car availability
and the disruption of river barge service initially due to frozen waterways and
subsequently due to the heavy snow melt and rain, which raised the rivers above
operational levels. The severe weather early in the year also reduced output
from purchased coal suppliers, which hindered the ability to meet customer
shipments during the period. In addition to weather related difficulties,
operations in early 1994 were affected by lost business due to a utility
customer's plant closure and production shortfalls due to the withdrawal of
contract producers from the market.
Early in 1994 the metallurgical coal markets continued their long-term decline
with significant price reductions negotiated between Canadian and Australian
producers and Japanese steel mills. During the 1994 second quarter Coal
operations reached agreement with its major Japanese steel customers for new
three-year agreements (subject to annual price renegotiations) for metallurgical
coal shipments. Such agreements replaced sales contracts which expired on March
31, 1994. Pricing under the new agreements for the coal year beginning April 1,
1994, was impacted by the price reductions accepted by foreign producers, but
was largely offset by modifications in coal quality specifications which allows
the Coal operation
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flexibility in sourcing and blending of coals. Although Coal operations has not
yet reached price agreements with its significant metallurgical export coal
customers for the contract year beginning April 1, 1995, certain European
metallurgical coal customers have agreed to price increases.
The market for metallurgical coal, for most of the past fifteen years, has been
characterized by weak demand from primary steel producers and intense
competition from foreign coal producers, especially those in Australia and
Canada. Metallurgical coal sales contracts typically are subject to annual price
negotiations, which increase the risk of market forces. As a result of the
continuing long-term decline in the metallurgical coal markets, which was
further evidenced by the previously discussed significant price reductions in
early 1994, the Coal operations accelerated its strategy of decreasing its
exposure to these markets. After a review of the economic viability of the
remaining 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 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. During the remainder of 1994, the Company
paid $10.2 million of these liabilities, of which $1.5 million was for idled
leased equipment; $5.3 million was for facility closure costs and $3.4 million
was for employee-related costs.
Of the four underground mines, one has ceased coal production, while the
remaining three mines are expected to cease coal production in 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. To date, employment at these facilities has been
reduced by 52% to approximately 360 employees.
As discussed previously, the effects of this strategy have been to decrease Coal
operations' exposure to the metallurgical coal markets and to increase its
production and sales of lower cost surface minable steam coal. As previously
mentioned, for 1994, steam coal sales rose to approximately 65% of total coal
sales up from less than 50% in the prior year. In addition, production from
surface mines has increased to 69% for 1994 as compared to 45% for last year. In
addition, metallurgical coal produced/purchased decreased to 9.9 million tons
versus 11.7 million tons when comparing 1994 to 1993.
Although coal production has or will cease at the mines contemplated in the
accrual, the Coal operations will incur reclamation and environmental costs for
several years to bring these properties into compliance with federal and state
environmental laws. In addition, employee termination and medical costs will
continue to be incurred for several years after the facilities have been closed.
The significant portion of these employee liabilities is for statutorily
provided workers' compensation costs for inactive employees. Such benefits
include indemnity and medical costs as required under state workers'
compensation laws.
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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 the first quarter of
1994 should be sufficient to provide for these future costs and does not
anticipate material additional future charges to operating earnings for these
facilities, although continual cash funding will be required over the next
several years.
The following table analyzes the changes in liabilities during the last three
years 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 January
1, 1993 (a) $1,146 35,499 35,413 72,058
Additions 2,782 1,598 6,267 10,647
Payments (b) 836 8,663 7,463 16,962
-----------------------------------------------------------------
Balance as of
December
31, 1993 3,092 28,434 34,217 65,743
Additions 3,836 19,290 21,193 44,319
Payments (c) 3,141 9,468 12,038 24,647
-----------------------------------------------------------------
Balance as of
December
31, 1994 $3,787 38,256 43,372 85,415
-----------------------------------------------------------------
</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 $2,312 for leased machinery and equipment, $50,645 principally for
incremental facility closing costs, including reclamation and $47,841 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 the year for
liabilities recorded in prior years.
(c) These amounts represent total cash payments made during the year for these
charges. Of the total payments made, $8,672 was for liabilities recorded in
years prior to 1993, $5,822 was for liabilities recorded in 1993 and $10,153 was
for liabilities recorded in 1994.
During the next twelve months, expected cash funding of these charges is
approximately $21 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.
For 1994, Coal operations' closed facilities (including those facilities for
which the decision to close was made earlier this year) incurred operating
losses of $4.4 million.
On June 21, 1994, a successor collective bargaining agreement between the Coal
operations' union companies and the UMWA was ratified by such companies' union
employees, replacing the principal labor agreement which expired on June 30,
1994. The successor agreement will remain in effect until December 31, 1998.
This agreement continues the basic principles and provisions established in the
predecessor 1990 Agreement with respect to areas of job security, work rules and
scheduling. The new agreement provides for, among other things, wage increases
of $.40 per hour on December 15 of each of the years 1994 to 1997 and includes
improvements in certain employee benefit programs.
Operating profit for Coal operations totaled $36.9 million in 1992 compared to
an operating loss of $48.2 million in 1993. Operating results in 1993 were
negatively impacted by the $70.7 million in charges, as discussed earlier, $10.0
million in expenses relating to retiree health benefits required by federal
legislation enacted in October 1992 (discussed later) and the $1.8 million
charge to settle litigation related to the moisture content of tonnage used to
compute royalty payments to the UMWA pension and benefit funds for the period
ended February 1, 1988. Coal operating profit in 1993 also included other
operating income of $9.8 million compared with $9.0 million in the year-earlier
period primarily for third party royalties and sales of properties and
equipment.
Sales volume of 22.0 million tons in 1993 was 6% or 1.2 million tons higher than
sales volume in the year earlier. The increased sales were attributable to steam
coal sales of 10.3 million tons (47% of total sales), up from 8.4 million tons
(41% of total sales), while metallurgical coal sales decreased 5% from 12.3
million tons to 11.7 million tons. Coal produced (17.1 million tons) and
purchased (4.5 million tons) totaled 21.6 million tons in 1993, which was
slightly lower than production in 1992. In 1993, 54% of total production was
derived from deep mines and 46% was derived from surface mines compared with 65%
and 35% of deep and surface mine production, respectively, in 1992.
Average margin in 1993 of $2.75 per ton decreased 12% or $.37 per ton compared
to 1992, as a 4% or $1.30 per ton decrease in average realization was only
partially offset by a 4% or $.93 per ton decrease in average current production
costs of coal sold. The decrease in average realization in 1993 reflected lower
export pricing and a downward price revision on a domestic utility contract. The
decrease in average current production costs of coal sold in 1993 was mainly due
to a higher proportion of production sourced from company surface mine
operations.
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42
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The strike by the UMWA against certain coal producers in the eastern United
States, which lasted throughout a significant portion of 1993, was settled in
late 1993. None of the operations of the Company's coal subsidiaries were
involved in the strike. Although the supply of metallurgical coal was
appreciably reduced as a result of the strike, Australian producers increased
production to absorb the shortfall. The strike had little impact on Coal
operating profits during 1993 since a large proportion of production is under
contract. Coal operations benefited from improved spot prices for domestic steam
coal on relatively small amounts of uncommitted tonnage available for this
market.
In October 1992, the Coal Industry Retiree Health Benefit Act of 1992 (the
'Health Benefit Act') was enacted as part of the Energy Policy Act of 1992. The
Health Benefit Act established rules for the payment of future health care
benefits for thousands of retired union mine workers and their dependents. Part
of the burden for these payments was shifted by the Health Benefit Act from
certain coal producers, which had a contractual obligation to fund such
payments, to producers such as the Company which have collective bargaining
agreements with the UMWA that do not require such payments and to numerous other
companies which are no longer in the coal business. The Health Benefit Act
established a trust fund to which 'signatory operators' and 'related persons',
including the Company and certain of its coal subsidiaries (the 'Pittston
Companies') was obligated to pay annual premiums for assigned beneficiaries,
together with a pro rata share for certain beneficiaries who never worked for
such employers ('unassigned beneficiaries'), in amounts determined by the
Secretary of Health and Human Services on the basis set forth in the Health
Benefit Act. For 1993 and 1994, these amounts were approximately $9.1 million
and $11.0 million, respectively. In addition, in 1993 the Company incurred costs
of $.9 million to review the accuracy of beneficiaries assigned. The Company
believes that the annual cash funding under the Health Benefit Act for the
Pittston Companies' assigned beneficiaries will continue in the $10 to $11
million range for the next eight years and should begin to decline thereafter as
the number of such assigned beneficiaries decreases.
Based on the number of beneficiaries actually assigned by the Social Security
Administration, the Company estimates the aggregate pretax liability relating to
the Pittston Companies' assigned beneficiaries remaining at December 31, 1994 at
approximately $250 million, which when discounted at 8.75% provides a present
value estimate of approximately $100 million.
The ultimate obligation that will be incurred by the Company could be
significantly affected by, among other things, increased medical costs,
decreased number of beneficiaries, governmental funding arrangements and such
federal health benefit legislation of general application as may be enacted. In
addition, the Health Benefit Act requires the Pittston Companies to fund, pro
rata according to the total number of assigned beneficiaries, a portion of the
health benefits for unassigned beneficiaries. At this time, the funding for such
health benefits is being provided from another source and for this and other
reasons the Pittston Companies' ultimate obligation for the unassigned
beneficiaries cannot be determined. The Company accounts for its obligations
under the Health Benefit Act as a participant in a multi-employer plan and
recognizes the annual cost on a pay-as-you-go basis.
In February 1990, the Pittston Coal Group companies and the UMWA entered into a
collective bargaining agreement that resolved a labor dispute and related strike
of Pittston Coal Group operations by UMWA-represented employees that began on
April 5, 1989. As part of the agreement, the Pittston Coal Group companies
agreed to make a $10 million lump sum payment to the 1950 Benefit Trust Fund and
to renew participation in the 1974 Pension and Benefit Trust Funds at specified
contribution rates. These aspects of the agreement were subject to formal
approval by the trustees of the funds. The trustees did not accept the terms of
the agreement and, therefore, payments were made to escrow accounts for the
benefit of union employees. Under the new 1994 Agreement, the Pittston Coal
Group companies agreed to continue participation in the 1974 Pension Plan at
specified contribution rates, again subject to trustee approval. At this time,
payments continue to be made to the escrow accounts for the benefit of union
employees. The escrow accounts balances as of December 31, 1994 totaled $23.1
million.
In 1988, the trustees of certain pension and benefit trust funds established
under collective bargaining agreements with the UMWA brought an action (the
'Evergreen Case') against the Company and a number of its coal subsidiaries in
the United States District Court for the District of Columbia, claiming that the
defendants are obligated to contribute to such trust funds in accordance with
the provisions of the 1988 and subsequent National Bituminous Coal Wage
Agreements, to which neither the Company nor any of its subsidiaries is a
signatory. In January 1992, the Court issued an order granting summary judgment
in favor of the trustees on the issue of liability, which was thereafter
affirmed by the Court of Appeals. In June 1993, the United States Supreme Court
denied a petition for a writ of certiorari. The case has been
---
43
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--------------------------------------------------------------------------------
remanded to District Court, and damage and other issues remain to be decided. In
September 1993, the Company filed a motion seeking relief from the District
Court's grant of summary judgment based on, among other things, the Company's
allegation that plaintiffs improperly withheld evidence that directly refutes
plaintiffs' representations to the District Court and the Court of Appeals in
this case. In December 1993, that motion was denied. On May 23, 1994, the
trustees filed a Motion for Entry of Final Judgment seeking approximately $71.1
million in delinquent contributions, interest and liquidated damages through May
31, 1994, plus approximately $17 thousand additional interest and liquidated
damages for each day between May 31, 1994, and the date final judgment is
entered, plus ongoing contributions to the 1974 Pension Plan. The Company has
opposed this motion. There has been no decision on this motion or final judgment
entered to date.
In furtherance of its ongoing effort to identify other available legal options
for seeking relief from what it believes to be an erroneous finding of liability
in the Evergreen Case, the Company has filed suit against the Bituminous Coal
Operators Association ('BCOA') and others to hold them responsible for any
damages sustained by the Company as a result of the Evergreen Case. Although the
Company is continuing that effort, the Company, following the District Court's
ruling in December 1993, recognized the potential liability that may result from
an adverse judgment in the Evergreen Case. In any event, any final judgment in
the Evergreen Case will be subject to appeal. In December 1994, the District
Court ordered that the Evergreen Case, as well as related cases filed against
other coal companies, and the BCOA case, be submitted to mediation before a
federal judge in an effort to obtain a settlement. The mediation process is
ongoing.
As a result of the Health Benefit Act, there is no continuing liability in this
case in respect of health benefit funding after February 1, 1993.
MINERAL VENTURES
Mineral Ventures reported operating income of $1.1 million for 1994 compared
with an operating loss of $8.3 million for 1993. Operating results in 1993
included a $7.9 million charge related to the write-down of the company's
investment in the Uley graphite mine in Australia. Although reserve drilling of
the Uley property indicated substantial graphite deposits, graphite prices which
remained significantly below the level prevailing at the start of the project,
processing difficulties and an analysis of various technical and marketing
conditions affecting the project resulted in the determination that the assets
had been impaired and that loss recognition was appropriate. Excluding the $7.9
million charge, Mineral Ventures operations incurred a $.4 million operating
loss in 1993. Operating results for 1994 and 1993 also reflected production from
the Stawell gold mine. Mineral Ventures has a 67% net equity interest in the
Stawell mine and its adjacent exploration acreage. In December 1992, Mineral
Ventures acquired its 50% direct ownership in the Stawell property through its
participation in a joint venture with Mining Project Investors Pty Ltd., (in
which Mineral Ventures holds a 34% interest). At December 31, 1994, the Stawell
gold mine, which is in western Victoria, Australia, had remaining proven and
probable gold reserves estimated at 444,000 ounces. The joint venture also has
exploration rights in the highly prospective district around the mine. In 1994
and 1993, the Stawell mine produced 77,966 ounces and 73,765 ounces of gold,
respectively, with Mineral Ventures' share of the operating profit amounting to
$5.0 million and $4.9 million, in 1994 and 1993, respectively. The contribution
to operating profit from the Stawell mine in both 1994 and 1993 was offset by
exploration expenditures related chiefly to other potential gold mining projects
in addition to administrative overhead. Operating results for 1994 were also
impacted by higher operating costs incurred as a result of an operator accident
at Stawell which occurred early in the year. Mineral Ventures is continuing gold
exploration projects in Nevada and Australia with its joint venture partner.
In 1992, Mineral Ventures operations reported operating losses of $3.4 million,
which primarily related to expenses for project review and exploration.
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 upon
utilization and other methods and criteria which management believes to be
equitable and a reasonable estimate of the cost attributable to the Minerals
Group. These allocations were $6.8 million, $7.2 million and $8.6 million in
1994, 1993 and 1992, respectively.
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44
<PAGE>
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OTHER OPERATING INCOME
Other operating income increased $5.0 million to $15.3 million in 1994 from
$10.3 million in 1993 and increased $1.5 million in 1993 from $8.8 million in
1992. Other operating income for the Minerals Group principally includes royalty
income and gains and losses from sales of coal assets. The increase in 1994
compared to 1993 was largely due to increased royalty income and sales of coal
assets.
OTHER INCOME (EXPENSE), NET
Other income (expense), net was a net expense of $.9 million in 1994, a net
expense of $.5 million in 1993 and net income of $1.9 million in 1992. The net
amount in 1992 included a gain of $2.3 million from the sale of investments in
leveraged leases.
INTEREST EXPENSE
Interest expense in 1994 increased $5.2 million to $6.5 million from $1.3
million in 1993 and decreased $2.2 million in 1993 from $3.5 million in 1992.
Interest expense increased in 1994 due to higher average borrowings under
revolving credit and term loan facilities resulting from the Addington
acquisition and higher average interest rates. Interest expense in 1993 included
interest assessed on settlement of coal litigation related to the moisture
content of tonnage used to compute royalty payments to UMWA pension and benefit
funds. The $2.2 million decrease in 1993 compared with 1992 was largely due to
lower outstanding debt during the year. Interest expense in 1994, 1993 and 1992
included a portion of the Company's interest expense related to borrowings from
the Company's revolving credit lines which was attributed to the Minerals Group.
The amount of interest expense attributed to the Minerals Group for 1994, 1993
and 1992 was $4.4 million, $.4 million and $2.8 million, respectively.
INCOME TAXES
In 1994, the credit for income taxes was higher than the amount that would have
been recognized using the federal statutory rate of 35% due to the tax benefits
of percentage depletion and a reduction in the valuation allowance for deferred
tax assets primarily in state jurisdiction. In 1993, the credit for income taxes
was higher than the amount that would have been recognized using the statutory
federal income tax rate of 35% due to the tax benefits of percentage depletion,
favorable adjustments to deferred tax assets as a result of the increase in the
statutory U.S. federal income tax rate and a reduction in the valuation
allowance for deferred tax assets primarily in foreign jurisdictions. In 1992,
the provision for income taxes was less than the statutory federal income tax
rate of 34% because of the tax benefit from 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 of the cost attributable to the Minerals Group.
Corporate assets which were allocated to the Minerals Group consisted primarily
of pension assets and deferred income taxes and amounted to $84.0 million and
$90.1 million at December 31, 1994 and 1993, respectively.
CASH FLOW PROVIDED BY OPERATING ACTIVITIES
In 1994, operating activities used cash of $33.2 million and in 1993 operating
activities provided cash of $28.4 million. The $61.6 million net decrease in
1994 compared with 1993 consisted of a $20.0 million decrease attributable to
the change in net income and a $106.9 million decrease attributable to changes
in operating assets and liabilities, partially offset by a $65.3 million
increase attributable to net noncash charges and credits. Operations provided
less cash in 1994 partly due to the integration of operating activities of
Addington, which required cash to finance initial working capital needs. Net
income, noncash charges and changes in operating assets and liabilities in 1994
were also significantly affected by after-tax restructuring and other charges
for Minerals Group of $58.1 million which used cash of approximately $10.2
million in 1994. Of the total $90.8 million of 1994 pretax 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. In
addition, during 1994, $14.5 million was paid for similar charges reported
in prior periods. As discussed under Coal operations, funding
requirements for these charges are expected to be approximately $21 million
during the next twelve months. The Minerals Group intends to fund any cash
requirements during 1994 with anticipated cash flows from operations, with
shortfalls, if any, financed through borrowings under the Company's revolving
credit agreements or borrowings from the Services Group.
Cash used to support the Minerals Group's operating and investing activities was
less than cash generated from net financing activities and, as a result, the
Minerals Group required additional cash from the Services Group of $61.4 million
during 1994.
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CAPITAL EXPENDITURES
Cash capital expenditures totaled $25.9 million for 1994. An additional $23.7
million of expenditures were made in 1994 through capital and operating leases
which were predominately for surface mining equipment. Approximately 95% of the
gross capital expenditures in 1994 were incurred in the Coal segment. Of that
amount, approximately 75% of the expenditures was for business expansion, and
the remainder was for replacement and maintenance of current ongoing business
operations. Gross expenditures made by Mineral Ventures operations approximated
5% of the Minerals Group's total capital expenditures and were primarily costs
incurred for project development.
Cash capital expenditures for 1994 were funded by cash flow from operating
activities, with any shortfalls financed through the Company by borrowings under
its revolving credit agreements, which were thereby attributed to the Minerals
Group or borrowings from the Services Group.
OTHER INVESTING ACTIVITIES
All other investing activities in 1994 used net cash of $145.1 million. In
January 1994, the Company paid approximately $157 million in cash for the
acquisition of substantially all the coal mining operations and coal sales
contracts of Addington. The purchase price of the acquisition was financed
through the issuance of $80.5 million of a new series of preferred stock, which
is convertible into Pittston Minerals Group Common Stock, and additional
borrowings under credit agreements. Other investing activities also included
$8.4 million of cash received in 1994 from the December 1993 sale of the
majority of the assets of a captive mine supply company. Disposal of property,
plant and equipment provided $5.6 million in cash in 1994.
FINANCING
Gross capital expenditures in 1995 are not currently expected to increase over
1994 levels. The Minerals Group intends to fund such expenditures through cash
flow from operating activities or through operating leases if the latter are
financially attractive. Any shortfalls will be financed through the Company's
revolving credit agreements or borrowings from the Services Group.
In March 1994, the Company entered into a $350 million credit agreement with a
syndicate of banks (the 'New Facility'), replacing the Company's previously
existing $250 million of revolving credit agreements. The New Facility includes
a $100 million five-year term loan, which matures in March 1999. The New
Facility also permits additional borrowings, repayments and reborrowings of up
to an aggregate of $250 million until March 1999. At December 31, 1994,
borrrowings of $100 million were outstanding under the five-year term loan
portion of the New Facility and borrowings of $9.4 million were outstanding
under the remainder of the facility. Of the total amount outstanding under the
Facility, $86.0 million was attributed to the Minerals Group. In 1994 the
Company entered into a standard three year variable to fixed interest rate swap
agreement. This agreement fixes the Company's interest rate at 5% on current
borrowings of $40 million in principal. The principal amount to which the 5%
interest rate applies declines periodically throughout the term of the
agreement. At December 31, 1994, $40 million of debt to which the 5% interest
rate applied was attributed to the Minerals Group.
DEBT
Total debt outstanding for the Minerals Group amounted to $143.9 million, of
which $48.2 million was payable to the Services Group. At December 31, 1994,
$86.0 million of the Company's long-term debt was attributed to the Minerals
Group. During 1994, the Addington Acquisition was financed in part with debt
under the Company's revolving credit facilities, which was attributed to the
Minerals Group. In March 1994, the additional debt incurred for this acquisition
was refinanced with a five-year term loan under the New Facility.
OFF-BALANCE SHEET INSTRUMENTS
The Minerals Group utilizes off-balance sheet financial instruments, as
discussed below, to hedge its market exposures. The risk that counterparties to
these contracts may be unable to perform is minimized by limiting the
counterparties to major financial institutions. The Company does not expect any
losses due to such counterparty default.
Gold contracts -- In order to protect itself against downward movements in gold
prices, the Minerals Group hedges a portion of its recoverable proved and
probable reserves primarily through forward sales contracts. At December 31,
1994, 60,056 ounces of gold, representing approximately 30% of the Minerals
Group's recoverable proved and probable reserves, were sold forward under
forward sales contracts with a notional value of $24.7 million. Because only a
portion of its future production is currently sold forward, the Minerals Group
can take advantage of increases, if any, in the spot price of gold. At December
31, 1994, the fair value of the Minerals Group's forward sales contracts was not
significant.
Interest rate contract -- As discussed earlier, in 1994, the Company entered
into a variable to fixed interest rate swap agreement with a notional amount of
$40 million. Fair value at December 31, 1994 was $1.6 million. This contract has
been attributed to the Minerals Group.
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46
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CONTINGENT LIABILITIES
In April 1990, the Company entered into a settlement agreement to resolve
certain environmental claims against the Company arising from hydrocarbon
contamination at a petroleum terminal facility ('Tankport') in Jersey City, New
Jersey, which operations were sold in 1983. Under the settlement agreement, the
Company is obligated to pay 80% of the remediation costs. Based on data
available to the Company and its environmental consultants, the Company
estimates its portion of the cleanup costs on an undiscounted basis using
existing technologies to be between $6.7 million and $14.1 million over a period
of up to five years. Management is unable to determine that any amount within
that range is a better estimate due to a variety of uncertainties, which include
the extent of the contamination at the site, the permitted technologies for
remediation and the regulatory standards by which the cleanup will be conducted.
The cleanup estimates have been modified in light of certain regulatory changes
promulgated in December 1994.
The Company commenced insurance coverage litigation in 1990, in the United
States District Court for the District of New Jersey, seeking a declaratory
judgment that all amounts payable by the Company pursuant to the Tankport
obligation were reimbursable under comprehensive general liability and pollution
liability policies maintained by the Company. Although the underwriters have
disputed this claim, management and its legal counsel believe that recovery is
probable of realization in the full amount of the claim. This conclusion is
based upon, among other things, the nature of the pollution policies which were
broadly designed to cover such contingent liabilities, the favorable state of
the law in the State of New Jersey (whose laws have been found to control the
interpretation of the policies), and numerous other factual considerations which
support the Company's analysis of the insurance contracts and rebut the
underwriters' defenses. Accordingly, there is no net liability in regard to the
Tankport obligation.
CAPITALIZATION
On July 26, 1993, the Company's shareholders approved the Services Stock
Proposal, as described in the Company's proxy statement dated June 24, 1993,
which resulted in the reclassification of the Company's common stock. The
outstanding shares of common stock of the Company were redesignated as Pittston
Services Group Common Stock ('Services Stock') on a share-for-share basis and a
second class of common stock, designated as Minerals Stock, was distributed on
the basis of one-fifth of one share of Minerals Stock for each share of the
Company's previous common stock held by shareholders of record on July 26,
1993. Minerals Stock and Services Stock are designed to provide shareholders
with separate securities reflecting the performance of the Minerals Group and
the Services Group, respectively, without diminishing the benefits of remaining
a single corporation or precluding future transactions affecting either Group.
The redesignation of the Company's common stock as Services Stock and the
distribution of Minerals Stock as a result of the approval of the Services Stock
Proposal did not result in any transfer of assets and liabilities of the Company
or any of its subsidiaries. Holders of Services Stock and Minerals Stock are
shareholders of the Company, which continues to be responsible for all its
liabilities. Therefore, financial developments affecting the Minerals Group or
the Services Group that affect the Company's financial condition could affect
the results of operations and financial condition of both Groups. The change in
the capital structure of the Company had no effect on the Company's total
capital, except as to expenses incurred in the execution of the Services Stock
Proposal. Since the creation of Minerals Stock upon approval of the Services
Stock Proposal, capitalization of the Minerals Group has been affected by all
share activity related to Minerals Stock.
In 1993, the Board authorized the repurchase of up to 1,250,000 shares of
Services Stock and 250,000 shares of Minerals Stock, not to exceed an aggregate
purchase price of $43.0 million. As of December 1994, a total of 38,500 shares
of Minerals Stock had been acquired pursuant to the authorization, of which
19,700 shares were repurchased in 1994 at an aggregate cost of $.4 million.
In January 1994, the Company issued $80.5 million (161,000 shares) of a new
series of cumulative preferred stock, convertible into Minerals Stock. The
cumulative convertible preferred stock, which is attributable to the Minerals
Group, pays an annual cumulative dividend of $31.25 per share payable quarterly,
in cash, in arrears, out of all funds of the Company legally available
therefore, when, as and if declared by the Board, which commenced March 1, 1994,
and bears a liquidation preference of $500 per share, plus an amount equal to
accrued and unpaid dividends thereon.
In July 1994, the Board authorized the repurchase from time to time of up to $15
million of the new series of cumulative convertible preferred stock. As of
December 31, 1994, 8,350 shares at a total cost of $3.4 million were
repurchased.
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DIVIDENDS
The Board intends to declare and pay dividends on Minerals Stock based on the
earnings, financial condition, cash flow and business requirements of the
Minerals Group. Since the Company remains subject to Virginia law limitations on
dividends and to dividend restrictions in its public debt and bank credit
agreements, losses incurred by the Services Group could affect the Company's
ability to pay dividends in respect of stock relating to the Minerals Group.
Dividends on Minerals Stock are also limited by the Available Minerals Dividend
Amount as defined in the Company's Articles of Incorporation. At December 31,
1994, the Available Minerals Dividend Amount was at least $24.8 million.
In 1994, the Board declared and the Company paid cash dividends of 65 cents per
share of Minerals Stock. On an equivalent basis, in 1993 the Company paid
dividends of 62.04 cents per share of Minerals Stock.
Dividends paid on the cumulative convertible preferred stock, which commenced
March 1, 1994, totaled $4.2 million for the year.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
------------------------------------------------------------------------------
The Pittston Company and Subsidiaries
----------------------------------------------------
STATEMENT OF MANAGEMENT RESPONSIBILITY
The management of The Pittston Company (the 'Company') is responsible for
preparing the accompanying consolidated financial statements and for their
integrity and objectivity. The statements were prepared in accordance with
generally accepted accounting principles. Management has also prepared the
other information in the annual report and is responsible for its accuracy.
In meeting our responsibility for the integrity of the consolidated financial
statements, we maintain a system of internal controls designed to provide
reasonable assurance that assets are safeguarded, that transactions are
executed in accordance with management's authorization and that the accounting
records provide a reliable basis for the preparation of the financial
statements. Qualified personnel throughout the organization maintain and
monitor these internal controls on an ongoing basis. In addition, the Company
maintains an internal audit department that systematically reviews and reports
on the adequacy and effectiveness of the controls, with management follow-up
as appropriate.
Management has also established a formal Business Code of Ethics which is
distributed throughout the Company. We acknowledge our responsibility to
establish and preserve an environment in which all employees properly
understand the fundamental importance of high ethical standards in the conduct
of our business.
The Company's consolidated financial statements have been audited by KPMG Peat
Marwick LLP, independent auditors. During the audit they review and make
appropriate tests of accounting records and internal controls to the extent
they consider necessary to express an opinion on the Company's consolidated
financial statements.
The Company's Board of Directors pursues its oversight role with respect to
the Company's consolidated financial statements through the Audit and Ethics
Committee, which is composed solely of outside directors. The Committee meets
periodically with the independent auditors, internal auditors and management
to review the Company's control system and to ensure compliance with
applicable laws and the Company's Business Code of Ethics.
We believe that the policies and procedures described above are appropriate
and effective and do enable us to meet our responsibility for the integrity of
the Company's consolidated financial statements.
----------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
The Pittston Company
We have audited the accompanying consolidated balance sheets of The Pittston
Company and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The
Pittston Company and subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Stamford, Connecticut
January 25, 1995
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49
<PAGE>
The Pittston Company and Subsidiaries
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31
(Dollars in thousands, except per share amounts) 1994 1993
----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,318 32,412
Short-term investments 25,162 22,946
Accounts receivable:
Trade (Note 3) 361,361 283,942
Other 31,165 28,641
----------------------------------------------------------------------------------------------------------------
392,526 312,583
Less estimated amount uncollectible 15,734 16,040
----------------------------------------------------------------------------------------------------------------
376,792 296,543
Coal inventory 25,518 18,649
Other inventory 8,635 5,506
----------------------------------------------------------------------------------------------------------------
34,153 24,155
Prepaid expenses 27,700 27,493
Deferred income taxes (Note 6) 55,850 53,642
----------------------------------------------------------------------------------------------------------------
Total current assets 561,975 457,191
Property, plant and equipment, at cost (Note 4) 840,494 782,354
Less accumulated depreciation, depletion and amortization 394,660 412,533
----------------------------------------------------------------------------------------------------------------
445,834 369,821
Intangibles, net of amortization (Notes 5 and 10) 329,441 215,042
Deferred pension assets (Note 13) 118,953 117,066
Deferred income taxes (Note 6) 84,214 59,846
Other assets 197,361 142,535
----------------------------------------------------------------------------------------------------------------
Total assets $1,737,778 1,361,501
----------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 13,323 9,546
Current maturities of long-term debt (Note 7) 13,748 7,908
Accounts payable 252,615 182,276
Accrued liabilities:
Taxes 44,654 43,769
Workers' compensation and other claims 41,771 42,397
Miscellaneous 208,359 151,548
----------------------------------------------------------------------------------------------------------------
294,784 237,714
----------------------------------------------------------------------------------------------------------------
Total current liabilities 574,470 437,444
Long-term debt, less current maturities (Note 7) 138,071 58,388
Postretirement benefits other than pensions (Note 13) 218,738 212,218
Workers' compensation and other claims 138,793 127,545
Deferred income taxes (Note 6) 19,036 15,847
Other liabilities 200,855 156,547
Commitments and contingent liabilities (Notes 7, 11, 12, 13, 17 and 18)
Shareholders' equity (Notes 1, 7, 8 and 9):
Preferred stock, par value $10 per share, Authorized: 2,000,000 shares
$31.25 Series C Cumulative Preferred Stock, Issued: 1994 -- 152,650 1,526 --
Pittston Services Group common stock, par value $1 per share:
Authorized: 100,000,000 shares
Issued: 1994 -- 41,594,845 shares; 1993 -- 41,429,455 shares 41,595 41,429
Pittston Minerals Group common stock, par value $1 per share:
Authorized: 20,000,000 shares
Issued: 1994 -- 8,389,622 shares; 1993 -- 8,280,619 shares 8,390 8,281
Capital in excess of par value 420,470 354,911
Retained earnings 107,739 98,290
Equity adjustment from foreign currency translation (14,276) (18,381)
Employee benefits trust, at market value (Note 9) (117,629) (131,018)
----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 447,815 353,512
----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,737,778 1,361,501
----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
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50
<PAGE>
The Pittston Company and Subsidiaries
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31
(In thousands, except per share amounts) 1994 1993 1992
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 794,998 687,089 657,871
Operating revenues 1,872,277 1,569,032 1,415,170
-----------------------------------------------------------------------------------------------------
Net sales and operating revenues 2,667,275 2,256,121 2,073,041
-----------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 771,586 645,679 604,319
Operating expenses 1,542,080 1,299,541 1,187,229
Selling, general and administrative expenses 244,330 226,125 222,234
Restructuring and other charges, including litigation accrual (Note
14) 90,806 78,633 --
Pension credit (Note 13) -- -- (11,130)
------------------------------------------------------------------------------------------------------
Total costs and expenses 2,648,802 2,249,978 2,002,652
------------------------------------------------------------------------------------------------------
Other operating income (Note 15) 24,400 19,956 19,103
------------------------------------------------------------------------------------------------------
Operating profit 42,873 26,099 89,492
Interest income 2,513 2,839 3,235
Interest expense (11,489) (10,173) (11,087)
Other income (expense), net (Note 15) (5,572) (4,611) (4,034)
------------------------------------------------------------------------------------------------------
Income before income taxes 28,325 14,154 77,606
Provision for income taxes (Note 6) 1,428 8 28,519
------------------------------------------------------------------------------------------------------
Net income 26,897 14,146 49,087
Preferred stock dividends (3,998) -- --
------------------------------------------------------------------------------------------------------
Net income attributed to common shares $ 22,899 14,146 49,087
------------------------------------------------------------------------------------------------------
Pittston Services Group (Note 1):
Net income attributed to common shares $ 79,845 47,126 27,277
------------------------------------------------------------------------------------------------------
Net income per common share $ 2.11 1.28 .74
------------------------------------------------------------------------------------------------------
Average common shares outstanding 37,784 36,907 37,081
Pittston Minerals Group (Note 1):
Net income (loss) attributed to common shares $ (56,946) (32,980) 21,810
------------------------------------------------------------------------------------------------------
Net income (loss) per common share $ (7.50) (4.47) 2.94
------------------------------------------------------------------------------------------------------
Average common shares outstanding 7,594 7,381 7,416
</TABLE>
See accompanying notes to consolidated financial statements.
