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, 1996
[ ] 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 4229, 1000 Virginia Center Parkway, Glen Allen, Virginia 23058-4229
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 553-3600
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 Brink's Group Common Stock, 20,718,972 shares of $1 par value
Pittston Burlington Group Common Stock and 8,405,908 shares of $1 par value
Pittston Minerals Group Common Stock as of November 11, 1996.
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<PAGE>
<TABLE>
Part I - Financial Information
The Pittston Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<CAPTION>
September 30, December 31,
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 54,623 52,823
Short-term investments, at lower of cost or market 2,223 29,334
Accounts receivable (net of estimated amount uncollectible:
1996 - $15,986; 1995 - $16,075) 427,322 421,246
Inventories, at lower of cost or market 41,400 46,399
Prepaid expenses 31,990 31,556
Deferred income taxes 49,841 55,335
- ------------------------------------------------------------------------------------------------------------------
Total current assets 607,399 636,693
Property, plant and equipment, at cost (net of accumulated depreciation,
depletion and amortization: 1996 - $455,500; 1995 - $437,346) 519,743 486,168
Intangibles, net of amortization 317,382 327,183
Deferred pension assets 124,059 123,743
Deferred income taxes 64,686 72,343
Other assets 155,586 161,242
- ------------------------------------------------------------------------------------------------------------------
Total assets $ 1,788,855 1,807,372
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 35,645 37,063
Current maturities of long-term debt 5,092 7,280
Accounts payable 238,966 263,444
Accrued liabilities 290,410 286,701
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 570,113 594,488
Long-term debt, less current maturities 149,967 133,283
Postretirement benefits other than pensions 225,110 219,895
Workers' compensation and other claims 116,235 125,894
Deferred income taxes 13,633 17,213
Other liabilities 130,738 194,620
Shareholders' equity:
Preferred stock, par value $10 per share:
Authorized: 2,000 shares $31.25 Series C Cumulative Convertible
Preferred Stock
Issued: 1996 - 115,360 shares; 1995 - 136,280 shares 1,154 1,362
Pittston Brink's Group common stock, par value $1 per share:
Authorized: 100,000,000 shares
Issued: 1996 - 41,573,743 shares; 1995 - 41,573,743 shares 41,574 41,574
Pittston Burlington Group common stock, par value $1 per share:
Authorized: 50,000,000 shares
Issued: 1996 - 20,766,572 shares; 1995 - 20,786,872 shares 20,766 20,787
Pittston Minerals Group common stock, par value $1 per share:
Authorized: 20,000,000 shares
Issued: 1996 - 8,405,908 shares; 1995 - 8,405,908 shares 8,406 8,406
Capital in excess of par value 417,071 401,633
Retained earnings 250,385 188,728
Equity adjustment from foreign currency translation (20,546) (20,705)
Employee benefits trust, at market value (135,751) (119,806)
- ------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 583,059 521,979
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,788,855 1,807,372
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
The Pittston Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 177,195 177,702 522,715 557,653
Operating revenues 609,678 574,751 1,759,654 1,605,651
- --------------------------------------------------------------------------------------------------------------------------
Net sales and operating revenues 786,873 752,453 2,282,369 2,163,304
- --------------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of sales 167,907 167,261 531,128 542,061
Operating expenses 502,222 476,614 1,465,739 1,346,739
Restructuring and other charges, including litigation accrual - - (35,650) -
Selling, general and administrative expenses 74,711 68,381 218,033 195,002
- --------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 744,840 712,256 2,179,250 2,083,802
- --------------------------------------------------------------------------------------------------------------------------
Other operating income 3,684 3,135 13,742 22,417
- --------------------------------------------------------------------------------------------------------------------------
Operating profit 45,717 43,332 116,861 101,919
Interest income 880 902 2,216 2,554
Interest expense (3,409) (3,665) (10,533) (10,409)
Other expense, net (2,506) (1,817) (6,912) (4,013)
- --------------------------------------------------------------------------------------------------------------------------
Income before income taxes 40,682 38,752 101,632 90,051
Provision for income taxes 11,638 9,153 28,542 21,779
