SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-9148
THE PITTSTON COMPANY
(Exact name of registrant as specified in its charter)
Virginia 54-1317776
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 120070, 100 First Stamford Place, Stamford, Connecticut 06912-0070
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (203) 978-5200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. 41,573,743 shares of $1 par
value Pittston Services Group Common Stock and 8,405,908 shares of $1 par value
Pittston Minerals Group Common Stock as of November 6, 1995.
1
<PAGE>
PART I - FINANCIAL INFORMATION
The Pittston Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30, Dec. 31,
1995 1994
========================================================================================================================
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 41,168 42,318
Short-term investments, at lower of cost or market 27,804 25,162
Accounts receivable (net of estimated amount uncollectible:
1995 - $16,533; 1994 -$15,734) 428,171 376,792
Inventories, at lower of cost or market 46,974 34,153
Prepaid expenses 34,444 27,700
Deferred income taxes 53,262 55,850
- -----------------------------------------------------------------------------------------------------------------------
Total current assets 631,823 561,975
Property, plant and equipment, at cost (net of
depletion and amortization: 1995 - $428,165; 1994 - $394,660) 468,960 445,834
Intangibles, net of amortization 329,366 329,441
Deferred pension assets 123,075 118,953
Deferred income taxes 80,289 84,214
Other assets 164,235 197,361
- -----------------------------------------------------------------------------------------------------------------------
Total assets $ 1,797,748 1,737,778
=======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 29,679 13,323
Current maturities of long-term debt 7,921 13,748
Accounts payable 260,266 252,615
Accrued liabilities 304,529 294,784
- -----------------------------------------------------------------------------------------------------------------------
Total current liabilities 602,395 574,470
Long-term debt, less current maturities 141,804 138,071
Postretirement benefits other than pensions 220,511 218,738
Workers' compensation and other claims 125,293 138,793
Deferred income taxes 21,321 19,036
Other liabilities 191,040 200,855
Shareholders' equity:
Preferred stock, par value $10 per share: Authorized: 2,000 shares
$31.25 Series C Cumulative Convertible Preferred Stock:
Issued: 1995 - 136 shares; 1994 - 153 shares 1,362 1,526
Pittston Services Group common stock, par value $1 per share:
Authorized: 100,000 shares;
Issued: 1995 - 41,573 shares; 1994 - 41,595 shares 41,573 41,595
Pittston Minerals Group common stock, par value $1 per share:
Authorized 20,000 shares;
Issued: 1995 - 8,406 shares; 1994 - 8,390 shares 8,406 8,390
Capital in excess of par value 405,360 420,470
Retained earnings 162,978 107,739
Equity adjustment from foreign currency translation (18,990) (14,276)
Employee benefits trust, at market value (105,305) (117,629)
- -----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 495,384 447,815
- -----------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,797,748 1,737,778
=======================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
The Pittston Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C>
Net sales $ 177,702 210,142 557,653 589,033
Operating revenues 574,751 483,712 1,605,651 1,352,116
- ---------------------------------------------------------------------------------------------------------------------
Net sales and operating revenues 752,453 693,854 2,163,304 1,941,149
- ---------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 167,261 199,372 542,061 578,197
Operating expenses 476,614 395,659 1,346,739 1,111,838
Selling, general and administrative expenses 68,381 59,573 195,002 177,729
Restructuring and other charges - - - 90,806
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 712,256 654,604 2,083,802 1,958,570
- ---------------------------------------------------------------------------------------------------------------------
Other operating income 3,135 7,630 22,417 18,465
- ---------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 43,332 46,880 101,919 1,044
Interest income 902 430 2,554 1,638
Interest expense (3,665) (2,745) (10,409) (7,954)
Other income (expense), net (1,817) (694) (4,013) (4,761)
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 38,752 43,871 90,051 (10,033)
Provision (credit) for income taxes 9,153 12,661 21,779 (5,713)
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) 29,599 31,210 68,272 (4,320)
Preferred stock dividends, net (521) (541) (1,697) (2,804)
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) attributed to common shares $ 29,078 30,669 66,575 (7,124)
=====================================================================================================================
Pittston Services Group:
Net income attributed to common shares $ 25,137 25,014 58,706 56,813
- ---------------------------------------------------------------------------------------------------------------------
Net income per common share $ .66 .66 1.55 1.50
- ---------------------------------------------------------------------------------------------------------------------
Cash dividend per common share $ .05 .05 .15 .15
- ---------------------------------------------------------------------------------------------------------------------
Pittston Minerals Group:
Net income (loss) attributed to common shares $ 3,941 5,655 7,869 (63,937)
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share:
Primary $ .51 .74 1.01 (8.44)
Fully diluted $ .45 .61 .96 (8.44)
- ---------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .1625 .1625 .4875 .4875
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
The Pittston Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994
=================================================================================================================================
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 68,272 (4,320)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Noncash charges and other write-offs - 46,793
Depreciation, depletion and amortization 78,710 71,988
Provision for aircraft heavy maintenance 19,226 19,585
Provision (credit) for deferred income taxes 8,564 (18,581)
Credit for pensions, noncurrent (2,729) (829)
Provision for uncollectible accounts receivable 3,741 3,150
Equity in earnings of unconsolidated affiliates, net of dividends received 1,516 (175)
Other operating, net (559) (973)
Change in operating assets and liabilities net of effects of acquisitions and dispositions:
Increase in accounts receivable (49,547) (60,543)
Increase in inventories (12,601) (4,961)
Increase in prepaid expenses (5,136) (3,797)
Increase in accounts payable and accrued liabilities 12,113 53,429
Decrease in other assets 43 720
(Decrease) increase in other liabilities (17,335) 453
(Decrease) increase in workers' compensation and other claims, noncurrent (13,500) 7,227
Other, net (1,464) (413)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 89,314 108,753
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (81,325) (71,291)
Property, plant and equipment pending lease financing (60) 1,822
Proceeds from disposal of property, plant and equipment 18,525 5,849
Aircraft heavy maintenance (11,406) (9,732)
Acquisitions, net of cash acquired, and related contingent payments (3,727) (157,294)
Other, net 2,968 5,304
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (75,025) (225,342)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 18,482 109,327
Reductions of debt (13,752) (37,137)
Repurchase of stock of the Company (10,606) (7,191)
Proceeds from employee stock purchase plan 767 -
Proceeds from exercise of stock options 2,954 6,459
Proceeds from preferred stock issuance, net of cash expenses - 77,359
Cost of Services Stock Proposal - (4)
Dividends paid (13,284) (12,381)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (15,439) 136,432
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,150) 19,843
Cash and cash equivalents at beginning of period 42,318 32,412
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 41,168 52,255
=================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
The Pittston Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share and employee amounts)
(1) The Pittston Company (the "Company") prepares consolidated financial
statements in addition to separate financial statements for the Pittston
Minerals Group (the "Minerals Group") and the Pittston Services Group (the
"Services Group"). The Services Group consists of the Burlington Air
Express Inc. ("Burlington"), Brink's, Incorporated ("Brink's") and Brink's
Home Security, Inc. ("BHS") operations of the Company. The Minerals Group
consists of the Coal and Mineral Ventures operations of the Company. The
Company's capital structure includes two classes of common stock, Pittston
Minerals Group Common Stock ("Minerals Stock") and Pittston Services Group
Common Stock ("Services Stock"), which are designed to provide shareholders
with separate securities reflecting the performance of the Minerals Group
and Services Group, respectively, without diminishing the benefits of
remaining a single corporation or precluding future transactions affecting
either Group or the Company as a whole. Holders of Services Stock and
Minerals Stock are shareholders of the Company, which is responsible for
all its liabilities. Financial developments affecting the Services Group or
the Minerals Group that affect the Company's financial condition could
affect the results of operations and financial condition of both Groups.
(2) The average number of shares outstanding used in the earnings per share
computations were as follows:
Third Quarter Nine Months
1995 1994 1995 1994
---------------------------------------------------------------------------
Services Stock 37,916 37,840 37,914 37,757
Minerals Stock:
Primary 7,804 7,605 7,781 7,578
Fully diluted 9,964 10,080 10,013 9,965
The average number of shares outstanding used in the earnings per share
computations do not include the shares of Services Stock and Minerals Stock
held in the Company's Employee Benefits Trust which totaled 3,628 (3,788 in
1994) and 619 (728 in 1994), respectively, at September 30, 1995.
(3) The amounts of depreciation, depletion and amortization of property, plant
and equipment in the third quarter and nine month periods were $20,443
($17,660 in 1994) and $59,777 ($52,278 in 1994), respectively.
(4) Cash payments made for interest and income taxes (net of refunds received)
were as follows:
Third Quarter Nine Months
1995 1994 1995 1994
-------------------------------------------------------------------------
Interest $ 3,103 2,966 10,185 8,782
=========================================================================
Income taxes $ 1,193 2,933 17,667 14,447
=========================================================================
On January 14, 1994, a wholly owned indirect subsidiary of the Company
completed the acquisition of substantially all of the coal mining
operations and coal sales contracts of Addington Resources, Inc.
("Addington Acquisition") for $157,324. The acquisition was accounted for
as a purchase; accordingly, the purchase price was allocated to the
underlying assets and liabilities based on their respective estimated fair
values at the date of acquisition. The fair value of assets acquired was
$173,959 and liabilities assumed was $138,518. The excess of the purchase
price over the fair value of the assets acquired and liabilities
5
<PAGE>
assumed was $121,883 and is being amortized over a period of forty years.
The results of operations of the acquired company have been included in the
Company's results of operations since the date of acquisition.
The acquisition was financed by the issuance of $80,500 of $31.25 Series C
Cumulative Convertible Preferred Stock, which is convertible into Minerals
Stock, and additional debt under existing credit facilities. This financing
has been attributed to the Minerals Group. In March 1994, the additional
debt incurred for the Addington Acquisition was refinanced with a portion
of a five-year term loan.
During the nine months ended September 30, 1995 and 1994, capital lease
obligations of $4,486 and $2,315, respectively, were incurred for leases of
property, plant and equipment. In addition, during the nine months ended
September 30, 1994, the Company assumed capital lease obligations of
$16,210 as part of the Addington Acquisition.
In December 1993, the Company sold the majority of the assets of its
captive mine supply company. Cash proceeds of $8,400 from the sale were
received on January 2, 1994, and have been included in the Consolidated
Statement of Cash Flows under the caption "Cash flow from investing
activities: Other, net".
(5) Restructuring and other charges - After a review of the economic viability
of certain metallurgical coal assets in the first quarter of 1994,
management determined that four underground mines were no longer
economically viable and should be closed, resulting in significant economic
impairment to three related preparation plants. In addition, it was
determined that one surface steam coal mine, the Heartland mine, which
provided coal to Alabama Power Company under a long-term sales agreement,
would be closed due to rising costs caused by unfavorable geological
conditions. As a result of these decisions, the Company incurred a pretax
charge of $90,806 in the first quarter of 1994 ($58,116 after tax) which
included a reduction in the carrying value of these assets and related
accruals for mine closure costs.
Of the four underground mines, two have ceased coal production (one in the
first half of 1995), while the remaining two mines are expected to cease
coal production during the remainder of 1995. In 1994 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 76% to approximately 180 employees at September 30, 1995.
(6) As of January 1, 1992, BHS elected to capitalize categories of costs not
previously capitalized for home security installations. The additional
costs not previously capitalized consisted of costs for installation labor
and related benefits for supervisory, installation scheduling, equipment
testing and other support personnel and costs incurred in maintaining
facilities and vehicles dedicated to the installation process. The effect
of this change in accounting principle was to increase operating profit for
the Company and the BHS segment for the first nine months of 1995 and 1994
by $3,204 and $3,114, respectively, and for the third quarters of 1995 and
1994 by $1,255 and $965, respectively. The effect of this change increased
net income per common share of the Services Group for the first nine months
of 1995 and 1994 by $.05, and for the third quarter of 1995 and 1994 by
$.02.
(7) On April 15, 1994, the Company redeemed all of the $27,811 of 9.2%
Convertible Subordinated Debentures due July 1, 2004, at a premium of $767.
The premium and other charges related to the redemption have been included
in the Consolidated Statement of Operations for the nine months ended
September 30, 1994, under the caption "Other income (expense), net".
(8) Certain prior period amounts have been reclassified to conform to current
period financial statement presentation.
6
<PAGE>
(9) All adjustments have been made which are, in the opinion of management,
necessary to a fair presentation of results of operations for the periods
reported herein. All such adjustments are of a normal recurring nature.
(10) In September 1995, the Company's Board of Directors approved, subject to a
favorable vote of shareholders, a plan to separate Services Stock into two
classes of common stock which would separately track the Company's security
services and home security businesses, the Pittston Brink's Group, and its
global freight transportation and logistics management services businesses,
the Pittston Burlington Group. The plan will not alter the composition of
the Minerals Group.
Under the proposed plan, a new class of common stock called Pittston
Burlington Group Common Stock ("Burlington Stock"), would be distributed
tax free to the Services Group shareholders in the ratio of one half of one
share of Burlington Stock for each outstanding share of Services Stock.
Services Group shareholders will retain their existing common stock, which
will be redesignated Pittston Brink's Group Common Stock ("Brink's Stock"),
on a share-for-share basis. The Company would continue as a single
corporate entity with three classes of common stock: Brink's Stock,
Burlington Stock, and Minerals Stock. The proposed plan is designed to have
no adverse effect on the rights of the shareholders of Minerals Stock or
Series C Convertible Preferred Stock.
7
<PAGE>
The Pittston Company and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
- -------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=======================================================================================================
(In thousands)
<S> <C> <C> <C> <C>
Revenues:
Burlington $ 365,793 311,925 1,031,687 875,675
Brink's 176,507 143,879 480,141 395,827
BHS 32,451 27,908 93,823 80,614
Coal 173,985 205,831 545,255 577,627
Mineral Ventures 3,717 4,311 12,398 11,406
- -------------------------------------------------------------------------------------------------------
Consolidated revenues $ 752,453 693,854 2,163,304 1,941,149
=======================================================================================================
Operating profit (loss):
Burlington $ 17,449 22,248 39,913 52,028
Brink's 12,263 11,132 29,882 27,481
BHS 10,386 8,216 28,702 23,679
Coal 8,075 8,488 15,196 (90,956)
Mineral Ventures (816) 786 675 854
- -------------------------------------------------------------------------------------------------------
Segment operating profit (loss) 47,357 50,870 114,368 13,086
General corporate expense (4,025) (3,990) (12,449) (12,042)
- -------------------------------------------------------------------------------------------------------
Consolidated operating profit (loss) 43,332 46,880 101,919 1,044
=======================================================================================================
</TABLE>
RESULTS OF OPERATIONS
In the third quarter of 1995, The Pittston Company (the "Company") reported net
income of $29.6 million compared with $31.2 million in the third quarter of
1994. Operating profit totaled $43.3 million in the 1995 third quarter compared
with $46.9 million in the prior year third quarter. Increased operating profits
at Brink's, Incorporated ("Brink's") and Brink's Home Security, Inc. ("BHS")
were offset by decreased operating profits at Burlington Air Express Inc.
("Burlington"), Pittston Mineral Ventures ("Mineral Ventures") and the Coal
operations.
In the first nine months of 1995, the Company reported net income of $68.3
million compared with a net loss of $4.3 million in the first nine months of
1994. Operating profit totaled $101.9 million in the first nine months of 1995
compared to an operating profit of $1.0 million in the prior year period. The
net loss and operating profit in the first nine months of 1994 included charges
totaling $58.1 million and $90.8 million, respectively, attributable to the
Company's Coal operations for asset write downs and accruals for costs related
to facility shutdowns. Net income in the first nine months of 1995 was
positively impacted by improved results from Brink's, BHS and the Company's Coal
operations, partially offset by lower results at Burlington and Mineral
Ventures. Burlington's 1994 operating profits benefited from substantial
additional volumes of freight directed to Burlington during a nationwide
trucking strike in the second quarter of 1994, which added an estimated $8
million to operating profit and $5 million to net income. The first nine months
of 1995 were also impacted by higher net interest expense compared with the same
period last year.