---
51
<PAGE>
The Pittston Company and Subsidiaries
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1994, 1993
and 1992 Pittston Pittston Equity
$31.25 Services Minerals Adjustment
Series C Group Group Capital in from
Cumulative Common Common Excess of Foreign Employee
(In thousands, except per share Preferred Stock Stock Par Value Retained Currency Benefits
amounts) Stock (Note 1) (Note 1) (Note 1) Earnings Translation Trust
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991 $ -- 37,317 7,463 221,369 59,523 (9,157) --
Net income -- -- -- -- 49,087 -- --
Stock options exercised (Note 8) -- 113 23 1,336 -- -- --
Employee benefit plan (Note 13) -- 71 14 817 -- -- --
Employee benefits trust (Note 9) -- 4,000 800 49,700 -- -- (54,500)
Foreign currency translation
adjustment -- -- -- -- -- (4,905) --
Remeasurement of employee benefits
trust -- -- -- 4,963 -- -- (4,963)
Shares released from employee benefits
trust to employee benefit plan (Note
9) -- -- -- (7) -- -- 691
Retirement of stock under share
repurchase programs (Note 9) -- (968) (193) (8,764) (3,108) -- --
Cash dividends declared -- Pittston
Services Group $.1515 per share and
Pittston Minerals Group $.4924 per
share (Note 1) -- -- -- -- (9,262) -- --
---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 -- 40,533 8,107 269,414 96,240 (14,062) (58,772)
Net income -- -- -- -- 14,146 -- --
Stock options exercised (Note 8) -- 971 208 13,578 -- -- --
Tax benefit of stock options exercised
(Note 6) -- -- -- 2,121 -- -- --
Foreign currency translation
adjustment -- -- -- -- -- (4,319) --
Remeasurement of employee benefits
trust -- -- -- 73,907 -- -- (73,907)
Shares released from employee benefits
trust to employee benefit plan (Note
9) -- -- -- (2) -- -- 1,661
Retirement of stock under share
repurchase programs (Note 9) -- (75) (34) (944) (458) -- --
Costs of Services Stock Proposal (Note
9) -- -- -- (3,163) -- -- --
Cash dividends declared -- Pittston
Services Group $.1909 per share and
Pittston Minerals Group $.6204 per
share (Note 1) -- -- -- -- (11,638) -- --
---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 -- 41,429 8,281 354,911 98,290 (18,381) (131,018)
Net income -- -- -- -- 26,897 -- --
Issuance of $31.25 Series C Cumulative
Preferred Stock, net of cash expenses
(Note 9) 1,610 -- -- 75,472 -- -- --
Stock options exercised (Note 8) -- 422 129 6,781 -- -- --
Tax benefit of stock options exercised
(Note 6) -- -- -- 2,936 -- -- --
Foreign currency translation
adjustment -- -- -- -- -- 4,105 --
Remeasurement of employee benefits
trust -- -- -- (10,449) -- -- 10,449
Shares released from employee benefits
trust to employee benefit plan (Note
9) -- -- -- (309) -- -- 2,940
Retirement of stock under share
repurchase programs (Note 9) (84) (256) (20) (8,877) (718) -- --
Costs of Services Stock Proposal (Note
9) -- -- -- (4) -- -- --
Conversion of 9.2% debentures -- -- -- 9 -- -- --
Cash dividends declared -- Pittston
Services Group $.20 per share,
Pittston Minerals Group $.65 per
share and Series C Preferred Stock
$27.09 per share -- -- -- -- (16,730) -- --
---------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 $1,526 41,595 8,390 420,470 107,739 (14,276) (117,629)
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
---
52
<PAGE>
The Pittston Company and Subsidiaries
------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1994 1993 1992
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 26,897 14,146 49,087
Adjustments to reconcile net income to net cash provided by
operating activities:
Noncash charges and other write-offs 46,793 10,857 3,147
Depreciation, depletion and amortization 101,856 77,565 70,424
Provision (credit) for deferred income taxes (17,777) (29,435) 9,063
Credit for pensions, noncurrent (1,128) (2,596) (15,161)
Provision for uncollectible accounts receivable 4,532 6,880 4,058
Equity in earnings of unconsolidated affiliates, net of dividends
received (1,432) (4,205) (4,989)
Gain on sale of leveraged leases -- -- (2,341)
Gain on sale of property, plant and equipment (3,569) (5,472) (915)
Other operating, net 3,491 3,904 3,485
Change in operating assets and liabilities, net of effects of
acquisitions and dispositions:
Increase in accounts receivable (85,734) (20,715) (20,139)
Decrease (increase) in inventories (4,184) 6,507 4,034
Decrease (increase) in prepaid expenses (2,849) (2,795) 443
Increase in accounts payable and accrued liabilities 75,915 20,458 46,157
Decrease (increase) in other assets 5,374 (3,969) 2,036
Increase (decrease) in workers' compensation and other claims,
noncurrent 6,605 (17,213) (16,705)
Increase (decrease) in other liabilities (15,283) 66,339 (6,593)
Other, net (178) (342) (275)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 139,329 119,914 124,816
-------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (106,312) (97,779) (100,575)
Proceeds from disposal of property, plant and equipment 7,622 4,620 5,848
Acquisitions, net of cash acquired, and related contingency
payments (163,262) (1,435) (52,560)
Proceeds from leveraged leases -- -- 13,707
Other, net 5,431 8,569 (2,435)
-------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (256,521) (86,025) (136,015)
-------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 117,332 4,136 30,916
Reductions of debt (48,257) (34,385) (9,608)
Repurchase of stock of the Company (9,955) (1,511) (13,033)
Proceeds from exercise of stock options 7,332 14,757 1,472
Dividends paid (16,709) (11,638) (9,262)
Proceeds from sale of stock to SIP -- 264 --
Costs of Services Stock Proposal (4) (3,163) --
Preferred stock issuance, net of cash expenses 77,359 (277) --
-------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 127,098 (31,817) 485
-------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 9,906 2,072 (10,714)
Cash and cash equivalents at beginning of year 32,412 30,340 41,054
-------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 42,318 32,412 30,340
-------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
---
53
<PAGE>
The Pittston Company and Subsidiaries
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
On July 26, 1993, the shareholders of The Pittston Company (the 'Company')
approved the Services Stock Proposal, as described in Note 9, resulting in the
reclassification of the Company's common stock into shares of Pittston Services
Group Common Stock ('Services Stock') on a share-for-share basis. In addition, a
second class of common stock, designated as Pittston Minerals Group Common Stock
('Minerals Stock') was distributed on a basis of one-fifth of one share of
Minerals Stock for each share of the Company's previous common stock. The
Pittston Services Group (the 'Services Group') consists of the Burlington Air
Express Inc. ('Burlington'), Brink's, Incorporated ('Brink's') and Brink's Home
Security, Inc. ('BHS') operations of the Company. The Pittston Minerals Group
(the 'Minerals Group') consists of the Coal and Mineral Ventures operations of
the Company. The approval of the Services Stock Proposal did not result in any
transfer of assets and liabilities of the Company or any of its subsidiaries.
The Company prepares separate financial statements for the Minerals and Services
Groups in addition to consolidated financial information of the Company.
Due to the reclassification of the Company's common stock, all stock and per
share data in the accompanying financial statements for the periods prior to the
reclassification have been restated to reflect the reclassification. The primary
impacts of this restatement are as follows:
* Net income per common share has been restated in the Consolidated Statements
of Operations to reflect the two classes of stock, Services Stock and Minerals
Stock, as if they were outstanding for all periods presented. For the purposes
of computing net income per common share of Services Stock and Minerals Stock,
the number of shares of Services Stock are assumed to be the same as the total
corresponding number of shares of the Company's common stock. The number of
shares of Minerals Stock are assumed to be one-fifth of the shares of the
Company's common stock.
* All financial impacts of purchases and issuances of the Company's common stock
prior to the effective date of the Services Stock Proposal have been
attributed to each Group in relation of their respective common equity to the
Company's common stock. Dividends paid by the Company were attributed to the
Services and Minerals Groups in relation to the initial dividends paid on the
Services Stock and the Minerals Stock. Accordingly, the Consolidated
Statements of Shareholders' Equity have been restated to reflect these
changes.
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements reflect the accounts of the
Company and its majority-owned subsidiaries. The Company's interests in 20% to
50% owned companies are carried on the equity method. All material intercompany
items and transactions have been eliminated in consolidation. Certain prior year
amounts have been reclassified to conform to the current year's financial
statement presentation.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include cash on hand, demand deposits and investments
with original maturities of three months or less.
SHORT-TERM INVESTMENTS:
Short-term investments primarily include funds set aside by management for
certain obligations and are carried at cost which approximates market.
INVENTORIES:
Inventories are stated at cost (determined under the first-in, first-out or
average cost method) or market, whichever is lower.
PROPERTY, PLANT AND EQUIPMENT:
Expenditures for maintenance and repairs are charged to expense and the costs of
renewals and betterments are capitalized. Depreciation is provided principally
on the straight-line method at varying rates depending upon estimated useful
lives. Depletion of bituminous coal lands is provided on the basis of tonnage
mined in relation to the estimated total of recoverable tonnage in the ground.
Mine development costs, primarily included in bituminous coal lands, are
capitalized and amortized over the estimated useful life of the mine. These
costs include expenses incurred for site preparation and development as well as
operating deficits incurred at the mines during the development stage. A mine is
considered under development until all planned production units have been placed
in operation.
---
54
<PAGE>
--------------------------------------------------------------------------------
Subscriber installation costs for home security systems provided by BHS are
capitalized and depreciated over the estimated life of the assets and are
included in machinery and equipment. The standard security system that is
installed remains the property of BHS and is capitalized at the cost to bring
the revenue producing asset to its intended use. When an installation is
identified for disconnect, the remaining net book value of the installation is
fully written-off and charged to depreciation expense.
INTANGIBLES:
The excess of cost over fair value of net assets of companies acquired is
amortized on a straight-line basis over the estimated periods benefited.
The Company evaluates the carrying value of intangibles and the periods of
amortization to determine whether events and circumstances warrant revised
estimates of asset value or useful lives. The Company annually assesses the
recoverability of the excess of cost over net assets acquired by determining
whether the amortization of the asset balance over its remaining life can be
recovered through projected undiscounted future operating cash flows. Evaluation
of asset value as well as periods of amortization are performed on a
disaggregated basis at each of the Company's operating units.
COAL SUPPLY CONTRACTS:
Coal supply contracts consist of contracts to supply coal to customers at
certain negotiated prices over a period of time, which have been acquired from
other coal companies, and are stated at cost at the time of acquisition, which
approximates fair market value. The capitalized cost of such contracts is
amortized over the term of the contract on the basis of tons of coal sold under
the contract.
INCOME TAXES:
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, 'Accounting for Income Taxes', which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
PNEUMOCONIOSIS (BLACK LUNG) EXPENSE:
The Company acts as self-insurer with respect to almost all black lung benefits.
Provision is made for estimated benefits in accordance with annual actuarial
reports prepared by outside actuaries. The excess of the present value of
expected future benefits over the accumulated book reserves is recognized over
the amortization period as a level percentage of payroll. Cumulative actuarial
gains or losses are calculated periodically and amortized on a straight-line
basis. Assumptions used in the calculation of the actuarial present value of
black lung benefits are based on actual retirement experience of the Company's
coal employees, black lung claims incidence for active miners, actual dependent
information, industry turnover rates, actual medical and legal cost experience
and projected inflation rates. As of December 31, 1994 and 1993, the accrued
value of estimated future black lung benefits discounted at 6% was approximately
$62,824 and $61,067, respectively, and are included in workers' compensation and
other claims. The December 31, 1994 balance included $4,643 related to the
purchase of Addington Resources, Inc. (Note 10). Based on actuarial data, the
Company charged to operations $201 in 1994, $438 in 1993 and $1,029 in 1992. In
addition, the Company accrued additional expenses for black lung benefits
related to federal and state assessments, legal and administration expenses and
other self insurance costs. These amounted to $2,472 in 1994, $2,887 in 1993 and
$2,073 in 1992.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
Postretirement benefits other than pensions are accounted for in accordance with
Statement of Financial Accounting Standards No. 106, 'Employers' Accounting for
Postretirement Benefits Other Than Pensions', which requires employers to accrue
the cost of such retirement benefits during the employees' service with the
Company.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of foreign subsidiaries have been translated at current
exchange rates, and related revenues and expenses have been translated at
average rates of exchange in effect during the year. Resulting cumulative
translation adjustments have been recorded as a separate component of
shareholders' equity. Translation adjustments relating to subsidiaries in
countries with highly inflationary economies are included in net income, along
with all transaction gains and losses for the period.
---
55
<PAGE>
--------------------------------------------------------------------------------
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. However, the Company's international
activity is not concentrated in any single currency, which reduces the risks of
foreign currency rate fluctuations.
FINANCIAL INSTRUMENTS:
The Company uses foreign currency forward contracts to hedge risk of changes in
foreign currency rates associated with certain transactions denominated in
various currencies. Realized and unrealized gains and losses on these contracts,
designated and effective as hedges, are deferred and recognized as part of the
specific transaction hedged.
The Company also utilizes other financial instruments to protect against adverse
price movements in gold, which the Company produces, and jet fuel products,
which the Company consumes as well as interest rate changes on certain variable
rate obligations. Gains and losses on these contracts, designated and effective
as hedges, are deferred and recognized as part of the transaction hedged.
REVENUE RECOGNITION:
Coal -- Coal sales are generally recognized when coal is loaded onto
transportation vehicles for shipment to customers. For domestic sales, this
generally occurs when coal is loaded onto railcars at mine locations. For export
sales, this generally occurs when coal is loaded onto marine vessels at terminal
facilities.
Mineral Ventures -- Gold sales are recognized when products are shipped to a
refinery. Settlement adjustments arising from final determination of weights and
assays are reflected in sales when received.
Burlington -- Revenues related to transportation services are recognized,
together with related transportation costs, on the date shipments physically
depart from facilities en route to destination locations.
Brink's -- Revenues are recognized when services are performed.
BHS -- Monitoring revenues are recognized when earned and amounts paid in
advance are deferred and recognized as income over the applicable monitoring
period, which is generally one year or less. Revenues from the sale of
equipment, excluding equipment which is part of the standard
package security system, are recognized, together with related costs, upon
completion of the installation. Connection fee revenues are recognized to the
extent of direct selling costs incurred and expensed. Connection fee revenues
in excess of direct selling costs are deferred and recognized as income on a
straight-line basis over ten years.
NET INCOME PER COMMON SHARE:
Net income per common share for Services Stock is computed by dividing the net
income for the Services Group by the weighted average number of shares
outstanding during the period. The potential dilution from the exercise of stock
options is not material. The assumed conversion of the 9.2% convertible
subordinated debentures in 1993 and 1992 was not included since its effect was
antidilutive.
The computation of primary earnings per share for Minerals Stock is based on the
weighted average number of outstanding common shares divided into net income for
the Minerals Group less preferred stock dividends. The computation of fully
diluted earnings per common share for Minerals Stock assumes the conversion of
the $31.25 Series C Cumulative Preferred Stock (issued in 1994) and additional
shares assuming the exercise of stock options (antidilutive in the primary
calculation) divided into net income for the Minerals Group. For 1994 and 1993,
the loss per share, assuming full dilution, is considered to be the same as
primary since the effect of common stock equivalents and the preferred stock
conversion would be antidilutive.
The shares of Services Stock and Minerals Stock held in The Pittston Company
Employee Benefits Trust (Note 9) are evaluated for inclusion in the calculations
of net income per common share under the treasury stock method and had no
dilutive effect.
2. FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and cash equivalents, short-term
investments and trade receivables. The Company places its cash and cash
equivalents and short-term investments with high credit qualified financial
institutions and, by policy, limits the amount of credit exposure to any one
financial institution. Concentrations of credit risk with
---
56
<PAGE>
--------------------------------------------------------------------------------
respect to trade receivables are limited due to the large number of customers
comprising the Company's customer base, and their dispersion across many
different industries and geographic areas.
The following details the fair values of financial instruments for which it is
practicable to estimate the value:
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The carrying amounts approximate fair value because of the short maturity of
these instruments.
DEBT
The aggregate fair value of the Company's long-term debt obligations, which is
based upon quoted market prices and rates currently available to the Company for
debt with similar terms and maturities, approximates the carrying amount.
OFF-BALANCE SHEET INSTRUMENTS
The Company enters into various off-balance sheet financial instruments, as
discussed below, to hedge its foreign currency and other market exposures. The
risk that counterparties to such instruments may be unable to perform is
minimized by limiting the counterparties to major financial institutions. The
Company does not expect any losses due to such counterparty default.
Foreign currency forward contracts -- The Company enters into foreign currency
forward contracts with a duration of 30 to 60 days as a hedge against
transactions denominated in various currencies. These contracts do not subject
the Company to risk due to exchange rate movements because gains and losses on
these contracts offset losses and gains on the liabilities being hedged. At
December 31, 1994, the total notional value of foreign currency forward
contracts outstanding was $7,390. As of such date, the fair value of foreign
currency forward contracts was not significant.
Gold contracts -- In order to protect itself against downward movements in gold
prices, the Company hedges a portion of its recoverable proved and probable
reserves primarily through forward sales contracts. At December 31, 1994, 60,056
ounces of gold, representing approximately 30% of the Company's recoverable
proved and probable reserves, were sold forward under forward sales contracts
with a total notional value of $24,679. Because only a portion of its future
production is currently sold forward, the Company can take advantage of
increases, if any, in the spot price of gold. At December 31, 1994, the fair
value of the Company's forward sales contracts was not significant.
Fuel contracts -- The Company has hedged a portion of its jet fuel requirements
through a swap contract. At December 31, 1994, the notional value of the jet
fuel swap, aggregating 12.5 million gallons, through March 31, 1995 was $6,488.
In addition, the Company has entered into several commodity options transactions
that are intended to protect against significant increases in jet fuel prices.
These transactions, aggregate 23.3 million gallons with a notional value of
$15,840 and are applicable throughout 1995 in amounts ranging from 3.5 million
gallons per month in the first quarter of 1995 to 2.1 million gallons per month
in the fourth quarter of 1995. The Company has also entered into a collar
transaction, applicable to 7.2 million gallons that provides for a minimum and
maximum per gallon price. This transaction is settled monthly based upon the
average of the high and low prices during each period.
The fair value of these fuel hedge transactions may fluctuate over the course of
the contract period due to changes in the supply and demand for oil and refined
products. Thus, the economic gain or loss, if any, upon settlement of the
contracts may differ from the fair value of the contracts at an interim date. At
December 31, 1994, the fair value of these contracts was not significant.
Interest rate contracts -- In connection with the aircraft leasing by Burlington
in 1993, the Company entered into interest rate cap agreements. These agreements
have a notional amount of $60,000 and cap the Company's interest rate on certain
aircraft leases at 8.5% through April 1, 1996. As discussed further in Note 7,
in 1994, the Company entered into a variable to fixed interest rate swap
agreement. The fair value of these contracts was $1,759 at December 31, 1994.
3. ACCOUNTS RECEIVABLE -- TRADE
For each of the years in the three-year period ended December 31, 1994, the
Company maintained agreements with financial institutions whereby it had the
right to sell certain coal receivables to those institutions. Certain agreements
contained provisions for sales with recourse and other agreements had limited
recourse. All agreements have since expired. No receivables were sold in 1994.
In 1993 and 1992 total coal receivables of approximately $16,143 and $65,231,
respectively, were sold under such agreements. As of December 31, 1994 and 1993,
there were no receivables sold which remained to be collected.
---
57
<PAGE>
--------------------------------------------------------------------------------
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost consists of the following:
<TABLE>
<CAPTION>
December 31
1994 1993
-----------------------------------------------------------------
<S> <C> <C>
Bituminous coal lands $102,392 118,944
Land, other than coal lands 29,914 11,212
Buildings 45,344 40,838
Machinery and equipment 662,844 611,360
-----------------------------------------------------------------
$840,494 782,354
-----------------------------------------------------------------
</TABLE>
The estimated useful lives for property, plant and equipment are as follows:
<TABLE>
<CAPTION>
Years
-----------------------------------------------------------------
<S> <C>
Buildings 3 to 25
Machinery and equipment 2 to 20
</TABLE>
Depreciation and depletion of property, plant and equipment aggregated $74,270
in 1994, $63,953 in 1993 and $57,291 in 1992.
Capitalized mine development costs totaled $11,908 in 1994, $2,181 in 1993 and
$18,487 in 1992.
Changes in capitalized subscriber installation costs for home security systems
were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C>
Capitalized subscriber installation
costs -- beginning of year $65,785 54,668 44,842
Capitalized cost of security system
installations 32,309 23,972 20,694
Capitalized cost of security systems
acquired -- -- (143)
Depreciation, including amounts
recognized to fully depreciate
capitalized costs for installations
disconnected during the year (16,649) (12,855) (10,725)
--------------------------------------------------------------------
Capitalized subscriber installation
costs -- end of year $81,445 65,785 54,668
--------------------------------------------------------------------
</TABLE>
New subscribers were 75,200 in 1994, 59,700 in 1993 and 51,300 in 1992.
As of January 1, 1992, BHS elected to capitalize categories of costs not
previously capitalized for home security system installations. This change in
accounting principle is preferable because it more accurately reflects
subscriber installation costs. 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 (in the
amount of $2,645 in 1994, $2,567 in 1993 and $2,327 in 1992) and costs incurred
in maintaining facilities and vehicles dedicated to the installation process (in
the amount of $1,492 in 1994, $1,484 in 1993 and $1,994 in 1992). The effect of
this change in accounting principle was to increase operating profit of the
consolidated group and the BHS segment in 1994, 1993 and 1992 by $4,137, $4,051
and $4,321, respectively, and net income of the Company and the Services Group
in 1994, 1993 and 1992 by $2,486, $2,435 and $2,596, respectively, or by $.07
per share in each year. Prior to January 1, 1992, the records needed to identify
such costs were not available. Thus, it was impossible to accurately calculate
the effect on retained earnings as of January 1, 1992. However, the Company
believes the effect on retained earnings as of January 1, 1992, was immaterial.
Because capitalized subscriber installation costs for prior periods were not
adjusted for the change in accounting principle, installation costs for
subscribers in those years will continue to be depreciated based on the lesser
amounts capitalized in prior periods. Consequently, depreciation of capitalized
subscriber installation costs in the current year and until such capitalized
costs prior to January 1, 1992, are fully depreciated will be less than if such
prior periods' capitalized costs had been adjusted for the change in accounting.
However, the Company believes the effect on net income in 1994, 1993 and 1992
was immaterial.
5. INTANGIBLES
Intangibles consist entirely of the excess of cost over fair value of net assets
of companies acquired and are net of accumulated amortization of $75,649 at
December 31, 1994, and $65,738 at December 31, 1993. The estimated useful life
of intangibles is generally forty years. Amortization of intangibles aggregated
$9,686 in 1994, $7,126 in 1993 and $7,184 in 1992.
6. INCOME TAXES
The provision (credit) for income taxes consists of the following:
<TABLE>
<CAPTION>
U.S.
Federal Foreign State Total
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994:
Current $ 7,563 5,956 5,686 19,205
Deferred (20,238) 2,696 (235) (17,777)
---------------------------------------------------------------------
Total $(12,675) 8,652 5,451 1,428
---------------------------------------------------------------------
1993:
Current $ 16,385 9,705 3,353 29,443
Deferred (20,719) (7,939) (777) (29,435)
---------------------------------------------------------------------
Total $ (4,334) 1,766 2,576 8
---------------------------------------------------------------------
1992:
Current $ 12,643 2,640 4,173 19,456
Deferred 8,675 583 (195) 9,063
---------------------------------------------------------------------
Total $ 21,318 3,223 3,978 28,519
---------------------------------------------------------------------
</TABLE>
---
58
<PAGE>
--------------------------------------------------------------------------------
The significant components of the deferred tax expense (benefit) were as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax expense (benefit),
exclusive of the components
listed below $(16,869) (33,157) 8,209
Investment tax credit
carryforwards -- -- 8,978
Net operating loss carryforwards (393) 1,793 (654)
Alternative minimum tax credits 1,147 4,826 (9,814)
Change in the valuation allowance
for deferred tax assets (1,662) (1,397) 2,344
Adjustment to deferred tax assets
and liabilities for the change in
the U.S. Federal tax rate -- (1,500) --
--------------------------------------------------------------------
$(17,777) (29,435) 9,063
--------------------------------------------------------------------
</TABLE>
The tax benefit for compensation expense related to the exercise of certain
employee stock options for tax purposes in excess of compensation expense for
financial reporting purposes is recognized as an adjustment to shareholders'
equity.
The components of the net deferred tax asset as of December 31, 1994 and
December 31, 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 5,522 5,630
Postretirement benefits other than
pensions 94,430 93,341
Workers' compensation and other claims 58,285 60,007
Other liabilities and reserves 104,382 85,002
Miscellaneous 9,975 10,595
Net operating loss carryforwards 8,692 8,299
Alternative minimum tax credits 30,884 30,774
Valuation allowance (8,193) (9,855)
---------------------------------------------------------------
Total deferred tax asset 303,977 283,793
---------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment 55,095 62,391
Pension assets 47,159 45,566
Other assets 4,217 4,955
Investments in foreign affiliates 11,965 13,044
Miscellaneous 64,513 60,286
---------------------------------------------------------------
Total deferred tax liability 182,949 186,242
---------------------------------------------------------------
Net deferred tax asset $121,028 97,551
---------------------------------------------------------------
</TABLE>
The valuation allowance relates to deferred tax assets in certain foreign and
state jurisdictions.
Based on the Company's historical and expected taxable earnings, management
believes it is more likely than not that the Company will realize the benefit of
the existing deferred tax asset at December 31, 1994.
The following table accounts for the difference between the actual tax provision
and the amounts obtained by applying the statutory U.S. federal income tax rate
of 35% in 1994 and 1993 and 34% in 1992 to the income (loss) before income
taxes.
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before income taxes:
United States $(16,517) (7,329) 58,053
Foreign 44,842 21,483 19,553
-------------------------------------------------------------------
$ 28,325 14,154 77,606
-------------------------------------------------------------------
Tax provision computed
at statutory rate $ 9,914 4,954 26,386
Increases (reductions)
in taxes due to:
Percentage depletion (9,313) (7,598) (5,033)
State income taxes
(net of federal tax benefit) 5,043 1,924 2,064
Goodwill amortization 2,437 3,055 2,229
Difference between total taxes
on foreign income and the
U.S. federal statutory rate (6,111) (118) (1,254)
Change in the valuation
allowance for deferred tax assets (1,662) (1,397) 2,344
Adjustment to deferred tax
assets and liabilities for the
change
in the U.S. Federal
tax rate -- (1,500) --
Miscellaneous 1,120 688 1,783
-------------------------------------------------------------------
Actual tax provision $ 1,428 8 28,519
-------------------------------------------------------------------
</TABLE>
It is the policy of the Company to accrue deferred income taxes on temporary
differences related to the financial statement carrying amounts and tax bases of
investments in foreign subsidiaries and affiliates which are expected to reverse
in the foreseeable future. As of December 31, 1994 and December 31, 1993 the
unrecognized deferred tax liability for temporary differences of approximately
$56,697 and $43,640, respectively, related to investments in foreign
subsidiaries and affiliates that are essentially permanent in nature and not
expected to reverse in the foreseeable future was approximately $19,844 and
$15,274, respectively.
The Company and its domestic subsidiaries file a consolidated U.S. federal
income tax return. Such returns have been audited and settled with the Internal
Revenue Service through the year 1981.
As of December 31, 1994, the Company had $30,884 of alternative minimum tax
credits available to offset future U.S. federal income taxes and, under current
tax law, the carryforward period for such credits is unlimited.
---
59
<PAGE>
--------------------------------------------------------------------------------
The tax benefit of net operating loss carryforwards as at December 31, 1994 was
$8,692 and related to various state and foreign taxing jurisdictions. The
expiration periods primarily range from 5 to 15 years.
7. LONG-TERM DEBT
Consists of the following:
<TABLE>
<CAPTION>
As of December 31
1994 1993
---------------------------------------------------------------
<S> <C> <C>
Senior obligations:
U.S. dollar term loan due 1999
(year end rate 6.48% in 1994) $100,000 --
Revolving credit notes due 1999
(5.75% in 1994) 9,400 --
U.S. dollar term loan due 1996 to 1997
(6.50% in 1994 and 3.81% in 1993) 3,451 5,321
Canadian dollar term loan due 1999
(6.19% in 1994) 2,852 --
Dutch guilder term loan due 1995
(6.69% in 1993) -- 1,250
U.S. dollar term loan due 1995
(4.06% in 1993) -- 1,714
Revolving credit notes (year end
rate 3.53% in 1993) -- 2,100
All other 2,562 2,629
---------------------------------------------------------------
118,265 13,014
---------------------------------------------------------------
Subordinated obligations:
4% subordinated debentures
due 1997 14,648 14,648
9.20% convertible subordinated
debentures due 2004 -- 27,811
---------------------------------------------------------------
14,648 42,459
---------------------------------------------------------------
Obligations under capital leases
(average rates 9.08% in 1994 and
9.62% in 1993) 5,158 2,915
---------------------------------------------------------------
Total long-term debt, less current
maturities $138,071 58,388
---------------------------------------------------------------
</TABLE>
For the four years through December 31, 1999, minimum repayments of long-term
debt outstanding are as follows:
<TABLE>
<S> <C> <C>
1996 $ 5,769
1997 17,744
1998 1,175
1999 112,641
</TABLE>
In 1994, the Company entered into a standard three year variable to fixed
interest rate swap agreement. This agreement fixed the Company's interest rate
at 5% on current borrowings of $40,000 in principal. The principal amount to
which the 5% interest rate applies declines periodically throughout the term of
the agreement.
In March 1994, the Company entered into a $350,000 credit agreement with a
syndicate of banks (the 'New Facility'), replacing the Company's previously
existing $250,000 of revolving credit agreements. The New Facility includes a
$100,000 five-year term loan, which matures in March 1999. The New Facility also
permits additional borrowings, repayments and reborrowings of up to an aggregate
of $250,000 until March 1999. Interest on borrowings under the New Facility is
payable at rates based on prime, certificate of deposit, Eurodollar or money
market rates.
The Dutch guilder loan to Brink's bears interest based on a Euroguilder rate, or
if converted to a U.S. dollar loan based on prime, Eurodollar or money market
rates. In January 1992, a portion of the guilder loan was converted into a U.S.
dollar loan. The U.S. dollar term loan due 1996 to 1997 to Brink's bears
interest based on the Eurodollar rate.
The Canadian dollar term loan to a wholly owned indirect subsidiary of
Burlington bears interest based on Canadian prime or Bankers' Acceptance rates,
or if converted to a U.S. dollar loan based on Eurodollar or Federal Funds
rates. The loan is guaranteed by the Company.
Under the terms of the loans, Brink's and Burlington have agreed to various
restrictions relating to net worth, disposition of assets and incurrence of
additional debt.
The 4% subordinated debentures due July 1, 1997, are exchangeable only for cash,
at the rate of $157.80 per $1,000 debenture. The debentures are redeemable at
the Company's option, in whole or in part, at any time prior to maturity, at
redemption prices equal to 100% of principal amount.
On April 15, 1994, the Company redeemed all of the 9.2% convertible subordinated
debentures due July 1, 2004, at a premium of $767. The premium has been included
in the Consolidated Statement of Operations in 'Other income (expense), net'.
Various international subsidiaries maintain lines of credit and overdraft
facilities aggregating approximately $75,000 with a number of banks on either a
secured or unsecured basis.
Under the terms of some of its debt instruments, the Company has agreed to
various restrictions relating to the payment of dividends, the repurchase of
capital stock, the maintenance of consolidated net worth, and the amount of
additional funded debt which may be incurred. Allowable restricted payments for
dividends and stock repurchases aggregated $175,486 at December 31, 1994.
---
60
<PAGE>
--------------------------------------------------------------------------------
At December 31, 1994, the Company had outstanding unsecured letters of credit
totalling $81,450 primarily supporting the Company's obligations under its
various self-insurance programs.
8. STOCK OPTIONS
The Company grants options under its 1988 Stock Option Plan (the '1988 Plan') to
executives and key employees and under its Non-Employee Directors' Stock Option
Plan (the 'Non-Employee Plan') to outside directors to purchase common stock at
a price not less than 100% of quoted market value at date of grant. As part of
the Services Stock Proposal (Note 9), the 1988 and Non-Employee Plans were
amended to permit option grants to be made to optionees with respect to either
Services Stock or Minerals Stock, or both.
The Company's 1979 Stock Option Plan (the '1979 Plan') and 1985 Stock Option
Plan (the '1985 Plan') terminated in 1985 and 1988, respectively, except as to
options still outstanding.
At the Effective Date of the Services Stock Proposal a total of 2,228,225 shares
of common stock were subject to options outstanding under the 1988 Plan, the
Non-Employee Plan, the 1979 Plan and the 1985 Plan. Pursuant to antidilution
provisions in the option agreements covering such options, the Company converted
these options into options for shares of Services Stock or Minerals Stock, or
both, depending primarily on the employment status and responsibilities of the
particular optionee. In the case of optionees having Company-wide
responsibilities, each outstanding option was converted into an option for
Services Stock and an option for Minerals Stock, in the same ratio as the
distribution on the Effective Date of Minerals Stock to shareholders of the
Company, viz., one share to one-fifth of a share, with any resultant fractional
share of Minerals Stock rounded downward to the nearest whole number of shares.
In the case of other optionees, each outstanding option was converted into a new
option for only Services Stock or Minerals Stock, as the case may be, following
the Effective Date. As a result, 2,167,247 shares of Services Stock and 507,698
shares of Minerals Stock were subject to options outstanding as of the Effective
Date.
The table below summarizes the activity in all plans.
<TABLE>
<CAPTION>
Aggregate
No. of Option
Shares Price
-------------------------------------------------------------------
<S> <C> <C>
THE PITTSTON COMPANY COMMON STOCK OPTIONS:
Granted:
1993 17,500 $ 294
1992 758,300 11,706
Became exercisable:
1993 468,250 7,749
1992 320,009 5,367
Exercised:
1993 377,191 5,379
1992 113,347 1,472
PITTSTON SERVICES GROUP COMMON STOCK OPTIONS:
Outstanding:
12/31/94 1,990,197 38,401
12/31/93 2,378,804 42,680
Granted:
1994 73,000 2,018
1993 829,000 22,080
Became exercisable:
1994 421,030 7,593
1993 21,008 273
Exercised:
1994 421,302 5,567
1993 594,129 7,638
PITTSTON MINERALS GROUP COMMON STOCK OPTIONS:
Outstanding:
12/31/94 507,323 9,571
12/31/93 623,498 11,023
Granted:
1994 23,000 431
1993 252,000 6,094
Became exercisable:
1994 108,259 1,978
1993 3,575 50
Exercised:
1994 128,667 1,765
1993 134,528 1,738
</TABLE>
At December 31, 1994, a total of 1,121,047 shares of Services Stock and 271,815
shares of Minerals Stock were exercisable. In addition, there were 3,634,470
shares of Services Stock and 725,323 shares of Minerals Stock reserved for
issuance under the plans, including 1,644,273 shares of Services Stock and
218,000 shares of Minerals Stock reserved for future grant.
---
61
<PAGE>
--------------------------------------------------------------------------------
9. CAPITAL STOCK
On July 26, 1993 (the 'Effective Date'), the shareholders of the Company
approved the Services Stock Proposal, as described in the Company's proxy
statement dated June 24, 1993, resulting in the reclassification of the
Company's common stock. The outstanding shares of Company common stock were
redesignated as Services Stock on a share-for-share basis and a second class of
common stock, designated as Minerals Stock, was distributed on the basis of
one-fifth of one share of Minerals Stock for each share of the Company's
previous common stock held by shareholders of record on July 26, 1993. Minerals
Stock and Services Stock are designed to provide shareholders with separate
securities reflecting the performance of the Minerals Group and the Services
Group, respectively, without diminishing the benefits of remaining a single
corporation or precluding future transactions affecting either Group.