- --------------------------------------------------------------------------------------------------------------------------
Net income 29,044 29,599 73,090 68,272
Preferred stock dividends, net 146 (521) (773) (1,697)
- --------------------------------------------------------------------------------------------------------------------------
Net income attributed to common shares $ 29,190 29,078 72,317 66,575
- --------------------------------------------------------------------------------------------------------------------------
Pittston Brink's Group:
Net income attributed to common shares $ 15,841 14,613 41,714 36,124
- --------------------------------------------------------------------------------------------------------------------------
Net income per common share $ .41 .38 1.09 .95
- --------------------------------------------------------------------------------------------------------------------------
Cash dividend per common share $ .025 .023 .075 .069
- --------------------------------------------------------------------------------------------------------------------------
Pittston Burlington Group:
Net income attributed to common shares $ 10,705 10,524 23,214 22,582
- --------------------------------------------------------------------------------------------------------------------------
Net income per common share $ .56 .55 1.21 1.19
- --------------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .06 .054 .18 .162
- --------------------------------------------------------------------------------------------------------------------------
Pittston Minerals Group:
Net income attributed to common shares $ 2,644 3,941 7,389 7,869
- --------------------------------------------------------------------------------------------------------------------------
Net income per common share:
Primary $ .33 .51 .94 1.01
Fully diluted $ .25 .45 .82 .96
- --------------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .1625 .1625 .4875 .4875
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
The Pittston Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended September 30
1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 73,090 68,272
Adjustments to reconcile net income to net cash provided by operating activities:
Noncash charges and other write-offs 24,259 -
Depreciation, depletion and amortization 82,880 78,710
Provision for aircraft heavy maintenance 23,980 19,226
Provision for deferred income taxes 10,496 8,564
Provision (credit) for pensions, noncurrent 1,043 (2,729)
Provision for uncollectible accounts receivable 5,313 3,741
Equity in earnings of unconsolidated affiliates, net of dividends received (1,364) 1,516
Other operating, net 5,401 (559)
Change in operating assets and liabilities net of effects of acquisitions:
Increase in accounts receivable (14,644) (49,547)
Decrease (increase) in inventories 4,999 (12,601)
Increase in prepaid expenses (1,105) (5,136)
(Decrease) increase in accounts payable and accrued liabilities (23,046) 12,113
(Increase) decrease in other assets (7,622) 43
Decrease in other liabilities (49,437) (17,335)
Decrease in workers' compensation and other claims, noncurrent (9,659) (13,500)
Other, net 338 (1,464)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 124,922 89,314
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (116,294) (81,325)
Aircraft heavy maintenance (15,215) (11,406)
Proceeds from disposal of property, plant and equipment 12,496 18,525
Acquisitions, net of cash acquired, and related contingent payments (971) (3,727)
Other, net 6,519 2,908
- ----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (113,465) (75,025)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 20,375 18,482
Reductions of debt (9,510) (13,752)
Repurchase of stock of the Company (8,268) (10,606)
Proceeds from exercise of stock options 3,101 2,954
Proceeds from stock purchased by benefit plans 362 767
Dividends paid (13,242) (13,284)
Cost of Brink's Stock Proposal (2,475) -
- ----------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (9,657) (15,439)
- ----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,800 (1,150)
Cash and cash equivalents at beginning of period 52,823 42,318
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 54,623 41,168
- ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
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<PAGE>
The Pittston Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
(1) The Pittston Company (the "Company") prepares consolidated financial
statements in addition to separate financial statements for the Pittston
Brink's Group (the "Brink's Group"), the Pittston Burlington Group (the
"Burlington Group") and the Pittston Minerals Group (the "Minerals Group").