8
<PAGE>
Burlington
- ----------
The following is a table of selected financial data for Burlington on a
comparative basis:
<TABLE>
<CAPTION>
(Dollars in thousands, except Three Months Nine Months
per pound/shipment amounts) Ended September 30 Ended September 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C>
Revenues:
Airfreight
Domestic U.S. $ 134,162 145,214 392,017 417,753
International 172,364 132,795 484,853 365,746
- ---------------------------------------------------------------------------------------------------------------------
Total airfreight 306,526 278,009 876,870 783,499
Other 59,267 33,916 154,817 92,176
- ---------------------------------------------------------------------------------------------------------------------
Total revenues 365,793 311,925 1,031,687 875,675
Operating expenses 318,459 266,915 907,696 749,857
Selling, general and administrative 30,349 23,446 85,911 75,947
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 348,808 290,361 993,607 825,804
- ---------------------------------------------------------------------------------------------------------------------
Other operating income 464 684 1,833 2,157
- ---------------------------------------------------------------------------------------------------------------------
Operating profit:
Domestic U.S. 8,781 13,750 20,261 34,141
International 8,668 8,498 19,652 17,887
- ---------------------------------------------------------------------------------------------------------------------
Operating profit $ 17,449 22,248 39,913 52,028
=====================================================================================================================
Depreciation and amortization $ 4,957 4,514 14,659 12,747
=====================================================================================================================
Cash capital expenditures $ 6,299 6,138 19,799 17,147
=====================================================================================================================
Airfreight shipment growth rate (a) 15.8% 3.0% 9.4% 7.8%
Airfreight weight growth rate (a):
Domestic U.S. ( 4.3%) 19.8% (4.2%) 20.9%
International 31.5% 27.5% 27.3% 25.5%
Worldwide 11.9% 23.2% 10.0% 23.0%
Worldwide airfreight weight (millions of pounds) 353.5 315.7 997.8 907.0
=====================================================================================================================
Worldwide airfreight shipments (thousands) 1,391 1,201 3,929 3,590
=====================================================================================================================
Worldwide average airfreight yield
(revenue per pound) $ 0.867 0.880 0.879 0.864
=====================================================================================================================
Worldwide average airfreight revenue per shipment $ 220 231 223 218
=====================================================================================================================
Worldwide average airfreight weight per
shipment (pounds) 254 263 254 253
=====================================================================================================================
</TABLE>
(a) Compared to the same period in the prior year.
Burlington reported an operating profit of $17.5 million in the 1995 third
quarter, a $4.7 million decrease from the $22.2 million reported in the third
quarter of 1994. Worldwide revenues rose 17% to $365.8 million in the current
year quarter from $311.9 million in the prior year third quarter. Worldwide
airfreight revenues increased $28.5 million or 10% to $306.5 million in the 1995
third quarter from $278 million in the prior year quarter. These increases were
9
<PAGE>
principally from a 32% increase in international weight shipped, which more than
offset a 4% decline in domestic U.S. weight shipped and a slight decrease in
worldwide average airfreight yields (revenue per pound). Other revenues, which
includes customs clearance and other import-related services, as well as ocean
freight services, increased $25.4 million or 75% to $59.3 million in the third
quarter of 1995 from $33.9 million in the prior year quarter, as a result of an
increase in international shipment volume, including ocean freight. Total
airfreight weight shipped worldwide increased 12% to 353.5 million pounds in the
current year quarter from 315.7 million pounds in the prior year quarter.
Worldwide average airfreight yields decreased slightly to $.867 in the 1995
third quarter from $.880 in the same period a year earlier.
Domestic airfreight revenues decreased by 8% to $134.2 million in the 1995 third
quarter from $145.2 million in the prior year third quarter while operating
profit decreased $5.0 million to $8.8 million in the 1995 third quarter from
$13.8 million in the third quarter of 1995. The decrease was the result of a 4%
decrease in domestic weight shipped and a modest decrease in average yields.
Domestic weight shipped was impacted by a decline in shipments by auto
producers. Lower average yields reflected a change in mix to lower yield traffic
and general pricing pressures. Partially offsetting the decline in revenues were
continued reductions in operating costs. Domestic fleet costs were lower as a
result of effective adjustments of fleet capacity to match volume requirements.
In addition, labor costs have been reduced through strict cost control measures,
including reconfiguration of the domestic station network.
International airfreight revenues increased by 30% to $172.3 million in the 1995
third quarter from $132.8 million in the prior year third quarter. International
operating profit in the 1995 third quarter totaled $8.7 million compared to $8.5
million in the prior year quarter. Revenues from other international activities,
primarily ocean freight and import services, increased 75% to $59.3 million in
the 1995 third quarter from $33.9 million in the prior year third quarter. These
increases were largely due to a 32% increase in international airfreight weight
shipped, partially offset by a slight decrease in average yield. Volume
increased in most international markets as the result of market share growth and
increased worldwide trade flows. In addition, during the past year, Burlington
expanded its global operations through acquisitions and new company-owned
offices, most notably in Denmark, Italy, Mexico and Portugal. Although below
prior year's levels, margins on certain segments have improved from the
beginning of the year as the result of price increases introduced in the second
quarter.
Operating profit in the first nine months of 1995 for Burlington was $39.9
million, a $12.1 million decrease from the $52.0 million operating profit
reported in the first nine months of 1994. Burlington's results in 1994
benefited from significant additional domestic freight as a result of the
nationwide trucking strike, which added an estimated $8 million to 1994
operating profit. Worldwide revenues rose 18% to over $1 billion in the current
year period from $875.7 million in the first nine months of 1994. The $156
million increase in revenues resulted largely from a 10% increase in worldwide
airfreight pounds shipped, increased other revenue, including import services
and ocean freight, and to a lesser extent a slight increase in worldwide average
airfreight yields.
Domestic airfreight revenues decreased by 6% or $25.7 million to $392 million in
the first nine months of 1995 compared to the first nine months of 1994.
Domestic operating profit for the first nine months of 1995 totaled $20.3
million compared to $34.1 million in the prior year period. The decreases in
revenues and operating profit were due largely to a 4% decrease in domestic
airfreight weight and a slight decrease in domestic yields. The decrease in
volume was due primarily to the impact of the U.S. trucking strike in the second
quarter of 1994, which added substantial additional volume in 1994 and an
estimated $8 million to operating profit in the first nine months of 1994.
International airfreight revenues of $484.9 million in the first nine months of
1995 were $119.2 million or 33% higher than the $365.7 million reported in the
prior year period. Operating profit increased $1.8 million to $19.7 million in
the first nine months of 1995 compared to $17.9 million in the first nine months
of 1994. The increases in revenues and operating profit were primarily due to a
27% increase in international airfreight weight shipped and a modest increase in
average yields compared to the prior year period. The increase in volume is
largely attributed to improved economic conditions in the international markets
and expansion of company-owned operations. Revenues from other international
activity and ocean freight increased 67% or $61.4 million to $153.6 million, due
to an increase in international shipment volume and a continued expansion of
ocean freight services.
10
<PAGE>
Brink's
- -------
The following is a table of selected financial data for Brink's on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Nine Months
(In thousands) Ended September 30 Ended September 30
- --------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
====================================================================================================================
<S> <C> <C> <C> <C>
Revenues $ 176,507 143,879 480,141 395,827
Operating expenses 142,104 113,778 390,328 318,281
Selling, general and administrative 21,552 19,822 60,516 54,022
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 163,656 133,600 450,844 372,303
- ---------------------------------------------------------------------------------------------------------------------
Other operating income (expense) (588) 853 585 3,957
- ---------------------------------------------------------------------------------------------------------------------
Operating profit $ 12,263 11,132 29,882 27,481
=====================================================================================================================
Depreciation and amortization $ 5,757 5,086 16,253 15,206
=====================================================================================================================
Cash capital expenditures $ 4,234 4,528 15,710 11,261
=====================================================================================================================
Revenues:
North America (United States and Canada) $ 97,103 85,669 278,084 247,488
International subsidiaries 79,404 58,210 202,057 148,339
- ---------------------------------------------------------------------------------------------------------------------
Total revenues $ 176,507 143,879 480,141 395,827
=====================================================================================================================
Operating profit:
North America (United States and Canada) $ 8,226 6,158 20,752 15,603
International operations 4,037 4,974 9,130 11,878
- ---------------------------------------------------------------------------------------------------------------------
Total operating profit $ 12,263 11,132 29,882 27,481
=====================================================================================================================
</TABLE>
Brink's consolidated revenues totaled $176.5 million in the third quarter of
1995 compared with $143.9 million in the third quarter of 1994. Brink's
operating profit of $12.3 million in the third quarter of 1995 increased $1.2
million or 10% from the $11.1 million operating profit in the prior year
quarter. The revenue increase of $32.6 million or 23% in the 1995 third quarter
was offset by an increase in operating expenses and selling, general and
administrative expenses of $30.1 million and a decrease in other operating
income of $1.4 million.
Revenues from North American operations (United States and Canada) increased
$11.4 million or 13% to $97.1 million in the 1995 third quarter from $85.7
million in the prior year quarter. North American operating profit increased
$2.1 million or 34% to $8.2 million in the current year quarter from $6.2
million in the third quarter of 1994. The operating profit improvement primarily
resulted from rising volumes and increased market penetration in the armored car
business, which includes ATM servicing.
Revenues from international subsidiaries increased $21.2 million or 36% to $79.4
million in the 1995 third quarter from $58.2 million in the 1994 third quarter.
Operating profits from international subsidiaries and minority-owned affiliates
declined 19% or $1.0 million to $4.0 million in the current year quarter from
$5.0 million in the prior year third quarter. The earnings decline was largely
attributable to Brink's share of results from its Mexican affiliate (20% owned),
which decreased to a loss of $1.2 million from the profit of $.8 million
recorded in the third quarter of 1994, primarily due to severance costs related
to a downsizing of the workforce, high interest rates and the general economic
condition in Mexico. Local management in Mexico has made substantial progress
with a cost reduction program designed to restore operating profitability.
Brink's operating profit increased $2.4 million to $29.9 million in the first
nine months of 1995 from $27.5 million in the first nine months of 1994 with an
increase in revenues of $84.3 million, partially offset by an increase in
operating
11
<PAGE>
expenses and selling, general and administrative expenses totaling $78.5
million, and a decrease in other operating income of $3.4 million.
Revenue from North American operations increased 12% to $278.1 million in the
first nine months of 1995 from $247.5 million in the prior year period. North
American operating profit increased $5.2 million to $20.8 million from $15.6
million. The increase in operating profit was largely attributable to increases
in the armored car business and, to a lesser extent, increases in the diamond
and jewelry and coin and currency processing businesses, partially offset by
lower air courier results.
Revenue from international subsidiaries increased $53.7 million or 36% to $202.1
million, while operating profit from international subsidiaries and
minority-owned affiliates decreased $2.7 million or 23% to $9.1 million in the
first nine months of 1995. The increase in revenue is primarily due to higher
revenues in Brazil as well as the favorable impact of foreign currency
translation. The decline in operating profit was primarily attributable to
operations in Mexico. Brink's share of its Mexican affiliates' results was a
$2.2 million loss in the first nine months of 1995 compared to a $2.5 million
profit reported in the same period of 1994.
BHS
- ---
The following is a table of selected financial data for BHS on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Nine Months
(Dollars in thousands) Ended September 30 Ended September 30
- --------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
====================================================================================================================
<S> <C> <C> <C> <C>
Revenues $ 32,451 27,908 93,823 80,614
Operating expenses 16,051 14,966 48,715 43,700
Selling, general and administrative 6,014 4,726 16,406 13,235
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 22,065 19,692 65,121 56,935
- ---------------------------------------------------------------------------------------------------------------------
Operating profit $ 10,386 8,216 28,702 23,679
=====================================================================================================================
Depreciation and amortization $ 5,469 4,485 15,889 12,747
=====================================================================================================================
Cash capital expenditures $ 11,882 8,491 31,023 25,155
=====================================================================================================================
Annualized service revenues (a) $ 100,862 82,437
=====================================================================================================================
Number of subscribers:
Beginning of period 346,540 289,618 318,029 259,551
Installations 20,580 17,887 58,942 55,864
Disconnects, net (5,917) (4,339) (15,768) (12,249)
- ---------------------------------------------------------------------------------------------------------------------
End of period 361,203 303,166 361,203 303,166
=====================================================================================================================
</TABLE>
(a) Annualized service revenue is calculated based on the number of subscribers
at period end multiplied by the average fee per subscriber received in the
last month of the period for monitoring, maintenance and related services.
Revenues for BHS increased 16% to $32.5 million in the third quarter of 1995
from $27.9 million in the year earlier quarter. In the first nine months of
1995, revenues increased $13.2 million to $93.8 million from $80.6 million in
the first nine months of 1994. Operating profit of BHS increased $2.2 million to
$10.4 million in the third quarter of 1995, a 26% improvement from $8.2 million
in the third quarter of 1994. In the first nine months of 1995, operating profit
increased $5 million or 21% to $28.7 million from $23.7 million in the first
nine months of 1994. The increase in operating profit for the third quarter and
nine months of 1995 compared to the similar periods in 1994 reflected higher
monitoring revenues due to an average subscriber base that was approximately 19%
higher for the quarter and year to
12
<PAGE>
date 1995, compared to similar periods in 1994, slightly offset by higher
account servicing and administrative costs. Operating profit as a percentage of
revenue increased to 32% for the third quarter of 1995 from 29% in the year
earlier quarter also as a result of the larger average subscriber base.
BHS installed approximately 20,600 new subscribers during the third quarter of
1995, a 15% increase over the prior year quarter. 0For the first nine months of
1995, BHS installed a total of approximately 58,900 new subscribers. The
subscriber base totaled approximately 361,200 subscribers on September 30, 1995,
a 19% increase from the September 30, 1994 level. As a result, annualized
service revenues increased 22% to $100.9 million as of September 30, 1995.
During the third quarter of 1995, BHS initiated service in two new markets:
Colorado Springs, Colorado and San Jose, California.
Coal
- ----
The following is a table of selected financial data for the Coal operations on a
comparative basis:
<TABLE>
<CAPTION>
Three Months Nine Months
(In thousands) Ended September 30 Ended September 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C>
Net sales $ 173,985 205,831 545,255 577,627
Cost of sales 164,032 196,753 532,977 570,412
Selling, general and administrative expenses 5,394 6,623 17,096 19,586
Restructuring and other charges - - - 90,806
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 169,426 203,376 550,073 680,804
- ---------------------------------------------------------------------------------------------------------------------
Other operating income 3,516 6,033 20,014 12,221
- ---------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 8,075 8,488 15,196 (90,956)
=====================================================================================================================
Coal sales (tons):
Metallurgical 1,950 2,590 6,583 7,466
Utility and industrial 3,943 4,862 12,471 13,249
- ---------------------------------------------------------------------------------------------------------------------
Total coal sales 5,893 7,452 19,054 20,715
=====================================================================================================================
Production/purchased (tons)
Deep 984 1,124 3,025 3,746
Surface 3,143 4,045 10,272 11,049
Contract 459 605 1,500 1,731
- ---------------------------------------------------------------------------------------------------------------------
4,586 5,774 14,797 16,526
Purchased 1,289 1,527 4,791 4,313
- ---------------------------------------------------------------------------------------------------------------------
Total 5,875 7,301 19,588 20,839
=====================================================================================================================
</TABLE>
Operations - Coal operations had an operating profit totaling $8.1 million in
the third quarter of 1995 compared to an operating profit of $8.5 million in the
third quarter of 1994. Included in the current quarter results is a pretax gain
of $1.5 million from the disposition of highwall mining equipment, whereas the
1994 third quarter included a $2.5 million pretax gain from the sale of a
natural gas pipeline.
Sales volume of 5.9 million tons in the third quarter of 1995 was 21% or 1.6
million tons less than the 7.5 million tons sold in the 1994 third quarter, as
marginal mines serving the weak spot steam coal markets were idled and some
foreign metallurgical coal customers delayed shipments. Steam coal sales volume
declined 19% or 1 million tons to 3.9 million tons and metallurgical coal sales
volume declined by 25% or .6 million tons to 2.0 million tons compared to the
third quarter of 1994. Steam coal sales represented 67% of total volume in the
third quarter of 1995, compared to 65% in the prior year quarter.
13
<PAGE>
As of September 30, 1995, metallurgical coal customers have taken shipments
representing approximately 78% of the proportionate annualized contract tonnage
for the contract year that began on April 1, 1995. Coal operations expect that
this shortfall, which represents approximately .6 million tons, will be made up
by these customers during the remainder of the contract year or shortly
thereafter. The impact of the delayed shipments has increased inventory and
deferred recognition of expected gross margins.
Production in the third quarter of 1995 totaled 4.6 million tons, a 21% decrease
compared to the third quarter of 1994, principally reflecting the closure and
idling of certain mines in order to improve the balance between production and
demand. Surface production accounted for approximately 70% of total production
in the third quarter of 1995. Productivity of 39 tons per man day represented a
6% increase over the comparable period in 1994.