The Company, at any time, has the right to exchange each outstanding share of
Minerals Stock for shares of Services Stock having a fair market value equal to
115% of the fair market value of one share of Minerals Stock. In addition, upon
the sale, transfer, assignment or other disposition, whether by merger,
consolidation, sale or contribution of assets or stock or otherwise of all or
substantially all of the properties and assets of the Minerals Group to any
person, entity or group (with certain exceptions), the Company is required to
exchange each outstanding share of Minerals Stock for shares of Services Stock
having a fair market value equal to 115% of the fair market value of one share
of Minerals Stock. Shares of Services Stock are not subject to either optional
or mandatory exchange.
Holders of Services Stock have one vote per share. Holders of Minerals Stock
have one vote per share, subject to adjustment on January 1, 1996, and on each
January 1 every two years thereafter based upon the relative fair market value
of one share of Minerals Stock and one share of Services Stock on each such
date. Accordingly, beginning on January 1, 1996, each share of Minerals Stock
may have more than, less than or continue to have exactly one vote. Holders of
Services Stock and Minerals Stock vote together as a single voting group on all
matters as to which all common shareholders are entitled to vote. In addition,
as prescribed by Virginia law, certain amendments to the Company's Restated
Articles of Incorporation affecting, among other things, the designation,
rights, preferences or limitations of one class of common stock, or any merger
or statutory share exchange, must be approved by the holders of such class of
common stock, voting as a separate voting group, and, in certain circumstances,
may also have to be approved by the holders of the other class of common stock,
voting as a separate voting group.
In the event of a dissolution, liquidation or winding up of the Company, the
holders of Services Stock and Minerals Stock will receive the funds remaining
for distribution, if any, to the common shareholders on a per share basis in
proportion to the total number of shares of Services Stock and Minerals Stock,
respectively, then outstanding to the total number of shares of both classes of
common stock then outstanding.
In July 1993, the Board of Directors authorized a new share repurchase program
under which up to 1,250,000 shares of Services Stock and 250,000 shares of
Minerals Stock may be repurchased from time to time in the open market or in
private transactions, as conditions warrant, not to exceed an aggregate purchase
price of $43,000. Through December 31, 1994, a total of 256,100 shares of
Services Stock were repurchased at a total cost of $6,188, all of which were
repurchased in 1994. Through December 31, 1994, a total of 38,500 shares of
Minerals Stock were repurchased at a total cost of $808, of which 19,700 shares
were acquired in 1994 at a total cost of $401. The program to acquire shares in
the open market remains in effect in 1995.
The Company has authority to issue up to 2,000,000 shares of preferred stock,
par value $10 per share. In January 1994, the Company issued 161,000 shares of
its $31.25 Series C Cumulative Convertible Preferred Stock, par value $10 per
share (the 'Convertible Preferred Stock'). The Convertible Preferred Stock pays
an annual cumulative dividend of $31.25 per share payable quarterly, in cash, in
arrears, out of all funds of the Company legally available therefore, when, as
and if declared by the Board of Directors of the Company, and bears a
liquidation preference of $500 per share, plus an amount equal to accrued and
unpaid dividends thereon. Each share of the Convertible Preferred Stock is
convertible at the option of the holder at any time, unless previously redeemed
or, under
---
62
<PAGE>
--------------------------------------------------------------------------------
certain circumstances, called for redemption, into shares of Minerals Stock at a
conversion price of $32.175 per share of Minerals Stock, subject to adjustment
in certain circumstances. Except under certain circumstances, the Convertible
Preferred Stock is not redeemable prior to February 1, 1997. On and after such
date, the Company may at its option, redeem the Convertible Preferred Stock, in
whole or in part, for cash initially at a price of $521.875 per share, and
thereafter at prices declining ratably annually on each February 1 to an amount
equal to $500.00 per share on and after February 1, 2004, plus in each case an
amount equal to accrued and unpaid dividends on the date of redemption. Except
under certain circumstances or as prescribed by Virginia law, shares of the
Convertible Preferred Stock are nonvoting. Other than the Convertible Preferred
Stock no shares of preferred stock are presently issued or outstanding.
In July 1994, the Board of Directors of the Company authorized the repurchase
from time to time of up to $15,000 of Convertible Preferred Stock. As of
December 31, 1994, 8,350 shares at a total cost of $3,366 have been repurchased.
The program to acquire shares remains in effect in 1995.
Under a Shareholder Rights Plan adopted by the Company's Board of Directors in
1987 and amended in December 1988, rights to purchase a new Series A
Participating Cumulative Preferred Stock (the 'Series A Preferred Stock') of the
Company were distributed as a dividend at the rate of one right for each share
of the Company's common stock. Pursuant to the Services Stock Proposal, the
Shareholders Rights Plan was amended and restated to reflect the change in the
capital structure of the Company. Each existing right was amended to become a
Pittston Services Group right (a 'Services Right'). Holders of Minerals Stock
received one Pittston Minerals Group right (a 'Minerals Right') for each
outstanding share of Minerals Stock. Each Services Right, if and when it becomes
exercisable, will entitle the holder to purchase one-thousandth of a share of
Series A Preferred Stock at a purchase price of $40, subject to adjustment. Each
Minerals Right, if and when it becomes exercisable, will entitle the holder to
purchase one-thousandth of a share of Series B Participating Cumulative
Preferred Stock (the 'Series B Preferred Stock') at a purchase price of $40,
subject to adjustment. Each fractional share of Series A Preferred Stock and
Series B Preferred Stock will be entitled to participate in dividends and to
vote on an equivalent basis with one whole share of Services Stock and Minerals
Stock, respectively. Each right will not be exercisable until ten days after a
third party acquires 20% or more of the total voting rights of all outstanding
Services Stock and Minerals Stock or ten days after commencement of a tender
offer or exchange offer by a third party for 30% or more of the total voting
rights of all outstanding Services Stock and Minerals Stock. If after the rights
become exercisable, the Company is acquired in a merger or other business
combination, each right will entitle the holder to purchase, for the purchase
price, common stock of the surviving or acquiring company having a market value
of twice the purchase price. In the event a third party acquires 30% or more of
all outstanding Services Stock and Minerals Stock or engages in one or more
'self dealing' transactions with the Company, the rights will entitle each
holder to purchase, at the purchase price, that number of fractional shares of
Series A Preferred Stock and Series B Preferred Stock equivalent to the number
of shares of common stock which at the time of the triggering event would have a
market value of twice the purchase price. The rights may be redeemed by the
Company at a price of $.01 per right and expire on September 25, 1997.
The Company's Articles of Incorporation limits dividends on Minerals Stock to
the lesser of (i) all funds of the Company legally available therefore (as
prescribed by Virginia law) and (ii) the Available Minerals Dividend Amount (as
defined in the Articles of Incorporation). At December 31, 1994, the Available
Minerals Dividend Amount was at least $24,788. Dividends on Minerals Stock are
also restricted by covenants in the Company's public indentures and bank credit
agreements (Note 7).
In December 1992, the Company formed The Pittston Company Employee Benefits
Trust (the 'Trust') to hold shares of its common stock to fund obligations under
certain employee benefit programs. Upon formation of the Trust, the Company sold
for a promissory note of the Trust, 4,000,000 new shares of its common stock to
the Trust at a price equal to the fair value of the stock on the date of sale.
Upon approval of the Services Stock Proposal, 3,871,826 shares in the Trust were
redesignated as Services Stock and 774,365 shares of Minerals Stock were
distributed to the Trust. At December 31, 1994, 3,778,565 shares of Services
Stock (3,853,778 in 1993) and 723,218 (770,301 in 1993) shares of Minerals Stock
remained in the Trust, valued at market. These shares will be voted by the
trustee in the same proportion as those voted by the Company's employees
participating in the Company's Savings Investment Plan. The fair market value of
the shares is included in each issue of common stock and capital in excess of
par and, in total, as a reduction to common shareholders' equity in the
Company's consolidated balance sheet.
---
63
<PAGE>
--------------------------------------------------------------------------------
10. ACQUISITIONS
During 1994, a wholly owned indirect subsidiary of the Company completed the
acquisition of substantially all of the coal mining operations and coal sales
contracts of Addington Resources, Inc. for $157,324. The acquisition has been
accounted for as a purchase; accordingly, the purchase price has been allocated
to the underlying assets and liabilities based on their respective estimated
fair value 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 assets acquired and liabilities assumed was $121,883 and
is being amortized over a period of forty years.
The acquisition was financed by the issuance of $80,500 of Convertible Preferred
Stock (Note 9) and additional borrowing under existing credit facilities. In
March 1994, the additional debt incurred for this acquisition was refinanced
with a portion of the proceeds from the five-year term loan (Note 7).
The following pro forma results, however, assume that the acquisition and
related financing had occurred at the beginning of 1993. The unaudited pro forma
data below are not necessarily indicative of the results that would have
occurred if the transaction was in effect for the year ended December 31, 1993,
nor are they indicative of the future results of operations of the Company.
<TABLE>
<CAPTION>
Pro Forma
(Unaudited)
Year Ended
December 31
1993
----------------------------------------------------------------
<S> <C>
Net sales and operating revenues $2,527,720
----------------------------------------------------------------
Net income $ 29,769
----------------------------------------------------------------
PITTSTON SERVICES GROUP:
Net income attributed to common shares $ 47,126
----------------------------------------------------------------
Net income per common share $ 1.28
----------------------------------------------------------------
Average common shares outstanding 36,907
----------------------------------------------------------------
PITTSTON MINERALS GROUP:
Net loss attributed to common shares $ (22,388)
----------------------------------------------------------------
Net loss per common share $ (3.03)
----------------------------------------------------------------
Average common shares outstanding 7,381
----------------------------------------------------------------
</TABLE>
In addition, during 1994, the Company acquired several small businesses and made
a contingent payment related to an acquisition made in a prior year. Total
consideration paid was $5,938.
During 1993, the Company acquired one small business and made installment and
contingency payments related to other acquisitions made in prior years. The
total consideration paid was $1,435.
During 1992, the Company acquired several businesses for an aggregate purchase
price of $47,800 including debt and installment payments to be made of $2,864.
The fair value of assets acquired was $50,858 and liabilities assumed was
$3,058. In addition, the Company made cash payments of $7,624 in the aggregate
for an equity investment and contingency payments for acquisitions made in prior
years.
The acquisitions in 1993 and 1992 have been accounted for as purchases and the
purchase price for each acquisition was essentially equal to the fair value of
assets acquired.
In 1994, 1993 and 1992 the results of operations of the acquired companies have
been included in the Company's results of operations from their date of
acquisition.
11. COAL JOINT VENTURE
The Company, through a wholly owned indirect subsidiary, entered into a
partnership agreement in 1982 with four other coal companies to construct and
operate coal port facilities in Newport News, Virginia, in the Port of Hampton
Roads (the 'Facilities'). The Facilities commenced operations in 1984, and now
have an annual throughput capacity of 22 million tons, with a ground storage
capacity of approximately 2 million tons. The Company initially had an indirect
25% interest in the partnership, DTA. Initial financing of the Facilities was
accomplished through the issuance of $135,000 principal amount of revenue bonds
by the Peninsula Ports Authority of Virginia (the 'Authority'), which is a
political subdivision of the Commonwealth of Virginia. In 1987, the original
revenue bonds were refinanced by the issuance of $132,800 of coal terminal
revenue refunding bonds of which two series of these bonds in the aggregate
principal amount of $33,200 were attributable to the Company. In 1990, the
Company acquired an additional indirect 7 1/2% interest in the DTA partnership,
increasing its ownership to 32 1/2%. With the increase in ownership, $9,960 of
the remaining four additional series of the revenue refunding bonds of $99,600
became attributable to the Company. In November 1992, all bonds attributable to
the Company were refinanced with the issuance of a new series of coal terminal
revenue refunding bonds in the aggregate
---
64
<PAGE>
--------------------------------------------------------------------------------
principal amount of $43,160. The new series of bonds bear a fixed interest rate
of 7 3/8%. The Authority owns the Facilities and leases them to DTA for the life
of the bonds, which mature on June 1, 2020. DTA may purchase the Facilities for
$1 at the end of the lease term. The obligations of the partners are several,
and not joint.
Under loan agreements with the Authority, DTA is obligated to make payments
sufficient to provide for the timely payment of the principal of and interest on
the bonds of the new series. Under a throughput and handling agreement, the
Company has agreed to make payments to DTA that in the aggregate will provide
DTA with sufficient funds to make the payments due under the loan agreements and
to pay the Company's share of the operating costs of the Facilities. The Company
has also unconditionally guaranteed the payment of the principal of and premium,
if any, and the interest on the new series of bonds. Payments for operating
costs aggregated $7,173 in 1994, $7,949 in 1993 and $6,819 in 1992. The Company
has the right to use 32 1/2% of the throughput and storage capacity of the
Facilities subject to user rights of third parties which pay the Company a fee.
The Company pays throughput and storage charges based on actual usage at per ton
rates determined by DTA.
12. LEASES
The Company and its subsidiaries lease aircraft, facilities, vehicles, computers
and coal mining and other equipment under long-term operating leases with
varying terms, and most of the leases contain renewal and/or purchase options.
As of December 31, 1994, aggregate future minimum lease payments under
noncancellable operating leases were as follows:
<TABLE>
<CAPTION>
Equipment
Aircraft Facilities & Other Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 $ 30,237 31,652 35,977 97,866
1996 22,641 25,286 24,962 72,889
1997 20,983 21,727 17,678 60,388
1998 4,815 18,619 11,164 34,598
1999 -- 14,886 4,420 19,306
2000 -- 13,052 1,657 14,709
2001 -- 10,334 694 11,028
2002 -- 8,545 419 8,964
2003 -- 7,797 418 8,215
2004 -- 7,384 417 7,801
Later Years -- 58,987 3,716 62,703
-------------------------------------------------------------------------
$ 78,676 218,269 101,522 398,467
-------------------------------------------------------------------------
</TABLE>
These amounts are net of aggregate future minimum noncancellable sublease
rentals of $6,161.
A wholly-owned subsidiary of the Company entered into two transactions covering
various leases which provided for the replacement of eight B707 aircraft with
seven DC8-71 aircraft and completed an evaluation of other fleet related costs.
One transaction, representing four aircraft, was reflected in the 1993 financial
statements, while the other transaction, covering the remaining three aircraft,
was reflected in the 1992 financial statements. The net effect of these
transactions did not have a material impact on operating profit for either year.
Rent expense amounted to $110,414 in 1994, $91,439 in 1993 and $84,365 in 1992
and is net of sublease rentals of $800, $862 and $1,488, respectively.
The Company incurred capital lease obligations of $3,152 in 1994, $1,601 in 1993
and $2,316 in 1992. In addition, in 1994 the Company assumed capital lease
obligations of $16,210 as part of the Addington Resources, Inc. acquisition
(Note 10). As of December 31, 1994, the Company's obligations under capital
leases were not significant.
13. EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries maintain several noncontributory defined
benefit pension plans covering substantially all nonunion employees who meet
certain minimum requirements. Benefits of most of the plans are based on salary
and years of service. The Company's policy is to fund the actuarially determined
amounts necessary to provide assets sufficient to meet the benefits to be paid
to plan participants in accordance with applicable regulations. The net pension
expense (credit) for 1994, 1993 and 1992 for all plans is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
---------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits
earned during year $ 12,169 9,680 9,185
Interest cost on projected
benefit obligation 19,781 19,098 17,593
Loss (return) on assets -- actual 576 (46,089) (31,144)
(Loss) return on assets -- deferred (33,601) 16,154 1,935
Other amortization, net 1,441 (440) (11,669)
---------------------------------------------------------------------
Net pension expense (credit) $ 366 (1,597) (14,100)
---------------------------------------------------------------------
</TABLE>
---
65
<PAGE>
--------------------------------------------------------------------------------
The assumptions used in determining the net pension expense (credit) for the
Company's major pension plan were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
Interest cost on projected benefit
obligation 7.5% 9.0% 9.0%
Expected long-term rate of return on
assets 10.0% 10.0% 10.0%
Rate of increase in compensation levels 4.0% 5.0% 5.0%
</TABLE>
The funded status and prepaid pension expense at December 31, 1994 and 1993 for
all plans are as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
accumulated benefit obligation:
Vested $198,510 214,017
Nonvested 12,652 11,867
--------------------------------------------------------------
211,162 225,884
Benefits attributable to projected
salaries 33,777 46,979
--------------------------------------------------------------
Projected benefit obligation 244,939 272,863
Plan assets at fair value 339,973 351,021
--------------------------------------------------------------
Excess of plan assets over projected
benefit obligation 95,034 78,158
Unamortized initial net asset (4,499) (5,505)
Unrecognized experience loss 24,247 40,715
Unrecognized prior service cost 1,963 2,149
--------------------------------------------------------------
Net pension assets 116,745 115,517
Current pension liability 2,208 1,549
--------------------------------------------------------------
Deferred pension asset per balance sheet $118,953 117,066
--------------------------------------------------------------
</TABLE>
For the valuation of pension obligations and the calculation of the funded
status, the discount rate was 8.75% in 1994 and 7.5% in 1993. The expected
long-term rate of return on assets was 10% in both years. The rate of increase
in compensation levels used was 4% in 1994 and 1993.
The unrecognized initial net asset at January 1, 1986 (January 1, 1989 for
certain foreign pension plans), the date of adoption of Statement of Financial
Accounting Standards No. 87, has been amortized over the estimated remaining
average service life of the employees. As of December 31, 1994, approximately
70% of plan assets were invested in equity securities and 30% in fixed income
securities.
Under the 1990 collective bargaining agreement with the United Mine Workers of
America ('UMWA'), the Company has made payments, based on hours worked, into an
escrow account established for the benefit of union employees (Note 17). The
total amount accrued and escrowed by the Company's coal operations under this
agreement as at December 31, 1994 and 1993, was $23,120 and $21,064,
respectively. The amount escrowed and accrued is included in 'Short-term
investments' and 'Miscellaneous accrued liabilities'.
The Company and its subsidiaries also provide certain postretirement health care
and life insurance benefits for eligible active and retired employees in the
United States and Canada.
For the years 1994, 1993 and 1992, the components of periodic expense for these
postretirement benefits were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits earned
during year $ 2,446 2,695 2,379
Interest cost on accumulated
postretirement benefit obligation 21,429 21,485 19,576
Amortization of (gains) losses 2,804 393 (6)
-----------------------------------------------------------------
Total expense $26,679 24,573 21,949
-----------------------------------------------------------------
</TABLE>
Interest costs on the accumulated postretirement benefit obligation were based
upon rates of 7.5% in 1994 and 9% in 1993 and 1992.
At December 31, 1994 and 1993, the actuarial and recorded liabilities for these
postretirement benefits, none of which have been funded, were as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $217,307 202,473
Fully eligible active plan participants 22,203 45,913
Other active plan participants 19,449 42,957
--------------------------------------------------------------
258,959 291,343
Unrecognized experience loss (22,928) (63,495)
--------------------------------------------------------------
Liability included on the balance sheet 236,031 227,848
Less current portion 17,293 15,630
--------------------------------------------------------------
Noncurrent liability for postretirement
health care and life insurance benefits $218,738 212,218
--------------------------------------------------------------
</TABLE>
The accumulated postretirement benefit obligation was determined using the unit
credit method and an assumed discount rate of 8.75% in 1994 and 7.5% in 1993.
The assumed health care cost trend rate used in 1994 was 10% for pre-65
retirees, grading down to 5% in the year 2001. For post-65 retirees, the assumed
trend rate in 1994 was 8%, grading down to 5% in the year 2001. The assumed
medicare cost trend rate used in 1994 was 7%, grading down to 5% in the year
2001.
A percentage point increase each year in the health care cost trend rate used
would have resulted in a $2,820 increase in the aggregate service and interest
components of expense for the year 1994, and a $40,986 increase in the
accumulated postretirement benefit obligation at December 31, 1994.
The Company also sponsors a Savings-Investment Plan to assist eligible employees
in providing for retirement or other future financial needs. Employee
contributions are matched at rates of
---
66
<PAGE>
--------------------------------------------------------------------------------
50% to 125% up to 5% of compensation (subject to certain limitations imposed by
the Internal Revenue Code of 1986, as amended). Contribution expense under the
plan aggregated $5,848 in 1994, $5,381 in 1993 and $5,391 in 1992.
In May 1994, the Company's shareholders approved the Employee Stock Purchase
Plan effective July 1, 1994. Eligible employees may elect to purchase shares of
Minerals Stock and Services Stock at the lower of 85% of the fair market value
as of specified dates. Under this plan employees purchased 11,843 shares of
Minerals Stock for $187 and 26,444 shares of Services Stock for $590.
The Company sponsors several other defined contribution benefit plans based on
hours worked, tons produced or other measurable factors. Contributions under all
of these plans aggregated $1,026 in 1994 and $918 in 1993 and 1992.
In October 1992, the Coal Industry Retiree Health Benefit Act of 1992 (the
'Health Benefit Act') was enacted as part of the Energy Policy Act of 1992. The
Health Benefit Act established rules for the payment of future health care
benefits for thousands of retired union mine workers and their dependents. Part
of the burden for these payments was shifted by the Health Benefit Act from
certain coal producers, which had a contractual obligation to fund such
payments, to producers such as the Company which have collective bargaining
agreements with the UMWA that do not require such payments and to numerous other
companies which are no longer in the coal business. The Health Benefit Act
established a trust fund to which 'signatory operators' and 'related persons',
including the Company and certain of its coal subsidiaries (the 'Pittston
Companies') are obligated to pay annual premiums for assigned beneficiaries,
together with a pro rata share for certain beneficiaries who never worked for
such employers ('unassigned beneficiaries'), in amounts determined by the
Secretary of Health and Human Services on the basis set forth in the Health
Benefit Act. For 1993 and 1994, this liability (on a pre-tax basis) was
approximately $9,100 and $11,000, respectively. The Company believes that the
annual liability under the Health Benefit Act for the Pittston Companies'
assigned beneficiaries will continue in the $10,000 to $11,000 range for the
next eight years and should begin to decline thereafter as the number of such
assigned beneficiaries decreases.
Based on the number of beneficiaries actually assigned by the Social Security
Administration, the Company estimates the aggregate pre-tax liability relating
to the Pittston Companies' assigned beneficiaries at approximately $250,000,
which when discounted at 8.75% provides a present value estimate of
approximately $100,000.
The ultimate obligation that will be incurred by the Company could be
significantly affected by, among other things, increased medical costs,
decreased number of beneficiaries, governmental funding arrangements and such
federal health benefit legislation of general application as may be enacted. In
addition, the Health Benefit Act requires the Pittston Companies to fund, pro
rata according to the total number of assigned beneficiaries, a portion of the
health benefits for unassigned beneficiaries. At this time, the funding for such
health benefits is being provided from another source and for this and other
reasons the Pittston Companies' ultimate obligation for the unassigned
beneficiaries cannot be determined. The Company accounts for its obligations
under the Health Benefit Act as a participant in a multi-employer plan and
recognizes the annual cost on a pay-as-you-go basis.
14. RESTRUCTURING AND OTHER CHARGES, INCLUDING LITIGATION ACCRUAL
The market for metallurgical coal, for most of the past fifteen years, has been
characterized by weak demand from primary steel producers and intense
competition from foreign coal producers, especially those in Australia and
Canada. Metallurgical coal sales contracts typically are subject to annual price
negotiations, which increase the risk of market forces. As a result of the
continuing long-term decline in the metallurgical coal markets, which was
further evidenced by significant price reductions in early 1994, the Coal
operations accelerated its strategy of decreasing its exposure to these markets.
After a review of the economic viability of the remaining 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 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
asset 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
---
67
<PAGE>
--------------------------------------------------------------------------------
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, one has ceased coal production, while the
remaining three 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 52%
to approximately 360 employees.
Although coal production has or will cease at the mines contemplated in the
accrual, the Company will incur reclamation and environmental costs for several
years to bring these properties into compliance with federal and state
environmental laws. In addition, employee termination and medical costs will
continue to be incurred for several years after the facilities have been closed.
The significant portion of these employee liabilities is for statutorily
provided workers' compensation costs for inactive employees. Such benefits
include indemnity and medical 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 costs and does not anticipate
material additional future charges to operating earnings for these facilities,
although continual cash funding will be required over the next several years.
In 1993 the Company incurred a pre-tax charge of $78,633 ($48,897 after tax)
relating to mine closing costs including employee benefit costs and certain
other noncash charges, together with previously reported litigation (the
'Evergreen Case') brought against the Company and a number of its coal
subsidiaries by the trustees of certain pension and benefit trust funds
established under collective bargaining agreements with the UMWA (Note 17).
These charges impacted Coal and Mineral Ventures operating profit in the amount
of $70,713 and $7,920, respectively.
The charge in the Mineral Ventures segment in 1993, related to the write-down of
the Company's investment in the Uley graphite mine in Australia. Although
reserve drilling of the Uley property indicates substantial graphite deposits,
processing difficulties, depressed graphite prices which remained significantly
below the level prevailing at the start of the project and an analysis of
various technical and marketing conditions affecting the project resulted in the
determination that the assets had been impaired and that loss recognition was
appropriate. The charge included asset write-downs of $7,496, which reduced the
carrying value of such assets to zero.
The following table analyzes the changes in liabilities during the last three
years 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 January
1, 1993 (a) $1,146 35,499 35,413 72,058
Additions 2,782 1,598 6,267 10,647
Payments (b) 836 8,663 7,463 16,962
-----------------------------------------------------------------
Balance as of
December
31, 1993 3,092 28,434 34,217 65,743
Additions 3,836 19,290 21,193 44,319
Payments (c) 3,141 9,468 12,038 24,647
-----------------------------------------------------------------
Balance as of
December
31, 1994 $3,787 38,256 43,372 85,415
-----------------------------------------------------------------
</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 $2,312 for leased machinery and equipment, $50,645 principally for
incremental facility closing costs, including reclamation and $47,841 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 the year for
liabilities recorded in prior years.
(c) These amounts represent total cash payments made during the year for these
charges. Of the total payments made, $8,672 was for liabilities recorded in
years prior to 1993, $5,822 was for liabilities recorded in 1993 and $10,153 was
for liabilities recorded in 1994.
---
68
<PAGE>
--------------------------------------------------------------------------------
During the next twelve months, expected cash funding of these charges is
approximately $21,000. 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.
15. OTHER INCOME AND EXPENSE
Other operating income includes the Company's share of net income of
unconsolidated affiliated companies which are carried on the equity method,
royalty income and gains on sales of assets.
Amounts presented include the accounts of the following equity affiliates:
<TABLE>
<CAPTION>
Ownership
At December 31, 1994
-----------------------------------------------------------------
<S> <C>
Servicio Pan Americano De Proteccion, S.A. (Mexico) 20.0%
Brink's Panama, S.A. 49.0%
Brink's De Colombia S.A. 46.5%
Brink's S.A. (France) 38.0%
Brink's Schenker, GmbH (Germany) 50.0%
Brink's Securmark S.p.A. (Italy) 24.5%
Security Services (Brink's Jordan), W.L.L. 45.0%
Brink's-Allied Limited (Ireland) 50.0%
Brink's Ayra India Private Limited 40.0%
Brink's Pakistan (Pvt.) Limited 49.0%
Brink's (Thailand) Ltd. 40.0%
Brink's Taiwan Limited 50.0%
Burlington International Forwarding Ltd. (Taiwan) 33.3%
Mining Project Investors Limited (Australia) 34.2%
MPI Gold (USA) 34.2%
</TABLE>
The following table presents summarized financial information of these
companies.
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------
<S> <C> <C> <C>
Revenues $833,056 727,697 696,840
Gross profit 154,608 147,778 127,987
Net income 23,503 26,530 31,396
The Company's
share of net income $ 6,336 7,503 7,996
----------------------------------------------------------
Current assets $180,868 196,480
Noncurrent assets 299,338 230,939
Current liabilities 145,549 155,572
Noncurrent liabilities 160,876 108,286
Net equity $173,781 163,561
</TABLE>
Undistributed earnings of such companies included in consolidated retained
earnings approximated $40,536 at December 31, 1994.
Other income (expense), net included a gain aggregating $2,341 in 1992 from the
sale of investments in leveraged leases, which increased the Minerals Group's
net income by $.37 per share in 1992.
16. SEGMENT INFORMATION
Net sales and operating revenues by geographic area are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
United States:
Domestic customers $1,508,457 1,197,629 1,058,677
Export customers in
Europe 262,866 246,505 249,778
Export customers in
Japan 92,040 98,808 109,095
Other export customers 216,925 226,627 226,485
-----------------------------------------------------------------
2,080,288 1,769,569 1,644,035
Europe 248,268 209,257 216,674
Other foreign 389,712 321,892 255,781
Eliminations (50,993) (44,597) (43,449)
-----------------------------------------------------------------
$2,667,275 2,256,121 2,073,041
-----------------------------------------------------------------
</TABLE>
Segment operating profit by geographic area is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
United States $21,506 11,601 68,000
Europe 14,200 16,096 16,180
Other foreign 23,343 15,134 11,292
-----------------------------------------------------------------
$59,049 42,831 95,472
-----------------------------------------------------------------
</TABLE>
Identifiable assets by geographic area are as follows:
<TABLE>
<CAPTION>
As of December 31
1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
United States $1,252,057 945,122 919,845
Europe 174,817 140,375 147,652
Other foreign 214,257 189,199 184,318
-----------------------------------------------------------------
$1,641,131 1,274,696 1,251,815
-----------------------------------------------------------------
</TABLE>
Segment operating profit includes restructuring and other charges, including
litigation accrual aggregating $90,806 in 1994, all of which is included in the
United States and $78,633 in 1993, of which $70,713 is included in United States
and $7,920 is included in other foreign (Note 14).
---
69
<PAGE>
--------------------------------------------------------------------------------
Industry segment information is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Burlington $1,215,284 998,079 900,347
Brink's 547,046 481,904 444,018
BHS 109,947 89,049 70,805
Coal 779,504 672,244 657,871
Mineral Ventures 15,494 14,845 --
-----------------------------------------------------------------
Consolidated revenues $2,667,275 2,256,121 2,073,041
-----------------------------------------------------------------
OPERATING PROFIT (LOSS):
Burlington $ 69,224 37,971 15,118
Brink's (a) 39,710 35,008 30,354
BHS (b) 32,432 26,400 16,451
Coal (c) (83,451) (48,246) 36,905
Mineral Ventures (c) 1,134 (8,302) (3,356)
-----------------------------------------------------------------
Segment operating profit
(loss) 59,049 42,831 95,472
General Corporate expense (16,176) (16,732) (17,110)
Pension credit -- -- 11,130
-----------------------------------------------------------------
Consolidated operating
profit (loss) $ 42,873 26,099 89,492
-----------------------------------------------------------------
</TABLE>
(a) Includes equity in net income of unconsolidated foreign affiliates of $6,048
in 1994, $6,895 in 1993 and $8,133 in 1992 (Note 15).
(b) As of January 1, 1992, BHS elected to capitalize categories of costs not
previously capitalized for home security installations to more accurately
reflect subscriber installation costs. The effect of this change in accounting
principle was to increase operating profit by $4,137 in 1994, $4,051 in 1993 and
$4,321 in 1992 (Note 4).
(c) Operating profit (loss) of the Coal segment includes restructuring and other
charges, including litigation accrual of $90,806 in 1994 and $70,713 in 1993
(Note 14). Operating loss of the Mineral Ventures segment includes restructuring
and other charges of $7,920 in 1993 (Note 14).
<TABLE>
<S> <C> <C> <C>
CAPITAL EXPENDITURES:
Burlington $ 24,701 21,544 14,412
Brink's 23,963 22,209 22,461
BHS 34,071 26,409 22,855
Coal 25,016 15,499 48,945
Mineral Ventures 2,514 2,690 6,526
General Corporate 209 110 206
-----------------------------------------------------------------
Consolidated capital
expenditures $ 110,474 88,461 115,405
-----------------------------------------------------------------
DEPRECIATION, DEPLETION AND AMORTIZATION:
Burlington $ 17,209 15,250 14,379
Brink's 20,553 20,150 20,531
BHS 17,817 14,357 12,215
Coal 44,731 25,679 22,961
Mineral Ventures 1,202 1,779 3
General Corporate 344 350 335
-----------------------------------------------------------------
Consolidated depreciation,
depletion and
amortization $ 101,856 77,565 70,424
-----------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
As of December 31
1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Burlington $ 472,440 418,694 406,459
Brink's 297,816 267,229 246,648
BHS 87,372 72,609 65,781
Coal 761,827 499,494 513,340
Mineral Ventures 21,676 16,670 19,587
-----------------------------------------------------------------
Identifiable assets 1,641,131 1,274,696 1,251,815
General Corporate
(primarily cash,
investments, advances and
deferred pension assets) 96,647 86,805 70,473
-----------------------------------------------------------------
Consolidated assets $1,737,778 1,361,501 1,322,288
-----------------------------------------------------------------
</TABLE>
17. LITIGATION
In 1988, the trustees of certain pension and benefit trust funds established
under collective bargaining agreements with the UMWA brought an action (the
'Evergreen Case') against the Company and a number of its coal subsidiaries in
the United States District Court for the District of Columbia, claiming that the
defendants are obligated to contribute to such trust funds in accordance with
the provisions of the 1988 and subsequent National Bituminous Coal Wage
Agreements, to which neither the Company nor any of its subsidiaries is a
signatory. In January 1992, the Court issued an order granting summary judgment
in favor of the trustees on the issue of liability, which was thereafter
affirmed by the Court of Appeals. In June 1993 the United States Supreme Court
denied a petition for a writ of certiorari. The case has been remanded to
District Court, and damage and other issues remain to be decided. In September
1993, the Company filed a motion seeking relief from the District Court's grant
of summary judgment based on, among other things, the Company's allegation that
plaintiffs improperly withheld evidence that directly refutes plaintiffs'
representations to the District Court and the Court of Appeals in this case. In
December 1993, that motion was denied. On May 23, 1994, the trustees filed a
Motion for Entry of Final Judgment seeking approximately $71,100 in delinquent
contributions, interest and liquidated damages through May 31, 1994, plus
approximately $17 additional interest and liquidated damages for each day
between May 31, 1994 and the date final judgment is entered, plus on-going
contributions to the 1974 Pension Plan. The Company has opposed this motion.
There has been no decision on this motion or final judgment entered to date.
---
70
<PAGE>
--------------------------------------------------------------------------------
In furtherance of its ongoing effort to identify other available legal options
for seeking relief from what it believes to be an erroneous finding of liability
in the Evergreen Case, the Company has filed suit against the Bituminous Coal
Operators Association ('BCOA') and others to hold them responsible for any
damages sustained by the Company as a result of the Evergreen Case. Although the
Company is continuing that effort, the Company, following the District Court's
ruling in December 1993, recognized the potential liability that may result from
an adverse judgment in the Evergreen Case (Notes 13 and 14). In any event, any
final judgment in the Evergreen Case will be subject to appeal. In December
1994, the District Court ordered that the Evergreen Case, as well as related
cases filed against other coal companies, and the BCOA case, be submitted to
mediation before a federal judge in an effort to obtain a settlement. The
mediation process is on going.
As a result of the Health Benefit Act (Note 13), there is no continuing
liability in this case in respect of health benefit funding after February 1,
1993.