The Brink's Group consists of the Brink's, Incorporated ("Brink's") and
Brink's Home Security, Inc. ("BHS") operations of the Company. The
Burlington Group consists of the Burlington Air Express Inc. ("Burlington")
operations of the Company. The Minerals Group consists of the Coal and
Mineral Ventures operations of the Company. The Company's capital structure
includes three issues of common stock, Pittston Brink's Group Common Stock
("Brink's Stock"), Pittston Burlington Common Stock ("Burlington Stock")
and Pittston Minerals Group Common Stock ("Minerals Stock"), which are
designed to provide shareholders with separate securities reflecting the
performance of the Brink's Group, Burlington Group and Minerals Group,
respectively, without diminishing the benefits of remaining a single
corporation or precluding future transactions affecting any Group or the
Company as a whole. Holders of Brink's Stock, Burlington Stock and Minerals
Stock are shareholders of the Company, which is responsible for all its
liabilities. Financial developments affecting the Brink's Group, Burlington
Group or the Minerals Group that affect the Company's financial condition
could affect the results of operations and financial condition of all three
Groups.
(2) The average number of shares outstanding used in the earnings per share
computations were as follows:
<TABLE>
<CAPTION>
Third Quarter Nine Months
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brink's Stock 38,264 37,916 38,158 37,914
Burlington Stock 19,283 18,958 19,161 18,957
Minerals Stock:
Primary 7,926 7,804 7,872 7,781
Fully diluted 9,819 9,964 9,920 10,013
- ---------------------------------------------------------------------------------------
</TABLE>
The average number of shares outstanding used in the earnings per share
computations do not include the shares of Brink's Stock, Burlington Stock
and Minerals Stock held in the Company's Employee Benefits Trust which
totaled 3,256 (3,628 in 1995), 1,389 (1,814 in 1995) and 446 (619 in 1995),
respectively, at September 30, 1996.
(3) The amounts of depreciation, depletion and amortization of property, plant
and equipment in the third quarter and nine month periods of 1996 totaled
$22,609 ($20,443 in 1995) and $66,423 ($59,777 in 1995), respectively.
(4) Cash payments made for interest and income taxes (net of refunds received)
were as follows:
<TABLE>
<CAPTION>
Third Quarter Nine Months
1996 1995 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest $ 3,264 3,103 11,285 10,185
- ---------------------------------------------------------------------------------------
Income taxes $ 7,567 1,193 15,749 17,667
- ---------------------------------------------------------------------------------------
</TABLE>
During the nine months ended September 30, 1996 and 1995, capital lease
obligations of $2,130 and $4,486, respectively, were incurred for leases of
property, plant and equipment.
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5
<PAGE>
In June 1995, the Company sold its rights under certain coal reserve leases
and the related equipment for $2,800 in cash and notes totaling $2,882. The
cash proceeds have been included in the Consolidated Statements of Cash
Flows as "Cash flows from investing activities: Proceeds from disposal of
property, plant and equipment".
In March 1995, the Company sold surplus coal reserves for cash of $2,878
and a note receivable of $2,317. The cash proceeds have been included in
the Consolidated Statements of Cash Flows as "Cash flows from investing
activities: Proceeds from disposal of property, plant and equipment".
(5) In 1988, the trustees of certain pension and benefit trust funds (the
"Trust Funds") established under collective bargaining agreements with the
United Mine Workers of America ("UMWA") brought an action (the "Evergreen
Case") against the Company and a number of its coal subsidiaries, claiming
that the defendants were obligated to contribute to such Trust Funds in
accordance with the provisions of the 1988 and subsequent National
Bituminous Coal Wage Agreements, to which neither the Company nor any of
its subsidiaries was a signatory.
In late March 1996, a settlement was reached in the Evergreen Case. Under
the terms of the settlement, the coal subsidiaries which had been
signatories to earlier National Bituminous Coal Wage Agreements agreed to
make various lump sum payments in full satisfaction of all amounts
allegedly due to the Trust Funds through January 31, 1996, to be paid over
time as follows: $25,845 upon dismissal of the Evergreen Case in March 1996
and the remainder of $24,000 in installments of $7,000 in August 1996 and
$8,500 in each of 1997 and 1998. The first payment was entirely funded
through an escrow account previously established by the Company. The amount
previously escrowed and accrued was included in "Short-term investments"
and "Accrued liabilities" on the Company's balance sheet. The second
payment of $7,000 was paid in the third quarter of 1996 and was funded
through cash provided by operating activities. In addition, the coal
subsidiaries agreed to future participation in the UMWA 1974 Pension Plan.