Coal margin (realization less current production costs of coal sold) of $19.2
million or $3.25 per ton for the third quarter of 1995, increased $1.5 million
or $ .89 per ton from the prior year third quarter. This was caused by a 6% or
$1.77 per ton increase in average realization to $29.36 per ton partially offset
by a 3% or $.88 per ton increase in the average current production costs of coal
sold of $26.11 per ton. Operating results improved significantly from the first
and second quarters of 1995. Substantial progress has been made in reconfiguring
the Coal operations production and distribution activities resulting in improved
efficiencies and lower mining costs. In addition, the disposition throughout the
year of non-strategic assets has further lowered overall operating costs.
Management is continuing its drive to eliminate marginal operations and improve
margins.
Coal operations had an operating profit of $15.2 million in the first nine
months of 1995 compared to an operating loss of $91.0 million in the prior year
period. The operating loss in the first nine months of 1994 included $90.8
million of charges for asset writedowns and accruals for costs related to
facility shutdowns (discussed further below) and $7.7 million of operating
losses incurred during the first nine months related to closed facilities.
Sales volume of 19.1 million tons in the first nine months of 1995 was 1.6
million tons less than the 20.7 million tons sold in the prior year period.
Steam coal sales decreased by .8 million tons to 12.5 million tons and
metallurgical coal sales declined by .9 million tons to 6.6 million tons
compared to the prior year. Steam coal sales represented 65% of total volume in
the first nine months of 1995.
Production in the first nine months of 1995 totaled 14.8 million tons, a 10%
decrease compared to the first nine months of 1994, principally reflecting the
scheduled reduction in underground mine production during 1994 and early 1995
and the idling of surface steam coal mines. Surface production accounted for 71%
and 68% of total production in the first nine months of 1995 and 1994,
respectively. Productivity of 37 tons per man day represented a 7% increase over
the comparable period in 1994.
Coal operations reached contract agreements with its metallurgical customers for
the coal year that began April 1, 1995 with most calling for price increases of
approximately $4.00 to $5.50 per metric ton, depending upon coal quality. These
price increases, which represent an average increase of approximately 9% over
the prior contract year, were in effect during the 1995 third quarter and had
the effect of realigning pricing to levels in effect prior to last year's
unusually large decline. Sales volume is expected to decline modestly from the
level in the prior contract year.
Coal operations' efforts to lower costs have improved margins and enhanced the
ability to respond to improvement in pricing for its low sulphur steam coal.
Some modest improvement in spot steam coal pricing from historically low levels
occurred during the third quarter due to the hot summer and increased European
demand for steam coal. Coal operations are prepared to resume production at
certain idled facilities should pricing improve further. The majority of Coal
operations' steam coal sales continue to be sold under long-term contracts.
Restructuring and Other charges - as a result of the continuing long-term
decline of the metallurgical coal markets, in the first quarter of 1994
management determined that four underground mines were no longer economically
viable and should be closed, resulting in significant economic impairment to
three related preparation plants. In addition, it was determined that one
surface steam coal mine, the Heartland mine, which provided coal to Alabama
Power under a long-term sales agreement, would be closed due to rising costs
caused by unfavorable geological conditions. As a result of these decisions, the
Coal operations incurred pretax charges of $90.8 million ($58.1 million after
tax) in the first
14
<PAGE>
quarter of 1994 which included a reduction in the carrying value of these assets
and related accruals for mine closure costs.
Of the four underground mines, two have ceased coal production (one in 1995),
while the remaining two mines are expected to cease coal production during the
remainder of 1995. In 1994, Coal operations reached agreement with Alabama Power
Company to transfer the coal sales contract which had been 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 76% to approximately 180
employees at September 30, 1995.
After coal production ceases at the mines contemplated in the accrual, the
Company will continue to pay reclamation and environmental costs for several
years to bring these properties into compliance with federal and state
environmental laws. In addition, employee termination and medical payments will
continue to be made for several years after the facilities have been closed. A
significant portion of these employee liabilities is for statutorily provided
workers' compensation costs for inactive employees. Such benefits include
indemnity and medical payments as required under state workers' compensation
laws. The long payment periods are based on continued and, in some cases,
lifetime indemnity and medical payments to injured former employees and their
surviving spouses. Management believes that the charges incurred in 1994 should
be sufficient to provide for these future payments and does not anticipate
material additional future charges to operating earnings for these facilities,
although continual cash funding will be required over the next several years.
The following table analyzes the changes in liabilities during 1994 and 1995 for
facility closure costs recorded as restructuring and other charges:
<TABLE>
<CAPTION>
Employee
Mine Termination,
Leased and Medical
Machinery Plant and
and Closure Severance
Equipment Costs Costs Total
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance as of December 31, 1993 (a) $ 3,092 28,434 34,217 65,743
Additions 3,836 19,290 21,193 44,319
Payments (b) 3,141 9,468 12,038 24,647
------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1994 3,787 38,256 43,372 85,415
Payments (c) 1,474 7,501 6,096 15,071
------------------------------------------------------------------------------------------------------------
Balance as of September 30, 1995 $ 2,313 30,755 37,276 70,344
============================================================================================================
</TABLE>
(a) These amounts represent the remaining liabilities for facility closure
costs recorded as restructuring and other charges in prior years. The
original charges included $5,094 for leased machinery and equipment,
$52,243 principally for incremental facility closing costs including
reclamation and $54,108 for employee benefit costs, primarily workers'
compensation, which will continue to be paid for several years.
(b) These amounts represent total cash payments made during 1994 for these
charges. Of the total payments made, $14,494 was for liabilities recorded
in years prior to 1994 and $10,153 was for liabilities recorded in 1994.
(c) Payments made in the first nine months of 1995 included $8,642 related to
pre-1994 liabilities and $6,429 for liabilities recorded in the first
quarter of 1994.
During the next twelve months, expected cash funding of these charges is
approximately $15 to $20 million. Management estimates that the remaining
liability for leased machinery and equipment will be fully paid over the next
two years. The remaining liability for mine and plant closure costs is expected
to be satisfied over the next seven years, of which approximately 70% is
expected to be paid over the next three years. The remaining liability for
employee- related costs, which is primarily workers' compensation, is estimated
to be 75% settled over the next four years with the balance paid during the
following five to ten years.
15
<PAGE>
Mineral Ventures
- ----------------
The following is a table of selected financial data for the Mineral Ventures
operations on a comparative basis:
<TABLE>
<CAPTION>
(Dollars in thousands, Three Months Nine Months
except per ounce data) Ended September 30 Ended September 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C>
Net sales $ 3,717 4,311 12,398 11,406
Cost of sales 3,229 2,619 9,084 7,785
Selling, general and administrative costs 1,047 966 2,624 2,897
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 4,276 3,585 11,708 10,682
Other operating income (expense) (257) 60 (15) 130
- ---------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ (816) 786 675 854
=====================================================================================================================
Stawell Gold Mine:
PMV's 50% direct share ounces sold 8,737 10,800 30,229 28,600
Average realized gold price per ounce (US$) $ 400 400 398 397
Average cost per ounce (US$) $ 393 263 326 297
</TABLE>
Operating profit of Mineral Ventures operations decreased $1.6 million in the
1995 third quarter to an operating loss of $.8 million, from an operating profit
of $.8 million in the third quarter of 1994. Operating profits were negatively
impacted by an adverse geological condition at the Stawell gold mine in western
Victoria, Australia, in which Mineral Ventures has a 67% direct and indirect
interest, resulting in temporarily lower produced ore grades and higher
production costs. Although this situation had a significantly negative impact on
third quarter results, the Stawell mine is expected to achieve normal production
during the fourth quarter. The Stawell mine produced 17,836 ounces of gold in
the third quarter of 1995 at an average cost of $393 per ounce, compared to
21,734 ounces in the third quarter of 1994 at an average cost of $263 per ounce.
In the first nine months of 1995, operating profit of Mineral Ventures decreased
$.2 million to $.7 million from $.9 million in the first nine months of 1994.
The decrease in operating profit was primarily the result of increased
production costs at the Stawell Gold Mine as discussed above. The Stawell gold
mine produced 60,412 ounces in the first nine months of 1995 compared with
57,468 ounces in the comparable period of 1994. Mineral Ventures is continuing
exploration projects in Nevada and Australia with its joint venture partner.
A reserve study at the Stawell mine conducted as of June 30, 1995, indicated
proven and probable recoverable gold reserves of 461,800 ounces, an increase of
132,800 ounces over the prior year level after the production of 84,800 ounces
during the intervening period.
Foreign Operations
- ------------------
A portion of the Company's financial results is derived from activities in
several foreign countries, each with a local currency other than the U.S.
dollar. Since the financial results of the Company are reported in U.S. dollars,
they are affected by the changes in the value of the various foreign currencies
in relation to the U.S. dollar. The Company's international activity is not
concentrated in any single currency, which limits the risks of foreign rate
fluctuations. In addition, foreign currency rate fluctuations may adversely
affect transactions which are denominated in currencies other than the
functional currency. The Company routinely enters into such transactions in the
normal course of its business. Although the diversity of its foreign operations
limits the risks associated with such transactions, the Company uses foreign
exchange forward contracts to hedge the risks associated with certain
transactions denominated in currencies other than the functional currency.
Realized and unrealized gains and losses on these contracts are deferred and
recognized as part of the specific transaction hedged. In addition, cumulative
translation adjustments relating to
16
<PAGE>
operations in countries with highly inflationary economies are included in net
income, along with all transaction gains or losses for the period. Subsidiaries
in Brazil operate in such a highly inflationary economy.
Additionally, the Company is subject to other risks customarily associated with
doing business in foreign countries, including economic conditions, controls on
repatriation of earnings and capital, nationalization, expropriation and other
forms of restrictive action by local governments. The future effects, if any, of
such risks on the Company cannot be predicted.
Other Operating Income
- ----------------------
Other operating income includes the Company's share of net income of
unconsolidated affiliates, primarily equity affiliates of Brink's, royalty
income and gains and losses from sales of coal assets. The $4.5 million decrease
in other operating income in the third quarter of 1995 compared to the third
quarter of 1994 is largely attributable to the $2 million decrease in Brink's
share of the reported results of its Mexican affiliate and $1 million lower
gains on sales of coal assets. The sale of surplus highwall mining equipment
resulted in a $1.5 million gain in the 1995 third quarter and the sale of a
natural gas pipeline resulted in a $2.5 million gain in the 1994 third quarter.
Other operating income for the first nine months of 1995 increased $3.9 million
to $22.4 million from $18.5 million in the prior year. The $4.2 million decrease
in equity in earnings of unconsolidated affiliates was more than offset by
profits of $6.8 million on the sale of coal assets.
Interest Expense
- ----------------
Interest expense increased $1 million to $3.7 million in the third quarter of
1995 from $2.7 million in the prior year quarter. Interest expense totaled $10.4
million in the first nine months of 1995 compared with $8 million in the first
nine months of 1994. The increase in the 1995 third quarter and nine month
periods is due to higher interest rates on higher average debt balances.
Other Income (Expense), Net
- ---------------------------
Other net expense for the first nine months of 1995 decreased $.8 million to a
net expense of $4 million from a net expense of $4.8 million. The first nine
months of 1994 included expenses of $1.2 million recognized on the Company's
redemption of its 9.2% Convertible Subordinated Debentures.
FINANCIAL CONDITION
Cash Provided by Operations
- ---------------------------
Cash provided by operating activities during the first nine months of 1995
totaled $89.3 million compared with $108.8 million in the first nine months of
1994. The decrease in cash provided occurred, despite higher net income,
partially as a result of additional investment in working capital at Burlington.
Such requirements primarily reflected initial working capital needs of recently
acquired foreign subsidiaries, a relatively larger seasonal volume increase and
increased international revenues, which tend to have longer payment terms. Cash
provided by operating activities in the first nine months of 1994 was negatively
impacted by the integration of operating activities of Addington which required
cash to finance working capital. Net income, noncash charges and changes in
operating assets and liabilities in the first nine months of 1994 were
significantly affected by after-tax restructuring and other charges of $58.1
million which had minimal effect in the first nine months of 1995 on cash
generated by operations.
Capital Expenditures
- --------------------
Cash capital expenditures for the first nine months of 1995 totaled $81.3
million. Of that amount, $19.8 million was spent by Burlington, $15.7 million
was spent by Brink's, $31 million was spent by BHS, $12.8 million was spent by
Coal and $1.6 million was spent by Mineral Ventures. Expenditures incurred by
BHS in the first nine months of 1995 were primarily for customer installations,
representing expansion of the subscriber base. For the full year 1995, capital
expenditures are estimated to approximate $130 million. The foregoing amounts
exclude equipment expenditures that have been or are expected to be financed
through capital and operating leases, and any acquisition expenditures.
Increased expenditures in 1995 are largely attributable to Burlington to support
new airfreight stations and implementation of new information systems, and to
BHS resulting from continued expansion of the subscriber base. Capital
expenditures in 1996 are estimated to approximate the 1995 levels. These
expenditures will be primarily for maintenance and replacement, when necessary,
of current business operations, including information systems and, to a lesser
extent, for business expansion.
17
<PAGE>
Other Investing Activities
- --------------------------
All other investing activities in the first nine months of 1995 provided net
cash of $6.3 million, primarily from the disposal of property, plant and
equipment net of expenditures for aircraft heavy maintenance. In January 1994,
the Company paid approximately $157 million in cash for the acquisition of
substantially all the coal mining operations and coal sales contracts of
Addington. The purchase price of the acquisition was financed through the
issuance of $80.5 million of a new series of convertible preferred stock, which
is convertible into Pittston Minerals Group Common Stock, and additional debt
under revolving credit agreements.
Financing
- ---------
The Company intends to fund its capital expenditure requirements during the
remainder of 1995 with anticipated cash flows from operating activities and
through operating leases if the latter are financially attractive. Shortfalls,
if any, will be financed through the Company's revolving credit agreements or
other borrowing arrangements. The Company has a $350 million revolving credit
agreement with a syndicate of banks (the "Facility"). The Facility includes a
$100 million term loan, which matures in May 2000. The Facility also permits
additional borrowings, repayments, and reborrowings of up to an aggregate of
$250 million until May 2000. As of September 30, 1995, borrowings of $100
million were outstanding under the term loan portion of the Facility and $7
million of additional borrowings was outstanding under the remainder of the
facility. The Company, on behalf of the Minerals Group, maintains agreements
with financial institutions whereby it has the right to sell certain coal
receivables, with recourse, to those institutions. As of September 30, 1995,
coal receivables of approximately $9.8 million sold under these agreements were
outstanding.
Debt
- ----
Outstanding debt, including borrowings under revolving credit agreements,
aggregated $179.4 million at September 30, 1995, up from $165.1 million at
year-end 1994. Cash proceeds from operating activities, other investing
activities and the exercise of stock options were not sufficient to fund capital
expenditures, the repurchase of stock and dividends payments, resulting in
additional borrowings.
On April 15, 1994, the Company redeemed all outstanding 9.2% Convertible
Subordinated Debentures due July 1, 2004. The principal amount outstanding was
$27.8 million and the premium paid to call the debt totaled $.8 million. The
Company used cash provided under its revolving credit agreements to redeem the
debentures. The premium paid in addition to other charges related to the
redemption are included in the Company's Consolidated Statement of Operations
for the nine months ended September 30, 1994.
Capitalization
- --------------
In January 1994, the Company issued $80.5 million (161,000 shares) of a new
series of cumulative preferred stock, convertible into Pittston Minerals Group
Common Stock ("Minerals Stock"). The cumulative convertible preferred stock,
which is attributable to the Minerals Group, pays an annual cumulative dividend
of $31.25 per share payable quarterly, in cash, in arrears, out of all funds of
the Company legally available therefor, when, as and if declared by the Board of
Directors (the "Board") of the Company, which commenced March 1, 1994, and bears
a liquidation preference of $500 per share, plus an amount equal to accrued and
unpaid dividends thereon.
In July 1994, the Board authorized the repurchase from time to time of up to $15
million of the new series of cumulative convertible preferred stock. As of
September 30, 1995, 24,720 shares at a total cost of $9.6 million were
repurchased, of which 16,370 shares at a cost of $6.3 million were repurchased
in the first nine months of 1995. In November 1995, the Board authorized an
increase in the remaining authority to $15 million.