In April 1990, the Company entered into a settlement agreement to resolve
certain environmental claims against the Company arising from hydrocarbon
contamination at a petroleum terminal facility ('Tankport') in Jersey City, New
Jersey, which operations were sold in 1983. Under the settlement agreement, the
Company is obligated to pay 80% of the remediation costs. Based on data
available to the Company and its environmental consultants, the Company
estimates its portion of the cleanup costs on an undiscounted basis using
existing technologies to be between $6,700 and $14,100 over a period of three to
five years. Management is unable to determine that any amount within that range
is a better estimate due to a variety of uncertainties, which include the extent
of the contamination at the site, the permitted technologies for remediation and
the regulatory standards by which the clean-up will be conducted. The clean-up
estimates have been modified in light of certain regulatory changes promulgated
in December 1994.
The Company commenced insurance coverage litigation in 1990, in the United
States District Court for the District of New Jersey, seeking a declaratory
judgment that all amounts payable by the Company pursuant to the Tankport
obligation were reimbursable under comprehensive general liability and pollution
liability policies maintained by the Company. Although the underwriters have
disputed this claim, management and its legal counsel believe that recovery is
probable of realization in the full amount of the claim. This conclusion is
based upon, among other things, the nature of the pollution policies which were
broadly designed to cover such contingent liabilities, the favorable state of
the law in the State of New Jersey (whose laws have been found to control the
interpretation of the policies), and numerous other factual considerations which
support the Company's analysis of the insurance contracts and rebut the
underwriters' defenses. Accordingly, there is no net liability in regard to the
Tankport obligation.
18. COMMITMENTS
At December 31, 1994, the Company had contractual commitments to purchase coal
which is primarily used to blend with Company mined coal. Based on the contract
provisions these commitments are currently estimated to aggregate approximately
$276,111 and expire from 1995 through 1998
as follows:
<TABLE>
<S> <C>
1995 $105,112
1996 89,219
1997 56,970
1998 24,810
-----------------------------------------------------------------
$276,111
-----------------------------------------------------------------
</TABLE>
Purchases under the contracts were $53,097 in 1994, $81,069 in 1993 and $74,331
in 1992.
19. SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1994, 1993 and 1992, cash payments for income
taxes, net of refunds received, were $23,406, $30,237 and $6,129, respectively.
For the years ended December 31, 1994, 1993 and 1992, cash payments for interest
were $12,104, $10,207 and $11,553, respectively.
In December 1993, the Company sold the majority of the assets of its captive
mine supply company. Cash proceeds of $8,400 from the sale were received on
January 2, 1994, and have been included in 'Cash flow from investing activities:
Other, net' in 1994.
---
71
<PAGE>
--------------------------------------------------------------------------------
During 1993, the Company sold a coal preparation plant and related interest in
land, equipment and facilities for mineral reserves with a fair market value of
$13,300 and cash of $10,700. The cash proceeds of $10,700 less $1,001 in
expenses related to the transaction were included in 'Cash flow from investing
activities: Other, net'.
20. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Tabulated below are certain data for each quarter of 1994 and 1993.
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 QUARTERS:
Net sales and operating
revenues $587,795 659,500 693,854 726,126
Gross profit 51,770 100,521 98,823 102,495
Net income (loss) $(63,568) 28,038 31,210 31,217
Per Pittston Services Group
Common Share:
Net income $ .28 .56 .66 .61
Per Pittston Minerals Group
Common Share:
Net income (loss)
Primary $ (9.96) .72 .74 .91
Fully diluted $ (9.96) .67 .61 .81
1993 QUARTERS:
Net sales and operating
revenues $531,748 554,659 569,438 600,276
Gross profit 64,476 74,537 82,925 88,963
Net income (loss) $ 8,156 14,140 21,245 (29,395)
Per Pittston Services Group
Common Share:
Net income $ .15 .30 .41 .41
Per Pittston Minerals Group
Common Share:
Net income (loss)
Primary $ .38 .43 .80 (5.98)
Fully diluted $ .37 .43 .79 (5.98)
</TABLE>
Net loss in the first quarter of 1994 included restructuring and other charges
of $58,116 (Note 14).
Net loss in the fourth quarter of 1993 included restructuring and other charges,
including litigation accrual of $48,897 (Note 14).
---
72
<PAGE>
Pittston Services Group
-----------------------------------------------------------------
STATEMENT OF MANAGEMENT RESPONSIBILITY
The management of The Pittston Company (the 'Company') is responsible for
preparing the accompanying financial statements and for their integrity and
objectivity. The statements were prepared in accordance with generally accepted
accounting principles. Management has also prepared the other information in the
annual report and is responsible for its accuracy.
In meeting our responsibility for the integrity of the financial statements, we
maintain a system of internal controls designed to provide reasonable assurance
that assets are safeguarded, that transactions are executed in accordance with
management's authorization and that the accounting records provide a reliable
basis for the preparation of the financial statements. Qualified personnel
throughout the organization maintain and monitor these internal controls on an
ongoing basis. In addition, the Company maintains an internal audit department
that systematically reviews and reports on the adequacy and effectiveness of the
controls, with management follow-up as appropriate.
Management has also established a formal Business Code of Ethics which is
distributed throughout the Company. We acknowledge our responsibility to
establish and preserve an environment in which all employees properly understand
the fundamental importance of high ethical standards in the conduct of our
business.
The accompanying financial statements have been audited by KPMG Peat Marwick
LLP, independent auditors. During the audit they review and make appropriate
tests of accounting records and internal controls to the extent they consider
necessary to express an opinion on the Services Group's financial statements.
The Company's Board of Directors pursues its oversight role with respect to the
Services Group's financial statements through the Audit and Ethics Committee,
which is composed solely of outside directors. The Committee meets periodically
with the independent auditors, internal auditors and management to review the
Company's control system and to ensure compliance with applicable laws and the
Company's Business Code of Ethics.
We believe that the policies and procedures described above are appropriate and
effective and do enable us to meet our responsibility for the integrity of the
Services Group's financial statements.
-----------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
The Pittston Company
We have audited the accompanying balance sheets of the Pittston Services Group
(as described in Note 1) as of December 31, 1994 and 1993, and the related
statements of operations and cash flows for each of the years in the three-year
period ended December 31, 1994. These financial statements are the
responsibility of The Pittston Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements of Pittston Services Group present
fairly, in all material respects, the financial position of Pittston Services
Group as of December 31, 1994 and 1993, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1994, in conformity with generally accepted accounting principles.
As more fully discussed in Note 1, the financial statements of Pittston Services
Group should be read in connection with the audited consolidated financial
statements of The Pittston Company and subsidiaries.
KPMG Peat Marwick LLP
Stamford, Connecticut
January 25, 1995
---
73
<PAGE>
Pittston Services Group
-------------------------------------------------------------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
(Dollars in thousands) 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 38,610 30,271
Short-term investments 2,041 1,881
Accounts receivable:
Trade 268,371 215,093
Other 13,352 10,217
----------------------------------------------------------------------------
281,723 225,310
Less estimated amount uncollectible 13,854 13,745
----------------------------------------------------------------------------
267,869 211,565
Receivable -- Pittston Minerals Group (Note 2) 32,170 --
Inventories 4,006 3,235
Prepaid expenses 16,311 19,258
Deferred income taxes (Note 7) 25,325 22,919
----------------------------------------------------------------------------
Total current assets 386,332 289,129
Property, plant and equipment, at cost (Note 4) 460,094 395,162
Less accumulated depreciation and amortization 234,722 207,086
----------------------------------------------------------------------------
225,372 188,076
Intangibles, net of amortization (Notes 5 and 10) 208,792 213,634
Deferred pension assets (Note 12) 43,150 42,425
Deferred income taxes (Note 7) 1,323 839
Other assets 75,707 72,838
----------------------------------------------------------------------------
Total assets $940,676 806,941
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings $ 13,323 9,546
Current maturities of long-term debt (Note 8) 6,194 7,878
Accounts payable 175,844 131,893
Payable -- Pittston Minerals Group (Note 2) -- 19,098
Accrued liabilities:
Taxes 23,396 26,335
Workers' compensation and other claims 19,124 18,192
Miscellaneous 95,035 68,766
----------------------------------------------------------------------------
137,555 113,293
----------------------------------------------------------------------------
Total current liabilities 332,916 281,708
Long-term debt, less current maturities (Note 8) 49,896 58,109
Postretirement benefits other than pensions (Note
12) 5,761 4,802
Workers' compensation and other claims 9,929 9,043
Deferred income taxes (Note 7) 34,090 33,727
Payable -- Pittston Minerals Group (Note 2) 23,186 14,709
Other liabilities 28,487 26,474
Commitments and contingent liabilities (Notes 8,
11, and 15)
Shareholder's equity (Note 3) 456,411 378,369
----------------------------------------------------------------------------
Total liabilities and shareholder's equity $940,676 806,941
----------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
---
74
<PAGE>
Pittston Services Group
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands, except per share amounts) 1994 1993 1992
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenue $1,872,277 1,569,032 1,415,170
-------------------------------------------------------------------------------------------------------------
Costs and expenses:
Operating expenses 1,542,080 1,299,541 1,187,229
Selling, general and administrative expenses 207,281 189,336 184,915
Pension credit (Note 12) -- -- (4,047)
-------------------------------------------------------------------------------------------------------------
Total costs and expenses 1,749,361 1,488,877 1,368,097
-------------------------------------------------------------------------------------------------------------
Other operating income (Note 13) 9,119 9,710 10,341
-------------------------------------------------------------------------------------------------------------
Operating profit 132,035 89,865 57,414
Interest income 3,630 2,205 2,278
Interest expense (Note 2) (6,297) (8,837) (7,588)
Other income (expense), net (4,697) (4,067) (5,956)
-------------------------------------------------------------------------------------------------------------
Income before income taxes 124,671 79,166 46,148
Provision for income taxes (Note 7) 44,826 32,040 18,871
-------------------------------------------------------------------------------------------------------------
Net income $ 79,845 47,126 27,277
-------------------------------------------------------------------------------------------------------------
Net income per common share (Note 1) $ 2.11 1.28 .74
-------------------------------------------------------------------------------------------------------------
Average common shares outstanding (Note 1) 37,784 36,907 37,081
</TABLE>
See accompanying notes to financial statements.
---
75
<PAGE>
Pittston Services Group
--------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands) 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 79,845 47,126 27,277
Adjustments to reconcile net income to net cash
provided by operating activities:
Noncash charges and other write-offs 306 11 1,276
Depreciation and amortization 55,782 49,974 47,329
Credit for deferred income taxes (928) (4,335) (4,852)
Provision (credit) for pensions, noncurrent 34 50 (5,582)
Provision for uncollectible accounts receivable 4,400 6,352 3,897
Equity in earnings of unconsolidated affiliates,
net of dividends received (1,262) (3,711) (4,989)
Loss (gain) on sale of property, plant and
equipment (147) (408) (69)
Other operating, net 2,723 3,041 3,420
Change in operating assets and liabilities, net of
effects of acquisitions and dispositions:
Increase in accounts receivable (60,704) (18,261) (23,030)
Decrease (increase) in inventories (771) (551) 1,089
Decrease (increase) in prepaid expenses 900 (3,403) 148
Increase in accounts payable and accrued
liabilities 87,142 20,062 33,518
Decrease (increase) in other assets 3,673 (3,865) 2,306
Increase (decrease) in workers' compensation
and other claims, noncurrent 886 744 (61)
Increase (decrease) in other liabilities 44 (1,567) (1,148)
Other, net 40 108 (1,107)
---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 171,963 91,367 79,422
---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (80,448) (76,030) (50,297)
Proceeds from disposal of property, plant and
equipment 1,982 1,951 3,631
Acquisitions, net of cash acquired, and related
contingency payments (5,938) (736) (1,740)
Other, net (1,109) (1,477) (2,131)
---------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (85,513) (76,292) (50,537)
---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 31,287 4,136 30,916
Reductions of debt (40,108) (34,385) (9,608)
Payments from (to) -- Minerals Group (61,436) 13,266 --
Repurchase of common stock (6,188) (920) (10,856)
Proceeds from exercise of stock options 5,567 12,124 1,226
Proceeds from sale of stock to SIP -- 220 --
Proceeds from sale of stock to Minerals Group 322 128 --
Dividends paid (7,553) (7,055) (5,614)
Cost of Services Stock Proposal (2) (1,564) --
Net cash from (to) the Company -- 896 (39,369)
---------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (78,111) (13,154) (33,305)
---------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 8,339 1,921 (4,420)
Cash and cash equivalents at beginning of year 30,271 28,350 32,770
---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 38,610 30,271 28,350
---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
---
76
<PAGE>
Pittston Services Group
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
The approval on July 26, 1993 (the 'Effective Date'), by the shareholders of The
Pittston Company (the 'Company') of the Services Stock Proposal, as described in
the Company's proxy statement dated June 24, 1993, resulted in the
reclassification of the Company's common stock. The outstanding shares of
Company common stock were redesignated as Pittston Services Group Common Stock
('Services Stock') on a share-for-share basis and a second class of common
stock, designated as Pittston Minerals Group Common Stock ('Minerals Stock'),
was distributed on the basis of one-fifth of one share of Minerals Stock for
each share of the Company's previous common stock held by shareholders of record
on July 26, 1993. Minerals Stock and Services Stock provide shareholders with
separate securities reflecting the performance of the Pittston Minerals Group
(the 'Minerals Group') and the Pittston Services Group (the 'Services Group')
respectively, without diminishing the benefits of remaining a single corporation
or precluding future transactions affecting either Group. Accordingly, all stock
and per share data prior to the reclassification have been restated to reflect
the reclassification. The primary impacts of this restatement are as follows:
* Net income per common share has been included in the Statements of Operations.
For the purpose of computing net income per common share of Services Stock,
the number of shares of Services Stock prior to the Effective Date are assumed
to be the same as the total number of shares of the Company's common stock.
* All financial impacts of purchases and issuances of the Company's common stock
prior to the Effective Date have been attributed to each Group in relation of
their respective common equity to the Company's common stock. Dividends paid
by the Company were attributed to the Services and Minerals Groups in relation
to the initial dividends paid on the Services Stock and the Minerals Stock.
The Company, at any time, has the right to exchange each outstanding share of
Minerals Stock for shares of Services Stock having a fair market value equal to
115% of the fair market value of one share of Minerals Stock. In addition, upon
the sale, transfer, assignment or other disposition, whether by merger,
consolidation, sale or contribution of assets or stock or otherwise, of all or
substantially all of the properties and assets of the Minerals Group to any
person, entity or group (with certain exceptions), the Company is required to
exchange each outstanding share of Minerals Stock for shares of Services Stock
having a fair market value equal to 115% of the fair market value of one share
of Minerals Stock. Shares of Services Stock are not subject to either optional
or mandatory exchange.
Holders of Services Stock have one vote per share. Holders of Minerals Stock
have one vote per share subject to adjustment on January 1, 1996, and on each
January 1 every two years thereafter based upon the relative fair market values
of one share of Minerals Stock and one share of Services Stock on each such
date. Accordingly, beginning on January 1, 1996, each share of Minerals Stock
may have more than, less than or continue to have exactly one vote. Holders of
Services Stock and Minerals Stock vote together as a single voting group on all
matters as to which all common shareholders are entitled to vote. In addition,
as prescribed by Virginia law, certain amendments to the Company's Restated
Articles of Incorporation affecting, among other things, the designation,
rights, preferences or limitations of one class of common stock, or any merger
or statutory share exchange, must be approved by the holders of such class of
common stock, voting as a separate voting group, and, in certain circumstances,
may also have to be approved by the holders of the other class of common stock,
voting as a separate voting group.
In the event of a dissolution, liquidation or winding up of the Company, the
holders of Services Stock and Minerals Stock will receive the funds remaining
for distribution, if any, to the common shareholders on a per share basis in
proportion to the total number of shares of Services Stock and Minerals Stock,
respectively, then outstanding to the total number of shares of both classes of
common stock then outstanding.
In conjunction with the Services Stock Proposal, a new share repurchase program
was approved whereby the Company could acquire up to 1,250,000 shares of
Services Stock and 250,000 shares of Minerals Stock from time to time in the
open market or in private transactions, as conditions warrant, not to exceed an
aggregate purchase price of $43,000. Through December 31, 1994, a total of
256,100 shares of Services Stock were repurchased at a total cost of $6,188 all
of which were repurchased in 1994. The program to acquire shares remains in
effect in 1995.
---
77
<PAGE>
--------------------------------------------------------------------------------
In December 1992, The Company formed The Pittston Company Employee Benefits
Trust (the 'Trust') to hold shares of its common stock to fund obligations under
certain employee benefits programs. Upon formation of the Trust, the Company
sold for a promissory note of the Trust, 4,000,000 new shares of its common
stock to the Trust at a price equal to the fair value of the stock on the date
of sale. Upon approval of the Services Stock Proposal, 3,871,826 shares in the
Trust were redesigned as Services Stock. At December 31, 1994, 3,778,565 shares
of Services Stock (3,853,778 in 1993) remained in the Trust, valued at market.
The value of these shares has no impact on shareholder's equity.
In January 1994, the Company issued 161,000 shares of its $31.25 Series C
Cumulative Convertible Preferred Stock (the 'Convertible Preferred Stock') which
is convertible into Minerals Stock to finance a portion of the acquisition of
substantially all of the coal mining operations and coal supply contracts of
Addington Resources, Inc. While the issuance of the Convertible Preferred Stock
had no effect on the capitalization of the Services Group, commencing March 1,
1994, annual cumulative dividends of $31.25 per share of Convertible Preferred
Stock are payable quarterly, in cash, in arrears, from the date of original
issue out of all funds of the Company's legally available therefore, when, as
and if declared by the Company's Board of Directors (the 'Board'). In July 1994,
the Company repurchased 8,350 shares of Convertible Preferred Stock at a total
cost of $3,366 under a repurchase program that authorizes repurchases of up to
$15,000. See Note 9 to the Company's consolidated financial statements.
The financial statements of the Services Group include the balance sheets,
results of operations and cash flows of the Burlington Air Express Inc.
('Burlington'), Brink's, Incorporated ('Brink's') and Brink's Home Security,
Inc. ('BHS') operations of the Company, and a portion of the Company's corporate
assets and liabilities and related transactions which are not separately
identified with operations of a specific segment (Note 2). 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 Services Stock separate financial statements,
financial reviews, descriptions of business and other relevant information for
the Services Group in addition to consolidated financial information of the
Company. Notwithstanding the attribution of assets and liabilities (including
contingent liabilities) between the Minerals Group and the Services Group for
the purpose of preparing their financial statements, this attribution and the
change in the capital structure of the Company as a result of the approval of
the Services Stock Proposal did not result in any transfer of assets and
liabilities of the Company or any of its subsidiaries. Holders of Services Stock
are shareholders of the Company, which continues to be responsible for all its
liabilities. Therefore, financial developments affecting the Minerals Group or
the Services Group that affect the Company's financial condition could affect
the results of operations and financial condition of both Groups. Accordingly,
the Company's consolidated financial statements must be read in connection with
the Services Group's financial statements.
PRINCIPLES OF COMBINATION:
The accompanying financial statements reflect the combined accounts of the
businesses comprising the Services Group and their majority-owned subsidiaries.
The Services Group interests in 20% to 50% owned companies are carried on the
equity method. All material intercompany items and transactions have been
eliminated in combination. Certain prior year amounts have been reclassified to
conform to the current year's financial statement presentation.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include cash on hand, demand deposits and investments
with original maturities of three months or less.
SHORT-TERM INVESTMENTS:
Short-term investments are those with original maturities in excess of three
months and are carried at cost which approximates market.
INVENTORIES:
Inventories are stated at cost (determined under the first-in, first-out or
average cost method) or market, whichever is lower.
---
78
<PAGE>
--------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Expenditures for maintenance and repairs are charged to expense, and the costs
of renewals and betterments are capitalized. Depreciation is provided
principally on the straight-line method at varying rates depending upon
estimated useful lives.
Subscriber installation costs for home security systems provided by BHS are
capitalized and depreciated over the estimated life of the assets and are
included in machinery and equipment. The standard security system that is
installed remains the property of BHS and is capitalized at the cost to bring
the revenue producing asset to its intended use. When an installation is
identified for disconnection, the remaining net book value of the installation
is written-off and charged to depreciation.
INTANGIBLES:
The excess of cost over fair value of net assets of companies acquired is
amortized on a straight-line basis over the estimated periods benefited.
The Services Group evaluates the carrying value of intangibles and the periods
of amortization to determine whether events and circumstances warrant revised
estimates of asset value or useful lives. The Services Group annually assesses
the recoverability of the excess of cost over net assets acquired by determining
whether the amortization of the asset balance over its remaining life can be
recovered through projected undiscounted future operating cash flows. Evaluation
of asset value as well as periods of amortization are performed on a
disaggregated basis at each of the Services Group's operating units.
INCOME TAXES:
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, 'Accounting for Income Taxes', which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
See Note 2 for allocation of the Company's U.S. federal income taxes to the
Services Group.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
Postretirement benefits other than pensions are accounted for in accordance with
Statement of Financial Accounting Standards No. 106, 'Employers' Accounting for
Postretirement Benefits Other Than Pensions', which requires employers to accrue
the cost of such retirement benefits during the employees' service with the
Company.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of foreign operations have been translated at current
exchange rates, and related revenues and expenses have been translated at
average rates of exchange in effect during the year. Resulting cumulative
translation adjustments have been included in shareholder's equity. Translation
adjustments relating to operations in countries with highly inflationary
economies are included in net income, along with all transaction gains and
losses for the period.
A significant 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. However, the Services
Group's international activity is not concentrated in any single currency, which
reduces the risks of foreign currency rate fluctuations.
FINANCIAL INSTRUMENTS:
The Services Group uses foreign currency forward contracts to hedge risk of
changes in foreign currency rates associated with certain transactions
denominated in various currencies. Realized and unrealized gains and losses on
these contracts, designated and effective as hedges, are deferred and recognized
as part of the specific transaction hedged.
The Services Group also utilizes financial instruments to protect against price
increases in jet fuel as well as interest rate changes on certain variable rate
lease obligations. Gains and losses on such financial instruments, designated
and effective as hedges, are recognized as part of the specific transaction
hedged.
REVENUE RECOGNITION:
Burlington -- Revenues related to transportation services are recognized,
together with related transportation costs, on the date shipments physically
depart from facilities en route to destination locations.
---
79
<PAGE>
--------------------------------------------------------------------------------
Brink's -- Revenues are recognized when services are performed.
BHS -- Monitoring revenues are recognized when earned and amounts paid in
advance are deferred and recognized as income over the applicable monitoring
period, which is generally one year or less. Revenues from the sale of
equipment, excluding equipment which is part of the standard package security
system, are recognized, together with related costs, upon completion of the
installation. Connection fee revenues are recognized to the extent of direct
selling costs incurred and expensed. Connection fee revenues in excess of direct
selling costs are deferred and recognized as income on a straight-line basis
over ten years.
NET INCOME PER COMMON SHARE:
Net income per common share is computed by dividing net income by the weighted
average number of common shares outstanding during the period. The potential
dilution from the exercise of stock options is not material. The potential
dilution from the assumed conversion of the 9.20% convertible subordinated
debentures in 1993 and 1992 was not included since its effect was antidilutive.
The shares of Services Stock held in The Pittston Company Employee Benefits
Trust are evaluated for inclusion in the calculation of net income per share
under the treasury stock method and had no dilutive effect.
2. RELATED PARTY TRANSACTIONS
The following policies may be modified or rescinded by action of the Board, or
the Board may adopt additional policies, without approval of the shareholders of
the Company, although the Board has no present intention to do so. The Company
allocated certain corporate general and administrative expenses, net interest
expense and related assets and liabilities in accordance with the policies
described below. Corporate assets and liabilities are primarily cash, deferred
pension assets, income taxes and accrued liabilities.
FINANCIAL:
As a matter of policy, the Company manages most financial activities of the
Services Group and Minerals Group on a centralized, consolidated basis. Such
financial activities include the investment of surplus cash; the issuance,
repayment and repurchase of short-term and long-term debt; the issuance and
repurchase of common stock and the payment of dividends. In preparing these
financial statements, transactions primarily related to invested cash,
short-term and long-term debt (including convertible debt), related net interest
and other financial costs have been attributed to the Services Group based upon
its cash flows for the periods presented after giving consideration to the debt
and equity structure of the Company. At December 31, 1994, the Company
attributed long-term debt to the Services Group based upon the specific purpose
for which the debt was incurred and the cash flow requirements of the Services
Group. See Note 8 for details and amounts of long-term debt. The portion of the
Company's interest expense allocated to the Services Group for 1994, 1993 and
1992 was $2,805, $5,206 and $3,003, respectively. Management believes such
method of allocation to be equitable and a reasonable estimate of the cost
attributable to the Services Group.
To the extent borrowings are deemed to occur between the Services Group and the
Minerals Group, intergroup accounts have been established bearing interest at
the rate in effect from time to time under the Company's unsecured credit lines
or, if no such credit lines exist, at the prime rate charged by Chemical Bank
from time to time. At December 31, 1994, the Minerals Group owed the Services
Group $48,170 and at December 31, 1993, the Services Group owed the Minerals
Group $13,266, as the result of borrowings.
INCOME TAXES:
The Services Group is included in the consolidated U.S. federal income tax
return filed by the Company.
The Company's consolidated provision and actual cash payments for U.S. federal
income taxes are allocated between the Services Group and Minerals Group in
accordance with the Company's tax allocation policy and reflected in the
financial statements for each Group. In general, the consolidated tax provision
and related tax payments or refunds are allocated between the Groups, for
financial statement purposes, based principally upon the financial income,
taxable income, credits and other amounts directly related to the respective
Group. Tax benefits that cannot be used by the Group generating such attributes,
but can be utilized on a consolidated basis, are allocated to the Group that
generated such benefits and an intergroup account is established for the benefit
of the Group generating the attributes. At December 31, 1994 and 1993, the
Services Group owed the Minerals Group $39,186 and $20,541, respectively, for
such tax benefits, of which $23,186 and $14,709, respectively, were not expected
to be paid within one year from such dates in accordance with the policy. As a
result, the allocated Group amounts of taxes payable or refundable are not
necessarily comparable to those that would have resulted if the Groups had filed
separate tax returns.
---
80
<PAGE>
--------------------------------------------------------------------------------
SHARED SERVICES:
A portion of the Company's corporate general and administrative expenses and
other shared services has been allocated to the Services Group based upon
utilization and other methods and criteria which management believes to be
equitable and a reasonable estimate of the cost attributable to the Services
Group. These allocations were $9,331, $9,514 and $8,556 in 1994, 1993 and 1992,
respectively.
PENSION:
The Services Group's pension cost related to its participation in the Company's
noncontributory defined benefit pension plan is actuarially determined based on
its respective employees and an allocable share of the pension plan assets and
calculated in accordance with Statement of Financial Accounting Standards No. 87
('SFAS 87'). Pension plan assets have been allocated to the Services Group based
on the percentage of its projected benefit obligation to the plan's total
projected benefit obligation. Management believes such method of allocation to
be equitable and a reasonable estimate of the cost attributable to the Services
Group.
3. SHAREHOLDER'S EQUITY
The following analyzes shareholder's equity of the Services Group for the
periods presented:
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $378,369 329,158 359,813
Net income 79,845 47,126 27,277
Stock options exercised 5,567 12,124 1,226
Stock released from employee
benefits trust to employee
benefits plan 1,342 841 427
Stock sold from employee benefits
trust to employee benefits plan -- 220 --
Stock issued to employee benefits
plan -- -- 559
Stock sold to Minerals Group 323 128 --
Stock repurchases (6,188) (920) (10,856)
Dividends declared (7,565) (7,055) (5,614)
Cost of Services Stock Proposal (2) (1,564) --
Foreign currency translation
adjustment 2,393 (4,104) (4,305)
Tax benefit of options exercised 2,319 1,519 --
Conversion of debt 8 -- --
Net cash (to) from the Company -- 896 (39,369)
-----------------------------------------------------------------
Balance at end of period $456,411 378,369 329,158
-----------------------------------------------------------------
</TABLE>
Included in shareholder's equity is the cumulative foreign currency translation
adjustment of $14,902, $17,295 and $13,191 at December 31, 1994, 1993 and 1992,
respectively.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at cost, consist of the following:
<TABLE>
<CAPTION>
December 31
1994 1993
-----------------------------------------------------------------
<S> <C> <C>
Land $ 4,359 3,798
Buildings 36,900 30,314
Machinery and equipment 418,835 361,050
-----------------------------------------------------------------
$ 460,094 395,162
-----------------------------------------------------------------
</TABLE>
The estimated useful lives for property, plant and equipment are as follows:
<TABLE>
<CAPTION>
Years
-----------------------------------------------------------------
<S> <C>
Buildings 3 to 25
Machinery and equipment 2 to 20
</TABLE>
Depreciation of property, plant and equipment aggregated $46,789 in 1994,
$40,708 in 1993 and $38,023 in 1992.
Changes in capitalized subscriber installation costs for home security systems
included in machinery and equipment were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C>
Capitalized subscriber installation
costs -- beginning of year $65,785 54,668 44,842
Capitalized cost of security system
installations 32,309 23,972 20,694
Capitalized cost of security systems
acquired -- -- (143)
Depreciation, including amounts
recognized to fully depreciate
capitalized costs for installations
disconnected during the year (16,649) (12,855) (10,725)
------------------------------------------------------------------
Capitalized subscriber installation
costs -- end of year $81,445 65,785 54,668
------------------------------------------------------------------
</TABLE>
New subscribers were 75,200 in 1994, 59,700 in 1993 and 51,300 in 1992.
As of January 1, 1992, BHS elected to capitalize categories of costs not
previously capitalized for home security system installations. This change in
accounting principle is preferable because it more accurately reflects
subscriber installation costs. 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 (in the
amount of $2,645 in 1994, $2,567 in 1993 and $2,327 in 1992) and costs incurred
in maintaining facilities
---
81
<PAGE>
--------------------------------------------------------------------------------
and vehicles dedicated to the installation process (in the amount of $1,492 in
1994, $1,484 in 1993 and $1,994 in 1992). The effect of this change in
accounting principle was to increase operating profit of the Services Group and
the BHS segment in 1994, 1993 and 1992 by $4,137, $4,051 and $4,321,
respectively, and net income of the Services Group in 1994, 1993 and 1992 by
$2,486, $2,435 and $2,596, respectively, or by $.07 per share in each year.
Prior to January 1, 1992, the records needed to identify such costs were not
available. Thus, it was impossible to accurately calculate the effect on
retained earnings as of January 1, 1992. However, the Services Group believes
the effect on retained earnings as of January 1, 1992, was immaterial.
Because capitalized subscriber installation costs for prior periods were not
adjusted for the change in accounting principle, installation costs for
subscribers in those years will continue to be depreciated based on the lesser
amounts capitalized in prior periods. Consequently, depreciation of capitalized
subscriber installation costs in the current year and until such capitalized
costs prior to January 1, 1992, are fully depreciated will be less than if such
prior periods' capitalized costs had been adjusted for the change in accounting.
However, the Services Group believes the effect on net income in 1994, 1993 and
1992 was immaterial.
5. INTANGIBLES
Intangibles consist entirely of the excess of cost over fair value of net assets
of companies acquired and are net of accumulated amortization of $72,843 at
December 31, 1994, and $65,574 at December 31, 1993. The estimated useful life
of intangibles is generally forty years. Amortization of intangibles aggregated
$7,044 in 1994, $7,083 in 1993 and $7,141 in 1992.
6. FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Services Group to
concentrations of credit risk consist principally of cash and cash equivalents,
short-term cash investments and trade receivables. The Services Group's cash and
cash equivalents and short-term investments are placed with high credit
qualified financial institutions. Also, by policy, the amount of credit exposure
to any one financial institution is limited. Concentration of credit risk with
respect to trade receivables are limited due to the large number of customers
comprising the Services Group's customer base, and their dispersion across many
different industries and geographic areas.
The following details the fair values of financial instruments for which it is
practicable to estimate the value:
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The carrying amounts approximate fair value because of the short maturity of
these instruments.
DEBT
The aggregate fair value of the Services Group's long-term debt obligations,
which is based upon quoted market prices and rates currently available to the
Services Group for debt with similar terms and maturities, approximates the
carrying amount.
OFF-BALANCE SHEET INSTRUMENTS
The Services Group utilizes various off-balance sheet financial instruments, as
discussed below, to hedge its foreign currency and other market exposures. The
risk that counterparties to such instruments may be unable to perform is
minimized by limiting the counterparties to major financial institutions. The
Services Group does not expect any losses due to such counterparty default.
Foreign currency forward contracts -- The Company enters into foreign currency
forward contracts with a duration of 30 to 60 days as a hedge against
transactions denominated in various currencies. These contracts do not subject
the Company to risk due to exchange rate movements because gains and losses on
these contracts offset losses and gains on the payables being hedged. At
December 31, 1994, the total contract value of foreign currency forward
contracts outstanding was $7,390. As of such date, the fair value of the foreign
currency forward contracts was not significant.
Fuel contracts -- The Services Group has hedged a portion of its jet fuel
requirements through a swap contract. At December 31, 1994, the notional value
of the jet fuel swap, aggregating 12.5 million gallons, through March 31, 1995,
was $6,488. In addition, the Company has entered into several commodity option
transactions that are intended to protect against significant increases in jet
fuel prices. These transactions, aggregate 23.3 million gallons with a notional
value of $15,840 and are applicable throughout 1995 in amounts ranging from 3.5
million gallons per month in the first quarter of 1995 to 2.1 million gallons
per month in the fourth quarter of 1995. The Company has also entered into a
collar transaction applicable to 7.2 million gallons that provides a minimum and
maximum per gallon price. This transaction is settled monthly based upon the
average of the high and low prices during each period.
The fair value of these fuel hedge transactions may fluctuate over the course of
the contract period due to changes in the
---
82
<PAGE>
--------------------------------------------------------------------------------
supply and demand for oil and refined products. Thus, the economic gain or loss,
if any, upon settlement of the contracts may differ from the fair value of the
contracts at an interim date. At December 31, 1994, the fair value of these
contracts was not significant.
Interest rate contracts -- In connection with the aircraft leasing by Burlington
in 1993, the Company entered into interest rate cap agreements. These agreements
have a notional amount of $60,000 and cap the Company's interest rate on certain
aircraft leases at 8.5% through April 1, 1996. At December 31, 1994, the fair
value of these contracts was not significant.
7. INCOME TAXES
The provision (credit) for income taxes consists of the following:
<TABLE>
<CAPTION>
U.S.
Federal Foreign State Total
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994:
Current $34,162 5,906 5,686 45,754
Deferred (2,284) 1,688 (332) (928)
------------------------------------------------------------------------
Total $31,878 7,594 5,354 44,826
------------------------------------------------------------------------
1993:
Current $23,924 9,667 2,784 36,375
Deferred (361) (4,839) 865 (4,335)
------------------------------------------------------------------------
Total $23,563 4,828 3,649 32,040
------------------------------------------------------------------------
1992:
Current $18,103 2,625 2,995 23,723
Deferred (4,751) 583 (684) (4,852)
------------------------------------------------------------------------
Total $13,352 3,208 2,311 18,871
------------------------------------------------------------------------
</TABLE>
The significant components of the deferred tax benefit were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax benefit, exclusive
of the components listed below $(3,136) (7,666) (4,038)
Investment tax credit
carryforwards -- -- 2,979
Net operating loss
carryforwards 202 2,065 (1,430)
Alternative minimum
tax credits 2,168 1,295 (2,632)
Change in the valuation
allowance for deferred tax assets (162) (29) 269
-----------------------------------------------------------------
$ (928) (4,335) (4,852)
-----------------------------------------------------------------
</TABLE>
The tax benefit for compensation expense related to the exercise of certain
employee stock options for tax purposes in excess of compensation expense for
financial reporting purposes is recognized as an adjustment to shareholder's
equity.