Separate lawsuits against each of the UMWA and the Bituminous Coal
Operators Association, previously reported, have also been dismissed.
As a result of the settlement of these cases at an amount lower than
previously accrued in 1993, the Company recorded a pretax benefit of
$35,650 ($23,173 after tax) in the first quarter of 1996 in its
consolidated financial statements.
(6) As of January 1, 1996, the Company implemented a new accounting standard,
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of". SFAS No. 121 requires companies to review long-lived assets
and certain identifiable intangibles to be held and used by an entity for
impairment whenever circumstances indicate that the carrying amount of an
asset may not be recoverable.
In accordance with SFAS No. 121, the Company grouped its long-lived assets
at the lowest level for which there are identifiable cash flows that are
independent of the cash flows of other groups of assets, and determined the
recoverability of such assets by comparing the sum of the expected
undiscounted future cash flows with the carrying amount of the assets. The
impact of adopting SFAS No. 121 resulted in a pretax charge to earnings as
of January 1, 1996 for the Company's Coal operations of $27,839 ($18,095
after tax), of which $24,203 was included in cost of sales and $3,636 was
included in selling, general and administrative expenses. Assets for which
the impairment loss was recognized consisted of property, plant and
equipment, advanced royalties and goodwill. These assets primarily related
to mines scheduled for closure in the near term and idled facilities and
related equipment. Based on current mining plans, geological conditions,
and current assumptions related to future realization and costs, the sum of
the expected undiscounted future cash flows was less than the carrying
amount of the assets, and accordingly, an impairment loss was recognized.
The loss was calculated based on the excess of the carrying value of the
assets over the present value of estimated expected future cash flows,
using a discount rate commensurate with the risks involved. The adoption of
SFAS No. 121 had no impact on the Brink's and Burlington Groups' financial
statements as of January 1, 1996.
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6
<PAGE>
(7) 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 1996 and 1995
by $3,472 and $3,204, respectively, and for the third quarter of 1996 and
1995 by $1,296 and $1,255, respectively. The effect of this change
increased net income per common share of the Brink's Group for the first
nine months of 1996 and 1995 by $.06 and $.05, respectively, and by $.02
for both the third quarter 1996 and 1995.
(8) During the quarter and nine months ended September 30, 1996, the Company
purchased 10,320 and 20,920 shares of its Series C Cumulative Convertible
preferred stock, respectively. Preferred dividends included on the
statement of operations for the quarter and nine months ended September 30,
1996, are net of $1,020 and $2,120, respectively, which is the excess of
the carrying amount of the preferred stock over the cash paid to holders of
the preferred stock. During the quarter and nine months ended September 30,
1995, the Company purchased 3,700 and 16,370 shares, respectively, of its
preferred stock. Preferred dividends for the third quarter and first nine
months of 1995 were net of $535 and $1,579, respectively, which was the
excess of the carrying amount of the preferred stock over the cash paid to
holders of the preferred stock.
(9) Certain prior period amounts have been reclassified to conform to current
period financial statement presentation.
(10) All adjustments have been made which are, in the opinion of management,
necessary for a fair presentation of results of operations for the periods
reported herein. All such adjustments are of a normal recurring nature.
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<PAGE>
<TABLE>
The Pittston Company and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(In Thousands)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Burlington $ 377,656 365,793 1,093,017 1,031,687
Brink's 192,491 176,507 551,756 480,141
BHS 39,531 32,451 114,881 93,823
Coal 172,603 173,985 507,967 545,255
Mineral Ventures 4,592 3,717 14,748 12,398
- ------------------------------------------------------------------------------------------------------------------
Consolidated revenues $ 786,873 752,453 2,282,369 2,163,304
- ------------------------------------------------------------------------------------------------------------------
Operating profit (loss):
Burlington $ 20,466 17,449 45,479 39,913
Brink's 16,033 12,263 37,935 29,882
BHS 11,509 10,386 34,012 28,702
Coal 5,393 8,075 14,960 15,196
Mineral Ventures (324) (816) 1,425 675
- ------------------------------------------------------------------------------------------------------------------
Segment operating profit 53,077 47,357 133,811 114,368
General corporate expense (7,360) (4,025) (16,950) (12,449)
- ------------------------------------------------------------------------------------------------------------------
Consolidated operating profit $ 45,717 43,332 116,861 101,919
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
In the third quarter of 1996, The Pittston Company (the "Company") reported net
income of $29.0 million compared with $29.6 million in the third quarter of
1995. Operating profit totaled $45.7 million in the 1996 third quarter compared
with $43.3 million in the prior year third quarter. Increased operating profits
at Brink's Home Security, Inc. ("BHS") ($1.1 million), Brink's, Incorporated
("Brink's") ($3.8 million) and Burlington Air Express Inc. ("Burlington") ($3.0
million) as well as a decrease in operating loss at Pittston Mineral Ventures
("Mineral Ventures") ($0.5 million) were only partially offset by lower
operating profits at Coal operations ($2.7 million) and higher general corporate
expenses ($3.3 million) of which, $2.7 million related to the relocation of the
Company's corporate headquarters to Richmond, Virginia.