At September 30, 1995, the Company was also authorized to repurchase up to
1,250,000 shares of Pittston Services Group Common Stock ("Services Stock") and
250,000 shares of Minerals Stock, not to exceed $43 million. As of September 30,
1995, a total of 401,900 shares ($9.6 million) of Services Stock and 117,300
shares ($1.7 million) of Minerals Stock have been acquired pursuant to the
authorization. During the nine months ended September 30, 1995, 145,800 shares
of Services Stock were repurchased at a total cost of $3.4 million and 78,800
shares of Minerals Stock
18
<PAGE>
were repurchased at a total cost of $.9 million. In November 1995, the Board
increased the remaining purchase authority for Minerals Stock to 1,000,000
shares, not to exceed $45 million for all common shares of the Company.
On September 15, 1995, the Company announced that the Board approved, subject to
a favorable vote of shareholders, a plan to separate Services Stock into two
classes of common stock which would separately track the Company's security
services and home security business (the "Pittston Brink's Group"), and its
global freight transportation and logistics management services businesses (the
"Pittston Burlington Group"). The plan will not alter the composition of the
Minerals Group.
Under the proposed plan, a new class of common stock called Pittston Burlington
Group Common Stock ("Burlington Stock") will be distributed tax free to the
Services Group shareholders in the ratio of one half of one share of Burlington
Stock for each outstanding share of Services Stock. Services Group shareholders
will retain their existing common stock, which will be redesignated Pittston
Brink's Group Common Stock ("Brink's Stock"), on a share-for-share basis. The
Company will continue as a single corporate entity with three classes of common
stock. The proposed plan is designed to have no adverse effect on the rights of
the shareholders of Minerals Stock or the cumulative convertible preferred
stock.
Dividends
- ---------
The Board intends to declare and pay dividends on Services Stock and Minerals
Stock based on earnings, financial condition, cash flow and business
requirements of the Services Group and Minerals Group, respectively. Since the
Company remains subject to Virginia law limitations on dividends and to dividend
restrictions in its public debt and bank credit agreements, financial
developments of one Group could affect the Company's ability to pay dividends in
respect of stock relating to the other Group. Dividends on Minerals Stock are
also limited by the Available Minerals Dividend Amount, which is adjusted by net
income or losses and other equity transactions, as defined in the Company's
Articles of Incorporation. At September 30, 1995, the Available Minerals
Dividend Amount was at least $22.3 million.
During the 1995 and 1994 nine month periods, the Board declared and paid cash
dividends of 15 cents per share of Services Stock and 48.75 cents per share of
Minerals Stock. Dividends paid on the cumulative convertible preferred stock in
the first nine months of 1995 were $3.3 million. Preferred dividends included on
the Company's Statement of Operations for the nine months ended September 30,
1995, are net of $1.6 million, which was the excess of the carrying amount of
the preferred stock over the cash paid to holders of the preferred stock.
Pending Accounting Change
- -------------------------
The Company is required to implement a new accounting standard for long-lived
assets - Statement of Financial Accounting Standards ("SFAS") No. 121 - in 1996.
SFAS No. 121 requires companies to utilize a two step approach to determining
whether impairment of long-lived assets has occurred and if so, the amount of
such impairment. The Company has not yet determined the effect of adopting SFAS
No. 121.
19
<PAGE>
Pittston Services Group
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, Dec. 31,
1995 1994
==========================================================================================================================
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 38,879 38,610
Short-term investments, at lower of cost or market 2,468 2,041
Accounts receivable (net of estimated amount uncollectible:
1995 - $14,639; 1994 - $13,854) 336,257 267,869
Receivable - Pittston Minerals Group 33,360 32,170
Inventories, at lower of cost or market 4,384 4,006
Prepaid expenses 24,661 16,311
Deferred income taxes 24,606 25,325
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 464,615 386,332
Property, plant and equipment, at cost (net of accumulated depreciation
and amortization: 1995 - $262,966; 1994 - $234,722) 268,685 225,372
Intangibles, net of amortization 211,041 208,792
Deferred pension assets 44,576 43,150
Deferred income taxes 1,741 1,323
Other assets 55,042 75,707
- --------------------------------------------------------------------------------------------------------------------------
Total assets $1,045,700 940,676
==========================================================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings $ 29,655 13,323
Current maturities of long-term debt 5,773 6,194
Accounts payable 193,068 175,844
Accrued liabilities 149,588 137,555
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities 378,084 332,916
Long-term debt, less current maturities 57,321 49,896
Postretirement benefits other than pensions 6,098 5,761
Workers' compensation and other claims 10,885 9,929
Deferred income taxes 31,198 34,090
Payable - Pittston Minerals Group 19,202 23,186
Other liabilities 36,230 28,487
Shareholder's equity 506,682 456,411
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 1,045,700 940,676
==========================================================================================================================
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
Pittston Services Group
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
- --------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
====================================================================================================================
<S> <C> <C> <C> <C>
Operating revenues $ 574,751 483,712 1,605,651 1,352,116
Operating expenses 476,614 395,659 1,346,739 1,111,838
Selling, general and administrative expenses 60,199 50,264 169,900 150,185
- --------------------------------------------------------------------------------------------------------------------
Total costs and expenses 536,813 445,923 1,516,639 1,262,023
- --------------------------------------------------------------------------------------------------------------------
Other operating income (124) 1,537 2,418 6,114
- --------------------------------------------------------------------------------------------------------------------
Operating profit 37,814 39,326 91,430 96,207
Interest income 1,517 818 4,490 2,030
Interest expense (1,765) (1,488) (4,939) (4,663)
Other income (expense), net (1,598) (474) (3,364) (4,104)
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes 35,968 38,182 87,617 89,470
Provision for income taxes 10,831 13,168 28,911 32,657
- --------------------------------------------------------------------------------------------------------------------
Net income $ 25,137 25,014 58,706 56,813
====================================================================================================================
Per common share:
Net income $ .66 .66 1.55 1.50
====================================================================================================================
Cash dividends $ .05 .05 .15 .15
====================================================================================================================
Average shares outstanding 37,916 37,840 37,914 37,757
====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
Pittston Services Group
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
- --------------------------------------------------------------------------------------------------------------------------------
1995 1994
================================================================================================================================
<S> <C> <C>
Cash flows from operating activities:
Net income $ 58,706 56,813
Adjustments to reconcile net income to net cash provided by operating activities:
Noncash charges and other write-offs - 306
Depreciation and amortization 46,963 40,853
Provision for aircraft heavy maintenance 19,226 19,585
Provision (credit) for deferred income taxes (2,621) 914
(Credit) provision for pensions, noncurrent (94) 42
Provision for uncollectible accounts receivable 3,641 3,018
Equity in earnings of unconsolidated affiliates, net of dividends received 1,501 (45)
Other operating, net 2,495 1,831
Change in operating assets and liabilities:
Increase in accounts receivable (66,855) (45,674)
Increase in inventories (366) (860)
Increase in prepaid expenses (6,754) (2,338)
Increase in accounts payable and accrued liabilities 19,926 54,672
(Increase) decrease in other assets (1,383) (607)
Increase (decrease) in other liabilities 2,530 (20)
Other, net (1,581) (210)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 75,334 128,280
- --------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (66,735) (53,677)
Property, plant and equipment pending lease financing (60) 2,047
Proceeds from disposal of property, plant and equipment 2,413 1,664
Aircraft heavy maintenance (11,406) (9,732)
Acquisitions, net of cash acquired, and related contingent payments (2,649) (63)
Other, net 2,747 (2,902)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (75,690) (62,663)
- --------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 18,482 32,761
Reductions of debt (4,638) (36,755)
Payments (to) from - Minerals Group (6,190) (42,196)
Repurchase of stock of the Company (3,435) (3,424)
Proceeds from employee stock purchase plan 590 -
Proceeds from exercise of stock options 1,752 5,248
Proceeds from sale of stock to Minerals Group - 322
Dividends paid (5,936) (5,659)
Cost of Services Stock Proposal - (2)
- --------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 625 (49,705)
- --------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 269 15,912
Cash and cash equivalents at beginning of period 38,610 30,271
- --------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 38,879 46,183
================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
Pittston Services Group
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share amounts)
(1) The financial statements of the Pittston Services Group (the "Services
Group") include the balance sheets, results of operations and cash flows of
the Burlington Air Express Inc. ("Burlington"), Brink's, Incorporated
("Brink's") and Brink's Home Security, Inc. ("BHS") operations of The
Pittston Company (the "Company"), and a portion of the Company's corporate
assets and liabilities and related transactions which are not separately
identified with operations of a specific segment. The Services Group's
financial statements are prepared using the amounts included in the
Company's consolidated financial statements. Corporate allocations
reflected in these financial statements are determined based upon methods
which management believes to be a reasonable and equitable allocation of
such expenses and credits.
The Company provides holders of Pittston Services Group Common Stock
("Services Stock") separate financial statements, financial reviews,
descriptions of business and other relevant information for the Services
Group in addition to consolidated financial information of the Company.
Holders of Services Stock are shareholders of the Company, which is
responsible for all its liabilities. Therefore, financial developments
affecting the Pittston Minerals Group (the "Minerals Group") or the
Services Group that affect the Company's financial condition could affect
the results of operations and financial condition of both Groups.
Accordingly, the Company's consolidated financial statements must be read
in connection with the Services Group's financial statements.
(2) As of January 1, 1992, BHS elected to capitalize categories of costs not
previously capitalized for home security installations. The additional
costs not previously capitalized consisted of costs for installation labor
and related benefits for supervisory, installation scheduling, equipment
testing and other support personnel and costs incurred in maintaining
facilities and vehicles dedicated to the installation process. The effect
of this change in accounting principle was to increase operating profit for
the Services Group and the BHS segment for the first nine months of 1995
and 1994 by $3,204 and $3,114, respectively, and for the third quarters of
1995 and 1994 by $1,255 and $965, respectively. The effect of this change
increased net income per common share of the Services Group for the first
nine months of 1995 and 1994 by $.05 and for the third quarters of 1995 and
1994 by $.02.
(3) The amounts of depreciation and amortization of property, plant and
equipment in the third quarter and nine month period of 1995 totaled
$14,232 ($11,770 in 1994) and $40,919 ($34,076 in 1994), respectively.
(4) Cash payments made for interest and income taxes (net of refunds received)
were as follows:
Third Quarter Nine Months
1995 1994 1995 1994
--------------------------------------------------------------------------
Interest $ 1,410 1,564 4,835 5,968
==========================================================================
Income taxes $ 5,480 8,430 34,200 27,317
==========================================================================
During the nine month periods ended September 30, 1995 and 1994, capital
lease obligations of $4,434 and $1,569, respectively, were incurred for
leases of property, plant and equipment.
(5) On April 15, 1994, the Company redeemed all of the $27,811 9.2% Convertible
Subordinated Debentures due July 1, 2004, at a premium of $767. This debt
had been attributed to the Services Group. The premium and other charges
related to the redemption have been included in the Services Group
Statement of Operations in Other income (expense), net.
23
<PAGE>
(6) Certain prior period amounts have been reclassified to conform to current
period financial statement presentation.
(7) All adjustments have been made which are, in the opinion of management,
necessary to a fair presentation of results of operations for the periods
reported herein. All such adjustments are of a normal recurring nature.
(8) In September 1995, the Company's Board of Directors approved, subject to a
favorable vote of shareholders, a plan to separate Services Stock into two
classes of common stock which would separately track the Company's security
services and home security businesses, the Pittston Brink's Group, and its
global freight transportation and logistics management services businesses,
the Pittston Burlington Group. The plan will not alter the composition of
the Minerals Group.
Under the proposed plan, a new class of common stock called Pittston
Burlington Group Common Stock ("Burlington Stock") will be distributed tax
free to the Services Group shareholders in the ratio of one half of one
share of Burlington Stock for each outstanding share of Services Stock.
Services Group shareholders will retain their existing common stock, which
will be redesignated Pittston Brink's Group Common Stock ("Brink's Stock"),
on a share-for-share basis. The Company will continue as a single corporate
entity with three classes of common stock: Brink's Stock, Burlington Stock,
and Pittston Minerals Group Common Stock ("Minerals Stock"). The proposed
plan is designed to have no adverse effect on the rights of the
shareholders of Minerals Stock or Series C Convertible Preferred Stock.
24
<PAGE>
Pittston Services Group
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The financial statements of the Pittston Services Group (the "Services Group")
include the balance sheets, results of operations and cash flows of Burlington
Air Express Inc. ("Burlington"), Brink's, Incorporated ("Brink's") and Brink's
Home Security, Inc. ("BHS"), and a portion of The Pittston Company's (the
"Company") corporate assets and liabilities and related transactions which are
not separately identified with operations of a specific segment. The Services
Group's financial statements are prepared using the amounts included in the
Company's consolidated financial statements. Corporate allocations reflected in
these financial statements are determined based upon methods which management
believes to be an equitable allocation of such expenses and credits. The
accounting policies applicable to the preparation of the Services Group's
financial statements may be modified or rescinded at the sole discretion of the
Company's Board of Directors (the "Board") without the approval of the
shareholders, although there is no intention to do so.
The Company provides holders of Pittston Services Group Common Stock ("Services
Stock") separate financial statements, financial reviews, descriptions of
business and other relevant information for the Services Group in addition to
consolidated financial information of the Company. Holders of Services Stock are
shareholders of the Company, which continues to be responsible for all its
liabilities. Therefore, financial developments affecting the Pittston Minerals
Group (the "Minerals Group") or the Services Group that affect the Company's
financial condition could affect the results of operations and financial
condition of both Groups. Accordingly, the Company's consolidated financial
statements must be read in connection with the Services Group's financial
statements.
The following discussion is a summary of the key factors management considers
necessary in reviewing the Services Group's results of operations, liquidity and
capital resources. This discussion should be read in conjunction with the
financial statements and related notes of the Company.
SEGMENT INFORMATION
(In thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
- --------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
====================================================================================================================
<S> <C> <C> <C> <C>
Revenues:
Burlington $ 365,793 311,925 1,031,687 875,675
Brink's 176,507 143,879 480,141 395,827
BHS 32,451 27,908 93,823 80,614
- --------------------------------------------------------------------------------------------------------------------
Revenues $ 574,751 483,712 1,605,651 1,352,116
====================================================================================================================
Operating profit:
Burlington $ 17,449 22,248 39,913 52,028
Brink's 12,263 11,132 29,882 27,481
BHS 10,386 8,216 28,702 23,679
- --------------------------------------------------------------------------------------------------------------------
Segment operating profit 40,098 41,596 98,497 103,188
General corporate expense (2,284) (2,270) (7,067) (6,981)
- --------------------------------------------------------------------------------------------------------------------
Operating profit $ 37,814 39,326 91,430 96,207
====================================================================================================================
</TABLE>
25
<PAGE>
RESULTS OF OPERATIONS
In the third quarter of 1995, the Services Group reported net income of $25.1
million or $.66 per share compared with $25.0 million or $.66 per share in the
third quarter of 1994. Operating profit totaled $37.8 million in the 1995 third
quarter compared with $39.3 million in the prior year third quarter. Revenues
for the 1995 third quarter increased $91 million or 19% compared with the 1994
third quarter, of which $53.9 million was from Burlington, $32.6 million from
Brink's and $4.5 million from BHS. Operating expenses and selling, general and
administrative expenses for the 1995 third quarter increased $90.9 million or
20% compared with the same period last year, of which $58.4 million was from
Burlington, $30.1 million was from Brink's and $2.4 million was from BHS. Other
operating income decreased $1.7 million largely due to decreased results from
Brink's 20% owned affiliate in Mexico.
In the first nine months of 1995, the Services Group reported net income of
$58.7 million or $1.55 per share compared with net income of $56.8 million or
$1.50 per share in the first nine months of 1994. Operating profit totaled $91.4
million in the first nine months of 1995 compared with $96.2 million in the
first nine months of 1994. Net income and operating profit were positively
impacted by improved results from the Brink's and BHS businesses, offset by
lower operating profit at Burlington. The first nine months of 1995 were
favorably impacted by lower nonoperating and net interest expenses compared with
the same period of last year. Revenues for the first nine months of 1995
increased $253.5 million or 19% compared with the first nine months of 1994, of
which $156 million was from Burlington, $84.3 million was from Brink's and $13.2
million was from BHS. Operating expenses and selling general and administrative
expenses for the first nine months of 1995 increased $254.6 million or 20% over
the same period last year, of which $167.8 million was from Burlington, $78.5
million from Brink's and $8.2 million from BHS. Other operating income decreased
$3.7 million as a result of decreased results from Brink's 20% owned affiliate
in Mexico. Net income and operating profit in the first nine months of 1994
benefited from unusually strong operating profits at Burlington due to
substantial additional volumes of freight directed to Burlington during a
nationwide trucking strike in the second quarter of 1994, which added an
estimated $8 million to operating profit and $5 million to net income in that
period.