The components of the net deferred tax liability as of December 31, 1994 and
December 31, 1993 were as follows:
<TABLE>
<CAPTION>
1994 1993
-----------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 4,678 4,819
Postretirement benefits other than pensions 2,726 2,581
Workers compensation and other claims 6,793 5,867
Other liabilities and reserves 22,549 18,277
Miscellaneous 1,339 1,579
Net operating loss carryforwards 6,415 6,617
Alternative minimum tax credits 7,482 8,695
Valuation allowance (78) (240)
-----------------------------------------------------------------
Total deferred tax asset 51,904 48,195
-----------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment 22,850 18,626
Pension assets 16,332 15,928
Other assets 3,227 4,955
Investments in foreign affiliates 11,965 13,044
Miscellaneous 4,972 5,701
-----------------------------------------------------------------
Total deferred tax liability 59,346 58,254
-----------------------------------------------------------------
Net deferred tax liability $ 7,442 10,059
-----------------------------------------------------------------
</TABLE>
The recording of deferred federal tax assets is based upon their expected
utilization in the Company's consolidated federal income tax return and the
benefit that would accrue to the Services Group under the Company's tax
allocation policy.
The valuation allowance relates to deferred tax assets in certain foreign
jurisdictions.
The following table accounts for the difference between the actual tax provision
and the amounts obtained by applying the statutory U.S. federal income tax rate
of 35% in 1994 and 1993 and 34% in 1992 to the income before income taxes.
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes:
United States $ 82,883 50,820 24,413
Foreign 41,788 28,346 21,735
------------------------------------------------------------------
$124,671 79,166 46,148
------------------------------------------------------------------
Tax provision computed
at statutory rate $ 43,635 27,708 15,690
Increases (reductions)
in taxes due to:
State income taxes (net of
federal tax benefit) 3,480 2,372 1,525
Goodwill amortization 1,973 2,154 2,093
Difference between total taxes
on foreign income and the
U.S. federal statutory rate (6,049) (526) (496)
Change in the valuation
allowance for deferred tax assets (162) (29) 269
Miscellaneous 1,949 361 (210)
------------------------------------------------------------------
Actual tax provision $ 44,826 32,040 18,871
------------------------------------------------------------------
</TABLE>
---
83
<PAGE>
--------------------------------------------------------------------------------
It is the policy of the Services Group to accrue deferred income taxes on
temporary differences related to the financial statement carrying amounts and
tax bases of investments in foreign subsidiaries and affiliates which are
expected to reverse in the foreseeable future. As of December 31, 1994 and
December 31, 1993, the unrecognized deferred tax liability for temporary
differences of approximately $56,697 and $43,640, respectively, related to
investments in foreign subsidiaries and affiliates that are essentially
permanent in nature and not expected to reverse in the foreseeable future was
approximately $19,844 and $15,274, respectively.
The Services Group is included in the Company's consolidated U.S. federal income
tax return. Such returns have been audited and settled with the Internal Revenue
Services through the year 1981.
As of December 31, 1994, the Services Group had $7,482 of alternative minimum
tax credits allocated to it under the Company's tax allocation policy. Such
credits are available to offset future U.S. federal income taxes and, under
current tax law, the carryforward period for such credits is unlimited.
The tax benefits of net operating loss carryforwards of the Services Group as at
December 31, 1994 were $6,415 and related to various state and foreign taxing
jurisdictions. The expiration periods primarily range from 5 to 15 years.
8. LONG-TERM DEBT
A portion of the outstanding debt under the Company's credit agreement and the
Company's subordinated obligations have been attributed to the Services Group.
Total long-term debt of the Services Group consists of the following:
<TABLE>
<CAPTION>
As of December 31
1994 1993
-----------------------------------------------------------------
<S> <C> <C>
Senior obligations:
U.S. dollar term loan due 1996
to 1997 (6.50% in 1994 and
3.81% in 1993) $ 3,451 5,321
Canadian dollar term loan due 1999
(6.19% in 1994) 2,852 --
Dutch guilder term loan due 1995
(6.69% in 1993) -- 1,250
U.S. dollar term loan due 1996
(4.06% in 1993) -- 1,714
All other 2,235 2,350
-----------------------------------------------------------------
8,538 10,635
Obligations under capital leases
(average rates 15.83% in 1994 and
9.62% in 1993) 3,276 2,915
-----------------------------------------------------------------
11,814 13,550
-----------------------------------------------------------------
Attributed portion of the Company's debt:
U.S. dollar term loan due 1999
(year end rate 6.48% in 1994) 23,434 --
Revolving credit note (year end
rate 3.53% in 1993) -- 2,100
4% subordinated debentures due 1997 14,648 14,648
9.20% convertible subordinated
debentures due 2004 -- 27,811
-----------------------------------------------------------------
38,082 44,559
-----------------------------------------------------------------
Total long-term debt,
less current maturities $49,896 58,109
-----------------------------------------------------------------
</TABLE>
For the four years through December 31, 1999, minimum repayments of long-term
debt outstanding are as follows:
<TABLE>
<S> <C>
1996 $ 4,189
1997 17,615
1998 896
1999 26,658
</TABLE>
The Dutch guilder loan bears interest based on a Euroguilder rate, or if
converted to a U.S. dollar loan based on prime, Eurodollar or money market
rates. In January 1992, a portion of the guilder loan was converted into a U.S.
dollar term loan. The U.S. dollar term loan due 1996 to 1997 bears interest
based on the Eurodollar rate. The Canadian dollar term loan to a wholly owned
indirect subsidiary of the Services Group, bears interest based on Canadian
prime or Bankers' Acceptance rates, or if converted to a U.S. dollar loan based
on Eurodollar or Federal Funds rates. The Canadian dollar term loan is
guaranteed by the Company.
---
84
<PAGE>
--------------------------------------------------------------------------------
Under the terms of the loans, Brink's and Burlington have agreed to various
restrictions relating to net worth, disposition of assets and incurrence of
additional debt.
In March 1994, the Company entered into a $350,000 credit agreement with a
syndicate of banks (the 'New Facility'), replacing the Company's previously
existing $250,000 of revolving credit agreements. The New Facility included a
$100,000 five-year term loan, which matures in March 1999. The Services Group
has been attributed $23,434 of the $100,000 term loan. The New Facility also
permits additional borrowings, repayments and reborrowings of up to an aggregate
of $250,000 until March 1999. Interest on borrowings under the New Facility is
payable at rates based on prime, certificate of deposit, Eurodollar or money
market rates.
The 4% subordinated debentures due July 1, 1997, are exchangeable for cash, at
the rate of $157.80 per $1,000 debenture. The debentures are redeemable at the
Company's option, in whole or in part, at any time prior to maturity, at
redemption prices equal to 100% of principal amount.
On April 15, 1994, the Company redeemed all of the 9.2% convertible subordinated
debentures due July 1, 2004, at a premium of $767. The premium has been included
in the Statement of Operations in 'Other income (expense), net'.
Various international operations maintain lines of credit and overdraft
facilities aggregating approximately $75,000 with a number of banks on either a
secured or unsecured basis.
Under the terms of some of its debt instruments, the Company has agreed to
various restrictions relating to the payment of dividends, the repurchase of
capital stock, the maintenance of consolidated net worth, and the amount of
additional funded debt which may be incurred. See the Company's consolidated
financial statements and related footnotes.
At December 31, 1994, the Company's portion of outstanding unsecured letters of
credit allocated to the Services Group was $36,214, primarily supporting the
Services Group's obligations under aircraft leases and its various
self-insurance programs.
9. STOCK OPTIONS
The Company grants options under its 1988 Stock Option Plan (the '1988 Plan') to
executives and key employees and under its Non-Employee Directors' Stock Option
Plan (the 'Non-Employee Plan') to outside directors to purchase common stock at
a price not less than 100% of quoted market value at date of grant. As part of
the Services Stock Proposal (Note 1), the 1988 and the Non-Employee Plans were
amended to permit option grants to be made to optionees with respect to either
Services Stock or Minerals Stock, or both.
The Company's 1979 Stock Option Plan (the '1979 Plan') and 1985 Stock Option
Plan (the '1985 Plan') terminated in 1985 and 1988, respectively, except as to
options still outstanding.
At the Effective Date of the Service Stock proposal a total of 2,228,225 shares
of common stock were subject to options outstanding under the 1988 Plan, the
Non-Employee Plan, the 1979 Plan and the 1985 Plan. Pursuant to antidilution
provisions in the option agreements covering such options, the Company converted
these options into options for shares of Services Stock or Minerals Stock, or
both, depending primarily on the employment status and responsibilities of the
particular optionee. In the case of optionees having Company-wide
responsibilities, each outstanding option was converted into an option for
Services Stock and an option for Minerals Stock, in the same ratio as the
distribution on the Effective Date of Minerals Stock to shareholders of the
Company, viz., one share to one-fifth of a share, with any resultant fractional
share of Minerals Stock rounded downward to the nearest whole number of shares.
In the case of other optionees, each outstanding option was converted into a new
option for only Services Stock or Minerals Stock, as the case may be, following
the Effective Date. As a result, 2,167,247 shares of Services Stock and 507,698
shares of Minerals Stock were subject to options outstanding as of the Effective
Date.
---
85
<PAGE>
--------------------------------------------------------------------------------
The table below summarizes the related plan activity.
<TABLE>
<CAPTION>
Aggregate
No. of Option
Shares Price
-----------------------------------------------------------------
<S> <C> <C>
THE PITTSTON COMPANY COMMON STOCK OPTIONS:
Granted:
1993 17,500 $ 294
1992 758,300 11,706
Became exercisable:
1993 468,250 7,749
1992 320,009 5,367
Exercised:
1993 377,191 5,379
1992 113,347 1,472
PITTSTON SERVICES GROUP COMMON STOCK OPTIONS:
Outstanding:
12/31/94 1,990,197 38,401
12/31/93 2,378,804 42,680
Granted:
1994 73,000 2,018
1993 829,000 22,080
Became exercisable:
1994 421,030 7,593
1993 21,008 273
Exercised:
1994 421,302 5,567
1993 594,129 7,638
</TABLE>
At December 31, 1994, a total of 1,121,047 shares of Services Stock shares were
exercisable. In addition, there were 3,634,470 shares of Services Stock reserved
for issuance under the plans, including 1,644,273 shares of Services Stock
reserved for future grant.
10. ACQUISITIONS
During 1994, the Services Group acquired several small businesses and made a
contingent payment related to an acquisition made in a prior year. Total
consideration paid was $5,938.
During 1993, the Services Group acquired one small business and made a
contingency payment related to an acquisition consummated in a prior year. The
total consideration paid was $736.
During 1992, the Services Group acquired a business for an aggregate purchase
price of $2,658, including debt of $1,144. The fair value of assets acquired was
$2,690 and liabilities assumed was $32. In addition, cash payments of $226 were
made for contingency payments for acquisitions made in prior years.
All acquisitions in 1993 and 1992 have been accounted for as purchases and the
purchase price for each acquisition was essentially equal to the fair value of
assets acquired. The results of operations of the acquired companies have been
included in the Services Group's results of operations from their date of
acquisition.
11. LEASES
The Services Group's businesses lease aircraft, facilities, vehicles, computers
and other equipment under long-term operating leases with varying terms, and
most of the leases contain renewal and/or purchase options. As of December 31,
1994, aggregate future minimum lease payments under noncancellable operating
leases were as follows:
<TABLE>
<CAPTION>
Equipment
Aircraft Facilities & Other Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 $30,237 30,965 6,815 68,017
1996 22,641 24,550 4,552 51,743
1997 20,983 20,942 2,682 44,607
1998 4,815 17,836 1,880 24,531
1999 -- 14,115 1,221 15,336
2000 -- 12,286 941 13,227
2001 -- 9,851 619 10,470
2002 -- 8,515 419 8,934
2003 -- 7,767 418 8,185
2004 -- 7,354 417 7,771
Later Years -- 58,217 3,716 61,933
-------------------------------------------------------------------
$78,676 212,398 23,680 314,754
-------------------------------------------------------------------
</TABLE>
These amounts are net of aggregate future minimum noncancellable sublease
rentals of $6,143.
Rent expense amounted to $74,831 in 1994, $66,585 in 1993 and $58,795 in 1992
and is net of sublease rentals of $731, $793 and $1,419, respectively.
Burlington entered into two transactions covering various leases which provided
for the replacement of eight B707 aircraft with seven DC8-71 aircraft and
completed an evaluation of other fleet related costs. One transaction,
representing four aircraft, was reflected in the 1993 financial statements,
while the other transactions, covering three aircraft, was reflected in the 1992
financial statements. The net effect of these transactions did not have a
material impact on operating profit for either year.
---
86
<PAGE>
--------------------------------------------------------------------------------
The Services Group incurred capital lease obligations of $2,406 in 1994, $1,601
in 1993 and $2,316 in 1992. As of December 31, 1994, the Services Group's
obligations under capital leases were not significant.
12. EMPLOYEE BENEFIT PLANS
The Services Group's businesses participate in the Company's noncontributory
defined benefit pension plan covering substantially all nonunion employees who
meet certain minimum requirements in addition to sponsoring certain other
defined benefit plans. Benefits of most of the plans are based on salary and
years of service. The Services Group's pension cost relating to its
participation in the Company's defined benefit pension plan is actuarially
determined based on its respective employees and an allocable share of the
pension plan assets. The Company's policy is to fund the actuarially determined
amounts necessary to provide assets sufficient to meet the benefits to be paid
to plan participants in accordance with applicable regulations. The net pension
expense (credit) for 1994, 1993 and 1992 for all plans is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits
earned during year $ 8,560 6,908 6,657
Interest cost on projected
benefit obligation 10,757 10,225 9,345
Return on assets -- actual (1,088) (25,742) (16,039)
(Loss) return on assets -- deferred (16,623) 9,926 102
Other amortization, net (829) (529) (4,586)
--------------------------------------------------------------------
Net pension expense (credit) $ 777 788 (4,521)
--------------------------------------------------------------------
</TABLE>
The assumptions used in determining the net pension expense (credit) for the
Company's major pension plan were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C>
Interest cost on projected benefit
obligation 7.5% 9.0% 9.0%
Expected long-term rate of return on
assets 10.0% 10.0% 10.0%
Rate of increase in compensation levels 4.0% 5.0% 5.0%
</TABLE>
The funded status and prepaid pension expense at December 31, 1994 and 1993 are
as follows:
<TABLE>
<CAPTION>
1994 1993
-----------------------------------------------------------------
<S> <C> <C>
Actuarial present value of
accumulated benefit obligation:
Vested $104,273 112,242
Nonvested 8,640 7,603
-----------------------------------------------------------------
112,913 119,845
Benefits attributable to projected
salaries 22,278 29,607
-----------------------------------------------------------------
Projected benefit obligation 135,191 149,452
Plan assets at fair value 182,126 185,172
-----------------------------------------------------------------
Excess of plan assets over projected
benefit obligation 46,935 35,720
Unamortized initial net asset (4,500) (5,507)
Unrecognized experience loss (gain) (2,269) 9,254
Unrecognized prior service cost 1,692 1,895
-----------------------------------------------------------------
Net pension assets 41,858 41,362
Current pension liability 1,292 1,063
-----------------------------------------------------------------
Deferred pension asset per balance sheet $ 43,150 42,425
-----------------------------------------------------------------
</TABLE>
For the valuation of pension obligations and the calculation of the funded
status, the discount rate was 8.75% in 1994 and 7.5% in 1993. The expected
long-term rate of return on assets was 10% in both years. The rate of increase
in compensation levels used was 4% in 1994 and 1993.
The unrecognized initial net asset at January 1, 1986 (January 1, 1989, for
certain foreign pension plans), the date of adoption of SFAS 87, has been
amortized over the estimated remaining average service life of the employees. As
of December 31, 1994, approximately 68% of plan assets were invested in equity
securities and 32% in fixed income securities.
The Services Group also provides certain postretirement health care and life
insurance benefits for eligible active and retired employees in the United
States and Canada.
For the years 1994, 1993 and 1992, the components of periodic expense for these
postretirement benefits were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits earned
during year $305 182 163
Interest cost on accumulated
postretirement benefit obligation 479 416 417
-----------------------------------------------------------------
Total expense $784 598 580
-----------------------------------------------------------------
</TABLE>
---
87
<PAGE>
--------------------------------------------------------------------------------
Interest costs on the accumulated postretirement benefit obligation were based
upon rates of 7.5% in 1994 and 9% in 1993 and 1992.
At December 31, 1994 and 1993, the actuarial and recorded liabilities for these
postretirement benefits, none of which have been funded, were as follows:
<TABLE>
<CAPTION>
1994 1993
-----------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $2,264 2,093
Fully eligible active plan participants 1,033 1,139
Other active plan participants 2,115 2,415
-----------------------------------------------------------------
5,412 5,647
Unrecognized experience gain (loss) 691 (18)
-----------------------------------------------------------------
Liability included on the balance sheet 6,103 5,629
Less current portion 342 827
-----------------------------------------------------------------
Noncurrent liability for postretirement
health care and life insurance benefits $5,761 4,802
-----------------------------------------------------------------
</TABLE>
The accumulated postretirement benefit obligation was determined using the unit
credit method and an assumed discount rate of 8.75% in 1994 and 7.5% in 1993.
The postretirement benefit obligation for U.S. salaried employees does not
provide for changes in health care costs since the employer's contribution to
the plan is a fixed amount. The assumed health care cost trend rate used in 1994
for employees under a foreign plan was 10% grading down to 5% in the year 2001.
A percentage point increase each year in the health care cost trend rate used
would have resulted in a $10 increase in the aggregate service and interest
components of expense for the year 1994, and a $66 increase in the accumulated
post-retirement benefit obligation at December 31, 1994.
The Services Group also participates in the Company's Savings-Investment Plan to
assist eligible employees in providing for retirement or other future financial
needs. Employee contributions are matched at rates of 50% to 125% up to 5% of
compensation (subject to certain limitations imposed by the Internal Revenue
Code of 1986, as amended). Contribution expense under the plan aggregated $4,362
in 1994, $3,360 in 1993 and $3,332 in 1992.
In May 1994, the Company's shareholders approved the Employee Stock Purchase
Plan effective July 1, 1994. Eligible employees may elect to purchase shares of
Services Stock and Minerals Stock at the lower of 85% of the fair market value
as of specified dates. Under this plan employees of the Company purchased 26,444
shares of Services Stock for $590.
The Services Group sponsors several other defined contribution benefit plans
based on hours worked or other measurable factors. Contributions under all of
these plans aggregated $556 in 1994, $443 in 1993 and $498 in 1992.
13. OTHER OPERATING INCOME
Other operating income includes the Services Group's share of net income in
unconsolidated affiliated companies which are carried on the equity method.
Amounts presented include the accounts of the following equity affiliates:
<TABLE>
<CAPTION>
Ownership
At December 31, 1994
-----------------------------------------------------------------
<S> <C>
Servicio Pan Americano De Protecion, S.A. (Mexico) 20.0%
Brink's Panama, S.A. 49.0%
Brink's De Colombia S.A. 46.5%
Brink's S.A. (France) 38.0%
Brink's Schenker, GmbH (Germany) 50.0%
Brink's Securmark S.p.A. (Italy) 24.5%
Security Services (Brink's Jordan), W.L.L. 45.0%
Brink's-Allied Limited (Ireland) 50.0%
Brink's Ayra India Private Limited 40.0%
Brink's Pakistan (Pvt.) Limited 49.0%
Brink's Taiwan Limited 50.0%
Brink's (Thailand) Ltd. 40.0%
Burlington International Forwarding Ltd. (Taiwan) 33.3%
</TABLE>
The following table presents summarized financial information of these
companies.
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
Revenues $817,212 713,960 696,840
Gross profit 150,909 143,608 127,987
Net income 23,015 25,086 32,119
The Company's share
of net income $ 6,166 7,010 8,243
-----------------------------------------------------------------
Current assets $156,495 176,241
Noncurrent assets 291,420 225,523
Current liabilities 142,017 153,433
Noncurrent liabilities 156,409 105,474
Net equity $149,489 142,857
</TABLE>
Undistributed earnings of such companies approximated $40,189 at December 31,
1994.
---
88
<PAGE>
--------------------------------------------------------------------------------
14. SEGMENT INFORMATION
Operating revenues by geographic area are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
---------------------------------------------------------------------
<S> <C> <C> <C>
United States:
Domestic customers $ 995,582 837,881 744,585
Export customers in
Europe 131,419 113,752 113,142
Other export customers 173,783 145,692 128,437
---------------------------------------------------------------------
1,300,784 1,097,325 986,164
Europe 248,268 209,257 216,674
Other foreign 374,218 307,047 255,781
Eliminations (50,993) (44,597) (43,449)
---------------------------------------------------------------------
$1,872,277 1,569,032 1,415,170
---------------------------------------------------------------------
</TABLE>
The following is derived from the business segment information in the Company's
consolidated financial statements as it relates to the Services Group. See Note
2, Related Party Transactions, for a description of the Company's policy for
corporate allocations.
The Services Group's portion of the Company's operating profit is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
---------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 106,811 60,758 32,287
Europe 14,200 16,096 16,180
Other foreign 20,355 22,525 13,456
---------------------------------------------------------------------
Services Group's portion of
the Company's segment
operating profit 141,366 99,379 61,923
Corporate expenses
allocated to the Services
Group (9,331) (9,514) (8,556)
Pension credit -- -- 4,047
---------------------------------------------------------------------
Operating profit $ 132,035 89,865 57,414
---------------------------------------------------------------------
</TABLE>
The Services Group's portion of the Company's assets at year end is as follows:
<TABLE>
<CAPTION>
As of December 31
1994 1993 1992
---------------------------------------------------------------------
<S> <C> <C> <C>
United States $ 500,738 456,753 418,202
Europe 174,817 140,375 147,652
Other foreign 195,153 176,037 165,212
---------------------------------------------------------------------
Services Group's portion of
the Company's assets 870,708 773,165 731,066
Services Group's portion of
corporate assets 69,968 33,776 35,954
---------------------------------------------------------------------
Total assets $ 940,676 806,941 767,020
---------------------------------------------------------------------
</TABLE>
Industry segment information is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
---------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Burlington $1,215,284 998,079 900,347
Brink's 547,046 481,904 444,018
BHS 109,947 89,049 70,805
---------------------------------------------------------------------
Total revenues $1,872,277 1,569,032 1,415,170
---------------------------------------------------------------------
OPERATING PROFIT:
Burlington $ 69,224 37,971 15,118
Brink's (a) 39,710 35,008 30,354
BHS (b) 32,432 26,400 16,451
---------------------------------------------------------------------
Segment operating
profit 141,366 99,379 61,923
Allocated general
corporate expense (9,331) (9,514) (8,556)
Pension credit -- -- 4,047
---------------------------------------------------------------------
Total operating profit $ 132,035 89,865 57,414
---------------------------------------------------------------------
</TABLE>
(a) Includes equity in net income of unconsolidated foreign affiliates of
$6,048 in 1994, $6,895 in 1993 and $8,133 in 1992.
(b) As of January 1, 1992, BHS elected to capitalize categories of costs
not previously capitalized for home security installations to more
accurately reflect subscriber installation costs. The effect of this change
in accounting principle was to increase operating profit by $4,137 in 1994, by
$4,051 in 1993 and by $4,321 in 1992 (Note 4).
<TABLE>
<S> <C> <C> <C>
CAPITAL EXPENDITURES:
Burlington $ 24,701 21,544 14,412
Brink's 23,963 22,209 22,461
BHS 34,071 26,409 22,855
Allocated general corporate 119 63 136
---------------------------------------------------------------------
Total capital expenditures $ 82,854 70,225 59,864
---------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION:
Burlington $ 17,209 15,250 14,379
Brink's 20,553 20,150 20,531
BHS 17,817 14,357 12,215
Allocated general corporate 203 217 204
---------------------------------------------------------------------
Total depreciation and
amortization $ 55,782 49,974 47,329
---------------------------------------------------------------------
ASSETS AT DECEMBER 31:
Burlington $468,324 418,450 407,335
Brink's 301,091 271,462 251,941
BHS 101,293 83,253 71,790
---------------------------------------------------------------------
Identifiable assets 870,708 773,165 731,066
Allocated portion of the
Company's corporate assets 69,968 33,776 35,954
---------------------------------------------------------------------
Total assets $940,676 806,941 767,020
---------------------------------------------------------------------
</TABLE>
---
89
<PAGE>
--------------------------------------------------------------------------------
15. CONTINGENT LIABILITIES
Under the Coal Industry Retiree Health Benefit Act of 1992 (the 'Act'), the
Company and its majority-owned subsidiaries at July 20, 1992, including the
Services Group included in these financial statements, are jointly and severally
liable with the Minerals Group for the costs of health care coverage provided
for by that Act. For a description of the Act and an estimate of certain of such
costs, see Note 13 to the Company's consolidated financial statements. At this
time, the Company expects the Minerals Group to generate sufficient cash flow to
discharge its obligations under the Act.
In April 1990, the Company entered into a settlement agreement to resolve
certain environmental claims against the Company arising from hydrocarbon
contamination at a petroleum terminal facility ('Tankport') in Jersey City, New
Jersey, which operations were sold in 1983. Under the settlement agreement, the
Company is obligated to pay 80% of the remediation costs. Based on data
available to the Company and its environmental consultants, the Company
estimates its portion of the cleanup costs on an undiscounted basis using
existing technologies to be between $6,700 and $14,100 over a period of up to
five years. Management is unable to determine that any amount within that range
is a better estimate due to a variety of uncertainties, which include the extent
of the contamination at the site, the permitted technologies for remediation and
the regulatory standards by which the clean-up will be conducted. The clean-up
estimates have been modified in light of certain regulatory changes promulgated
in December 1994.
The Company commenced insurance coverage litigation in 1990, in the United
States District Court for the District of New Jersey, seeking a declaratory
judgment that all amounts payable by the Company pursuant to the Tankport
obligation were reimbursable under comprehensive general liability and pollution
liability policies maintained by the Company. Although the underwriters have
disputed this claim, management and its legal counsel believe that recovery is
probable of realization in the full amount of the claim. This conclusion is
based upon, among other things, the nature of the pollution policies which were
broadly designed to cover such contingent liabilities, the favorable state of
the law in the State of New Jersey (whose laws have been found to control the
interpretation of the policies), and numerous other factual considerations which
support the Company's analysis of the insurance contracts and rebut the
underwriters' defenses. Accordingly, there is no net liability in regard to the
Tankport obligation.
16. SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1994, 1993 and 1992, cash payments for income
taxes, net of refunds received, were $36,257, $27,776 and $13,091, respectively.
For the years ended December 31, 1994, 1993 and 1992, cash payments for interest
were $7,428, $8,081 and $8,916, respectively.
17. SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
Tabulated below are certain data for each quarter of 1994 and 1993.
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 QUARTERS:
Operating revenues $411,053 457,351 483,712 520,161
Gross profit 64,809 87,416 88,053 89,919
Net income $ 10,511 21,288 25,014 23,032
Per Pittston Services
Group Common Share:
Net income $ .28 .56 .66 .61
1993 QUARTERS:
Operating revenues $363,757 380,202 400,398 424,675
Gross profit 54,320 64,743 72,860 77,568
Net income $ 5,414 10,970 15,313 15,429
Per Pittston Services
Group Common Share:
Net income $ .15 .30 .41 .41
</TABLE>
---
90
<PAGE>
Pittston Minerals Group
-----------------------------------------------------------------
STATEMENT OF MANAGEMENT RESPONSIBILITY
The management of The Pittston Company (the 'Company') is responsible for
preparing the accompanying financial statements and for their integrity and
objectivity. The statements were prepared in accordance with generally accepted
accounting principles. Management has also prepared the other information in the
annual report and is responsible for its accuracy.
In meeting our responsibility for the integrity of the financial statements, we
maintain a system of internal controls designed to provide reasonable assurance
that assets are safeguarded, that transactions are executed in accordance with
management's authorization and that the accounting records provide a reliable
basis for the preparation of the financial statements. Qualified personnel
throughout the organization maintain and monitor these internal controls on an
ongoing basis. In addition, the Company maintains an internal audit department
that systematically reviews and reports on the adequacy and effectiveness of the
controls, with management follow-up as appropriate.
Management has also established a formal Business Code of Ethics which is
distributed throughout the Company. We acknowledge our responsibility to
establish and preserve an environment in which all employees properly understand
the fundamental importance of high ethical standards in the conduct of our
business.
The accompanying financial statements have been audited by KPMG Peat Marwick
LLP, independent auditors. During the audit they review and make appropriate
tests of accounting records and internal controls to the extent they consider
necessary to express an opinion on the Minerals Group's financial statements.
The Company's Board of Directors pursues its oversight role with respect to the
Minerals Group's financial statements through the Audit and Ethics Committee,
which is composed solely of outside directors. The Committee meets periodically
with the independent auditors, internal auditors and management to review the
Company's control system and to ensure compliance with applicable laws and the
Company's Business Code of Ethics.
We believe that the policies and procedures described above are appropriate and
effective and do enable us to meet our responsibility for the integrity of the
Minerals Group's financial statements.
-----------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
The Pittston Company
We have audited the accompanying balance sheets of Pittston Minerals Group (as
described in Note 1) as of December 31, 1994 and 1993, and the related
statements of operations and cash flows for each of the years in the three-year
period ended December 31, 1994. These financial statements are the
responsibility of The Pittston Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements of Pittston Minerals Group present
fairly, in all material respects, the financial position of Pittston Minerals
Group as of December 31, 1994 and 1993, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1994, in conformity with generally accepted accounting principles.
As more fully discussed in Note 1, the financial statements of Pittston Minerals
Group should be read in connection with the audited consolidated financial
statements of The Pittston Company and subsidiaries.
KPMG Peat Marwick LLP
Stamford, Connecticut
January 25, 1995
---
91
<PAGE>
Pittston Minerals Group
--------------------------------------------------------------------------------
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31
(In thousands) 1994 1993
----------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,708 2,141
Short-term investments 23,121 21,065
Accounts receivable:
Trade (Note 5) 92,990 68,849
Other 17,813 18,424
----------------------------------------------------------------------------
110,803 87,273
Less estimated amount uncollectible 1,880 2,295
----------------------------------------------------------------------------
108,923 84,978
Receivable -- Pittston Services Group (Note 2) -- 19,098
Coal inventory 25,518 18,649
Other inventory 4,629 2,271
----------------------------------------------------------------------------
30,147 20,920
Prepaid expenses 11,389 8,235
Deferred income taxes (Note 8) 30,525 30,723
----------------------------------------------------------------------------
Total current assets 207,813 187,160
Property, plant and equipment, at cost (Note 4) 380,400 387,192
Less accumulated depreciation, depletion and
amortization 159,938 205,447
----------------------------------------------------------------------------
220,462 181,745
Deferred pension assets (Note 14) 75,803 74,641
Deferred income taxes (Note 8) 97,945 76,887
Intangibles, net of amortization (Notes 6 and 11) 120,649 1,408
Coal supply contracts (Note 11) 82,240 35,462
Receivable -- Pittston Services Group (Note 2) 23,186 14,709
Other assets 39,414 34,235
----------------------------------------------------------------------------
Total assets $867,512 606,247
----------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt (Note 9) $ 7,554 30
Accounts payable 76,771 50,383
Payable -- Pittston Services Group (Note 2) 32,170 --
Accrued liabilities:
Taxes 21,259 17,434
Workers' compensation and other claims 22,647 24,205
Postretirement benefits other than pensions
(Note 14) 16,951 14,803
Reclamation 19,323 5,629
Miscellaneous (Note 14) 77,049 62,350
----------------------------------------------------------------------------
157,229 124,421
----------------------------------------------------------------------------
Total current liabilities 273,724 174,834
Long-term debt, less current maturities (Note 9) 88,175 279
Postretirement benefits other than pensions (Note
14) 212,977 207,416
Workers' compensation and other claims 128,864 118,502
Reclamation 49,198 26,317
Other liabilities 123,170 103,756
Commitments and contingent liabilities (Notes 9,
12, 13, 14, 18 and 19)
Shareholder's equity (Note 3) (8,596) (24,857)
-----------------------------------------------------------------------------
Total liabilities and shareholder's equity $867,512 606,247
-----------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
---
92
<PAGE>
Pittston Minerals Group
--------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands, except per share amounts) 1994 1993 1992
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 794,998 687,089 657,871
-----------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 771,586 645,679 604,319
Selling, general and administrative expenses 37,049 36,789 37,319
Restructuring and other charges, including
litigation accrual (Note 15) 90,806 78,633 --
Pension credit (Note 14) -- -- (7,083)
-----------------------------------------------------------------------------------------
Total costs and expenses 899,441 761,101 634,555
-----------------------------------------------------------------------------------------
Other operating income (Note 16) 15,281 10,246 8,762
-----------------------------------------------------------------------------------------
Operating profit (loss) (89,162) (63,766) 32,078
Interest income 192 634 957
Interest expense (Note 2) (6,501) (1,336) (3,499)
Other income (expense), net (Note 16) (875) (544) 1,922
-----------------------------------------------------------------------------------------
Income (loss) before income taxes (96,346) (65,012) 31,458
Provision (credit) for income taxes (Note 8) (43,398) (32,032) 9,648
-----------------------------------------------------------------------------------------
Net income (loss) (52,948) (32,980) 21,810
Preferred stock dividends (3,998) -- --
-----------------------------------------------------------------------------------------
Net income (loss) attributed to common shares $ (56,946) (32,980) 21,810
-----------------------------------------------------------------------------------------
Net income (loss) per common share (Note 1) $ (7.50) (4.47) 2.94
-----------------------------------------------------------------------------------------
Average common shares outstanding (Note 1) 7,594 7,381 7,416
</TABLE>
See accompanying notes to financial statements.