In the first nine months of 1996, the Company reported net income of $73.1
million compared with $68.3 million in the first nine months of 1995. Operating
profit totaled $116.9 million in the first nine months of 1996 compared with
$101.9 million in the 1995 nine month period. Net income and operating profit in
the first nine months of 1996 included two non-recurring items which impacted
the Company's Coal operations: a benefit from the settlement of the Evergreen
lawsuit at an amount lower than previously accrued ($35.7 million or $23.2
million after tax) and a charge related to the implementation of a new
accounting standard regarding the impairment of long-lived assets ($27.8 million
or $18.1 million after tax). Increased operating profits in the first nine
months of 1996 achieved at BHS ($5.3 million), Brink's ($8.1 million),
Burlington ($5.6 million) and Mineral Ventures ($0.8 million) were partially
offset by a decrease in operating profit at Coal operations ($0.2 million) as
well as higher general corporate expenses ($4.5 million), of which, $2.9 million
related to the relocation of the Company's corporate headquarters.
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<PAGE>
Burlington
- ----------
The following is a table of selected financial data for Burlington on a
comparative basis:
<TABLE>
<CAPTION>
Three Months Nine Months
(In thousands - except per Ended September 30 Ended September 30
pound/shipment amounts) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Expedited freight services:
Domestic U.S. $ 142,506 133,430 405,238 389,712
International 175,516 179,281 517,692 509,526
- ------------------------------------------------------------------------------------------------------------------
Total expedited freight services $ 318,022 312,711 922,930 899,238
Customs clearances 34,496 32,308 100,473 80,592
Ocean and other (a) 25,138 20,774 69,614 51,857
- ------------------------------------------------------------------------------------------------------------------
Total revenues $ 377,656 365,793 1,093,017 1,031,687
- ------------------------------------------------------------------------------------------------------------------
Operating profit:
Domestic U.S. $ 11,783 8,781 25,520 20,261
International 8,683 8,668 19,959 19,652
- ------------------------------------------------------------------------------------------------------------------
Total operating profit $ 20,466 17,449 45,479 39,913
- ------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 5,143 4,957 15,957 14,659
- ------------------------------------------------------------------------------------------------------------------
Cash capital expenditures $ 10,495 6,299 25,609 19,799
- ------------------------------------------------------------------------------------------------------------------
Expedited freight services shipment growth rate (b) (0.5%) 8.2% 2.8% 5.8%
Expedited freight services weight growth rate (b):
Domestic U.S. 6.7% (4.3%) 5.0% (4.2%)
International (1.7%) 31.9% 4.5% 30.6%
Worldwide 2.2% 12.1% 4.7% 11.5%
Expedited freight services weight (million pounds) 362.0 354.0 1,059.2 1,011.3
- ------------------------------------------------------------------------------------------------------------------
Expedited freight services shipments (thousands) 1,294 1,300 3,914 3,808
- ------------------------------------------------------------------------------------------------------------------
Expedited freight services average:
Yield (revenue per pound) $ .879 .883 .871 .889
Revenue per shipment $ 246 241 236 236
Weight per shipment (pounds) 280 272 271 266
- ------------------------------------------------------------------------------------------------------------------
(a) Primarily international ocean freight.