26
<PAGE>
Burlington
- ----------
The following is a table of selected financial data for Burlington on a
comparative basis:
<TABLE>
<CAPTION>
(Dollars in thousands, except Three Months Nine Months
per pound/shipment amounts) Ended September 30 Ended September 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C>
Revenues:
Airfreight
Domestic U.S. $ 134,162 145,214 392,017 417,753
International 172,364 132,795 484,853 365,746
- ---------------------------------------------------------------------------------------------------------------------
Total airfreight 306,526 278,009 876,870 783,499
Other 59,267 33,916 154,817 92,176
- ---------------------------------------------------------------------------------------------------------------------
Total revenues 365,793 311,925 1,031,687 875,675
Operating expenses 318,459 266,915 907,696 749,857
Selling, general and administrative 30,349 23,446 85,911 75,947
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 348,808 290,361 993,607 825,804
- ---------------------------------------------------------------------------------------------------------------------
Other operating income 464 684 1,833 2,157
- ---------------------------------------------------------------------------------------------------------------------
Operating profit:
Domestic U.S. 8,781 13,750 20,261 34,141
International 8,668 8,498 19,652 17,887
- ---------------------------------------------------------------------------------------------------------------------
Operating profit $ 17,449 22,248 39,913 52,028
=====================================================================================================================
Depreciation and amortization $ 4,957 4,514 14,659 12,747
=====================================================================================================================
Cash capital expenditures $ 6,299 6,138 19,799 17,147
=====================================================================================================================
Airfreight shipment growth rate (a) 15.8% 3.0% 9.4% 7.8%
Airfreight weight growth rate (a):
Domestic U.S. ( 4.3%) 19.8% (4.2%) 20.9%
International 31.5% 27.5% 27.3% 25.5%
Worldwide 11.9% 23.2% 10.0% 23.0%
Worldwide airfreight weight (millions of pounds) 353.5 315.7 997.8 907.0
=====================================================================================================================
Worldwide airfreight shipments (thousands) 1,391 1,201 3,929 3,590
=====================================================================================================================
Worldwide average airfreight yield
(revenue per pound) $ 0.867 0.880 0.879 0.864
=====================================================================================================================
Worldwide average airfreight revenue per shipment $ 220 231 223 218
=====================================================================================================================
Worldwide average airfreight weight per
shipment (pounds) 254 263 254 253
=====================================================================================================================
</TABLE>
(a) Compared to the same period in the prior year.
Burlington reported an operating profit of $17.5 million in the 1995 third
quarter, a $4.7 million decrease from the $22.2 million reported in the third
quarter of 1994. Worldwide revenues rose 17% to $365.8 million in the current
year quarter from $311.9 million in the prior year third quarter. Worldwide
airfreight revenues increased $28.5 million or 10% to $306.5 million in the 1995
third quarter from $278 million in the prior year quarter. These increases were
principally from a 32% increase in international weight shipped, which more than
offset a 4% decline in domestic U.S.
27
<PAGE>
weight shipped and a slight decrease in worldwide average airfreight yields
(revenue per pound). Other revenues, which includes customs clearance and other
import-related services, as well as ocean freight services, increased $25.4
million or 75% to $59.3 million in the third quarter of 1995 from $33.9 million
in the prior year quarter, as a result of an increase in international shipment
volume, including ocean freight. Total airfreight weight shipped worldwide
increased 12% to 353.5 million pounds in the current year quarter from 315.7
million pounds in the prior year quarter. Worldwide average airfreight yields
decreased slightly to $.867 in the 1995 third quarter from $.880 in the same
period a year earlier.
Domestic airfreight revenues decreased by 8% to $134.2 million in the 1995 third
quarter from $145.2 million in the prior year third quarter while operating
profit decreased $5.0 million to $8.8 million in the 1995 third quarter from
$13.8 million in the third quarter of 1995. The decrease was the result of a 4%
decrease in domestic weight shipped and a modest decrease in average yields.
Domestic weight shipped was impacted by a decline in shipments by auto
producers. Lower average yields reflected a change in mix to lower yield traffic
and general pricing pressures. Partially offsetting the decline in revenues were
continued reductions in operating costs. Domestic fleet costs were lower as a
result of effective adjustments of fleet capacity to match volume requirements.
In addition, labor costs have been reduced through strict cost control measures,
including reconfiguration of the domestic station network.
International airfreight revenues increased by 30% to $172.3 million in the 1995
third quarter from $132.8 million in the prior year third quarter. International
operating profit in the 1995 third quarter totaled $8.7 million compared to $8.5
million in the prior year quarter. Revenues from other international activities,
primarily ocean freight and import services, increased 75% to $59.3 million in
the 1995 third quarter from $33.9 million in the prior year third quarter. These
increases were largely due to a 32% increase in international airfreight weight
shipped, partially offset by a slight decrease in average yield. Volume
increased in most international markets as the result of market share growth and
increased worldwide trade flows. In addition, during the past year, Burlington
expanded its global operations through acquisitions and new company-owned
offices, most notably in Denmark, Italy, Mexico and Portugal. Although below
prior year's levels, margins on certain segments have improved from the
beginning of the year as the result of price increases introduced in the second
quarter.
Operating profit in the first nine months of 1995 for Burlington was $39.9
million, a $12.1 million decrease from the $52.0 million operating profit
reported in the first nine months of 1994. Burlington's results in 1994
benefited from significant additional domestic freight as a result of the
nationwide trucking strike, which added an estimated $8 million to 1994
operating profit. Worldwide revenues rose 18% to over $1 billion in the current
year period from $875.7 million in the first nine months of 1994. The $156
million increase in revenues resulted largely from a 10% increase in worldwide
airfreight pounds shipped, increased other revenue, including import services
and ocean freight, and to a lesser extent a slight increase in worldwide average
airfreight yields.
Domestic airfreight revenues decreased by 6% or $25.7 million to $392 million in
the first nine months of 1995 compared to the first nine months of 1994.
Domestic operating profit for the first nine months of 1995 totaled $20.3
million compared to $34.1 million in the prior year period. The decreases in
revenues and operating profit were due largely to a 4% decrease in domestic
airfreight weight and a slight decrease in domestic yields. The decrease in
volume was due primarily to the impact of the U.S. trucking strike in the second
quarter of 1994, which added substantial additional volume in 1994.
International airfreight revenues of $484.9 million in the first nine months of
1995 were $119.2 million or 33% higher than the $365.7 million reported in the
prior year period. Operating profit increased $1.8 million to $19.7 million in
the first nine months of 1995 compared to $17.9 million in the first nine months
of 1994. The increases in revenues and operating profit were primarily due to a
27% increase in international airfreight weight shipped and a modest increase in
average yields compared to the prior year period. The increase in volume is
largely attributed to improved economic conditions in the international markets
and expansion of company-owned operations. Revenues from other international
activity and ocean freight increased 67% or $61.4 million to $153.6 million, due
to an increase in international shipment volume and a continued expansion of
ocean freight services.
28
<PAGE>
Brink's
- -------
The following is a table of selected financial data for Brink's on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Nine Months
(In thousands) Ended September 30 Ended September 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C>
Revenues $ 176,507 143,879 480,141 395,827
Operating expenses 142,104 113,778 390,328 318,281
Selling, general and administrative 21,552 19,822 60,516 54,022
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 163,656 133,600 450,844 372,303
- ---------------------------------------------------------------------------------------------------------------------
Other operating income (expense) (588) 853 585 3,957
- ---------------------------------------------------------------------------------------------------------------------
Operating profit $ 12,263 11,132 29,882 27,481
=====================================================================================================================
Depreciation and amortization $ 5,757 5,086 16,253 15,206
=====================================================================================================================
Cash capital expenditures $ 4,234 4,528 15,710 11,261
=====================================================================================================================
Revenues:
North America (United States and Canada) $ 97,103 85,669 278,084 247,488
International subsidiaries 79,404 58,210 202,057 148,339
- ---------------------------------------------------------------------------------------------------------------------
Total revenues $ 176,507 143,879 480,141 395,827
=====================================================================================================================
Operating profit:
North America (United States and Canada) $ 8,226 6,158 20,752 15,603
International operations 4,037 4,974 9,130 11,878
- ---------------------------------------------------------------------------------------------------------------------
Total operating profit $ 12,263 11,132 29,882 27,481
=====================================================================================================================
</TABLE>
Brink's consolidated revenues totaled $176.5 million in the third quarter of
1995 compared with $143.9 million in the third quarter of 1994. Brink's
operating profit of $12.3 million in the third quarter of 1995 increased $1.2
million or 10% from the $11.1 million operating profit in the prior year
quarter. The revenue increase of $32.6 million or 23% in the 1995 third quarter
was offset by an increase in operating expenses and selling, general and
administrative expenses of $30.1 million and a decrease in other operating
income of $1.4 million.
Revenues from North American operations (United States and Canada) increased
$11.4 million or 13% to $97.1 million in the 1995 third quarter from $85.7
million in the prior year quarter. North American operating profit increased
$2.1 million or 34% to $8.2 million in the current year quarter from $6.2
million in the third quarter of 1994. The operating profit improvement primarily
resulted from rising volumes and increased market penetration in the armored car
business, which includes ATM servicing.
Revenues from international subsidiaries increased $21.2 million or 36% to $79.4
million in the 1995 third quarter from $58.2 million in the 1994 third quarter.
Operating profits from international subsidiaries and minority-owned affiliates
declined 19% or $1.0 million to $4.0 million in the current year quarter from
$5.0 million in the prior year third quarter. The earnings decline was largely
attributable to Brink's share of results from its Mexican affiliate (20% owned),
which decreased to a loss of $1.2 million from the profit of $.8 million
recorded in the third quarter of 1994 primarily due to severance costs related
to a downsizing of the workforce, high interest rates and the general economic
condition in Mexico. Local management in Mexico has made substantial progress
with a cost reduction program designed to restore operating profitability.
Brink's operating profit increased $2.4 million to $29.9 million in the first
nine months of 1995 from $27.5 million in the first nine months of 1994 with an
increase in revenues of $84.3 million, partially offset by an increase in
operating
29
<PAGE>
expenses and selling, general and administrative expenses totaling $78.5
million, and a decrease in other operating income of $3.4 million.
Revenue from North American operations increased 12% to $278.1 million in the
first nine months of 1995 from $247.5 million in the prior year period. North
American operating profit increased $5.2 million to $20.8 million from $15.6
million. The increase in operating profit was largely attributable to increases
in the armored car business and, to a lesser extent, increases in the diamond
and jewelry and coin and currency processing businesses, partially offset by
lower air courier results.
Revenue from international subsidiaries increased $53.7 million or 36% to $202.1
million, while operating profit from international subsidiaries and
minority-owned affiliates decreased $2.7 million or 23% to $9.1 million in the
first nine months of 1995. The increase in revenue is primarily due to higher
revenues in Brazil as well as the favorable impact of foreign currency
translation. The decline in operating profit was primarily attributable to
operations in Mexico. Brink's share of its Mexican affiliates' results was a
$2.2 million loss in the first nine months of 1995 compared to a $2.5 million
profit reported in the same period of 1994.
BHS
- ---
The following is a table of selected financial data for BHS on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Nine Months
(Dollars in thousands) Ended September 30 Ended September 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C>
Revenues $ 32,451 27,908 93,823 80,614
Operating expenses 16,051 14,966 48,715 43,700
Selling, general and administrative 6,014 4,726 16,406 13,235
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 22,065 19,692 65,121 56,935
- ---------------------------------------------------------------------------------------------------------------------
Operating profit $ 10,386 8,216 28,702 23,679
=====================================================================================================================
Depreciation and amortization $ 5,469 4,485 15,889 12,747
=====================================================================================================================
Cash capital expenditures $ 11,882 8,491 31,023 25,155
=====================================================================================================================
Annualized service revenues (a) $ 100,862 82,437
=====================================================================================================================
Number of subscribers:
Beginning of period 346,540 289,618 318,029 259,551
Installations 20,580 17,887 58,942 55,864
Disconnects, net (5,917) (4,339) (15,768) (12,249)
- ---------------------------------------------------------------------------------------------------------------------
End of period 361,203 303,166 361,203 303,166
=====================================================================================================================
</TABLE>
(a) Annualized service revenue is calculated based on the number of subscribers
at period end multiplied by the average fee per subscriber received in the
last month of the period for monitoring, maintenance and related services.
Revenues for BHS increased 16% to $32.5 million in the third quarter of 1995
from $27.9 million in the year earlier quarter. In the first nine months of
1995, revenues increased $13.2 million to $93.8 million from $80.6 million in
the first nine months of 1994. Operating profit of BHS increased $2.2 million to
$10.4 million in the third quarter of 1995, a 26% improvement from $8.2 million
in the third quarter of 1994. In the first nine months of 1995, operating profit
increased $5 million or 21% to $28.7 million from $23.7 million in the first
nine months of 1994. The increase in operating profit for the third quarter and
nine months of 1995 compared to the similar periods in 1994 reflected higher
monitoring revenues due to an average subscriber base that was approximately 19%
higher for the quarter and year to
30
<PAGE>
date 1995, compared to similar periods in 1994, slightly offset by higher
account servicing and administrative costs. Operating profit as a percentage of
revenue increased 32% for the third quarter of 1995 from 29% in the year earlier
quarter also as a result of the larger average subscriber base.
BHS installed approximately 20,600 new subscribers during the third quarter of
1995, a 15% increase over the prior year quarter. For the first nine months of
1995, BHS installed a total of approximately 58,900 new subscribers. The
subscriber base totaled approximately 361,200 subscribers on September 30, 1995,
a 19% increase from the September 30, 1994 level. As a result, annualized
service revenues increased 22% to $100.9 million as of September 30, 1995.
During the third quarter of 1995, BHS initiated service in two new markets:
Colorado Springs, Colorado and San Jose, California.
Foreign Operations
- ------------------
A portion of the Services Group's financial results is derived from activities
in several foreign countries, each with a local currency other than the U.S.
dollar. Since the financial results of the Services Group are reported in U.S.
dollars, they are affected by the changes in the value of the various foreign
currencies in relation to the U.S. dollar. The Services Group's international
activity is not concentrated in any single currency, which limits the risks of
foreign rate fluctuations. In addition, foreign currency rate fluctuations may
adversely affect transactions which are denominated in currencies other than the
functional currency. The Services Group routinely enters into such transactions
in the normal course of its business. Although the diversity of its foreign
operations limits the risks associated with such transactions, the Services
Group uses foreign exchange forward contracts to hedge the risks associated with
certain transactions denominated in currencies other than the functional
currency. Realized and unrealized gains and losses on these contracts are
deferred and recognized as part of the specific transaction hedged. In addition,
cumulative translation adjustments relating to operations in countries with
highly inflationary economies are included in net income, along with all
transaction gains or losses for the period. Subsidiaries in Brazil operate in
such a highly inflationary economy.
Additionally, the Services Group is subject to other risks customarily
associated with doing business in foreign countries, including economic
conditions, controls on repatriation of earnings and capital, nationalization,
expropriation and other forms of restrictive action by local governments. The
future effects, if any, of such risks on the Services Group cannot be predicted.
Corporate Expenses
- ------------------
A portion of the Company's corporate general and administrative expenses and
other shared services has been allocated to the Services Group based on
utilization and other methods and criteria which management believes to be a
reasonable and equitable estimate of the costs attributable to the Services
Group. These allocations were $2.3 million in the third quarter of 1995 and 1994
and $7.1 million and $7.0 million in the first nine months of 1995 and 1994,
respectively.
Other Operating Income
- ----------------------
Other operating income decreased $1.6 million to a loss of $.1 million in the
1995 third quarter from a profit of $1.5 million in the third quarter of 1994.
Other operating income totaled $2.4 million in the first nine months of 1995
compared with $6.1 million in the first nine months of 1994. Other operating
income consists largely of equity earnings of foreign affiliates. These
earnings, which are primarily attributable to equity affiliates of Brink's,
amounted to a loss of $.7 million in the 1995 third quarter compared with a
profit of $.8 million in the 1994 third quarter and a profit of $.2 million in
the first nine months of 1995 compared with a profit of $4.2 million in the
first nine months of 1994. The decreases in both the quarter and nine month
comparative periods were due in large part to Brink's share of earnings from its
affiliate in Mexico which decreased $2 million and $4.7 million in the 1995
third quarter and nine months, respectively, compared to the same periods of
1994.