---
93
<PAGE>
Pittston Minerals Group
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
Year Ended December 31
(In thousands) 1994 1993 1992
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (52,948) (32,980) 21,810
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating activities:
Noncash charges and other write-offs 46,487 10,846 1,871
Depreciation, depletion and amortization 46,074 27,591 23,095
Provision (credit) for deferred income taxes (16,849) (25,100) 13,915
Credit for pensions, noncurrent (1,162) (2,646) (9,579)
Provision for uncollectible accounts receivable 132 528 161
Gain on sale of leveraged leases -- -- (2,341)
Gain on sale of property, plant and equipment (3,422) (5,064) (846)
Other operating, net 407 193 65
Change in operating assets and liabilities,
net of effects of acquisitions and dispositions:
Decrease (increase) in accounts receivable (25,030) (2,454) 2,891
Decrease (increase) in inventories (3,413) 7,058 2,945
Decrease (increase) in prepaid expenses (3,749) 608 295
Increase (decrease) in accounts payable and
accrued liabilities (11,227) 396 12,639
Decrease (increase) in other assets 1,701 (104) (270)
Increase (decrease) in workers' compensation
and other claims, noncurrent 5,719 (17,957) (16,644)
Increase (decrease) in other liabilities (15,711) 67,906 (5,445)
Other, net (218) (450) 832
-------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (33,209) 28,371 45,394
-------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (25,864) (21,749) (50,278)
Proceeds from disposal of property, plant and
equipment 5,640 2,669 2,217
Acquisitions, net of cash acquired, and related
contingency payments (157,324) (699) (50,820)
Proceeds from leveraged leases -- -- 13,707
Other, net 6,540 10,046 (304)
--------------------------------------------------------------------------------------------
Net cash used by investing activities (171,008) (9,733) (85,478)
--------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 86,045 -- --
Reductions of debt (8,149) -- --
Payments from (to) -- Services Group 61,436 (13,266) --
Repurchase of stock (3,767) (591) (2,177)
Proceeds from exercise of stock options 1,765 2,633 246
Proceeds from sale of stock to SIP -- 44 --
Proceeds from sale of stock to Services Group 253 48 --
Dividends paid (9,156) (4,583) (3,648)
Cost of Services Stock Proposal (2) (1,599) --
Preferred stock issuance, net of cash expenses 77,359 (277) --
Net cash (to) from the Company -- (896) 39,369
-------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 205,784 (18,487) 33,790
-------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 1,567 151 (6,294)
Cash and cash equivalents at beginning of year 2,141 1,990 8,284
-------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,708 2,141 1,990
-------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
---
94
<PAGE>
Pittston Minerals Group
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION:
The approval on July 26, 1993 (the 'Effective Date'), by the shareholders of The
Pittston Company (the 'Company') of the Services Stock Proposal, as described in
the Company's proxy statement dated June 24, 1993, resulted in the
reclassification of the Company's common stock. The outstanding shares of
Company common stock were redesignated as Pittston Services Group Common Stock
('Services Stock') on a share-for-share basis and a second class of common
stock, designated as Pittston Minerals Group Common Stock ('Minerals Stock'),
was distributed on the basis of one-fifth of one share of Minerals Stock for
each share of the Company's previous common stock held by shareholders of record
on July 26, 1993. Minerals Stock and Services Stock provide shareholders with
separate securities reflecting the performance of the Pittston Minerals Group
(the 'Minerals Group') and the Pittston Services Group (the 'Services Group')
respectively, without diminishing the benefits of remaining a single corporation
or precluding future transactions affecting either group. Accordingly, all stock
and per share data prior to the reclassification have been restated to reflect
the reclassification. The primary impacts of this restatement are as follows:
* Net income per common share has been included in the Statements of Operations.
For the purpose of computing net income per common share of Minerals Stock,
the number of shares of Minerals Stock are assumed to be one-fifth of the
total number of shares of the Company's common stock.
* All financial impacts of purchases and issuances of the Company's common stock
prior to the Effective Date have been attributed to each Group in relation of
their respective common equity to the Company's common stock. Dividends paid
by the Company were attributed to the Services and Minerals Groups in relation
to the initial dividends paid on the Services Stock and the Minerals Stock.
The Company, at any time, has the right to exchange each outstanding share of
Minerals Stock for shares of Services Stock having a fair market value equal to
115% of the fair market value of one share of Minerals Stock. In addition, upon
the sale, transfer, assignment or other disposition, whether by merger,
consolidation, sale or contribution of assets or stock or otherwise, of all or
substantially all of the properties and assets of the Minerals Group to any
person, entity or group (with certain exceptions), the Company is required to
exchange each outstanding share of Minerals Stock for shares of Services Stock
having a fair market value equal to 115% of the fair market value of one share
of Minerals Stock. Shares of Services Stock are not subject to either optional
or mandatory exchange.
Holders of Services Stock have one vote per share. Holders of Minerals Stock
have one vote per share subject to adjustment on January 1, 1996, and on each
January 1 every two years thereafter based upon the relative fair market values
of one share of Minerals Stock and one share of Services Stock on each such
date. Accordingly, beginning on January 1, 1996, each share of Minerals Stock
may have more than, less than or continue to have exactly one vote. Holders of
Services Stock and Minerals Stock vote together as a single voting group on all
matters as to which all common shareholders are entitled to vote. In addition,
as prescribed by Virginia law, certain amendments to the Company's Restated
Articles of Incorporation affecting, among other things, the designation,
rights, preferences or limitations of one class of common stock, or any merger
or statutory share exchange, must be approved by the holders of such class of
common stock, voting as a separate voting group, and, in certain circumstances,
may also have to be approved by the holders of the other class of common stock,
voting as a separate voting group.
In the event of a dissolution, liquidation or winding up of the Company, the
holders of Services Stock and Minerals Stock will receive the funds remaining
for distribution, if any, to the common shareholders on a per share basis in
proportion to the total number of shares of Services Stock and Minerals Stock,
respectively, then outstanding to the total number of shares of both classes of
common stock then outstanding.
The Company's Articles of Incorporation limits dividends on Minerals Stock to
the lesser of (i) all funds of the Company legally available therefore (as
prescribed by Virginia law) and (ii) the Available Minerals Dividend Amount (as
defined in the
---
95
<PAGE>
--------------------------------------------------------------------------------
Articles of Incorporation). At December 31, 1994, the Available Minerals
Dividend Amount was at least $24,788. Dividends on Minerals Stock are also
restricted by covenants in the Company's public indentures and bank credit
agreements.
In conjunction with the Services Stock Proposal, a new share repurchase program
was approved whereby the Company could acquire up to 1,250,000 shares of
Services Stock and 250,000 shares of Minerals Stock from time to time in the
open market or in private transactions, as conditions warrant, not to exceed an
aggregate purchase price of $43,000. Through December 31, 1994, a total of
38,500 shares of Minerals Stock were repurchased at a total cost of $808 of
which 19,700 shares were acquired in 1994 at a total cost of $401. The program
to acquire shares remains in effect in 1995.
In January 1994, the Company issued 161,000 shares of its $31.25 Series C
Cumulative Convertible Preferred Stock (the 'Convertible Preferred Stock'). The
proceeds of the Convertible Preferred Stock offering have been attributed to the
Minerals Group. 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 therefore, when as and if declared by the
Board of Directors of the Company, and bears a liquidation preference of $500
per share, plus an amount equal to accrued and unpaid dividends thereon. Each
share of the Convertible Preferred Stock is convertible at the option of the
holder unless previously redeemed or, under certain circumstances, called for
redemption, into shares of Minerals Stock at a conversion price of $32.175 per
share of Minerals Stock, subject to adjustment in certain circumstances. Except
under certain circumstances, the Convertible Preferred Stock is not redeemable
prior to February 1, 1997. On and after such date, the Company may, at its
option, redeem the Convertible Preferred Stock, in whole or in part, for cash
initially at a price of $521.875 per share, and thereafter at prices declining
ratable annually on each February 1 to an amount equal to $500 per share on and
after February 1, 2004, plus in each case an amount equal to accrued and unpaid
dividends on the date of redemption. Except under certain circumstances or as
prescribed by Virginia law, shares of the Convertible Preferred Stock are
nonvoting. In July 1994, the Company repurchased 8,350 shares of Convertible
Preferred Stock at a total cost of $3,366 under a repurchase program that
authorizes repurchases of up to $15,000. See Note 9 to the Company's
consolidated financial statements.
In December 1992, the Company formed The Pittston Company Employee Benefits
Trust (the 'Trust') to hold shares of its common stock to fund obligations under
certain employee benefits programs. Upon formation of the Trust, the Company
sold for a promissory note of the Trust, 4,000,000 new shares of its common
stock to the Trust at a price equal to the fair value of the stock on the date
of sale. Upon approval of the Services Stock Proposal, 3,871,826 shares in the
Trust were redesigned as Services Stock and 774,365 shares of Minerals Stock
were distributed to the Trust. At December 31, 1994, 723,218 shares of Minerals
Stock (770,301 in 1993) remained in the Trust, valued at market. The value of
these shares has no impact on shareholder's equity.
The financial statements of the Minerals Group include the balance sheets,
results of operations and cash flows of the Coal and Mineral Ventures operations
of the Company, and a portion of the Company's corporate assets and liabilities
and related transactions which are not separately identified with operations of
a specific segment (Note 2). 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 Minerals Stock separate financial statements,
financial reviews, descriptions of business and other relevant information for
the Minerals Group in addition to consolidated financial information of the
Company. Notwithstanding the attribution of assets and liabilities (including
contingent liabilities) between the Minerals Group and the Services Group for
the purpose of preparing their financial statements, this attribution and the
change in the capital structure of the Company as a result of the approval of
the Services Stock Proposal did not result in any transfer of assets and
liabilities of the Company or any of its subsidiaries. Holders of Minerals Stock
are shareholders of the Company, which continues to be responsible for all its
liabilities. Therefore, financial developments affecting the Minerals Group or
the Services Group that affect the Company's financial condition could affect
the results of operations and financial condition of both Groups. Accordingly,
the Company's consolidated financial statements must be read in connection with
the Minerals Group's financial statements.
---
96
<PAGE>
--------------------------------------------------------------------------------
PRINCIPLES OF COMBINATION:
The accompanying financial statements reflect the accounts of the businesses
comprising the Minerals Group. All material intercompany items and transactions
have been eliminated in combination. Certain prior year amounts have been
reclassified to conform to the current year's financial statement presentation.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include cash on hand, demand deposits and investments
with original maturities of three months or less.
SHORT-TERM INVESTMENTS:
Short-term investments primarily include funds set aside by management for
certain obligations and are carried at cost which approximates market.
INVENTORIES:
Inventories are stated at cost (determined under the average cost method) or
market, whichever is lower.
PROPERTY, PLANT AND EQUIPMENT:
Expenditures for maintenance and repairs are charged to expense, and the costs
of renewals and betterments are capitalized. Depreciation is provided
principally on the straight-line method at varying rates depending upon
estimated useful lives. Depletion of bituminous coal lands is provided on the
basis of tonnage mined in relation to the estimated total of recoverable tonnage
in the ground.
Mine development costs, primarily included in bituminous coal lands, are
capitalized and amortized over the estimated useful life of the mine. These
costs include expenses incurred for site preparation and development as well as
operating deficits incurred at the mines during the development stage. A mine is
considered under development until all planned production units have been placed
in operation.
INTANGIBLES:
The excess of cost over fair value of net assets of companies acquired is
amortized on a straight-line basis over the estimated periods benefited.
The Minerals Group evaluates the carrying value of intangibles and the periods
of amortization to determine whether events and circumstances warrant revised
estimates of assets value or useful lives. The Minerals Group annually assesses
the recoverability of the excess of cost over net assets acquired by
determining whether the amortization of the assets balance over its remaining
life can be recovered through projected undiscounted future operating cash
flows. Evaluation of asset value as well as periods of amortization are
performed on a disaggregated basis.
COAL SUPPLY CONTRACTS:
Coal supply contracts consist of contracts to supply coal to customers at
certain negotiated prices over a period of time, which have been acquired from
other coal companies, and are stated at cost at the time of acquisition, which
approximates fair market value. The capitalized cost of such contracts is
amortized over the term of the contract on the basis of tons of coal sold under
the contract.
INCOME TAXES:
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, 'Accounting for Income Taxes', which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse.
See Note 2 for allocation of the Company's U.S. federal income taxes to the
Minerals Group.
PNEUMOCONIOSIS (BLACK LUNG) EXPENSE:
The Minerals Group acts as self-insurer with respect to almost all black lung
benefits. Provision is made for estimated benefits in accordance with annual
actuarial reports prepared by outside actuaries. The excess of the present value
of expected future benefits over the accumulated book reserves is recognized
over the amortization period as a level percentage of payroll. Cumulative
actuarial gains or losses are calculated periodically and amortized on a
straight-line basis. Assumptions used in the calculation of the actuarial
present value of black lung benefits are based on actual retirement experience
of the Company's coal employees, black lung claims incidence for active miners,
actual dependent information, industry turnover rates, actual medical and legal
cost experience and projected inflation rates. As of December 31, 1994 and 1993,
the accrued value of estimated future black lung benefits discounted at 6% was
---
97
<PAGE>
--------------------------------------------------------------------------------
approximately $62,824 and $61,067, respectively, and are included in workers'
compensation and other claims. The December 31, 1994 balance included $4,643
related to the purchase of Addington Resources, Inc. (Note 11). Based on
actuarial data, the amount charged to operations was $201 in 1994, $438 in 1993
and $1,029 in 1992. In addition, the Company accrued additional expenses for
black lung benefits related to federal and state assessments, legal and
administrative expenses and other self insurance. These amounted to $2,472 in
1994, $2,887 in 1993 and $2,073 in 1992.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
Postretirement benefits other than pensions are accounted for in accordance with
Statement of Financial Accounting Standards No. 106, 'Employers Accounting for
Postretirement Benefits Other Than Pensions', which requires employers to accrue
the cost of such retirement benefits during the employees' service with the
Company.
RECLAMATION COSTS:
Expenditures relating to environmental regulatory requirements and reclamation
costs undertaken during mine operations are charged against earnings as
incurred. Estimated site restoration and post closure reclamation costs are
charged against earnings using the units of production method over the expected
economic life of each mine. Accrued reclamation costs are subject to review by
management on a regular basis and are revised when appropriate for changes in
future estimated costs and/or regulatory requirements.
FOREIGN CURRENCY TRANSLATION:
Assets and liabilities of foreign operations have been translated at current
exchange rates, and related revenues and expenses have been translated at
average rates of exchange in effect during the year. Resulting cumulative
translation adjustments have been included in shareholder's equity.
FINANCIAL INSTRUMENTS:
The Minerals Group uses foreign currency forward contracts to hedge risk of
changes in foreign currency rates associated with certain transactions
denominated in Australian dollars. Realized and unrealized gains and losses on
these contracts, designated and effective as hedges are deferred and recognized
as part of the specific transaction hedged.
The Minerals Group hedges against downward movements in gold prices principally
through the use of forward sales contracts as well as interest rate changes on
certain variable rate debt. Gains and losses on these contracts, designated and
effective as hedges, are deferred and recognized as part of the transaction
hedged.
REVENUE RECOGNITION:
Coal sales are generally recognized when coal is loaded onto transportation
vehicles for shipment to customers. For domestic sales, this generally occurs
when coal is loaded onto railcars at mine locations. For export sales, this
generally occurs when coal is loaded onto marine vessels at terminal facilities.
Gold sales are recognized when products are shipped to a refinery. Settlement
adjustments arising from final determination of weights and assays are reflected
in sales when received.
NET INCOME PER COMMON SHARE:
The computation of primary earnings per share is based on the weighted average
number of outstanding common shares divided into net income less preferred stock
dividends. The computation of fully diluted earnings per common share assumes
the conversion of the $31.25 Series C Cumulative Preferred Stock (issued in
1994) and additional shares assuming the exercise of stock options (antidilutive
in the primary calculation) divided into net income. For 1994 and 1993, the loss
per share, assuming full dilution, is considered to be the same as primary since
the effect of common stock equivalents and the preferred stock conversion would
be antidilutive. The shares of Minerals Stock held in The Pittston Company
Employee Benefits Trust are evaluated for inclusion in the calculation of net
income per share under the treasury stock method and had no dilutive effect.
2. RELATED PARTY TRANSACTIONS
The following policies may be modified or rescinded by action of the Company's
Board of Directors (the 'Board'), or the Board may adopt additional policies,
without approval of the shareholders of the Company, although the Board has no
present intention to do so. The Company allocated certain corporate general and
administrative expenses, net interest expense and related assets and liabilities
in accordance with the policies described below. Corporate assets and
liabilities are primarily cash, deferred pension assets, income taxes and
accrued liabilities.
FINANCIAL:
As a matter of policy, the Company manages most financial activities of the
Minerals Group and the Services Group on a centralized, consolidated basis. Such
financial activities include the investment of surplus cash; the issuance,
repayment and repurchase of short-term and long-term debt; the issuance and
repurchase of common stock and the payment of dividends. In preparing these
financial statements, transactions primarily related to invested cash,
short-term and long-term debt
---
98
<PAGE>
--------------------------------------------------------------------------------
(including convertible debt), related net interest and other financial costs
have been attributed to the Minerals Group based upon its cash flows for the
periods presented after giving consideration to the debt and equity structure of
the Company. At December 31, 1994, the Company attributed long-term debt to the
Minerals Group based upon the specific purpose for which the debt was incurred
and cash flow requirements of the Minerals Group. See Note 9 for details and
amount of long-term debt. The portion of the Company's interest expense
allocated to the Minerals Group for 1994, 1993 and 1992 was $4,448, $359 and
$2,800, respectively. Management believes such method of allocation to be
equitable and a reasonable estimate of the cost attributable to the Minerals
Group.
To the extent borrowings are deemed to occur between the Services Group and the
Minerals Group, intergroup accounts have been established bearing interest at
the rate in effect from time to time under the Company's unsecured credit lines
or, if no such credit lines exist, at the prime rate charged by Chemical Bank
from time to time. At December 31, 1994, the amount owed to the Services Group
by the Minerals Group totaled $48,170 and at December 31, 1993, the amount owed
the Minerals Group by the Services Group totaled $13,266, as a result of
borrowings.
INCOME TAXES:
The Minerals Group is included in the consolidated U.S. federal income tax
return filed by the Company.
The Company's consolidated provision and actual cash payments for U.S. federal
income taxes are allocated between the Minerals Group and Services Group in
accordance with the Company's tax allocation policy and reflected in the
financial statements for each Group. In general, the consolidated tax provision
and related tax payments or refunds are allocated between the Groups, for
financial statement purposes, based principally upon the financial income,
taxable income, credits and other amounts directly related to the respective
Group. Tax benefits that cannot be used by the Group generating such attributes,
but can be utilized on a consolidated basis, are allocated to the Group that
generated such benefits and an intergroup account is established for the benefit
of the Group generating the attributes. At December 31, 1994 and 1993, the
Minerals Group was owed $39,186 and $20,541, respectively, from the Services
Group for such tax benefits, of which $23,186 and $14,709, respectively, were
not expected to be received within one year from such dates in accordance with
the policy. As a result, the allocated Group amounts of taxes payable or
refundable are not necessarily comparable to those that would have resulted if
the Groups had filed separate tax returns.
SHARED SERVICES:
A portion of the Company's corporate general and administrative expenses and
other shared services has been allocated to the Minerals Group based upon
utilization and other methods and criteria which management believes to be
equitable and a reasonable estimate of the cost attributable to the Minerals
Group. These allocations were $6,845, $7,218 and $8,554 in 1994, 1993 and 1992,
respectively.
PENSION:
The Minerals Group's pension cost related to its participation in the Company's
noncontributory defined benefit pension plan is actuarially determined based on
its respective employees and an allocable share of the pension plan assets and
calculated in accordance with Statement of Financial Accounting Standards No.
87, 'Employers' Accounting for Pensions' ('SFAS 87'). Pension plan assets have
been allocated to the Minerals Group based on the percentage of its projected
benefit obligation to the plan's total projected benefit obligation. Management
believes such method of allocation to be equitable and a reasonable estimate of
the cost attributable to the Minerals Group.
3. SHAREHOLDER'S EQUITY
The following analyzes shareholder's equity of the Minerals Group for the
periods presented:
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $(24,857) 12,302 (43,298)
Net income (loss) (52,948) (32,980) 21,810
Stock options exercised 1,765 2,633 246
Stock released from employee
benefits trust to employee
benefits plan 713 378 257
Stock sold from employee benefits
trust to employee benefits plan -- 44 --
Issuance of $31.25 Series C
Cumulative Preferred Stock,
net of cash expenses 77,082 -- --
Stock issued to employee
benefits plan -- -- 343
Stock sold to Services Group 253 48 --
Stock repurchases (3,767) (591) (2,177)
Dividends declared (9,165) (4,583) (3,648)
Costs of Services Stock Proposal (2) (1,599) --
Foreign currency translation
adjustment 1,712 (215) (600)
Tax benefit of options exercised 617 602 --
Conversion of debt 1 -- --
Net cash (to) from the Company -- (896) 39,369
--------------------------------------------------------------------
Balance at end of period $ (8,596) (24,857) 12,302
--------------------------------------------------------------------
</TABLE>
---
99
<PAGE>
--------------------------------------------------------------------------------
Included in shareholder's equity is the cumulative foreign currency translation
adjustment of $626, ($1,086) and ($871) at December 31, 1994, 1993 and 1992,
respectively.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost consist of the following:
<TABLE>
<CAPTION>
December 31
1994 1993
-----------------------------------------------------------------
<S> <C> <C>
Bituminous coal lands $102,392 118,944
Land, other than coal lands 25,555 7,414
Buildings 8,444 10,524
Machinery and equipment 244,009 250,310
-----------------------------------------------------------------
$380,400 387,192
-----------------------------------------------------------------
</TABLE>
The estimated useful lives for property, plant and equipment are as follows:
<TABLE>
<CAPTION>
Years
-----------------------------------------------------------------
<S> <C>
Buildings 10 to 15
Machinery and equipment 3 to 15
</TABLE>
Depreciation and depletion of property, plant and equipment aggregated $27,481
in 1994, $23,245 in 1993 and $19,268 in 1992.
Mine development costs which were capitalized totaled $11,908 in 1994, $2,181 in
1993 and $18,487 in 1992.
5. ACCOUNTS RECEIVABLE -- TRADE
For each of the years in the three-year period ended December 31, 1994, the
Company, on behalf of the Minerals Group maintained agreements with financial
institutions whereby it had the right to sell certain coal receivables to those
institutions. Certain agreements contained provisions for sales with recourse
and other agreements had limited recourse. All agreements have since expired. No
receivables were sold in 1994. In 1993 and 1992 total coal receivables of
approximately $16,143 and $65,231, respectively, were sold under such
agreements. As of December 31, 1994 and 1993, there were no receivables sold
which remained to be collected.
6. INTANGIBLES
Intangibles consist entirely of the excess of cost over fair value of net assets
of companies acquired and are net of accumulated amortization of $2,806 at
December 31, 1994 and $164 at December 31, 1993. The estimated useful life of
intangibles is generally forty years. Amortization of intangibles aggregated
$2,642 in 1994, $43 in 1993 and $43 in 1992.
7. FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Minerals Group to
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and trade receivables. The Minerals Group's cash and cash
equivalents and short-term investments are placed with high credit qualified
financial institutions. Also, by policy, the amount of credit exposure to any
one financial institution is limited. The Minerals Group makes substantial sales
to relatively few large customers. Credit limits, ongoing credit evaluation and
account monitoring procedures are utilized to minimize the risk of loss from
nonperformance on trade receivables.
The following details the fair values of financial instruments for which it is
practicable to estimate the value:
CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The carrying amounts approximate fair value because of the short maturity of
these instruments.
DEBT
The aggregate fair value of the Minerals Group's long-term debt obligations,
which is based upon quoted market prices and rates currently available to the
Company for debt with similar terms and maturities, approximates the carrying
amount.
OFF-BALANCE SHEET INSTRUMENTS
The Minerals Group utilizes off-balance sheet financial instruments, as
discussed below, to hedge its market exposures. The risk that counterparties to
these contracts may be unable to perform is minimized by limiting the
counterparties to major financial institutions. The Company does not expect any
losses due to such counterparty default.
Gold contracts -- In order to protect itself against downward movements in gold
prices, the Minerals Group hedges a portion of its recoverable proved and
probable reserves primarily through forward sales contracts. At December 31,
1994, 60,056 ounces of gold, representing approximately 30% of the Minerals
Group's recoverable proved and probable reserves, were sold forward under
forward sales contracts with a notional value of $24,679. Because only a portion
of its future production is currently sold forward, the Minerals Group can take
advantage of increases, if any, in the spot price of gold. At December 31, 1994,
the fair value of the Minerals Group's forward sales contracts was not
significant.
---
100
<PAGE>
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Interest rate contract -- As discussed further in Note 9, in 1994, the Company
entered into a variable to fixed interest rate swap agreement with a notional
amount of $40,000. Fair value at December 31, 1994 was $1,608. This contract has
been attributed to the Minerals Group.
8. INCOME TAXES
The provision (credit) for income taxes consists of the following:
<TABLE>
<CAPTION>
U.S.
Federal Foreign State Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994:
Current $(26,599) 50 -- (26,549)
Deferred (17,954) 1,008 97 (16,849)
-------------------------------------------------------------------
Total $(44,553) 1,058 97 (43,398)
-------------------------------------------------------------------
1993:
Current $ (7,539) 38 569 (6,932)
Deferred (20,358) (3,100) (1,642) (25,100)
-------------------------------------------------------------------
Total $(27,897) (3,062) (1,073) (32,032)
-------------------------------------------------------------------
1992:
Current $ (5,460) 15 1,178 (4,267)
Deferred 13,426 -- 489 13,915
-------------------------------------------------------------------
Total $ 7,966 15 1,667 9,648
-------------------------------------------------------------------
</TABLE>
The significant components of the deferred tax expense (benefit) were as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax expense (benefit),
exclusive of the components
listed below $(13,733) (25,490) 12,244
Investment tax credit carryforwards -- -- 6,001
Net operating loss carryforwards (595) (273) 777
Alternative minimum tax credit (1,021) 3,531 (7,182)
Change in the valuation allowance for
deferred tax assets (1,500) (1,368) 2,075
Adjustment to deferred tax assets and
liabilities for the change in the
U.S. federal tax rate -- (1,500) --
------------------------------------------------------------------
$(16,849) (25,100) 13,915
------------------------------------------------------------------
</TABLE>
The tax benefit for compensation expense related to the exercise of certain
employee stock options for tax purposes in excess of compensation expense for
financial reporting purposes is recognized as an adjustment to shareholder's
equity.
The components of the net deferred tax asset as of December 31, 1994, and
December 31, 1993, were as follows:
<TABLE>
<CAPTION>
1994 1993
-----------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 844 811
Postretirement benefits other than
pensions 91,704 90,760
Workers' compensation and other claims 51,492 54,140
Other liabilities and reserves 81,833 66,724
Miscellaneous 8,636 9,017
Net operating loss carryforwards 2,277 1,682
Alternative minimum tax credits 23,402 22,079
Valuation allowance (8,115) (9,615)
-----------------------------------------------------------------
Total deferred tax asset 252,073 235,598
-----------------------------------------------------------------
Deferred tax liabilities:
Property, plant and equipment 32,245 43,765
Pension assets 30,827 29,638
Other assets 990 --
Miscellaneous 59,541 54,585
-----------------------------------------------------------------
Total deferred tax liability 123,603 127,988
-----------------------------------------------------------------
Net deferred tax asset $128,470 107,610
-----------------------------------------------------------------
</TABLE>
The recording of net deferred federal tax assets is based upon their expected
utilization in the Company's consolidated federal income tax return and the
benefit that would accrue to the Minerals Group under the Company's tax
allocation policy.
The valuation allowance relates to deferred tax assets in certain foreign and
state jurisdictions.
The following table accounts for the difference between the actual tax provision
and the amounts obtained by applying the statutory U.S. federal income tax rate
of 35% in 1994 and 1993 and 34% in 1992 to the income (loss) before income
taxes.
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
-------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before income taxes:
United States $(99,400) (58,149) 33,640
Foreign 3,054 (6,863) (2,182)
-------------------------------------------------------------------
$(96,346) (65,012) 31,458
-------------------------------------------------------------------
Tax provision computed at
statutory rate $(33,721) (22,754) 10,696
Increases (reductions) in taxes
due to:
Percentage depletion (9,313) (7,598) (5,033)
State income taxes (net of federal
tax benefit) 1,563 (448) 539
Change in the valuation allowance
for deferred tax assets (1,500) (1,368) 2,075
Adjustment to deferred tax
assets and liabilities for the
change in the U.S. federal
tax rate -- (1,500) --
Miscellaneous (427) 1,636 1,371
-------------------------------------------------------------------
Actual tax provision (credit) $(43,398) (32,032) 9,648
-------------------------------------------------------------------
</TABLE>
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101
<PAGE>
--------------------------------------------------------------------------------
It is the policy of the Minerals Group to accrue deferred income taxes on
temporary differences related to the financial statement carrying amounts and
tax bases of investments in foreign subsidiaries and affiliates which are
expected to reverse in the foreseeable future. As of December 31, 1994 and
December 31, 1993, there was no unrecognized deferred tax liability for
temporary differences related to investments in foreign subsidiaries and
affiliates.
The Minerals Group is included in the Company's consolidated U.S. federal income
tax return. Such returns have been audited and settled with the Internal Revenue
Service through the year 1981.
As of December 31, 1994, the Minerals Group had $23,402 of alternative minimum
tax credits allocated to it under the Company's tax allocation policy. Such
credits are available to offset future U.S. federal income taxes and, under
current tax law, the carryforward period for such credits is unlimited.
The tax benefit of net operating loss carryforwards for the Minerals Group as at
December 31, 1994 was $2,277 and related to various state and foreign taxing
jurisdictions. The expiration periods primarily range from 5 to 15 years.
9. LONG-TERM DEBT
A portion of the outstanding debt under the Company's credit agreement has been
attributed to the Minerals Group. Total long-term debt of the Minerals Group
consists of the following:
<TABLE>
<CAPTION>
As of December 31
1994 1993
-----------------------------------------------------------------
<S> <C> <C>
Senior obligations $ 327 279
Obligations under capital leases (average
rates 6.27% in 1994) 1,882 --
-----------------------------------------------------------------
2,209 279
-----------------------------------------------------------------
Attributed portion of Company's debt
U.S. dollar term loan due 1999 (year end
rate 6.49% in 1994) 76,566 --
Revolving credit notes due 1999 (year end
rate 5.75% in 1994) 9,400 --
-----------------------------------------------------------------
Total long-term debt, less current
maturities $88,175 279
-----------------------------------------------------------------
</TABLE>
For the four years through December 31, 1999, minimum repayments of long-term
debt outstanding are as follows:
<TABLE>
<S> <C>
1996 $ 1,580
1997 129
1998 279
1999 85,983
</TABLE>
In March 1994, the Company entered into a $350,000 credit agreement with a
syndicate of banks (the 'New Facility'), replacing the Company's previously
existing $250,000 of revolving credit agreements. The New Facility includes a
$100,000 five-year term loan, which matures in March 1999. The portion of this
loan attributed to the Minerals Group at December 31, 1994 was $76,566. The New
Facility also permits additional borrowings, repayments and reborrowings of up
to $250,000 until March 1999. The portion of additional borrowings attributed to
the Minerals Group at December 31, 1994 was $9,400. Interest on borrowings under
the New Facility is payable at rates based on prime, certificate of deposit,
Eurodollar or money market rates.
In 1994, the Company entered into a standard three year variable to fixed
interest rate swap agreement. This agreement fixed the Company's interest rate
at 5% on current borrowings of $40,000 in principal. The principal amount to
which the 5% interest rate applies declines periodically throughout the term of
the agreement. This agreement has been attributed to the Minerals Group.
Under the terms of some of its debt instruments, the Company has agreed to
various restrictions relating to the payment of dividends, the repurchase of
capital stock, the maintenance of consolidated net worth, and the amount of
additional funded debt which may be incurred. See the Company's consolidated
financial statements and related footnotes.
At December 31, 1994, the Company's portion of outstanding unsecured letters of
credit allocated to the Minerals Group was $45,236, primarily supporting its
obligations under its various self-insurance programs.
10. STOCK OPTIONS
The Company grants options under its 1988 Stock Option Plan (the '1988 Plan') to
executives and key employees and under its Non-Employee Directors Stock Option
Plan (the 'Non-Employee Plan') to outside directors to purchase common stock at
a price not less than 100% of quoted market value at date of grant. As part of
the Services Stock Proposal (Note 1), the 1988 and the Non-Employee Plans were
amended to permit option grants to be made to optionees with respect to either
Services Stock or Minerals Stock, or both.
The Company's 1979 Stock Option Plan (the '1979 Plan') and 1985 Stock Option
Plan (the '1985 Plan') terminated in 1985 and 1988, respectively, except as to
options still outstanding.
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102
<PAGE>
--------------------------------------------------------------------------------
At the Effective Date of the Services Stock Proposal, a total of 2,228,225
shares of common stock were subject to options outstanding under the 1988 Plan,
the Non-Employee Plan, the 1979 Plan and the 1985 Plan. Pursuant to antidilution
provisions in the option agreements covering such options, the Company converted
these options into options for shares of Services Stock or Minerals Stock, or
both, depending primarily on the employment status and responsibilities of the
particular optionee. In the case of optionees having Company-wide
responsibilities, each outstanding option was converted into an option for
Services Stock and an option for Minerals Stock, in the same ratio as the
distribution on the Effective Date of Minerals Stock to shareholders of the
Company, viz., one share to one-fifth of the share, with any resultant
fractional share of Minerals Stock rounded downward to the nearest whole num-
ber of shares. In the case of other optionees, each outstanding option was
converted into a new option for only Services Stock or Minerals Stock, as the
case may be, following the Effective Date. As a result, 2,167,247 shares of
Services Stock and 507,698 shares of Minerals Stock were subject to options
outstanding as of the Effective Date.
The table below summarizes the related plan activity.
<TABLE>
<CAPTION>
Aggregate
No. of Option
Shares Price
-----------------------------------------------------------------
<S> <C> <C>
THE PITTSTON COMPANY COMMON STOCK OPTIONS:
Granted:
1993 17,500 $ 294
1992 758,300 11,706
Became exercisable:
1993 468,250 7,749
1992 320,009 5,367
Exercised:
1993 377,191 5,379
1992 113,347 1,472
PITTSTON MINERALS GROUP COMMON STOCK OPTIONS:
Outstanding:
12/31/94 507,323 9,571
12/31/93 623,498 11,023
Granted:
1994 23,000 431
1993 252,000 6,094
Became exercisable:
1994 108,259 1,978
1993 3,575 50
Exercised:
1994 128,667 1,765
1993 134,528 1,738
</TABLE>
At December 31, 1994, a total of 271,815 shares of Minerals Stock were
exercisable. In addition, there were 725,323 shares of Minerals
Stock reserved for issuance under the plans, including 218,000 shares of
Minerals Stock reserved for future grant.
11. ACQUISITIONS
During 1994, a wholly owned indirect subsidiary of the Minerals Group
completed the acquisition of substantially all of the coal mining operations
and coal supply contracts of Addington Resources, Inc. for $157,324. The
acquisition has been accounted for as a purchase; accordingly, the purchase
price has been allocated to the underlying assets and liabilities based on
their respective estimated fair values at the date of acquisition. 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 assets acquired and
liabilities assumed was $121,883 and is being amortized over a period of
forty years.
The acquisition was financed by the issuance of $80,500 of Convertible
Preferred Stock (Note 1) and additional borrowings under existing
credit facilities. In March 1994, the additional debt incurred for this
acquisition was refinanced with a portion of the proceeds from the five-year
term loan (Note 9).
The following pro forma results, however, assume that the acquisition
and related financing had occurred at the beginning of 1993. The unaudited
pro forma data below are not necessarily indicative of the results that
would have occurred if the transaction was in effect for the year ended
December 31, 1993, nor are they indicative of the future results of
operations of the Minerals Group.
<TABLE>
<CAPTION>
Pro Forma
(Unaudited)
Year Ended
December 31
1993
-----------------------------------------------------------------
<S> <C>
Net sales and operating revenues $958,688
-----------------------------------------------------------------
Net loss $ (17,357)
-----------------------------------------------------------------
Net loss attributed to common shares $ (22,388)
-----------------------------------------------------------------
Net loss per common share $ (3.03)
-----------------------------------------------------------------
Average common shares outstanding 7,381
-----------------------------------------------------------------
</TABLE>
During 1993, the Minerals Group made installment and contingency payments
related to acquisitions consummated in prior years. Total consideration paid
was $699.
During 1992, the Minerals Group acquired two businesses for an aggregate
purchase price of $45,142, including installment payments to be made of $1,720.
Of the total purchase price, $42,734 was for the purchase of a company whose
principal assets include two long-term coal supply contracts. The fair value of
assets acquired was $48,168 and liabilities assumed was $3,026. The acquisitions
were accounted for as purchases and
---
103
<PAGE>
--------------------------------------------------------------------------------
the purchase price was essentially equal to the fair value of net assets
acquired. In addition, the Minerals Group made cash payments of $7,398 for an
equity investment.