(b) Compared to the same period in the prior year.
</TABLE>
Burlington's third quarter worldwide operating profit amounted to $20.5 million,
an increase of $3.0 million (17%) from the level reported in the third quarter
of 1995. Worldwide revenues increased by 3% to $377.7 million from $365.8
million in the 1995 quarter. The $11.9 million growth in revenues principally
reflects a 2% increase in worldwide expedited freight services pounds shipped,
which reached 362.0 million pounds in the third quarter of 1996, and a 12%
increase in other revenues (primarily customs clearance and ocean). Worldwide
expenses amounted to $357.2 million, $8.8 million (3%) higher than in the third
quarter of 1995.
Domestic expedited freight services revenue of $142.5 million was $9.1 million
(7%) higher than the prior year quarter. Domestic operating profit increased to
$11.8 million in the third quarter of 1996 from $8.8 million in the prior year
quarter. Operating profit benefited from stable pricing and higher volumes in
the aerospace, electronics and consumer products segments, partially offset by
declines in the automotive sector. Domestic average yields continued to be
modestly higher than the levels of late 1995 and early 1996.
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9
<PAGE>
During the quarter, Burlington benefited from the initiation in mid September of
a 4.2(cents) per pound surcharge on domestic shipments. This surcharge is
designed to partially offset some of the cost increases experienced by
Burlington's domestic operations during 1996. These costs include the
reimposition of a Federal Excise Tax on air cargo, higher jet fuel prices, a
Federal Fuel Tax and new FAA-mandated security and maintenance requirements.
International expedited freight services revenue of $175.5 million in the third
quarter decreased slightly from the $179.3 million reported in the comparable
quarter in 1995. Revenues from other activities, primarily international, which
include transactions such as import related services as well as ocean freight
services, increased 12% or $6.6 million to $59.6 million. International
operating profit amounted to $8.7 million in the third quarter of 1996,
unchanged from the 1995 quarter. International expedited freight services
pricing slightly decreased from the third quarter of 1995 as overseas price
weakness was only partially offset by improvement in U.S. export pricing.
Burlington's worldwide operating profit amounted to $45.5 million in the first
nine months of 1996, an increase of $5.6 million (14%) from the level reported
in the first nine months of 1995. Worldwide revenues increased by 6% to $1,093.0
million from $1,031.7 million in the 1995 nine months. The $61.3 million growth
in revenues principally reflects a 5% increase in worldwide expedited freight
services pounds shipped, reaching 1,059.2 million pounds in the third quarter of
1996, and a 28% increase in other revenues (primarily customs clearance and
ocean), partially offset by a 2% decline in the worldwide average yield.
Worldwide expenses amounted to $1,047.5 million, $55.7 million (6%) higher than
in the first nine months of 1995.
Domestic expedited freight services revenue of $405.2 million in the first nine
months of 1996 was $15.5 million (4%) higher than the prior year period.
Domestic operating profit increased to $25.5 million in the first nine months of
1996 from $20.3 million in the prior year period. The higher operating profit
reflected higher volume, lower average transportation costs, primarily the
benefit of reduced Federal Excise Tax liabilities for the first nine months of
the year, partially offset by lower average yields and higher fuel costs. The
lower domestic average yield for the first nine months of 1996 versus the same
1995 period was due to lower average pricing and sales mix for Burlington's
overnight service.
International expedited freight services revenue of $517.7 million in the first
nine months of 1996 represented an $8.2 million (2%) increase over the $509.5
million reported in the comparable period in 1995. Revenues from other
activities increased 28% or $37.6 million to $170.1 million. International
operating profit amounted to $20.0 million in the first nine months of 1996, a
2% increase from the first nine months of 1995, principally due to a 5% increase
in international expedited freight service weight shipped, increased margin from
import services and ocean freight and lower average transportation costs,
partially offset by lower average yields.