Interest Income
- ---------------
Interest income increased $.7 million to $1.5 million in the third quarter of
1995 from $.8 million in the prior year's third quarter. Interest income
includes interest earned of $.8 million and $.4 million in the third quarter of
1995 and 1994, respectively, on amounts owed by the Minerals Group. For the nine
months ended September 30, 1995, interest income increased $2.5 million to $4.5
million from $2 million in the first nine months of 1994. The increase is
31
<PAGE>
primarily attributed to a $1.8 million increase to $2.3 million of interest
income earned from amounts owed by the Minerals Group in the first nine months
of 1995.
Interest Expense
- ----------------
Interest expense increased $.3 million to $1.8 million in the third quarter of
1995 from $1.5 million in the prior year third quarter. Interest expense totaled
$4.9 million and $4.7 million in the first nine months of 1995 and 1994,
respectively. The increase in the 1995 third quarter and nine months was due to
higher average interest rates and average debt balances.
Other Income (Expense), Net
- ---------------------------
Other net expense for the first nine months of 1995 decreased $.7 million to a
net expense of $3.4 million from a net expense of $4.1 million in the first nine
months of 1994. The nine months ended September 30, 1994 included expenses of
$1.2 million recognized in the first quarter on the Company's redemption of its
9.2% Convertible Subordinated Debentures.
Income Taxes
- ------------
Net income in the third quarter and nine months periods ended September 30,
1995, includes a tax provision which differs from the amount calculated based on
the federal statutory income tax rate of 35% as a result of lower taxes on
foreign income.
FINANCIAL CONDITION
A portion of the Company's corporate assets and liabilities has been attributed
to the Services Group based upon utilization of the shared services from which
assets and liabilities are generated, which management believes to be equitable
and a reasonable estimate.
Cash Provided by Operations
- ---------------------------
Cash provided by operating activities during the first nine months of 1995
totaled $75.3 million compared with $128.3 million in the first nine months of
1994. The decrease in cash provided occurred, despite higher net income and
noncash charges, principally as a result of additional investment in working
capital at Burlington. Such requirements primarily reflected initial working
capital needs of recently acquired foreign subsidiaries, a relatively larger
seasonal volume increase and increased international revenues, which tend to
have longer payment terms.
Capital Expenditures
- --------------------
Cash capital expenditures for the first nine months of 1995 totaled $66.7
million. Of that amount, $31 million was spent by BHS, $19.8 million was spent
by Burlington and $15.7 million was spent by Brink's. Expenditures incurred by
BHS in the first nine months of 1995 were primarily for customer installations,
representing the expansion in the subscriber base. For the full year 1995,
capital expenditures are projected to approximate $110 million. The foregoing
amounts exclude equipment expenditures that have been or are expected to be
financed through capital and operating leases, and any acquisition expenditures.
Increased expenditures in 1995 are largely attributable to Burlington to support
new airfreight stations and implementation of new information systems and to BHS
resulting from continued expansion of the subscriber base. Capital expenditures
in 1996 are estimated to approximate the 1995 levels. These expenditures will be
primarily for maintenance and replacement, when necessary, of current business
operations, including information systems and, to a lesser extent, for business
expansion.
Financing
- ---------
The Services Group intends to fund its capital expenditure requirements during
the remainder of 1995 with anticipated cash flows from operating activities and
through operating leases if the latter are financially attractive. Shortfalls,
if any, will be financed through the Company's revolving credit agreements or
other borrowing arrangements. The Company has a $350 million revolving credit
agreement with a syndicate of banks (the "Facility"). The Facility includes a
$100 million term loan, which matures in May 2000. The Facility also permits
additional borrowings, repayments, and reborrowings of up to an aggregate of
$250 million until May 2000.
32
<PAGE>
Debt
- ----
Outstanding debt totaled $92.7 million at September 30, 1995 up $23.3 million
from the $69.4 million reported at December 31, 1994. The amount of the $100
million term loan attributed to the Services Group was $23.4 million at
September 30, 1995.
On April 15, 1994, the Company redeemed all outstanding 9.2% Convertible
Subordinated Debentures due July 1, 2004. The principal amount outstanding was
$27.8 million and the premium paid to call the debt totaled $.8 million. The
Company used cash provided under its revolving credit agreements to redeem the
debentures. The premium paid in addition to other charges related to the
redemption are included in the Services Group's Statement of Operations for the
nine months ended September 30, 1994.
Related Party Transactions
- --------------------------
At September 30, 1995, the Minerals Group owed the Services Group $54.4 million,
an increase of $6.2 million from the $48.2 million owed at December 31, 1994.
At September 30, 1995, the Services Group owed the Minerals Group $40.2 million
for tax benefits, an increase of $1 million from the $39.2 million owed at
December 31, 1994. Of the total amount of tax benefits owed the Minerals Group
at September 30, 1995, $21.0 million is expected to be paid within one year.
Capitalization
- --------------
At September 30, 1995, the Company was also authorized to repurchase up to
1,250,000 shares of Services Stock and 250,000 shares of Minerals Stock, not to
exceed $43 million. As of September 30, 1995, a total of 401,900 shares ($9.6
million) of Services Stock have been acquired pursuant to the authorization.
During the nine months ended September 30, 1995 145,800 shares ($3.4 million) of
Services Stock were repurchased. In November 1995, the Board increased the
remaining purchase authority for Minerals Stock to 1,000,000 shares, not to
exceed $45 million for all common shares of the Company.
On September 15, 1995, the Company announced that the Board approved, subject to
a favorable vote of shareholders, a plan to separate Services Stock into two
classes of common stock which would separately track the Company's security
services and home security business (the "Pittston Brink's Group"), and its
global freight transportation and logistics management services businesses (the
"Pittston Burlington Group"). The plan will not alter the composition of the
Minerals Group.
Under the proposed plan, a new class of common stock call Pittston Burlington
Group Common Stock ("Burlington Stock") will be distributed tax free to the
Services Group shareholders in the ratio of one half of one share of Burlington
Stock for each outstanding share of Services Stock. Services Group shareholders
will retain their existing common stock, which will be redesignated Pittston
Brink's's Group Common Stock ("Brink's Stock"), on a share-for-share basis. The
Company will continue as a single corporate entity with three classes of common
stock. The proposed plan is designed to have no adverse effect on the rights of
the shareholders of Minerals Stock or the cumulative convertible preferred
stock.
Dividends
- ---------
The Board intends to declare and pay dividends on Services Stock based on
earnings, financial condition, cash flow and business requirements of the
Services Group. Since the Company remains subject to Virginia law limitations on
dividends and to dividend restrictions in its public debt and bank credit
agreements, financial developments of the Minerals Group could affect the
Company's ability to pay dividends in respect of stock relating to the Services
Group.
As a result of the Company's issuance in January 1994 of 161,000 shares of a new
series of preferred stock, convertible in to Minerals Stock, the Company pays an
annual cumulative dividend of $31.25 per share payable quarterly, in cash, in
arrears, out of all funds of the Company legally available therefore, when, 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.
33
<PAGE>
During the 1995 and 1994 nine month periods, the Board declared and paid cash
dividends of 15 cents per share of Services Stock.
Pending Accounting Change
- -------------------------
The Company is required to implement a new accounting standard for long-lived
assets - Statement of Financial Accounting Standards ("SFAS") No. 121 - in 1996.
SFAS No. 121 requires companies to utilize a two step approach to determining
whether impairment of long-lived assets has occurred and if so, the amount of
such impairment. The Company has not yet determined the effect of adopting SFAS
No. 121.
34
<PAGE>
Pittston Minerals Group
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30, Dec. 31,
1995 1994
=================================================================================================================================
<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 2,289 3,708
Short-term investments, at lower of cost or market 25,336 23,121
Accounts receivable (net of estimated amount uncollectible: 1995 - $1,894; 1994 - $1,880) 91,914 108,923
Inventories, at lower of cost or market:
Coal 38,065 25,518
Other 4,525 4,629
- ---------------------------------------------------------------------------------------------------------------------------------
42,590 30,147
Prepaid expenses 9,783 11,389
Deferred income taxes 28,656 30,525
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 200,568 207,813
Property, plant and equipment, at cost (net of accumulated depreciation,
depletion and amortization: 1995 - $165,199; 1994 - $159,938) 200,275 220,462
Deferred pension assets 78,499 75,803
Deferred income taxes 90,124 97,945
Coal supply contracts 71,847 82,240
Intangibles, net of amortization 118,325 120,649
Receivable - Pittston Services Group 19,202 23,186
Other assets 37,346 39,414
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets $ 816,186 867,512
=================================================================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 2,172 7,554
Accounts payable 67,198 76,771
Payable - Pittston Services Group 33,360 32,170
Accrued liabilities 154,941 157,229
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 257,671 273,724
Long-term debt, less current maturities 84,483 88,175
Postretirement benefits other than pensions 214,413 212,977
Workers' compensation and other claims 114,408 128,864
Deferred income taxes 1,699 -
Other liabilities 154,810 172,368
Shareholder's equity (11,298) (8,596)
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 816,186 867,512
=================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
Pittston Minerals Group
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C>
Net sales $ 177,702 210,142 557,653 589,033
- ---------------------------------------------------------------------------------------------------------------------
Cost and expenses:
Cost of sales 167,261 199,372 542,061 578,197
Selling, general and administrative expenses 8,182 9,309 25,102 27,544
Restructuring and other charges - - - 90,806
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 175,443 208,681 567,163 696,547
- ---------------------------------------------------------------------------------------------------------------------
Other operating income 3,259 6,093 19,999 12,351
- ---------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 5,518 7,554 10,489 (95,163)
Interest income 178 38 372 138
Interest expense (2,693) (1,683) (7,778) (3,821)
Other income (expense), net (219) (220) (649) (657)
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 2,784 5,689 2,434 (99,503)
Provision (credit) for income taxes (1,678) (507) (7,132) (38,370)
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) 4,462 6,196 9,566 (61,133)
Preferred stock dividends, net (521) (541) (1,697) (2,804)
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) attributed to common shares $ 3,941 5,655 7,869 (63,937)
=====================================================================================================================
Net income (loss) per common share:
Primary $ .51 .74 1.01 (8.44)
Fully diluted $ .45 .61 .96 (8.44)
=====================================================================================================================
Cash dividends $ .1625 .1625 .4875 .4875
=====================================================================================================================
Average common shares outstanding:
Primary 7,804 7,605 7,781 7,578
Fully diluted 9,964 10,080 10,013 9,965
=====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
Pittston Minerals Group
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
- ---------------------------------------------------------------------------------------------------------------------------------
1995 1994
=================================================================================================================================
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 9,566 (61,133)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Noncash charges and other write-offs - 46,487
Depreciation, depletion and amortization 31,747 31,135
Provision (credit) for deferred income taxes 11,185 (19,495)
Credit for pensions, noncurrent (2,635) (871)
Provision for uncollectible accounts receivable 100 132
Equity in (earnings) loss of unconsolidated affiliates, net of dividends received 15 (130)
Other operating, net (3,054) (2,993)
Change in operating assets and liabilities net of effects of acquisitions and dispositions:
Decrease (increase) in accounts receivable 17,308 (14,869)
Increase in inventories (12,235) (4,101)
Decrease (increase) in prepaid expenses 1,618 (1,459)
Decrease in accounts payable and accrued liabilities (7,813) (1,243)
Decrease in other assets 1,426 1,327
(Decrease) increase in other liabilities (18,909) 59
(Decrease) increase in workers' compensation and other claims, noncurrent (14,456) 7,255
Other, net 118 (203)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 13,981 (20,102)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (14,590) (17,614)
Proceeds from disposal of property, plant and equipment 16,112 4,185
Acquisitions, net of cash acquired, and related contingent payments (1,078) (157,231)
Other, net 220 7,981
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities 664 (162,679)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt - 76,566
Reductions of debt (9,114) (382)
Payments from - Services Group 6,190 42,196
Repurchase of stock of the Company (7,171) (3,767)
Proceeds from exercise of stock options 1,202 1,211
Proceeds from employee stock purchase plan 177 -
Proceeds from sale of stock to Services Group - 253
Proceeds from the issuance of preferred stock, net of cash expenses - 77,359
Cost of Services Stock Proposal - (2)
Dividends paid (7,348) (6,722)
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities (16,064) 186,712
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents (1,419) 3,931
Cash and cash equivalents at beginning of period 3,708 2,141
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,289 6,072
=================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
Pittston Minerals Group
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except per share and employee amounts)
(1) The financial statements of the Pittston Minerals Group (the "Minerals
Group") include the balance sheets, results of operations and cash flows of
the Coal and Mineral Ventures operations of The Pittston Company (the
"Company"), and a portion of the Company's corporate assets and liabilities
and related transactions which are not separately identified with
operations of a specific segment. The Minerals Group's financial statements
are prepared using the amounts included in the Company's consolidated
financial statements. Corporate allocations reflected in these financial
statements are determined based upon methods which management believes to
be a reasonable and equitable allocation of such expenses and credits.
The Company provides holders of Pittston Minerals Group Common Stock
("Minerals Stock") separate financial statements, financial reviews,
descriptions of business and other relevant information for the Minerals
Group in addition to consolidated financial information of the Company.
Holders of Minerals Stock are shareholders of the Company, which continues
to be responsible for all its liabilities. Therefore, financial
developments affecting the Minerals Group or the Pittston Services Group
(the "Services Group") that affect the Company's financial condition could
affect the results of operations and financial condition of both Groups.
Accordingly, the Company's consolidated financial statements must be read
in connection with the Minerals Group's financial statements.
(2) The amounts of depreciation, depletion and amortization of property, plant
and equipment in the third quarter and nine month periods of 1995 and 1994
totaled $6,211 ($5,890 in 1994) and $18,858 ($18,202 in 1994),
respectively.
(3) Cash payments made for interest and income taxes (net of refunds received)
were as follows:
Third Quarter Nine Months
1995 1994 1995 1994
--------------------------------------------------------------------------
Interest $ 2,486 1,828 7,658 3,344
==========================================================================
Income taxes $ (4,286) (5,497) (16,533) (12,870)
==========================================================================
On January 14, 1994, a wholly owned indirect subsidiary of the Minerals
Group completed the acquisition of substantially all of the coal mining
operations and coal sales contracts of Addington Resources, Inc.
("Addington Acquisition") for $157,324. The acquisition was accounted for
as a purchase; accordingly, the purchase price was allocated to the
underlying assets and liabilities based on their respective estimated fair
values at the date of acquisition. The fair value of assets acquired was
$173,959 and liabilities assumed was $138,518. The excess of the purchase
price over the fair value of the assets acquired and liabilities assumed
was $121,883 and is being amortized over a period of 40 years. The results
of operations of the acquired company have been included in the Minerals
Group's results of operations since the date of acquisition.
The acquisition was financed by the issuance of $80,500 of $31.25 Series C
Cumulative Convertible Preferred Stock, which is convertible into Minerals
Stock, and additional debt under existing credit facilities. This financing
has been attributed to the Minerals Group. In March 1994, the additional
debt incurred for the Addington Acquisition was refinanced with a portion
of a five-year term loan.
During the nine months ended September 30, 1994, capital lease obligations
of $746 were incurred for leases of property, plant and equipment. In
addition, during the nine months ended September 30, 1994, the Minerals
Group assumed capital lease obligations of $16,210 as part of the Addington
Acquisition.
38
<PAGE>
In December 1993, the Minerals Group sold the majority of the assets of its
captive mine supply company. Cash proceeds of $8,400 from the sale were
received on January 2, 1994, and have been included in the Statement of
Cash Flows under the caption "Cash flow from investing activities: Other,
net".
(4) Restructuring and other charges - After a review of the economic viability
of certain metallurgical coal assets in the first quarter of 1994,
management determined that four underground mines were no longer
economically viable and should be closed, resulting in significant economic
impairment to three related preparation plants. In addition, it was
determined that one surface steam coal mine, the Heartland mine, which
provided coal to Alabama Power Company under a long-term sales agreement,
would be closed due to rising costs caused by unfavorable geological
conditions.
As a result of these decisions, the Company incurred a pre-tax charge of
$90,806 in the first quarter of 1994 ($58,116 after tax) which included a
reduction in the carrying value of these assets and related accruals for
mine closure costs.