The results of operations of the acquired companies have been included in the
Minerals Group's results of operations from their date of acquisition.
12. COAL JOINT VENTURE
The Minerals Group, through a wholly owned indirect subsidiary of the Company,
entered into a partnership agreement in 1982 with four other coal companies to
construct and operate coal port facilities in Newport News, Virginia, in the
Port of Hampton Roads (the 'Facilities'). The Facilities commenced operations
in 1984, and now have an annual throughput capacity of 22 million tons, with a
ground storage capacity of approximately 2 million tons. The Minerals Group
initially had an indirect 25% interest in the partnership, Dominion Terminal
Associates ('DTA'). Initial financing of the Facilities was accomplished
through the issuance of $135,000 principal amount of revenue bonds by the
Peninsula Ports Authority of Virginia (the 'Authority'), which is a political
subdivision of the Commonwealth of Virginia. In 1987, the original revenue
bonds were refinanced by the issuance of $132,800 of coal terminal revenue
refunding bonds of which two series of these bonds in the aggregate principal
amount of $33,200 were attributable to the Minerals Group. In 1990, the
Minerals Group acquired an additional indirect 7 1/2% interest in DTA for
cash of $3,055 plus the assumption of bond indebtedness, increasing its
ownership to 32 1/2%. With the increase in ownership, $9,960 of the remaining
four additional series of the revenue refunding bonds of $99,600 became
attributable to the Minerals Group. In November 1992, all bonds attributable to
the Minerals Group were refinanced with the issuance of a new series of coal
terminal revenue refunding bonds in the aggregate principal amount of $43,160.
The new series of bonds bear a fixed interest rate of 7 3/8%. The Authority
owns the Facilities and leases them to DTA for the life of the bonds, which
mature on June 1, 2020. DTA may purchase the facilities for $1 at the end of
the lease term. The obligations of the partners are several, and not joint.
Under loan agreements with the Authority, DTA is obligated to make payments
sufficient to provide for the timely payment of the principal of and interest on
the bonds of the new series. Under a throughput and handling agreement, the
Minerals Group has agreed to make payments to DTA that in the aggregate will
provide DTA with sufficient funds to make the payments due under the loan
agreements and to pay the Minerals Group's share of the operating costs
of the Facilities. The Company has also unconditionally guaranteed the payment
of the principal of and premium, if any, and the interest on the new series of
bonds. Payments for operating costs aggregated $7,173 in 1994, $7,949 in 1993
and $6,819 in 1992. The Minerals Group has the right to use 32 1/2% of the
throughput and storage capacity of the Facilities subject to user rights of
third parties which pay the Minerals Group a fee. The Minerals Group pays
throughput and storage charges based on actual usage at per ton rates determined
by DTA.
13. LEASES
The Minerals Group's businesses lease coal mining and other equipment under
long-term operating leases with varying terms, and most of the leases contain
renewal and/or purchase options. As of December 31, 1994, aggregate future
minimum lease payments under noncancellable operating leases were as follows:
<TABLE>
Equipment
Facilities & Other Total
-------------------------------------------------------------------
<S> <C> <C> <C>
1995 $ 687 29,162 29,849
1996 736 20,410 21,146
1997 785 14,996 15,781
1998 783 9,284 10,067
1999 771 3,199 3,970
2000 766 716 1,482
2001 483 75 558
2002 30 -- 30
2003 30 -- 30
2004 30 -- 30
Later Years 770 -- 770
-------------------------------------------------------------------
$5,871 77,842 83,713
-------------------------------------------------------------------
</TABLE>
These amounts are net of aggregate future minimum noncancellable sublease
rentals of $18. Almost all of the above amounts related to equipment are
guaranteed by the Company.
Rent expense amounted to $35,583 in 1994, $24,854 in 1993 and $25,570 in 1992
and is net of sublease rentals of $69 in each year.
In 1994 the Minerals Group incurred capital lease obligations of $746 and
assumed capital lease obligations of $16,210 as part of the Addington Resources,
Inc. acquisition (Note 11). As of December 31, 1994, the Minerals Group's
obligations under capital leases were not significant.
---
104
<PAGE>
--------------------------------------------------------------------------------
14. EMPLOYEE BENEFIT PLANS
The Minerals Group's businesses participate in the Company's noncontributory
defined benefit pension plan covering substantially all nonunion employees who
meet certain minimum requirements. Benefits under the plan are based on salary
and years of service. The Minerals Group's pension cost is actuarially
determined based on its employees and an allocable share of the pension plan
assets. The Company's policy is to fund the actuarially determined amounts
necessary to provide assets sufficient to meet the benefits to be paid to plan
participants in accordance with applicable regulations. The net pension credit
for 1994, 1993 and 1992 for the Minerals Group is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
---------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits earned
during year $ 3,609 2,772 2,528
Interest cost on projected benefit
obligation 9,024 8,873 8,248
Loss (return) on assets -- actual 1,664 (20,347) (15,105)
(Loss) return on assets -- deferred (16,978) 6,317 1,833
Other amortization, net 2,270 -- (7,083)
---------------------------------------------------------------------
Net pension credit $ (411) (2,385) (9,579)
---------------------------------------------------------------------
</TABLE>
The assumptions used in determining the net pension credit for the Company's
major pension plan were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
Interest cost on projected benefit
obligation 7.5% 9.0% 9.0%
Expected long-term rate of return
on assets 10.0% 10.0% 10.0%
Rate of increase in compensation levels 4.0% 5.0% 5.0%
</TABLE>
The Minerals Group's allocated funded status and deferred pension assets at
December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
-----------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated
benefit obligation:
Vested $ 94,237 101,775
Nonvested 4,012 4,264
-----------------------------------------------------------------
98,249 106,039
Benefits attributable to projected salaries 11,499 17,372
-----------------------------------------------------------------
Projected benefit obligation 109,748 123,411
Plan assets at fair value 157,847 165,849
-----------------------------------------------------------------
Excess of plan assets over projected benefit
obligation 48,099 42,438
Unrecognized experience loss 26,517 31,463
Unrecognized prior service cost 271 254
-----------------------------------------------------------------
Net pension assets 74,887 74,155
Current pension liability 916 486
-----------------------------------------------------------------
Deferred pension asset per balance sheet $ 75,803 74,641
-----------------------------------------------------------------
</TABLE>
For the valuation of pension obligations and the calculation of the funded
status, the discount rate was 8.75% in 1994 and 7.5% in 1993. The expected
long-term rate of return on assets was 10% in both years. The rate of increase
in compensation levels used was 4% in 1994 and 1993.
The unrecognized initial net asset at January 1, 1986, the date of adoption of
SFAS 87, has been amortized over the estimated remaining average service life of
the employees, which period ended at December 31, 1992. As of December 31, 1994,
approximately 72% of plan assets were invested in equity securities and 28% in
fixed income securities.
Under the 1990 collective bargaining agreement with the United Mine Workers of
America ('UMWA'), the Minerals Group has made payments, based on hours worked,
into escrow accounts established for the benefit of union employees (Note 18).
The total amount accrued and escrowed by the Minerals Group's coal operations
under this agreement as at December 31, 1994 and December 31, 1993, was $23,120
and $21,064, respectively. The amount escrowed and accrued is included in
'Short-term investments' and 'Miscellaneous accrued liabilities'.
The Minerals Group also provides certain postretirement health care and life
insurance benefits for eligible active and retired employees in the United
States.
For the years 1994, 1993 and 1992, the components of periodic expense for these
postretirement benefits were as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost -- benefits
earned during year $ 2,141 2,513 2,216
Interest cost on accumulated
postretirement benefit
obligation 20,948 21,060 19,153
Amortization of (gains) losses 2,806 402 --
-----------------------------------------------------------------------
Total expense $25,895 23,975 21,369
-----------------------------------------------------------------------
</TABLE>
The interest costs on the accumulated postretirement benefit obligation were
based upon rates of 7.5% in 1994 and 9% in 1993 and 1992.
---
105
<PAGE>
--------------------------------------------------------------------------------
At December 31, 1994 and 1993, the actuarial and recorded liabilities for these
postretirement benefits, none of which have been funded, were as follows:
<TABLE>
<CAPTION>
1994 1993
-----------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $215,043 200,380
Fully eligible active plan
participants 21,170 44,774
Other active plan participants 17,334 40,542
-----------------------------------------------------------------
253,547 285,696
Unrecognized experience loss (23,619) (63,477)
-----------------------------------------------------------------
Liability included on the balance
sheet 229,928 222,219
Less current portion 16,951 14,803
-----------------------------------------------------------------
Noncurrent liability for postretire-
ment health care and life insurance
benefits $212,977 207,416
-----------------------------------------------------------------
</TABLE>
The accumulated postretirement benefit obligation was determined using the
unit credit method and an assumed discount rate of 8.75% in 1994 and 7.5% in
1993. The assumed health care cost trend rate used in 1994 was 10% for pre-65
retirees, grading down to 5% in the year 2001. For post-65 retirees, the
assumed trend rate in 1994 was 8%, grading down to 5% in the year 2001. The
assumed medicare cost trend rate used in 1994 was 7%, grading down to 5% in
the year 2001.
A percentage point increase each year in the health care cost trend rate used
would have resulted in a $2,810 increase in the aggregate service and interest
components of expense for the year 1994, and a $40,920 increase in the
accumulated postretirement benefit obligation at December 31, 1994.
The Minerals Group also participates in the Company's Savings-Investment Plan
to assist eligible employees in providing for retirement or other future
financial needs. Employee contributions are matched up to 5% of compensation
(subject to certain limitations imposed by the Internal Revenue Code of 1986,
as amended). Contribution expense under the plan aggregated $1,468 in 1994,
$2,021 in 1993 and $2,059 in 1992.
In May 1994, the Company's shareholders approved the Employee Stock Purchase
Plan effective July 1, 1994. Eligible employees may elect to purchase shares of
Services Stock and Minerals Stock at the lower of 85% of the fair market value
as of specified dates. Under this plan employees of the Company purchased 11,843
shares of Minerals Stock for $187.
The Minerals Group sponsors two other defined contribution plans and
contributions under these plans aggregated $470 in 1994, $475 in 1993 and $420
in 1992.
In October 1992, the Coal Industry Retiree Health Benefit Act of 1992 (the
'Health Benefit Act') was enacted as part of the Energy Policy Act of 1992. The
Health Benefit Act established rules for the payment of future health care
benefits for thousands of retired union mine workers and their dependents. Part
of the burden for these payments was shifted by the Health Benefit Act from
certain coal producers, which had a contractual obligation to fund such
payments, to producers such as the Company which have collective bargaining
agreements with the UMWA that do not require such payments and to numer-
ous other companies which are no longer in the coal business. The Health
Benefit Act established a trust fund to which 'signatory operators'
and 'related persons', including the Company and certain of its coal
subsidiaries (the 'Pittston Companies') are obligated to pay annual premiums
for assigned beneficiaries, together with a pro rata share for certain
beneficiaries who never worked for such employers ('unassigned beneficiaries'),
in amounts determined by the Secretary of Health and Human Services on the
basis set forth in the Health Benefit Act. For 1993 and 1994, this liability
(on a pretax basis) was approximately $9,100 and $11,000, respectively. The
Company believes that the annual liability under the Health Benefit Act for the
Pittston Companies' assigned beneficiaries will continue in the $10,000 to
$11,000 range for the next eight years and should begin to decline thereafter
as the number of such assigned beneficiaries decreases.
Based on the number of beneficiaries actually assigned by the Social Security
Administration, the Company estimates the aggregate pretax liability relating to
the Pittston Companies' assigned beneficiaries at approximately $250,000, which
when discounted at 8.75% provides a present value estimate of approximately
$100,000.
The ultimate obligation that will be incurred by the Company could be
significantly affected by, among other things, increased medical costs,
decreased number of beneficiaries, governmental funding arrangements and such
federal health benefit legislation of general application as may be enacted. In
addition, the Health Benefit Act requires the Pittston Companies' to fund, pro
rata according to the total number of assigned beneficiaries, a portion of the
health benefits for unassigned beneficiaries. At this time, the funding for such
health benefits is being provided from another source and for this and other
reasons the Pittston Companies' ultimate obligation for the unassigned
beneficiaries cannot be determined. The Company accounts for its obligations
under the Health Benefit Act as a participant in a multi-employer plan and
recognizes the annual cost on a pay-as-you-go basis.
---
106
<PAGE>
--------------------------------------------------------------------------------
15. RESTRUCTURING AND OTHER CHARGES, INCLUDING LITIGATION ACCRUAL
The market for metallurgical coal, for most of the past fifteen years, has been
characterized by weak demand from primary steel producers and intense
competition from foreign coal producers, especially those in Australia and
Canada. Metallurgical coal sales contracts typically are subject to annual
price negotiations, which increase the risk of market forces. As a result of
the continuing long-term decline in the metallurgical coal markets, which was
further evidenced by significant price reductions in early 1994, the Coal
operations accelerated its strategy of decreasing its exposure to these markets.
After a review of the economic viability of the remaining 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 Minerals Group incurred a pre-tax charge of
$90,806 ($58,116 after tax) in 1994 which included a reduction in the carrying
value of these assets and related accruals for mine closure costs. These charges
included asset 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, one has ceased coal production, while the
remaining three 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 52% to approximately 360 employees.
Although coal production has or will cease at the mines contemplated in the
accrual, the Minerals Group will incur reclamation and environmental costs for
several years to bring these properties into compliance with federal and state
environmental laws. In addition, employee termination and medical costs will
continue to be incurred for several years after the facilities have been
closed. The significant portion of these employee liabilities is for
statutorily provided workers' compensation costs for inactive employees. Such
benefits include indemnity and medical 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 costs and does not anticipate
material additional future charges to operating earnings for these facilities,
although continual cash funding will be required over the next several years.
In 1993 the Minerals Group incurred a pre-tax charge of $78,633 ($48,897 after
tax) relating to mine closing costs including employee benefit costs and certain
other noncash charges, together with previously reported litigation (the 'Ever-
green Case') brought against the Company and a number of its coal subsidiaries
by the trustees of certain pension and benefit trust fund established under
collective bargaining agreements with the UMWA (Note 18). These charges
impacted Coal and Mineral Ventures operating profit in the amount of $70,713
and $7,920, respectively.
The charge in the Mineral Ventures segment in 1993, related to the write-down of
the Mineral Group's investment in the Uley graphite mine in Australia. Although
reserve drilling of the Uley property indicates substantial graphite deposits,
processing difficulties, depressed graphite prices which remained signifi-
cantly below the level prevailing at the start of the project and
---
107
<PAGE>
--------------------------------------------------------------------------------
an analysis of various technical and marketing conditions affecting the project
resulted in the determination that the assets had been impaired and that loss
recognition was appropriate. The charge included asset write-downs of $7,496
which reduced the carrying value of such assets to zero.
The following table analyzes the changes in liabilities during the last three
years 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 January
1, 1993 (a) $1,146 35,499 35,413 72,058
Additions 2,782 1,598 6,267 10,647
Payments (b) 836 8,663 7,463 16,962
------------------------------------------------------------------
Balance as of December
31, 1993 3,092 28,434 34,217 65,743
Additions 3,836 19,290 21,193 44,319
Payments (c) 3,141 9,468 12,038 24,647
------------------------------------------------------------------
Balance as of December
31, 1994 $3,787 38,256 43,372 85,415
------------------------------------------------------------------
</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 $2,312 for leased machinery and equipment, $50,645
principally for incremental facility closing costs, including reclamation
and $47,841 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 the year
for liabilities recorded in prior years.
(c) These amounts represent total cash payments made during the year for these
charges. Of the total payments made, $8,672 was for liabilities recorded
in years prior to 1993, $5,822 was for liabilities recorded in 1993 and $10,153
was for liabilities recorded in 1994.
During the next twelve months, expected cash funding of these charges is
approximately $21,000. 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.
16. OTHER INCOME AND EXPENSE
Other operating income primarily includes royalty income and gains on sales of
assets.
Other income includes a gain aggregating $2,341 in 1992 from the sale of
investments in leveraged leases, which increased net income by $.37 per share in
1992.
17. SEGMENT INFORMATION
Net sales by geographic area are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C>
United States:
Domestic customers $512,875 359,748 314,092
Export customers in Europe 131,447 132,753 136,636
Export customers in Japan 71,937 84,195 96,090
Other export customers 63,245 95,548 111,053
--------------------------------------------------------------------
779,504 672,244 657,871
Australia 15,494 14,845 --
--------------------------------------------------------------------
$794,998 687,089 657,871
--------------------------------------------------------------------
</TABLE>
The following is derived from the business segment information in the Company's
consolidated financial statements as it relates to the Minerals Group. See Note
2, Related Party Transactions, for a description of the Company's policy for
corporate allocations.
The Minerals Group's portion of the Company's operating profit is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C>
United States* $(85,305) (49,157) 35,713
Australia* 2,988 (7,391) (2,164)
--------------------------------------------------------------------
Minerals Group's portion of the
Company's segment operating profit (82,317) (56,548) 33,549
Corporate expenses allocated to the
Minerals Group (6,845) (7,218) (8,554)
Pension credit -- -- 7,083
-------------------------------------------------------------------
Operating profit (loss) $(89,162) (63,766) 32,078
-------------------------------------------------------------------
</TABLE>
* Operating profit (loss) includes restructuring and other charges,
including litigation accrual aggregating $90,806 in 1994 all of which is
included in the United States and $78,633 in 1993, of which $70,713 is included
in the United States and $7,920 is included in Australia (Note 15).
The Minerals Group's portion of the Company's assets at year end is as follows:
<TABLE>
<CAPTION>
As of December 31
1994 1993 1992
--------------------------------------------------------------------
<S> <C> <C> <C>
United States $764,399 503,002 513,819
Australia 19,104 13,162 19,106
--------------------------------------------------------------------
Minerals Group's portion of the
Company's assets 783,503 516,164 532,925
Minerals Group's portion of
corporate assets 84,009 90,083 54,771
--------------------------------------------------------------------
Total Minerals Group's assets $867,512 606,247 587,696
--------------------------------------------------------------------
</TABLE>
---
108
<PAGE>
--------------------------------------------------------------------------------
Industry segment information is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1994 1993 1992
-----------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Coal $779,504 672,244 657,871
Mineral Ventures 15,494 14,845 --
-----------------------------------------------------------------
Total revenues $794,998 687,089 657,871
-----------------------------------------------------------------
OPERATING PROFIT (LOSS):
Coal* $(83,451) (48,246) 36,905
Mineral Ventures* 1,134 (8,302) (3,356)
-----------------------------------------------------------------
Segment operating profit
(loss) (82,317) (56,548) 33,549
Allocated general corporate
expense (6,845) (7,218) (8,554)
Pension credit -- -- 7,083
-----------------------------------------------------------------
Total operating profit (loss) $(89,162) (63,766) 32,078
-----------------------------------------------------------------
</TABLE>
* Operating profit (loss) of the Coal segment includes restructuring and
other charges, including litigation accrual of $90,806 in 1994 and $70,713 in
1993 (Note 15). Operating loss of the Mineral Ventures segment includes
restructuring and other charges of $7,920 in 1993 (Note 15).
<TABLE>
<S> <C> <C> <C>
CAPITAL EXPENDITURES:
Coal $ 25,016 15,499 48,945
Mineral Ventures 2,514 2,690 6,526
Allocated general corporate 90 47 70
-----------------------------------------------------------------
Total capital expenditures $ 27,620 18,236 55,541
-----------------------------------------------------------------
DEPRECIATION, DEPLETION AND AMORTIZATION:
Coal $ 44,731 25,679 22,961
Mineral Ventures 1,202 1,779 3
Allocated general corporate 141 133 131
-----------------------------------------------------------------
Total depreciation, depletion and
amortization $ 46,074 27,591 23,095
-----------------------------------------------------------------
ASSETS AT DECEMBER 31:
Coal $761,827 499,494 513,338
Mineral Ventures 21,676 16,670 19,587
-----------------------------------------------------------------
Identifiable assets 783,503 516,164 532,925
Allocated portion of the
Company's corporate assets 84,009 90,083 54,771
-----------------------------------------------------------------
Total assets $867,512 606,247 587,696
-----------------------------------------------------------------
</TABLE>
In 1994, 1993 and 1992, net sales to one customer of the Coal segment amounted
to $111,830, $106,253 and $86,319, respectively.
18. LITIGATION
In 1988, the trustees of certain pension and benefit trust funds established
under collective bargaining agreements with the UMWA brought an action (the
'Evergreen Case') against the Company and a number of its coal subsidiaries in
the United States District Court for the District of Columbia, claiming that the
defendants are obligated to contribute to such trust funds in accordance with
the provisions of the 1988 and subsequent National Bituminous Coal Wage
Agreements, to which neither the Company nor any of its subsidiaries is a
signatory. In January 1992, the Court issued an order granting summary judgment
in favor of the trustees on the issue of liability, which was thereafter
affirmed by the Court of Appeals. In June 1993 the United States Supreme Court
denied a petition for a writ of certiorari. The case has been remanded to
District Court, and damage and other issues remain to be decided. In September
1993, the Company filed a motion seeking relief from the District Court's grant
of summary judgment based on, among other things, the Company's allegations that
plaintiffs improperly withheld evidence that directly refutes plaintiffs'
representations to the District Court and the Court of Appeals in this case. In
December 1993, that motion was denied. On May 23, 1994, the trustees filed a
Motion for Entry of Final Judgment seeking approximately $71,100 in delinquent
contributions, interest and liquidated damages through May 31, 1994, plus
approximately $17 additional interest and liquidated damages for each day
between May 31, 1994, and the date final judgment was entered, plus ongoing
contributions to the 1974 Pension Plan. The Company has opposed this motion.
There has been no decision on this motion or final judgment entered to date.
In furtherance of its ongoing effort to identify other available legal options
for seeking relief from what it believes to be an erroneous finding of liability
in the Evergreen Case, the Company has filed suit against the Bituminous Coal
Operators Association ('BCOA') and others to hold them responsible for any
damages sustained by the Company as a result of the Evergreen Case. Although the
Company is continuing that effort, the Company, following the District Court's
ruling in December 1993, recognized the potential liability that may result from
an adverse judgment in the Evergreen Case (Notes 14 and 15).
---
109
<PAGE>
--------------------------------------------------------------------------------
In any event, any final judgment in the Evergreen Case will be subject to
appeal. In December 1994, the District Court ordered that the Evergreen Case, as
well as related cases filed against other coal companies, and the BCOA case, be
submitted to mediation before a federal judge in an effort to obtain a
settlement. The mediation process is ongoing.
As a result of the Health Benefit Act (Note 14), there is no continuing
liability in this case in respect of health benefit funding after February 1,
1993.
In April 1990, the Company entered into a settlement agreement to resolve
certain environmental claims against the Company arising from hydrocarbon
contamination at a petroleum terminal facility ('Tankport') in Jersey City, New
Jersey, which operations were sold in 1983. Under the settlement agreement, the
Company is obligated to pay 80% of the remediation costs. Based on data
available to the Company and its environmental consultants, the Company
estimates its portion of the cleanup costs on an undiscounted basis using
existing technologies to be between $6,700 and $14,100 over a period of up to
five years. Management is unable to determine that any amount within that range
is a better estimate due to a variety of uncertainties, which include the extent
of the contamination at the site, the permitted technologies for remediation and
the regulatory standards by which the clean-up will be conducted. The clean-up
estimates have been modified in light of certain regulatory changes promulgated
in December 1994.
The Company commenced insurance coverage litigation in 1990, in the United
States District Court for the District of New Jersey, seeking a declaratory
judgment that all amounts payable by the Company pursuant to the Tankport
obligation were reimbursable under comprehensive general liability and pollution
liability policies maintained by the Company. Although the underwriters have
disputed this claim, management and its legal counsel believe that recovery is
probable of realization in the full amount of the claim. This conclusion is
based upon, among other things, the nature of the pollution policies which were
broadly designed to cover such contingent liabilities, the favorable state of
the law in the State of New Jersey (whose laws have been found to control the
interpretation of the policies), and numerous other factual considerations which
support the Company's analysis of the insurance contracts and rebut the
underwriters defenses. Accordingly, there is no net liability in regard to the
Tankport obligation.
19. COMMITMENTS
At December 31, 1994, the Minerals Group had contractual commitments to purchase
coal which is primarily used to blend with company mined coal. Based on the
contract provisions these commitments are currently estimated to aggregate
approximately $276,111 and expire from 1995 through 1998 as follows:
<TABLE>
<S> <C>
1995 $105,112
1996 89,219
1997 56,970
1998 24,810
-----------------------------------------------------------------------
$276,111
-----------------------------------------------------------------------
</TABLE>
Purchases under the contracts were $53,097 in 1994, $81,069 in 1993 and $74,331
in 1992.
20. SUPPLEMENTAL CASH FLOW INFORMATION
For the years ended December 31, 1994 and 1992, there were net cash tax refunds
of $12,851 and $6,962, respectively. For the year ended December 31, 1993, cash
payments for income taxes, net of refunds received was $2,461.
For the years ended December 31, 1994, 1993 and 1992, cash payments for interest
were $5,985, $2,126 and $2,637, respectively.
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 'Cash flow from investing
activities: Other, net' in 1994.
During 1993, the Minerals Group sold a coal preparation plant and related
interest in land, equipment and facilities for mineral reserves with a fair
market value of $13,300 and cash of $10,700. The cash proceeds of $10,700 less
$1,001 in expenses related to the transaction were included in 'Cash flow from
investing activities: Other, net'.
---
110
<PAGE>
--------------------------------------------------------------------------------
21. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Tabulated below are certain data for each quarter of 1994 and 1993.
<TABLE>
<CAPTION>
1st 2nd 3rd 4th
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 QUARTERS:
Net sales $ 176,742 202,149 210,142 205,965
Gross profit (loss) (13,039) 13,105 10,770 12,576
Net income (loss) $ (74,079) 6,750 6,196 8,185
Per Pittston Minerals Group
Common Share:
Net income (loss)
Primary $ (9.96) .72 .74 .91
Fully diluted $ (9.96) .67 .61 .81
1993 QUARTERS:
Net sales $ 167,991 174,457 169,040 175,601
Gross profit 10,156 9,794 10,065 11,395
Net income (loss) $ 2,742 3,170 5,932 (44,824)
Per Pittston Minerals Group
Common Share:
Net income (loss)
Primary $ .38 .43 .80 (5.98)
Fully diluted $ .37 .43 .79 (5.98)
</TABLE>
Net income (loss) in the first quarter of 1994, included restructuring and other
charges of $58,116 (Note 15).
Net income (loss) in the fourth quarter of 1993, included restructuring and
other charges, including litigation accrual of $48,897 (Note 15).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--------------------------------------------------------------------------------
Not applicable.
---
111
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------------------------------------
The information required by this Item regarding directors is incorporated by
reference to Pittston's definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after December 31, 1994. The information
regarding executive officers is included in this report following Item 4, under
the caption 'Executive Officers of the Registrant.'
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------------------------------
The information required by Items 11 through 13 is incorporated by reference to
Pittston's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after December 31, 1994.
PART IV
--------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
--------------------------------------------------------------------------------
(a) 1. All financial statements -- see index to financial statements and
schedules.
2. Financial statement schedules -- see index to financial statements and
schedules.
3. Exhibits -- see exhibit index.
(b) No reports on Form 8-K were filed during the last quarter of the Company's
1994 fiscal year.
UNDERTAKING
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
Registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into Registrant's Registration Statements on Form S-8 Nos. 2-64258,
33-2039, 33-21393, 33-23333, 33-69040 and 33-53565:
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
---
112
<PAGE>
The Pittston Company and Subsidiaries
--------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 29, 1995.
The Pittston Company
-----------------------
(Registrant)
By J. C. Farrell
-----------------------
(J. C. Farrell,
Chairman of
the Board, President
and
Chief Executive
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated, on March 29, 1995.
<TABLE>
<CAPTION>
Signatures Title
------------------------------------------ -----------------------------------------
<S> <C>
R. G. Ackerman* Director
M. J. Anton* Director
J. R. Barker* Director
J. L. Broadhead* Director
W. F. Craig* Director
J. C. Farrell Director and Chairman of
------------- the Board, President and
(J. C. Farrell) Chief Executive Officer
(principal executive officer)
C. F. Haywood* Director
E. G. Jordan* Director
D. L. Marshall* Director and Vice Chairman
of the Board
G. R. Rogliano Vice President - Controllership
-------------- and Taxes (principal accounting officer)
(G. R. Rogliano)
R. H. Spilman* Director
R. G. Stone, Jr.* Director
A. H. Zimmerman* Director
*By J. C. Farrell
-------------------------------
(J. C. Farrell, Attorney-in-Fact)
</TABLE>
The Registrant does not have any designated principal financial officer.
---
113
<PAGE>
The Pittston Company and Subsidiaries
--------------------------------------------------------------------------------
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<S> <C>
FINANCIAL STATEMENTS:
THE PITTSTON COMPANY AND SUBSIDIARIES
Statement of Management Responsibility..................... 49
Independent Auditors' Report............................... 49
Consolidated Balance Sheets................................ 50
Consolidated Statements of Operations...................... 51
Consolidated Statements of Shareholders' Equity............ 52
Consolidated Statements of Cash Flows...................... 53
Notes to Consolidated Financial Statements................. 54
PITTSTON SERVICES GROUP
Statement of Management Responsibility..................... 73
Independent Auditors' Report............................... 73
Balance Sheets............................................. 74
Statements of Operations................................... 75
Statements of Cash Flows................................... 76
Notes to Financial Statements.............................. 77
PITTSTON MINERALS GROUP
Statement of Management Responsibility..................... 91
Independent Auditors' Report............................... 91
Balance Sheets............................................. 92
Statements of Operations................................... 93
Statements of Cash Flows................................... 94
Notes to Financial Statements.............................. 95
FINANCIAL STATEMENT SCHEDULES:
Independent Auditors' Report on Financial Statement
Schedules................................................... 115
THE PITTSTON COMPANY AND SUBSIDIARIES
VIII - Valuation and Qualifying Accounts.................... 116
PITTSTON SERVICES GROUP
VIII - Valuation and Qualifying Accounts.................... 117
</TABLE>
Schedules other than those listed above are omitted because they are not
applicable or not required, or the information is included elsewhere in the
financial statements.
---
114
<PAGE>
-------------------------------------------------------------------------------
The Pittston Company and Subsidiaries
-----------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
The Pittston Company
Under date of January 25, 1995, we reported on the consolidated balance sheets
of The Pittston Company and subsidiaries (the 'Company') as of December 31, 1994
and 1993, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1994, and the balance sheets of Pittston Services Group as of
December 31, 1994 and 1993, and the related statements of operations and cash
flows for each of the years in the three-year period ended December 31, 1994, as
contained in the 1994 Annual Report on Form 10-K of The Pittston Company. In
connection with our audits of the aforementioned financial statements, we also
audited the related financial statement schedules listed in the accompanying
index. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statement schedules based on our audits.
In our opinion, the Company's financial statement schedule, when considered in
relation to the basic consolidated financial statements of the Company taken as
a whole, and Pittston Services Group's financial statement schedule, when
considered in relation to the basic financial statements of Pittston Services
Group taken as a whole, present fairly, in all material respects, the
information set forth therein.
Our report for Pittston Services Group contains an explanatory paragraph that
states that the financial statements of Pittston Services Group should be read
in connection with the audited consolidated financial statements of the Company.
KPMG Peat Marwick LLP
Stamford, Connecticut
January 25, 1995
---
115
<PAGE>
The Pittston Company and Subsidiaries
--------------------------------------------------------------------------------
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
SCHEDULE VIII
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
---------------------------------------- ---------- ---------------------- --------- ---------
Additions
----------------------
Balance at Charged to Charged to Balance
beginning costs and other at end of
Description of period expenses accounts Deductions period
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Estimated uncollectible amount of notes 926 (a)
and accounts receivable $ 16,040 4,532 287 (b) 6,051 (c) 15,734
-------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993
Estimated uncollectible amount of notes 551 (a)
and accounts receivable $ 15,930 6,880 944 (b) 8,265 (c) 16,040
-------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1992
Estimated uncollectible amount of notes 814 (a)
and accounts receivable $ 15,984 4,058 852 (b) 5,778 (c) 15,930
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Amounts recovered.
(b) Amounts reclassified from other accounts.
(c) Accounts written off.
---
116
<PAGE>
Pittston Services Group
--------------------------------------------------------------------------------
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
SCHEDULE VIII
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
--------------------------------------------- ---------- ---------------------- --------- ---------
Additions
----------------------
Balance at Charged to Charged to Balance
beginning costs and other at end of
Description of period expenses accounts Deductions period
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Estimated uncollectible amount of notes 926 (a)
and accounts receivable $ 13,745 4,400 287 (b) 5,504 (c) 13,854
------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1993
Estimated uncollectible amount of notes 551 (a)
and accounts receivable $ 14,133 6,352 695 (b) 7,986 (c) 13,745
------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1992
Estimated uncollectible amount of notes 814 (a)
and accounts receivable $ 14,223 3,897 852 (b) 5,653 (c) 14,133
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Amounts recovered.
(b) Amounts reclassified from other accounts.
(c) Accounts written off.
---
117
<PAGE>
The Pittston Company and Subsidiaries
--------------------------------------------------------------------------------
EXHIBIT INDEX
Each Exhibit listed below that is followed by a reference to a previously filed
document is hereby incorporated by reference to such document.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C> <C>
3(a) The Registrant's Restated Articles of Incorporation. Exhibit
3(a) to the Registrant's report on Form 8-K dated January
28, 1994.
3(b) The Registrant's Bylaws, as amended. Exhibit 3(b) to the
Registrant's report on Form 8-K dated December 3, 1993.
4(a) (i) Amended and Restated Rights Agreement dated as of
July 26, 1993, between the Registrant and Chemical
Bank, as Rights Agent. Exhibit 2 to the
Registrant's Registration Statement on Form 8-A
dated July 22, 1993 (the 'Form 8-A').
(ii) Form of Right Certificate for Services Rights.
Exhibit B-1 to the Form 8-A.
(iii) Form of Right Certificate for Minerals Rights.
Exhibit B-2 to the Form 8-A.
Instruments defining the rights of holders of long-term debt
of the Registrant and its consolidated subsidiaries have
been omitted because the amount of debt under any such
instrument does not exceed 10% of the total assets of the
Registrant and its consolidated subsidiaries. The Registrant
agrees to furnish a copy of any such instrument to the
Commission upon request.
10(a)* The Registrant's 1979 Stock Option Plan, as amended. Exhibit
10(a) to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992 (the '1992 Form 10-K').
10(b)* The Registrant's 1985 Stock Option Plan, as amended. Exhibit
10(b) to the 1992 Form 10-K.
10(c)* The Registrant's Key Employees Incentive Plan, as amended.
Exhibit 10(c) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991 (the '1991 Form 10-K').
10(d)* The Company's Key Employees' Deferred Compensation Program.
Exhibit 10.6 to the First Quarter 1994 Form 10-Q.
10(e)* (i) The Registrant's Pension Equalization Plan, as
amended. Exhibit 10(a) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994 (the 'Third Quarter 1994 Form
10-Q').
(ii) Trust Agreement under the Pension Equalization
Plan, Retirement Plan for Non-Employee Directors
and Certain Contractual Arrangements of The Pitt-
ston Company made as of September 16, 1994, by and
between the Registrant and Chase Manhattan Bank
(National Association), as Trustee. Exhibit 10(i)
to the Third Quarter 1994 Form 10-Q.