Of the four underground mines, two have ceased coal production (one in the
first half of 1995), while the remaining two mines are expected to cease
coal production in 1995. In 1994 the Company reached agreement with Alabama
Power Company to transfer the coal sales contract serviced by the Heartland
mine to another location in West Virginia. The Heartland mine ceased coal
production during 1994 and final reclamation and environmental work is in
process. At the beginning of 1994, there were approximately 750 employees
involved in operations at these facilities and other administrative
support. Employment at these facilities has been reduced by 76% to
approximately 180 employees at September 30, 1995.
(5) Certain prior period amounts have been reclassified to conform to current
period financial statement presentation.
(6) All adjustments have been made which are, in the opinion of management,
necessary to a fair presentation of results of operations for the periods
reported herein. All such adjustments are of a normal recurring nature.
(7) In September 1995, the Company's Board of Directors approved, subject to a
favorable vote of shareholders, a plan to separate Services Stock into two
classes of common stock which would separately track the Company's security
services and home security businesses, the Pittston Brink's Group, and its
global freight transportation and logistics management services businesses,
the Pittston Burlington Group. The plan will not alter the composition of
the Minerals Group.
Under the proposed plan, a new class of common stock called Pittston
Burlington Group Common Stock ("Burlington Stock") will be distributed tax
free to the Services Group shareholders in the ratio of one half of one
share of Burlington Stock for each outstanding share of Services Stock.
Services Group shareholders will retain their existing common stock, which
will be redesignated Pittston Brink's Group Common Stock ("Brink's Stock"),
on a share-for-share basis. The Company will continue as a single corporate
entity with three classes of common stock: Brink's Stock, Burlington Stock,
and Minerals Stock. The proposed plan is designed to have no adverse effect
on the rights of the shareholders of Minerals Stock or Series C Convertible
Preferred Stock.
39
<PAGE>
Pittston Minerals Group
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The financial statements of the Pittston Minerals Group (the "Minerals Group")
include the balance sheets, results of operations and cash flows of the Coal and
Mineral Ventures operations of The Pittston Company (the "Company"), and a
portion of the Company's corporate assets and liabilities and related
transactions which are not separately identified with operations of a specific
segment. The Minerals Group's financial statements are prepared using the
amounts included in the Company's consolidated financial statements. Corporate
allocations reflected in these financial statements are determined based upon
methods which management believes to be an equitable allocation of such expenses
and credits. The accounting policies applicable to the preparation of the
Minerals Group's financial statements may be modified or rescinded at the sole
discretion of the Company's Board of Directors (the "Board") without the
approval of the shareholders, although there is no intention to do so.
The Company provides to holders of the Pittston Minerals Group Common Stock
("Minerals Stock") separate financial statements, financial reviews,
descriptions of business and other relevant information for the Minerals Group
in addition to consolidated financial information of the Company. Holders of
Minerals Stock are shareholders of the Company, which continues to be
responsible for all its liabilities. Therefore, financial developments affecting
the Minerals Group or the Pittston Services Group (the "Services Group") that
affect the Company's financial condition could affect the results of operations
and financial condition of both Groups. Accordingly, the Company's consolidated
financial statements must be read in connection with the Minerals Group's
financial statements.
The following discussion is a summary of the key factors management considers
necessary in reviewing the Minerals Group's results of operations, liquidity and
capital resources. This discussion should be read in conjunction with the
financial statements and related notes of the Company.
SEGMENT INFORMATION
(In thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
- --------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
====================================================================================================================
<S> <C> <C> <C> <C>
Net sales:
Coal $ 173,985 205,831 545,255 577,627
Mineral Ventures 3,717 4,311 12,398 11,406
- --------------------------------------------------------------------------------------------------------------------
Net sales $ 177,702 210,142 557,653 589,033
====================================================================================================================
Operating profit (loss):
Coal $ 8,075 8,488 15,196 (90,956)
Mineral Ventures (816) 786 675 854
- --------------------------------------------------------------------------------------------------------------------
Segment operating profit (loss) 7,259 9,274 15,871 (90,102)
General corporate expense (1,741) (1,720) (5,382) (5,061)
- --------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 5,518 7,554 10,489 (95,163)
====================================================================================================================
</TABLE>
40
<PAGE>
RESULTS OF OPERATIONS
In the third quarter of 1995, the Minerals Group reported net income of $4.5
million compared with $6.2 million in the third quarter of 1994. Earnings per
share amounted to $.51 per share in the most recent quarter ($.45 per share on a
fully diluted basis) compared to $.74 per share in the third quarter of 1994
($.61 on a fully diluted basis). Operating profit totaled $5.5 million in the
1995 third quarter compared with $7.6 million in the prior year third quarter.
The decrease in net income and operating profit in the third quarter was due in
part to lower profits on sales of non- strategic coal assets. The sale of
highwall mining equipment in the third quarter of 1995 resulted in a gain of
$1.5 million and the sale of a natural gas pipeline in the third quarter of 1994
resulted in a gain of $2.5 million.
In the first nine months of 1995, the Minerals Group reported net income of $9.6
million compared to a net loss of $61.1 million in the first nine months of
1994. Operating profit totaled $10.5 million in the first nine months of 1995
compared to an operating loss of $95.2 million in the first nine months of 1994.
The increase in both operating profit and net income is primarily attributable
to the Coal operations whose 1994 results included charges for asset write
downs, accruals for costs related to facility shutdowns and operating losses
incurred related to these facilities, which in the aggregate reduced operating
profit and net income by $97.5 million and $63.4 million, respectively.
Coal
- ----
The following is a table of selected financial data for the Coal operations on a
comparative basis:
<TABLE>
<CAPTION>
Three Months Nine Months
(In thousands) Ended September 30 Ended September 30
- --------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
====================================================================================================================
<S> <C> <C> <C> <C>
Net sales $ 173,985 205,831 545,255 577,627
Cost of sales 164,032 196,753 532,977 570,412
Selling, general and administrative expenses 5,394 6,623 17,096 19,586
Restructuring and other charges - - - 90,806
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 169,426 203,376 550,073 680,804
- ---------------------------------------------------------------------------------------------------------------------
Other operating income 3,516 6,033 20,014 12,221
- ---------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 8,075 8,488 15,196 (90,956)
=====================================================================================================================
Coal sales (tons):
Metallurgical 1,950 2,590 6,583 7,466
Utility and industrial 3,943 4,862 12,471 13,249
- ---------------------------------------------------------------------------------------------------------------------
Total coal sales 5,893 7,452 19,054 20,715
=====================================================================================================================
Production/purchased (tons)
Deep 984 1,124 3,025 3,746
Surface 3,143 4,045 10,272 11,049
Contract 459 605 1,500 1,731
- ---------------------------------------------------------------------------------------------------------------------
4,586 5,774 14,797 16,526
Purchased 1,289 1,527 4,791 4,313
- ---------------------------------------------------------------------------------------------------------------------
Total 5,875 7,301 19,588 20,839
=====================================================================================================================
</TABLE>
Operations - Coal operations had an operating profit totaling $8.1 million in
the third quarter of 1995 compared to an operating profit of $8.5 million in the
third quarter of 1994. Included in the current quarter results is a pretax gain
of $1.5 million from the disposition of highwall mining equipment, whereas the
1994 third quarter included a $2.5 million pretax gain from the sale of a
natural gas pipeline.
41
<PAGE>
Sales volume of 5.9 million tons in the third quarter of 1995 was 21% or 1.6
million tons less than the 7.5 million tons sold in the 1994 third quarter, as
marginal mines serving the weak spot steam coal markets were idled and some
foreign metallurgical coal customers delayed shipments. Steam coal sales volume
declined 19% or 1 million tons to 3.9 million tons and metallurgical coal sales
volume declined by 25% or .6 million tons to 2.0 million tons compared to the
third quarter of 1994. Steam coal sales represented 67% of total volume in the
third quarter of 1995, compared to 65% in the prior year quarter.
As of September 30, 1995, metallurgical coal customers have taken shipments
representing approximately 78% of the proportionate annualized contract tonnage
for the contract year that began on April 1, 1995. Coal operations expect that
this shortfall, which represents approximately .6 million tons, will be made up
by these customers during the remainder of the contract year or shortly
thereafter. The impact of the delayed shipments has increased inventory and
deferred recognition of expected gross margins.
Production in the third quarter of 1995 totaled 4.6 million tons, a 21% decrease
compared to the third quarter of 1994, principally reflecting the closure and
idling of certain mines in order to improve the balance between production and
demand. Surface production accounted for approximately 70% of total production
in the third quarter of 1995. Productivity of 39 tons per man day represented a
6% increase over the comparable period in 1994.
Coal margin (realization less current production costs of coal sold) of $19.2
million or $3.25 per ton for the third quarter of 1995, increased $1.5 million
or $ .89 per ton from the prior year third quarter. This was caused by a 6% or
$1.77 per ton increase in average realization to $29.36 per ton partially offset
by a 3% or $.88 per ton increase in the average current production costs of coal
sold of $26.11 per ton. Operating results improved significantly from the first
and second quarters of 1995. Substantial progress has been made in reconfiguring
the Coal operations production and distribution activities resulting in improved
efficiencies and lower mining costs. In addition, the disposition throughout the
year of non-strategic assets has further lowered overall operating costs.
Management is continuing its drive to eliminate marginal operations and improve
margins.
Coal operations had an operating profit of $15.2 million in the first nine
months of 1995 compared to an operating loss of $91.0 million in the prior year
period. The operating loss in the first nine months of 1994 included $90.8
million of charges for asset writedowns and accruals for costs related to
facility shutdowns (discussed further below) and $7.7 million of operating
losses incurred during the first nine months related to closed facilities.
Sales volume of 19.1 million tons in the first nine months of 1995 was 1.6
million tons less than the 20.7 million tons sold in the prior year period.
Steam coal sales decreased by .8 million tons to 12.5 million tons and
metallurgical coal sales declined by .9 million tons to 6.6 million tons
compared to the prior year. Steam coal sales represented 65% of total volume in
the first nine months of 1995.
Production in the first nine months of 1995 totaled 14.8 million tons, a 10%
decrease compared to the first nine months of 1994, principally reflecting the
scheduled reduction in underground mine production during 1994 and early 1995
and the idling of surface steam coal mines. Surface production accounted for 71%
and 68% of total production in the first nine months of 1995 and 1994,
respectively. Productivity of 37 tons per man day represented a 7% increase over
the comparable period in 1994.
Coal operations reached contract agreements with its metallurgical customers for
the coal year that began April 1, 1995 with most calling for price increases of
approximately $4.00 to $5.50 per metric ton, depending upon coal quality. These
price increases, which represent an average increase of approximately 9% over
the prior contract year, were in effect during the 1995 third quarter and had
the effect of realigning pricing to levels in effect prior to last year's
unusually large decline. Sales volume is expected to decline modestly from the
level in the prior contract year.
Coal operations' efforts to lower costs have improved margins and enhanced the
ability to respond to improvement in pricing for its low sulphur steam coal.
Some modest improvement in spot steam coal pricing from historically low levels
occurred during the third quarter due to the hot summer and increased European
demand for steam coal. Coal operations are prepared to resume production at
certain idled facilities should pricing improve further. The majority of Coal
operations' steam coal sales continue to be sold under long-term contracts.
42
<PAGE>
Restructuring and Other charges - As a result of the continuing long-term
decline of the metallurgical coal markets, in the first quarter of 1994
management determined that four underground mines were no longer economically
viable and should be closed, resulting in significant economic impairment to
three related preparation plants. In addition, it was determined that one
surface steam coal mine, the Heartland mine, which provided coal to Alabama
Power under a long-term sales agreement, would be closed due to rising costs
caused by unfavorable geological conditions. As a result of these decisions, the
Coal operations incurred pretax charges of $90.8 million ($58.1 million after
tax) in the first quarter of 1994 which included a reduction in the carrying
value of these assets and related accruals for mine closure costs.
Of the four underground mines, two have ceased coal production (one in 1995),
while the remaining two mines are expected to cease coal production during the
remainder of 1995. In 1994, Coal operations reached agreement with Alabama Power
Company to transfer the coal sales contract which had been 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 76% to approximately 180
employees at September 30, 1995.
After coal production ceases at the mines contemplated in the accrual, the
Company will continue to pay reclamation and environmental costs for several
years to bring these properties into compliance with federal and state
environmental laws. In addition, employee termination and medical payments will
continue to be made for several years after the facilities have been closed. A
significant portion of these employee liabilities is for statutorily provided
workers' compensation costs for inactive employees. Such benefits include
indemnity and medical payments as required under state workers' compensation
laws. The long payment periods are based on continued and, in some cases,
lifetime indemnity and medical payments to injured former employees and their
surviving spouses. Management believes that the charges incurred in 1994 should
be sufficient to provide for these future payments and does not anticipate
material additional future charges to operating earnings for these facilities,
although continual cash funding will be required over the next several years.
The following table analyzes the changes in liabilities during 1994 and 1995 for
facility closure costs recorded as restructuring and other charges:
<TABLE>
<CAPTION>
Employee
Mine Termination,
Leased and Medical
Machinery Plant and
and Closure Severance
Equipment Costs Costs Total
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance as of December 31, 1993 (a) $ 3,092 28,434 34,217 65,743
Additions 3,836 19,290 21,193 44,319
Payments (b) 3,141 9,468 12,038 24,647
--------------------------------------------------------------------------------------------------------------
Balance as of December 31, 1994 3,787 38,256 43,372 85,415
Payments (c) 1,474 7,501 6,096 15,071
--------------------------------------------------------------------------------------------------------------
Balance as of September 30, 1995 $ 2,313 30,755 37,276 70,344
==============================================================================================================
</TABLE>
(a) These amounts represent the remaining liabilities for facility closure
costs recorded as restructuring and other charges in prior years. The
original charges included $5,094 for leased machinery and equipment,
$52,243 principally for incremental facility closing costs including
reclamation and $54,108 for employee benefit costs, primarily workers'
compensation, which will continue to be paid for several years.
(b) These amounts represent total cash payments made during 1994 for these
charges. Of the total payments made, $14,494 was for liabilities recorded
in years prior to 1994 and $10,153 was for liabilities recorded in 1994.
(c) Payments made in the first nine months of 1995 included $8,642 related to
pre-1994 liabilities and $6,429 for liabilities recorded in the first
quarter of 1994.
43
<PAGE>
During the next twelve months, expected cash funding of these charges is
approximately $15 to $20 million. Management estimates that the remaining
liability for leased machinery and equipment will be fully paid over the next
two years. The remaining liability for mine and plant closure costs is expected
to be satisfied over the next seven years, of which approximately 70% is
expected to be paid over the next three years. The remaining liability for
employee- related costs, which is primarily workers' compensation, is estimated
to be 75% settled over the next four years with the balance paid during the
following five to ten years.
Mineral Ventures
- ----------------
The following is a table of selected financial data for the Mineral Ventures
operations on a comparative basis:
<TABLE>
<CAPTION>
(Dollars in thousands, Three Months Nine Months
except per ounce data) Ended September 30 Ended September 30
- ---------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
=====================================================================================================================
<S> <C> <C> <C> <C>
Net sales $ 3,717 4,311 12,398 11,406
Cost of sales 3,229 2,619 9,084 7,785
Selling, general and administrative costs 1,047 966 2,624 2,897
- ---------------------------------------------------------------------------------------------------------------------
Total costs and expenses 4,276 3,585 11,708 10,682
Other operating income (expense) (257) 60 (15) 130
- ---------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ (816) 786 675 854
=====================================================================================================================
Stawell Gold Mine:
PMV's 50% direct share ounces sold 8,737 10,800 30,229 28,600
Average realized gold price per ounce (US$) $ 400 400 398 397
</TABLE>
Operating profit of Mineral Ventures operations decreased $1.6 million in the
1995 third quarter to an operating loss of $.8 million, from an operating profit
of $.8 million in the third quarter of 1994. Operating profits were negatively
impacted by an adverse geological condition at the Stawell gold mine in western
Victoria, Australia, in which Mineral Ventures has a 67% direct and indirect
interest, resulting in temporarily lower produced ore grades and higher
production costs. Although this situation had a significantly negative impact on
third quarter results, the Stawell mine is expected to achieve normal production
during the fourth quarter. The Stawell mine produced 17,836 ounces of gold in
the third quarter of 1995 at a average cost of $393 per ounce, compared to
21,734 ounces in the third quarter of 1994 at an average cost of $263 per ounce.
In the first nine months of 1995, operating profit of Mineral Ventures decreased
$.2 million to $.7 million from $.9 million in the first nine months of 1994.
The decrease in operating profit was primarily the result of decreased
production at the Stawell Gold Mine as discussed above. The Stawell gold mine
produced 60,412 ounces in the first nine months of 1995 compared with 57,468
ounces in the comparable period of 1994. Mineral Ventures is continuing
exploration projects in Nevada and Australia with its joint venture partner.
A reserve study at the Stawell mine conducted as of June 30, 1995, indicated
proven and probable recoverable gold reserves of 461,800 ounces, an increase of
132,800 ounces over the prior year level after the production of 84,800 ounces
during the intervening period.
Other Operating Income
- ----------------------
Other operating income decreased $2.8 million to $3.3 million in the 1995 third
quarter from $6.1 million in the third quarter of 1994. Other operating income
totaled $20 million in the first nine months of 1995, a $7.6 million increase
over the $12.4 million recorded in the first nine months of 1994. Other
operating income primarily includes royalty income and gains and losses from
sales of coal assets. The increase is principally the result of $10.3 million of
gains from the sales of coal assets in the first nine months of 1995 compared to
$3.4 million in the comparable 1994 period.
44
<PAGE>
Corporate Expenses
- ------------------
A portion of the Company's corporate general and administrative expenses and
other shared services has been allocated to the Minerals Group based on
utilization and other methods and criteria which management believes to be a
reasonable and equitable estimate of the costs attributable to the Minerals
Group. These allocations were $1.7 million in the third quarter of 1995 and
1994, respectively, and $5.4 million and $5.1 million in the first nine months
of 1995 and 1994, respectively.
Interest Expense
- ----------------
Interest expense increased $1 million to $2.7 million in the third quarter of
1995 from $1.7 million in the prior year quarter. Third quarter interest expense
includes $.8 million in 1995 and $.4 million in 1994 on borrowings from the
Services Group. Interest expense totaled $7.8 million in the first nine months
of 1995 and $3.8 million in the first nine months of 1994. Interest expense in
the first nine months of 1995 and 1994 included interest on borrowings from the
Services Group totaling $2.3 million and $.5 million, respectively. The increase
in the 1995 quarter and nine month periods is due to higher average interest
rates on higher average debt balances.
Income Taxes
- ------------
Net income in the third quarter and nine month periods ended September 30, 1995
includes a tax credit which differs from the amount calculated based on the
statutory federal income tax rate of 35% as a result of the tax benefits of
percentage depletion.
FINANCIAL CONDITION
A portion of the Company's corporate assets and liabilities has been attributed
to the Minerals Group based upon utilization of the shared services from which
assets and liabilities are generated, which management believes to be equitable
and a reasonable estimate.
Cash Provided by Operations
- ---------------------------
Cash provided by operating activities during the first nine months of 1995
totaled $14 million compared to a cash requirement of $20.1 million in the first
nine months of 1994. Cash used by operating activities in the first nine months
of 1994 was negatively impacted by the integration of operating activities of
Addington which required cash to finance working capital. Net income, noncash
charges and changes in operating assets and liabilities in the first nine months
of 1994 were significantly affected by after-tax restructuring and other charges
of $58.1 million which had minimal effect on cash generated by operations. Of
the $90.8 million in 1994 first quarter pretax charges, $46.5 million was for
noncash write downs of assets and the remainder represents liabilities, which
are expected to be paid over the next several years.
Capital Expenditures
- --------------------
Cash capital expenditures for the first nine months of 1995 totaled $14.6
million, excluding equipment expenditures that have been or are expected to be
financed through operating leases. For the remainder of 1995, capital
expenditures, excluding operating leases are projected to be approximately $6
million. Capital expenditures in 1996 are estimated to approximate the 1995
levels. These expenditures will be primarily for maintenance and replacement,
when necessary, of current business operations.
Other Investing Activities
- --------------------------
All other investing activities in the first nine months of 1995 provided net
cash of $15.3 million primarily from cash proceeds received in 1995 from the
sale of coal assets. In January 1994, the Company paid approximately $157
million in cash for the acquisition of substantially all the coal mining
operations and coal sales contracts of Addington. The purchase price of the
acquisition was subsequently financed through the issuance of $80.5 million of a
new series of preferred stock, convertible into Minerals Stock, and additional
debt under revolving credit agreements.
45
<PAGE>
Financing
- ---------
The Minerals Group intends to fund its capital expenditure requirements during
the remainder of 1995 primarily with anticipated cash flows from operating
activities and through operating leases if the latter are financially
attractive. Shortfalls, if any, will be financed through the Company's revolving
credit agreements, other borrowing arrangements or borrowings from the Services
Group. The Company has a $350 million revolving credit agreement with a
syndicate of banks (the "Facility"). The Facility includes a $100 million term
loan, which matures in May 2000. The Facility also permits additional
borrowings, repayments, and reborrowings of up to an aggregate of $250 million
until May 2000. As of September 30, 1995, borrowings of $100 million were
outstanding under the term loan portion of the Facility with $7 million of
additional borrowings outstanding under the remainder of the facility. Of the
total amount outstanding under the Facility, $83.6 million was attributed to the
Minerals Group. The Company, on behalf of the Minerals Group, maintains
agreements with financial institutions whereby it has the right to sell certain
coal receivables with recourse to those institutions. As at September 30, 1995,
coal receivables of approximately $9.8 million of receivables sold under these
agreements remain outstanding.
Debt
- ----
Outstanding debt totaled $86.7 million at September 30, 1995, down $9 million
from the $95.7 million reported at year-end. Net cash provided by operating
activities, proceeds from disposal of property, plant and equipment and
additional borrowings from the Services Group were sufficient to fund capital
expenditures and share activity, resulting in reduced borrowings under the
Company's revolving credit agreements.
Related Party Transactions
- --------------------------
At September 30, 1995, the Minerals Group owed the Services Group $54.4 million,
an increase of $6.2 million from the $48.2 million owed at December 31, 1994.
At September 30, 1995, the Services Group owed the Minerals Group $40.2 million
for tax benefits, of which $21.0 million is expected to be paid within one year.
Capitalization
- --------------
In January 1994, the Company issued $80.5 million (161,000 shares) of a new
series of preferred stock, convertible into Minerals Stock, to finance a portion
of the Addington Acquisition. Such stock has been attributed to the Minerals
Group.
In 1994, the Board authorized the repurchase from time to time of up to $15.0
million of the new series of cumulative convertible preferred stock. As of
September 30, 1995, 24,720 shares at a total cost of $9.6 million were
repurchased of which 16,370 shares at cost of $6.3 million were repurchased in
the first nine months of 1995. In November 1995, the Board authorized an
increase in the remaining authority to $15 million.
At September 30, 1995, the Company was authorized to repurchase up to 1,250,000
shares of Services Stock and 250,000 shares of Minerals Stock, not to exceed $43
million. As of September 30, 1995, 117,300 shares ($1.7 million) of Minerals
Stock have been acquired pursuant to the authorization, of which 78,800 ($.9
million) were repurchased in the first nine months of 1995. In November 1995,
the Board increased the remaining purchase authority for Minerals Stock to
1,000,000 shares, not to exceed $45 million for all common shares of the
Company.
On September 15, 1995, the Company announced that the Board approved, subject to
a favorable vote of shareholders, a plan to separate Services Stock into two
classes of common stock which would separately track the Company's security
services and home security business (the "Pittston Brink's Group"), and its
global freight transportation and logistics management services businesses (the
"Pittston Burlington Group"). The plan would not alter the composition of the
Minerals Group.
Under the proposed plan, a new class of common stock called Pittston Burlington
Group Common Stock ("Burlington Stock") will be distributed tax free to the
Services Group shareholders in the ratio of one half of one share of Burlington
stock for each outstanding share of Services Stock. Services Group shareholders
will retain their existing common stock, which will be redesignated Pittston
Brink's Group Common Stock ("Brink's Stock"), on a share-for-share basis. The
Company will continue as a single corporate entity with three classes of common
stock. The proposed plan is designed
46
<PAGE>
to have no adverse effect on the rights of the shareholders of Minerals Stock or
the cumulative convertible preferred stock.
Dividends
- ---------
The Board intends to declare and pay dividends on Services Stock and Minerals
Stock based on earnings, financial condition, cash flow and business
requirements of the Services Group and the Minerals Group, respectively. Since
the Company remains subject to Virginia law limitations on dividends and to
dividend restrictions in its public debt and bank credit agreements, financial
developments of one Group could affect the Company's ability to pay dividends in
respect of stock relating to the other Group. Dividends on Minerals Stock are
also limited by the Available Minerals Dividend Amount, which is adjusted by net
income or losses and other equity transactions, as defined in the Company's
Articles of Incorporation. At September 30, 1995, the Available Minerals
Dividend Amount was at least $22.3 million.
As a result of the Company's issuance in January 1994 of 161,000 shares of a new
series of preferred stock, convertible in to Minerals Stock, the Company pays
annual cumulative dividends of $31.25 per share payable quarterly, in cash, in
arrears, out of all funds of the Company legally available therefore, when, 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.
During the 1995 and 1994 nine month periods, the Board declared and paid cash
dividends of 48.75 cents per share of Minerals Stock. Dividends paid on the
cumulative convertible preferred stock in the first nine months of 1995 were
$3.3 million. Preferred dividends included on the Minerals Group's Statement of
Operations for the nine months ended September 30,1995, are net of $1.6 million,
which was the excess of the carrying amount of the preferred stock over the cash
paid to holders of the preferred stock.
Pending Accounting Change
- -------------------------
The Company is required to implement a new accounting standard for long-lived
assets - Statement of Financial Accounting Standards ("SFAS") No. 121 - in 1996.
SFAS No. 121 requires companies to utilize a two step approach to determining
whether impairment of long-lived assets has occurred and if so, the amount of
such impairment. The Company has not yet determined the effect of adopting SFAS
No. 121.
47
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
- ------- -----------------
The Company commenced insurance coverage litigation in 1990, in the United
States District Court for the District of New Jersey, seeking a declaratory
judgement 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. In August 1995 the District Court
ruled on various Motions for Summary Judgement. In its decision, the Court found
favorably for the Company on several matters relating to the comprehensive
general liability policies but concluded that the pollution liability policies
did not contain pollution coverage for the types of claims associated with the
Tankport site. The Company has moved for reconsideration regarding certain of
the Court's findings. Management and its outside legal counsel continue to
believe, however, that recovery of a substantial portion of the cleanup costs
will ultimately be probable of realization. Accordingly, management is revising
its earlier belief that there is no net liability for the Tankport obligation,
and it is the Company's belief that, based on estimates of potential liability
and probable realization of insurance recoveries, the Company would be liable
for approximately $1.4 million based on the Court's decision and related
developments of New Jersey law. See the description of such litigation contained
in Items 1 and 2 of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, under "Matters Relating to Former Operations", which
description as updated hereby is incorporated herein by reference.
The coal operations ("Coal operations") of the Company's Pittston Minerals Group
are involved in previously reported litigation with state and federal agencies
that regulate the environmental aspects of underground and surface mining. The
litigation arises from those agencies' attempts 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 on behalf of Coal
operations. In 1991 Coal operations filed an action in United Stated District
Court for the Western District of Virginia against the Secretary of Interior and
the Commonwealth of Virginia to enjoin the agencies from blocking Coal
operations' permits without first providing due process. Coal operations
obtained an injunction requiring the Federal Office of Surface Mining
Reclamation and Enforcement ("OSM") to give Coal operations notice and a hearing
before imposing any permit block. Later, however, the District Court ruled that
it lacked jurisdiction to hear the case and dismissed it. See the description of
such litigation contained in Items 1 and 2 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994, under "Pittston Minerals
Group - Description of Businesses - Coal Operations - Environmental Matters",
which description as updated hereby is incorporated herein by reference.
In October 1995 the Fourth Circuit Court of Appeals affirmed the District
Court's dismissal of the case. In response, Coal operations has asked the Court
for a rehearing. In the event the Court declines to rehear the case, Coal
operations has requested that the Court leave the injunction in effect pending
review in the Supreme Court or pending transfer to the District of Columbia
where jurisdiction is said to exist.
Coal operations has agreed to a settlement of contractor labilities with the
Commonwealth of Virginia, where almost all of the contractors in question
operated. In this settlement, which will be effective upon approval by the
Governor of Virginia, Coal operations agreed to reimburse the state
approximately $200,000 in reclamation costs and to complete reclamation at
several contractor sites. Under the agreement, Pittston will have no further
liability to the Commonwealth for these contractors. Coal operations expects
that this agreement will be approved by the Governor before the end of the year.
Coal operations is also in the process of completing a settlement with OSM,
which retains oversight authority in Virginia and other coal-producing states.
This comprehensive agreement, which has been under discussion for several years,
would require Coal operations to pay approximately $400,000 in AML fees to OSM
and obligate Coal operations to complete reclamation at various contractor
sites. Coal operations is hopeful that a definitive agreement can be reached by
the end of 1995. Until a final settlement is concluded, Coal operations will
continue its legal efforts to avoid a permit block.
48
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits:
Exhibit
Number
11 Statement re Computation of Per Share Earnings.
27 Financial Data Schedule.
(b) A report on Form 8-K was filed on September 15, 1995, with respect to the
Registrant's announcement that its Board of Directors had approved, subject
to a favorable vote of shareholders, the establishment of a plan under
which Pittston Services Group Common Stock will be divided into two classes
of common stock designed to separately track Pittston's services
businesses.
49
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE PITTSTON COMPANY
November 14, 1995 By G. R. Rogliano
--------------------------------
(G. R. Rogliano)
Vice President -
Controllership and Taxes
(Duly Authorized Officer and
Chief Accounting Officer)
50
<TABLE>
The Pittston Company and Subsidiaries Exhibit 11
Computation of Earnings Per Common Share
(In thousands, except per share amounts)
Fully Diluted Earnings Per Common Share: (a)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
- ----------------------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
============================================================================================================================
<S> <C> <C> <C> <C>
Pittston Services Group:
Net income attributed to common shares $ 25,137 25,014 58,706 56,813
============================================================================================================================
Average common shares outstanding 37,916 37,840 37,914 37,757
Incremental shares of stock options 376 464 361 492
- ----------------------------------------------------------------------------------------------------------------------------
Pro forma common shares outstanding 38,292 38,304 38,275 38,249
============================================================================================================================
Fully diluted earnings per common share: $ .66 .65 1.53 1.49
============================================================================================================================
Pittston Minerals Group:
Net income (loss) attributed to common shares $ 3,941 5,655 7,869 (63,937)
Preferred stock dividends, net 521 541 1,697 2,804
- -----------------------------------------------------------------------------------------------------------------------------
Fully diluted net income (loss) attributed to common shares $ 4,462 6,196 9,566 (61,133)
=============================================================================================================================
Average common shares outstanding 7,804 7,605 7,781 7,578
Incremental shares of stock options 23 90 23 88
Conversion of preferred stock 2,137 2,385 2,209 2,299
- -----------------------------------------------------------------------------------------------------------------------------
Pro forma common shares outstanding 9,964 10,080 10,013 9,965
=============================================================================================================================
Fully diluted earnings (loss) per common share: $ .45 .61 .96 (8.44)(a)
=============================================================================================================================
</TABLE>
(a) Antidilutive, therefore the same as primary.
Primary Earnings Per Share:
- ---------------------------
Primary earnings per share can be computed from the information on the face of
the Consolidated Statements of Operations.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from The Pittston Company
Form 10Q for the quarterly period ended September 30, 1995, and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 41,168
<SECURITIES> 27,804
<RECEIVABLES> 400,648
<ALLOWANCES> 16,533
<INVENTORY> 46,974
<CURRENT-ASSETS> 631,823
<PP&E> 897,125
<DEPRECIATION> 428,165
<TOTAL-ASSETS> 1,797,748
<CURRENT-LIABILITIES> 602,395
<BONDS> 141,804
<COMMON> 49,979
0
1,362
<OTHER-SE> 444,043
<TOTAL-LIABILITY-AND-EQUITY> 1,797,748
<SALES> 557,653
<TOTAL-REVENUES> 2,163,304
<CGS> 542,061
<TOTAL-COSTS> 1,888,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,741
<INTEREST-EXPENSE> 10,409
<INCOME-PRETAX> 90,051
<INCOME-TAX> 21,779
<INCOME-CONTINUING> 68,272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,272
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Pittston Services Group - Primary - 1.55
Pittston Minerals Group - Primary - 1.01
<F2>Pittston Services Group - Diluted - 1.55
Pittston Minerals Group - Diluted - .96
</FN>
</TABLE>