(iii) Form of letter agreement dated as of September 16,
1994, between the Registrant and one of its
officers. Exhibit 10(e) to the Third Quarter 1994
Form 10-Q.
(iv) Form of letter agreement dated as of September 16,
1994, between the Registrant and Participants
pursuant to the Pension Equalization Plan. Exhibit
10(f) to the Third Quarter 1994 Form 10-Q.
10(f)* The Registrant's Executive Salary Continuation Plan. Ex-
hibit 10(e) to the 1991 Form 10-K.
10(g)* The Registrant's 1988 Stock Option Plan, as amended. Exhibit
10.5 to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1994 (the 'First Quarter 1994
Form 10-Q').
10(h)* The Registrant's Non-Employee Directors' Stock Option Plan.
Exhibit 10(g) to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993 (the '1993 Form 10-K').
10(i)* (i) Employment Agreement dated as of May 1, 1993,
between the Registrant and J. C. Farrell. Exhibit
10 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1993.
(ii) Amendment No. 1 to Employment Agreement dated as of
May 1, 1993, between the Registrant and J. C.
Farrell. Exhibit 10(h) to the 1993 Form 10-K.
(iii) Form of Amendment No. 2 dated as of September 16,
1994, to Employment Agreement dated as of May 1,
1993, as amended by Amendment No. 1 thereto dated
March 18, 1994, between the Registrant and Joseph
C. Farrell. Exhibit 10(b) to the Third Quarter 1994
Form 10-Q.
</TABLE>
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118
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
10(j)* (i) Employment Agreement dated as of June 1, 1994,
between the Registrant and D. L. Marshall. Exhibit
10 to the Second Quarter 1994 Form 10-Q.
(ii) Form of Letter Agreement dated as of September 16,
1994, amending Employment Agreement dated as of
June 1, 1994, between the Registrant and D. L.
Marshall. Exhibit 10(c) to the Third Quarter 1994
Form 10-Q.
10(k)* The Company's 1994 Employee Stock Purchase Plan.
Exhibit 10.7 to the First Quarter 1994 Form 10-Q.
10(l)* (i) Form of change in control employment agreement
between the Registrant and Messrs. Farrell and
Marshall. Exhibit 10(j) to the 1987 Form 10-K.
(ii) Form of change in control employment agreement
between the Registrant and two of its officers.
Exhibit 10(l)(ii) to the 1989 Form 10-K.
(iii) Form of change in control employment agreement
between the Registrant (or a subsidiary) and seven
of the Registrant's officers. Exhibit 10(l)(iii) to
the 1989 Form 10-K.
(iv) Form of letter agreement amending change in control
employment agreements between the Registrant (or a
subsidiary) and seven of the Registrant's officers.
Exhibit 10(k)(iv) to the 1993 Form 10-K.
10(m)* Form of Indemnification Agreement entered into by the
Registrant with its directors and officers. Exhibit 10(l) to
the 1991 Form 10-K.
10(n)* (i) Registrant's Retirement Plan for Non-Employee
Directors, as amended. Exhibit 10(g) to the Third
Quarter 1994 Form 10-Q
(ii) Form of letter agreement dated as of September 16,
1994, between the Registrant and its Non-Employee
Directors pursuant to Retirement Plan for Non-
Employee Directors. Exhibit 10(h) to the Third
Quarter 1994 Form 10-Q.
10(o)* Registrant's Amended and Restated Plan for Deferral of
Directors' Fees. Exhibit 10(o) to the 1989 Form 10-K.
10(p) (i) Participation Agreement (the 'Participation Agree-
ment') dated as of December 19, 1985, among Bur-
lington Air Express Inc. (formerly, Burlington
Northern Air Freight Inc. and Burlington Air
Express USA Inc.) ('Burlington'), the loan
participants named therein (the 'Loan
Participants'), Manufacturers Hanover Leasing
Corporation, as Owner Participant (the 'Owner
Participant'), The Connecticut National Bank, as
Indenture Trustee (the 'Indenture Trustee') and
Meridian Trust Company, as Owner Trustee (the
'Owner Trustee'). Exhibit 10(p)(i) to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1988 (the '1988 Form
10-K').
(ii) Trust Agreement (the 'Trust Agreement') dated as of
December 19, 1985, between the Owner Participant
and the Owner Trustee. Exhibit 10(p)(ii) to the
1988 Form 10-K.
(iii) Trust Indenture and Mortgage (the 'Trust Indenture
and Mortgage') dated December 19, 1985, between the
Owner Trustee, as Mortgagor, and the Indenture
Trustee, as Mortgagee (the 'Mortgagee'). Exhibit
10(p)(iii) to the 1988 Form 10-K.
(iv) Lease Agreement (the 'Lease Agreement') dated as of
December 19, 1985, between the Owner Trustee, as
Lessor, and Burlington, as Lessee. Exhibit
10(p)(iv) to the 1988 Form 10-K.
(v) Tax Indemnity Agreement (the 'Tax Indemnity
Agreement') dated as of December 19, 1985, between
the Owner Participant and Burlington, including
Amendment No. 1 dated March 10, 1986. Exhibit
10(p)(v) to the 1988 Form 10-K.
(vi) Guaranty (the 'Guaranty') dated as of December 19,
1985, by the Registrant. Exhibit 10(p)(vi) to the
1988 Form 10-K.
(vii) Trust Agreement and Mortgage Supplement Nos. 1
through 4, dated December 23 and 30, 1985 and March
10 and May 8, 1986, between the Owner Trustee, as
Mortgagor, and the Indenture Trustee, as Mortgagee,
including Amendment No. 1 dated as of October 1,
1986 to Trust Agreement and Mortgage Supplement
Nos. 3 and 4. Exhibit 10(p)(vii) to the 1988 Form
10-K.
</TABLE>
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119
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
(viii) Lease Supplements Nos. 1 through 4 dated December
23 and 30, 1985 and March 10 and May 8, 1986,
between the Owner Trustee, as Lessor, and Burling-
ton, as Lessee, including Amendment No. 1 dated as
of October 1, 1986 to Lease Supplements Nos. 3 and
4. Exhibit 10(p)(viii) to the 1988 Form 10-K.
(ix) Letter agreement dated March 10, 1986, among the
Owner Participant, the Mortgagee, the Owner Trus-
tee, the Loan Participants, Burlington and the
Registrant, amending the Lease Agreement, the Trust
Indenture and Mortgage and the Participation Agree-
ment. Exhibit 10(p)(ix) to the 1988 Form 10-K.
(x) Letter agreement dated as of May 8, 1986, among the
Owner Participant, the Mortgagee, the Owner Trus-
tee, the Loan Participants, Burlington and the
Registrant, amending the Participation Agreement.
Exhibit 10(p)(x) to the 1988 Form 10-K.
(xi) Letter agreement dated as of May 25, 1988, between
the Owner Trustee, as Lessor, and Burlington, as
Lessee, amending the Lease Agreement. Exhibit
10(p)(xi) to the 1988 Form 10-K.
(xii) Partial Termination of Lease, dated September 18,
1992, between the Owner Trustee, as Lessor, and
Burlington, as Lessee, amending the Lease Agree-
ment. Exhibit 10(o)(xii) to the 1992 Form 10-K.
(xiii) Partial Termination of Trust Indenture and
Mortgage, dated September 18, 1992, between the
Indenture Trustee, as Mortgagee, and the Owner
Trustee, as Mortgagor, amending the Trust Indenture
and Mortgage. Exhibit 10(o)(xiii) to the 1992 Form
10-K.
(xiv) Trust Agreement and Mortgage Supplement No. 5,
dated September 18, 1992, between the Owner Trus-
tee, as Mortgagor, and the Indenture Trustee, as
Mortgagee. Exhibit 10(o)(xiv) to the 1992 Form
10-K.
(xv) Lease Supplement No. 5, dated September 18, 1992,
between the Owner Trustee, as Lessor, and Burling-
ton, as Lessee. Exhibit 10(o)(xv) to the 1992 Form
10-K.
(xvi) Lease Supplement No. 6, dated January 20, 1993,
between the Owner Trustee, as Lessor, and Burling-
ton, as Lessor, amending the Lease Agreement. Ex-
hibit 10(o)(xvi) to the 1992 Form 10-K.
10(q) (i) Lease dated as of April 1, 1989 between
Toledo-Lucas County Port Authority (the
'Authority'), as Lessor, and Burlington, as Lessee.
Exhibit 10(i) to the Registrant's quarterly report
on Form 10-Q for the quarter ended June 30, 1989
(the 'Second Quarter 1989 Form 10-Q').
(ii) Lease Guaranty Agreement dated as of April 1, 1989
between Burlington (formerly, Burlington Air Ex-
press Management Inc.), as Guarantor, and the Au-
thority. Exhibit 10(ii) to the Second Quarter 1989
Form 10-Q.
(iii) Trust Indenture dated as of April 1, 1989 between
the Authority and Society Bank & Trust (formerly,
Trustcorp Bank, Ohio) (the 'Trustee'), as Trustee.
Exhibit 10(iii) to the Second Quarter 1989 Form
10-Q.
(iv) Assignment of Basic Rent and Rights Under a Lease
and Lease Guaranty dated as of April 1, 1989 from
the Authority to the Trustee. Exhibit 10(iv) to the
Second Quarter 1989 Form 10-Q.
(v) Open-End First Leasehold Mortgage and Security
Agreement dated as of April 1, 1989 from the Au-
thority to the Trustee. Exhibit 10(v) to the Second
Quarter 1989 Form 10-Q.
(vi) First Supplement to Lease dated as of January 1,
1990, between the Authority and Burlington, as
Lessee. Exhibit 10 to the Registrant's quarterly
report on Form 10-Q for the quarter ended March 31,
1990.
(vii) Revised and Amended Second Supplement to Lease
dated as of September 1, 1990, between the
Authority and Burlington. Exhibit 10(i) to the
Registrant's quarterly report on Form 10-Q for the
quarter ended September 30, 1990 (the 'Third
Quarter 1990 Form 10-Q').
(viii) Amendment Agreement dated as of September 1, 1990,
among City of Toledo, Ohio, the Authority,
Burlington and the Trustee. Exhibit 10(ii) to the
Third Quarter 1990 Form 10-K.
(ix) Assumption and Non-Merger Agreement dated as of
September 1, 1990, among Burlington, the Authority
and the Trustee. Exhibit 10(iii) to the Third
Quarter 1990 Form 10-Q.
(x) First Supplemental Indenture between Toledo-Lucas
County Port Authority, and Society National Bank,
as Trustee, dated as of March 1, 1994. Exhibit 10.1
to the First Quarter 1994 Form 10-Q.
</TABLE>
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<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
(xi) Third Supplement to Lease between Toledo-Lucas
County Port Authority, as Lessor, and Burlington
Air Express Inc., as Lessee, dated as of March 1,
1994. Exhibit 10.2 to the First Quarter 1994 Form
10-Q.
(xii) Fourth Supplement to Lease between Toledo-Lucas
County Port Authority, as Lessor, and Burlington
Air Express Inc., as Lessee, dated as of June 1,
1991. Exhibit 10.3 to the First Quarter 1994 Form
10-Q.
10(r) Stock Purchase Agreement dated as of September 24, 1993,
between the Pittston Acquisition Company and Addington
Holding Company, Inc. Exhibit 10 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993.
10(s) Credit Agreement dated as of March 4, 1994, among The
Pittston Company, as Borrower, Lenders Parties Thereto,
Chemical Bank, Credit Suisse and Morgan Guaranty Trust
Company of New York, as Co-agents, and Credit Suisse, as
Administrative Agent. Exhibit 10.4 to the First Quarter 1994
Form 10-Q.
11 Computation of Earnings Per Common Share.
21 Subsidiaries of the Registrant.
23 Consent of independent auditors.
24 Powers of attorney.
27 Financial Data Schedule.
99* Amendment to the Registrant's Pension-Retirement Plan
relating to preservation of assets of the Pension-Retirement
Plan upon a change in control. Exhibit 99 to the 1992 Form
10-K.
</TABLE>
------------------------------------
* Management contract or compensatory plan or arrangement.
---
121
<PAGE>
STATEMENT OF DIFFERENCES
The registered trademark shall be expressed as 'r'
<PAGE>
The Pittston Company and Subsidiaries
COMPUTATION OF EARNINGS PER SHARE
(In thousands, except per share amounts)
EXHIBIT 11
Fully Diluted Earnings Per Share (a):
<TABLE>
<CAPTION>
Years Ended December 31
1994 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C> <C>
PITTSTON SERVICES GROUP
Net income $ 79,845 47,126 27,277
--------------------------------------------------------------------------------
Average common shares outstanding 37,784 36,907 37,081
Incremental shares of stock options 464 411 129
--------------------------------------------------------------------------------
Pro forma shares outstanding 38,248 37,318 37,210
--------------------------------------------------------------------------------
Net income $ 2.09 1.26 0.73
--------------------------------------------------------------------------------
PITTSTON MINERALS GROUP
Net income (loss) $(52,948) (32,980) 21,810
Preferred stock dividends (3,998) - -
--------------------------------------------------------------------------------
Net income (loss) attributable
to common shares $(56,946) (32,980) 21,810
--------------------------------------------------------------------------------
Average common shares outstanding 7,594 7,381 7,416
Incremental shares of stock options (b) - - 26
--------------------------------------------------------------------------------
Pro forma shares outstanding 7,594 7,381 7,442
--------------------------------------------------------------------------------
Net income (loss) attributable to
common shares $ (7.50) (4.47) 2.93
--------------------------------------------------------------------------------
</TABLE>
(a) On July 26, 1993, the outstanding shares of The Pittston Company's common
stock were redesignated as Pittston Services Group common stock on a share-for-
share basis and a second class of stock, designated as Pittston Minerals Group
common stock ("Minerals Stock") was distributed on a basis of one-fifth of
one share of Minerals Stock for each share of The Pittston Company's common
stock. Accordingly, all common share, stock options and per share data prior to
the redesignation has been restated to reflect the new equity structure of
The Pittston Company.
(b) For 1994 and 1993, the effect of stock options are excluded from the
computations because they are antidilutive, whereby their inclusion results
in a lower loss per common share. In addition, in 1994 the preferred stock
conversion is also excluded since it is antidilutive.
PRIMARY EARNINGS PER SHARE
Primary earnings per share can be computed from the information on the face of
the Consolidated Statements of Operations.
1
<PAGE>
The Pittston Company and Subsidiaries
SUBSIDIARIES OF REGISTRANT (The Pittston Company)
(Percentage of Voting Securities 100% unless otherwise noted)
EXHIBIT 21
<TABLE>
<CAPTION>
Jurisdiction
Company of Incorporation
<S> <C>
PITTSTON SERVICES GROUP INC. Virginia
Brink's Guarding Services, Inc. Delaware
Brink's Home Security, Inc. Delaware
Brink's Home Security Canada Limited Canada
Brink's, Incorporated Delaware
Brink's Antigua Limited [47%] Antigua
Brink's Canada Limited Canada
Brink's SFB Solutions, Ltd. Canada
Brink's Security Company Limited Canada
Brink's de Colombia S.A. [45%] Colombia
Brink's Express Company Illinois
Brink's (Liberia) Inc. Liberia
Brink's Peru, S.A.[4.96%] Peru
Brink's Puerto Rico, Inc. Puerto Rico
Brink's Redevelopment Corporation Missouri
Brink's St. Kitts-Nevis Ltd. [33.33%] B.W. Indies
Brink's St. Lucia [26.3%] B.W. Indies
Brink's Security International, Inc. Delaware
Brink's Air Courier Australia Pty. Ltd. Australia
Brink's Allied Limited (Ireland) [50%] Ireland
Allied Couriers Limited Ireland
Brink's Ireland Limited Ireland
Brink's Arya India Private Limited [40%] India
Brink's Barbados Limited [14.3%] Barbados
Brink's Bolivia S.A. [59%] Bolivia
Brink's Chile Ltda. [50.1%] Chile
Brink's Diamond & Jewelry Services, Inc. Delaware
Brink's Diamond & Jewelry Services S.R.L. Italy
Brink's Far East Limited [99.9%] Hong Kong
Brink's HKS Limited [33.33%][33.33% BI] Hong Kong
Brink's Holland B.V. Netherlands
Brink's-Nedlloyd VOF [65% partnership] Netherlands
Brink's International A.G. [50% BSI; 50% BL] Switzerland
Brink's International Management Group, Inc. Delaware
Brink's Israel, Ltd. [70%] Israel
Brink's Japan Ltd. [51%] Japan
Brink's Pakistan (Pvt) Limited [49%] Pakistan
Brink's Panama, S.A. [49%] Panama
Brink's S.A. [38%] France
Brink's-Schenker GmbH [50%] Germany
Brink's Security Transport Singapore Pte. Ltd [60%] Singapore
Brink's Securmark S.p.A. [24.5%] Italy
Brink's Servicios Ltda. [50.1%] Chile
Brink's (Thailand) Limited [40%] Thailand
Brink's (UK) Limited U.K.
Brink's Commercial Services Limited U.K.
Brink's Diamond & Jewellery Services Limited U.K.
Brink's Limited U.K.
Brink's-Gerlach B.V. [60%][5% BH] Netherlands
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction
Company of Incorporation
<S> <C>
Brink's Limited (Bahrain) EC Bahrain
Brink's (Gibraltar) Limited [99%] Gibraltar
Brink's Security Limited [99%] U.K.
Quarrycast Commercial Limited [50% BL] U.K.
Brink's-Ziegler S.A. [20%] Belgium
Custodia Y Translado de Valores, C.A. [15%] Venezuela
S.A. Brink's Diamond & Jewelry Services N.V. [99%] Belgium
S.A. Brink's Europe N.V. [99%] Belgium
Transpar-Participacoes Ltda. [99%; 1% BI] Brazil
Alarm-Curso de Formacao de Vigilantes, Ltda.[99%] Brazil
Brink's Seguranca Transporte de Valores [99%] Brazil
Brink's Transportes e Despachos Ltda. [99%] Brazil
Brink's Viaturas e Equipamentos Ltda. [99%] Brazil
Brink's SFB Solutions, Inc. Delaware
Security Services (Brink's Jordan) Company Ltd. [45%] Jordan
Servicio Pan Americano de Proteccion, S.A. [20%] Mexico
Burlington Air Express Inc. Delaware
Burlington Air Express International Inc. Delaware
BAX (Malaysia) Sdn. Bhd. Malaysia
Burlington Air Imports (Malaysia) Sdn. Bhd. [40%; 60% bumiputra] Malaysia
Bax-Transitarios, Lda. [Esc. 4.980.000/BAX Esc. 20.000] Portugal
Burlington Air Express Aktiebolag Sweden
Burlington Air Express AG Switzerland
Burlington Air Express AO [79%/BAX 1%/Elf-91 (unrelated 3rd party) 20%] Russia
Burlington Air Express A/S Denmark
Burlington Air Express B.V. Netherlands
Burlington Air Express N.V./S.A. Belgium
Burlington Air Express Pte Ltd. Singapore
Burlington Air Express (Brazil) Inc. Delaware
Burlington Air Express (Canada) Ltd. Canada
797726 Ontario Limited Canada
Burlington Air Express do Brazil Ltda. Brazil
Burlington Air Express (Dubai) Inc. Delaware
Burlington Air Express (France) SARL France
Burlington Air Express S.A. France
Burlington Air Express GmbH Germany
Burlington Air Express Holdings Pty. Limited Australia
Burlington Air Express (Aust) Pty. Limited Australia
AFCAB Pty. Limited [11.23%] Australia
Brisbane Air Freight Forwarders Terminal Pty Ltd. [20%] Australia
Burlington Air Express Cartage Pty. Limited Australia
Burlington Air Express (Ireland) Limited [11 sh./BAX 1 sh.] Ireland
Burlington Air Express Japan K.K. Japan
Burlington Air Express Limited [Hong Kong] Hong Kong
CAC China Air Cargo Limited Hong Kong
Burlington Air Express Mexico, S.A. de C.V. [49,999 sh./BAX 1 sh.] Mexico
Burlington Air Express (NZ) Ltd. New Zealand
Colebrook Brothers Limited New Zealand
Walsh and Anderson (1991) Limited New Zealand
Burlington Air Express Services Inc. Delaware
Burlington Air Express (U.K.) Limited U.K.
Alltransport Holdings Limited U.K.
Alltransport International Group Limited U.K.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Jurisdiction
Company of Incorporation
<S> <C>
Alltransport (Car Deliveries) Limited U.K.
Alltransport Warehousing Limited U.K.
Burlington Air Express Limited U.K.
Burlington European Express Limited U.K.
Burlington Ocean Services Limited U.K.
Zalphan Services Limited U.K.
Burlington Air Express Regional Limited U.K.
WTC Air Freight (U.K.) Limited U.K.
Burlington International Forwarding Ltd. [33%] Taiwan
Burlington Networks B.V. Netherlands
Burlington Networks Inc. Delaware
Burlington Air Express S.A. Spain
Burlington-Transmaso Air Express Lda. [50%] Portugal
Indian Enterprises Inc. Delaware
Indian Associates Inc. [40%] Delaware
Burlington Air Express India Private Limited India
Burlington Air Imports Inc. Delaware
Burlington Airline Express Inc. Delaware
Burlington Land Trading Inc. Delaware
Highway Merchandise Express, Inc. California
WTC Airlines, Inc. California
WTC SUB California
Westransco Ocean Freight (Holdings) Limited Hong Kong
Westransco Ocean Freight (Hong Kong) Limited Hong Kong
Westransco Ocean Freight (Japan) Limited Japan
Westransco Ocean Freight (Taiwan) Limited Taiwan
Pittston Administrative Services Inc. Delaware
Pittston Finance Company Inc. Delaware
PITTSTON MINERALS GROUP INC. Virginia
Pittston Coal Company Delaware
Appalachian Equipment Rental Corp. Delaware
Erwin Supply Company, Inc. Virginia
Heartland Coal Company Delaware
Intercontinental Coal Corp. Delaware
American Eagle Coal Company Virginia
Pine Mountain Oil and Gas, Inc. Virginia
Pittston Acquisition Company Virginia
Addington, Inc. Kentucky
Ironton Coal Company Ohio
Appalachian Land Company W. Virginia
Appalachian Mining, Inc. W. Virginia
Kanawha Development Corporation W. Virginia
Maxim Management Company Virginia
Vandalia Resources, Inc. W. Virginia
Pittston Coal Export Corp. Virginia
Pittston Coal Management Company Virginia
Pittston Coal Marketing and Development Corp. Virginia
Pittston Coal Sales Corp. Virginia
Pittston Coal Terminal Corporation Virginia
Pittston Resources, Inc. Virginia
Pyxis Resources Company Virginia
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION> Jurisdiction
Company of Incorporation
<S> <C>
Courage Mining Company Virginia
Holston Mining, Inc. W. Virginia
Motivation Coal Company Virginia
Paramont Coal Corporation Delaware
Pride Energy Company Virginia
Primary Sales Corporation Kentucky
Heartland Resources Inc. W. Virginia
HICA Corporation Kentucky
Pyxis Coal Sales Company Virginia
Sheridan-Wyoming Coal Company, Incorporated Delaware
Thames Development, Ltd. Virginia
Buffalo Mining Company W. Virginia
Clinchfield Coal Company Virginia
Clinchfield Cogen Company Virginia
Dante Coal Company Virginia
Eastern Coal Corporation W. Virginia
Elkay Mining Company W. Virginia
Jewell Ridge Coal Corporation Virginia
Kentland-Elkhorn Coal Corporation Kentucky
Little Buck Coal Company Virginia
Meadow River Coal Company Kentucky
Pittston Coal Group, Inc. Virginia
Ranger Fuel Corporation W. Virginia
Sea "B" Mining Company Virginia
Pittston Mineral Ventures Company Delaware
PMV Gold Company Delaware
Pittston Mineral Ventures International Ltd. Delaware
Pittston Mineral Ventures of Australia Pty. Limited Australia
Carbon Ventures Pty. Limited Australia
International Carbon (Aust.) Pty. Limited Australia
Pittston Australasian Mineral Exploration Pty Limited Australia
Pittston Black Sands of Western Australia Pty Limited Australia
Rangeley Mineral Resources Company Delaware
The Pittston Company [DELAWARE] Delaware
</TABLE>
4
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
The Pittston Company
We consent to incorporation by reference in the Registration Statements (Nos. 2-
64258, 33-2039, 33-21393, 33-23333, 33-69040 and 33-53565) on Form S-8 of The
Pittston Company of our reports dated January 25, 1995, as listed in the
accompanying Index to Financial Statements and Schedules as listed in Items
14(a)1 and 14(a)2 included in the 1994 Annual Report on Form 10-K of The
Pittston Company which reports appear herein.
Our reports for Pittston Services Group and Pittston Minerals Group contain an
explanatory paragraph that states that the financial statements of Pittston
Services Group and Pittston Minerals Group should be read in connection with the
audited consolidated financial statements of The Pittston Company and
subsidiaries.
KPMG Peat Marwick LLP
Stamford, Connecticut
March 29, 1995
<PAGE>
The Pittston Company and Subsidiaries
POWER OF ATTORNEY
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute and
appoint Joseph C. Farrell, Austin F. Reed and Gary R. Rogliano, and each of them
(with full power of substitution), his true and lawful attorney-in-fact and
agent to do any and all acts and things and to execute any and all instruments
which, with the advice of counsel, any of said attorneys and agents may deem
necessary or advisable to enable The Pittston Company, a Virginia corporation
(the "Company"), to comply with the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the preparation and filing of the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994 (the "Form 10-K"),
including specifically, but without limitation, power and authority to sign his
name as an officer and/or director of the Company, as the case may be, to the
Form 10-K or any amendments thereto; and the undersigned does hereby ratify and
confirm all that said attorneys shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of March, 1995.
Roger G. Ackerman
---------------------------------
Roger G. Ackerman
1
<PAGE>
-------------------------------------------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute and
appoint Joseph C. Farrell, Austin F. Reed and Gary R. Rogliano, and each of them
(with full power of substitution), his true and lawful attorney-in-fact and
agent to do any and all acts and things and to execute any and all instruments
which, with the advice of counsel, any of said attorneys and agents may deem
necessary or advisable to enable The Pittston Company, a Virginia corporation
(the "Company"), to comply with the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the preparation and filing of the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994 (the "Form 10-K"),
including specifically, but without limitation, power and authority to sign his
name as an officer and/or director of the Company, as the case may be, to the
Form 10-K or any amendments thereto; and the undersigned does hereby ratify and
confirm all that said attorneys shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of March, 1995.
M. J. Anton
---------------------------------
M. J. Anton
2
<PAGE>
-------------------------------------------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute and
appoint Joseph C. Farrell, Austin F. Reed and Gary R. Rogliano, and each of them
(with full power of substitution), his true and lawful attorney-in-fact and
agent to do any and all acts and things and to execute any and all instruments
which, with the advice of counsel, any of said attorneys and agents may deem
necessary or advisable to enable The Pittston Company, a Virginia corporation
(the "Company"), to comply with the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the preparation and filing of the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994 (the "Form 10-K"),
including specifically, but without limitation, power and authority to sign his
name as an officer and/or director of the Company, as the case may be, to the
Form 10-K or any amendments thereto; and the undersigned does hereby ratify and
confirm all that said attorneys shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of March, 1995.
J. R. Barker
---------------------------------
J. R. Barker
3
<PAGE>
-------------------------------------------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute and
appoint Joseph C. Farrell, Austin F. Reed and Gary R. Rogliano, and each of them
(with full power of substitution), his true and lawful attorney-in-fact and
agent to do any and all acts and things and to execute any and all instruments
which, with the advice of counsel, any of said attorneys and agents may deem
necessary or advisable to enable The Pittston Company, a Virginia corporation
(the "Company"), to comply with the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the preparation and filing of the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994 (the "Form 10-K"),
including specifically, but without limitation, power and authority to sign his
name as an officer and/or director of the Company, as the case may be, to the
Form 10-K or any amendments thereto; and the undersigned does hereby ratify and
confirm all that said attorneys shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of March, 1995.
J. L. Broadhead
---------------------------------
J. L. Broadhead
4
<PAGE>
-------------------------------------------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute and
appoint Joseph C. Farrell, Austin F. Reed and Gary R. Rogliano, and each of them
(with full power of substitution), his true and lawful attorney-in-fact and
agent to do any and all acts and things and to execute any and all instruments
which, with the advice of counsel, any of said attorneys and agents may deem
necessary or advisable to enable The Pittston Company, a Virginia corporation
(the "Company"), to comply with the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the preparation and filing of the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994 (the "Form 10-K"),
including specifically, but without limitation, power and authority to sign his
name as an officer and/or director of the Company, as the case may be, to the
Form 10-K or any amendments thereto; and the undersigned does hereby ratify and
confirm all that said attorneys shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of March, 1995.
W. F. Craig
---------------------------------
W. F. Craig
5
<PAGE>
-------------------------------------------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute and
appoint Austin F. Reed and Gary R. Rogliano, and each of them (with full power
of substitution), his true and lawful attorney-in-fact and agent to do any and
all acts and things and to execute any and all instruments which, with the
advice of counsel, any of said attorneys and agents may deem necessary or
advisable to enable The Pittston Company, a Virginia corporation (the
"Company"), to comply with the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the preparation and filing of the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994 (the "Form 10-K"),
including specifically, but without limitation, power and authority to sign his
name as an officer and/or director of the Company, as the case may be, to the
Form 10-K or any amendments thereto; and the undersigned does hereby ratify and
confirm all that said attorneys shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of March, 1995.
J. C. Farrell
---------------------------------
J. C. Farrell
6
<PAGE>
-------------------------------------------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute and
appoint Joseph C. Farrell, Austin F. Reed and Gary R. Rogliano, and each of them
(with full power of substitution), his true and lawful attorney-in-fact and
agent to do any and all acts and things and to execute any and all instruments
which, with the advice of counsel, any of said attorneys and agents may deem
necessary or advisable to enable The Pittston Company, a Virginia corporation
(the "Company"), to comply with the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the preparation and filing of the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994 (the "Form 10-K"),
including specifically, but without limitation, power and authority to sign his
name as an officer and/or director of the Company, as the case may be, to the
Form 10-K or any amendments thereto; and the undersigned does hereby ratify and
confirm all that said attorneys shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of March, 1995.
C. F. Haywood
---------------------------------
C. F. Haywood
7
<PAGE>
-------------------------------------------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute and
appoint Joseph C. Farrell, Austin F. Reed and Gary R. Rogliano, and each of them
(with full power of substitution), his true and lawful attorney-in-fact and
agent to do any and all acts and things and to execute any and all instruments
which, with the advice of counsel, any of said attorneys and agents may deem
necessary or advisable to enable The Pittston Company, a Virginia corporation
(the "Company"), to comply with the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the preparation and filing of the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994 (the "Form 10-K"),
including specifically, but without limitation, power and authority to sign his
name as an officer and/or director of the Company, as the case may be, to the
Form 10-K or any amendments thereto; and the undersigned does hereby ratify and
confirm all that said attorneys shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of March, 1995.
E. G. Jordan
---------------------------------
E. G. Jordan
8
<PAGE>
-------------------------------------------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute and
appoint Austin F. Reed, Joseph C. Farrell and Gary R. Rogliano, and each of them
(with full power of substitution), his true and lawful attorney-in-fact and
agent to do any and all acts and things and to execute any and all instruments
which, with the advice of counsel, any of said attorneys and agents may deem
necessary or advisable to enable The Pittston Company, a Virginia corporation
(the "Company"), to comply with the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the preparation and filing of the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994 (the "Form 10-K"),
including specifically, but without limitation, power and authority to sign his
name as an officer and/or director of the Company, as the case may be, to the
Form 10-K or any amendments thereto; and the undersigned does hereby ratify and
confirm all that said attorneys shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of March, 1995.
D. L. Marshall
---------------------------------
D. L. Marshall
9
<PAGE>
-------------------------------------------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute and
appoint Joseph C. Farrell, Austin F. Reed and Gary R. Rogliano, and each of them
(with full power of substitution), his true and lawful attorney-in-fact and
agent to do any and all acts and things and to execute any and all instruments
which, with the advice of counsel, any of said attorneys and agents may deem
necessary or advisable to enable The Pittston Company, a Virginia corporation
(the "Company"), to comply with the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the preparation and filing of the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994 (the "Form 10-K"),
including specifically, but without limitation, power and authority to sign his
name as an officer and/or director of the Company, as the case may be, to the
Form 10-K or any amendments thereto; and the undersigned does hereby ratify and
confirm all that said attorneys shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of March, 1995.
R. H. Spilman
---------------------------------
R. H. Spilman
10
<PAGE>
-------------------------------------------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute and
appoint Joseph C. Farrell, Austin F. Reed and Gary R. Rogliano, and each of them
(with full power of substitution), his true and lawful attorney-in-fact and
agent to do any and all acts and things and to execute any and all instruments
which, with the advice of counsel, any of said attorneys and agents may deem
necessary or advisable to enable The Pittston Company, a Virginia corporation
(the "Company"), to comply with the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the preparation and filing of the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994 (the "Form 10-K"),
including specifically, but without limitation, power and authority to sign his
name as an officer and/or director of the Company, as the case may be, to the
Form 10-K or any amendments thereto; and the undersigned does hereby ratify and
confirm all that said attorneys shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of March, 1995.
R. G. Stone, Jr.
---------------------------------
R. G. Stone, Jr.
11
<PAGE>
-------------------------------------------------------------------------------
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned does hereby constitute and
appoint Joseph C. Farrell, Austin F. Reed and Gary R. Rogliano, and each of them
(with full power of substitution), his true and lawful attorney-in-fact and
agent to do any and all acts and things and to execute any and all instruments
which, with the advice of counsel, any of said attorneys and agents may deem
necessary or advisable to enable The Pittston Company, a Virginia corporation
(the "Company"), to comply with the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission in respect thereof, in
connection with the preparation and filing of the Company's annual report on
Form 10-K for the fiscal year ended December 31, 1994 (the "Form 10-K"),
including specifically, but without limitation, power and authority to sign his
name as an officer and/or director of the Company, as the case may be, to the
Form 10-K or any amendments thereto; and the undersigned does hereby ratify and
confirm all that said attorneys shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand this 9th day of March, 1995.
A. H. Zimmerman
---------------------------------
A. H. Zimmerman
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from The Pittston Company
Form 10-K for the year ended December 31, 1994, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 42,318
<SECURITIES> 25,162
<RECEIVABLES> 361,361
<ALLOWANCES> 15,734
<INVENTORY> 34,153
<CURRENT-ASSETS> 561,975
<PP&E> 840,494
<DEPRECIATION> 394,660
<TOTAL-ASSETS> 1,737,778
<CURRENT-LIABILITIES> 574,470
<BONDS> 138,071
<COMMON> 49,985
0
1,526
<OTHER-SE> 396,304
<TOTAL-LIABILITY-AND-EQUITY> 1,737,778
<SALES> 794,998
<TOTAL-REVENUES> 2,667,275
<CGS> 771,586
<TOTAL-COSTS> 2,313,666
<OTHER-EXPENSES> 90,806
<LOSS-PROVISION> 4,532
<INTEREST-EXPENSE> 11,489
<INCOME-PRETAX> 28,325
<INCOME-TAX> 1,428
<INCOME-CONTINUING> 26,897
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,897
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Pittston Services Group - Primary - 2.11
Pittston Minerals Group - Primary - (7.50)
<F2>Pittston Services Group - Diluted - 2.11
Pittston Minerals Group - Diluted - (7.50)
</FN>