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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
Ended September 30 Ended September 30
(In thousands) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
North America (United States and Canada) $ 106,156 97,103 308,271 278,084
International 86,335 79,404 243,485 202,057
- ------------------------------------------------------------------------------------------------------------------
Total revenues $ 192,491 176,507 551,756 480,141
Operating expenses 154,527 142,105 447,177 390,328
Selling, general and administrative 23,579 21,551 68,122 60,516
- ------------------------------------------------------------------------------------------------------------------
Total costs and expenses 178,106 163,656 515,299 450,844
- ------------------------------------------------------------------------------------------------------------------
Other operating income (expense) 1,648 (588) 1,478 585
- ------------------------------------------------------------------------------------------------------------------
Operating profit:
North America (United States and Canada) $ 9,292 8,226 23,383 20,752
International 6,741 4,037 14,552 9,130
- ------------------------------------------------------------------------------------------------------------------
Total operating profit $ 16,033 12,263 37,935 29,882
- ------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 6,522 5,757 18,259 16,253
- ------------------------------------------------------------------------------------------------------------------
Cash capital expenditures $ 8,514 4,234 24,518 15,710
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Brink's worldwide consolidated revenues totaled $192.5 million in the third
quarter of 1996 compared with $176.5 million in the third quarter of 1995.
Brink's operating profit of $16.0 million represented a $3.8 million (31%)
increase over the $12.3 million operating profit reported in the prior year
quarter. Other operating income increased $2.2 million to $1.6 million, from a
prior year quarter net loss of $0.6 million.
Revenues from North American operations (United States and Canada) increased
$9.1 million, or 9%, to $106.2 million in the 1996 third quarter from $97.1
million in the prior year quarter. North American operating profit increased
$1.1 million, or 13%, to $9.3 million in the current year quarter from $8.2
million in the third quarter of 1995. The operating profit improvement was
primarily due to improved armored car operations, which includes ATM servicing,
and money processing and reflects operating efficiencies.
Revenues from international subsidiaries increased $6.9 million to $86.3 million
in the 1996 third quarter from $79.4 million in the 1995 quarter. Substantially
all the increase in international revenues was due to the consolidation of the
results of Brink's Colombia, in which Brink's increased its ownership from 47%
to 51% during the third quarter of 1995. Operating profits from international
subsidiaries and minority-owned affiliates amounted to $6.7 million in the
current year quarter compared to $4.0 million in the prior year third quarter.
The earnings increase for the third quarter of 1996 reflected higher operating
profits in Latin America which more than offset lower results in Europe,
primarily Holland. Latin America's increase in operating profits reflects a $1.2
million benefit from the consolidation of Colombia's operating profits. Brazil's
(100% owned) operating profits amounted to $1.7 million in the third quarter of
1996, compared to $1.9 million in the third quarter of 1995. The $1.1 million in
equity earnings generated by Brink's Mexican affiliate (20% owned) was an
improvement over the $1.2 million loss recorded in the third quarter of 1995, as
the benefits of workforce reductions, cost controls and operational improvements
continue to be realized.
Brink's worldwide consolidated revenues totaled $551.8 million in the first nine
months of 1996 compared with $480.1 million in the first nine months of 1995.
Brink's operating profit of $37.9 million in the first nine months of 1996
represented an $8.1 million (27%) increase over the $29.9 million operating
profit reported in the prior year period. The revenue increase of $71.6 million
(15%) in the first nine months of 1996 was only partially offset by a
corresponding increase in operating expenses and selling, general and
administrative expenses of $64.5 million (14%). Other operating income increased
$0.9 million to $1.5 million, from $0.6 million in the prior year.
--
11
<PAGE>
Revenues from North American operations (United States and Canada) increased
$30.2 million, or 11%, to $308.3 million in the first nine months of 1996 from
$278.1 million in the same period of 1995. North American operating profit
increased $2.6 million (13%) to $23.4 million in the current year period from
$20.8 million in the same period of 1995. The operating profit improvement for
the nine months of 1996 primarily resulted from improved armored car operations,
which includes ATM servicing, and money processing and reflects operating
efficiencies.
Revenues from international subsidiaries increased $41.4 million to $243.5
million in the first nine months of 1996 from $202.1 million in the first nine
months of 1995. Consolidation of the results of Brink's Colombia accounted for
approximately half of the increase in international revenues for the nine-month
comparative period. Operating profits from international subsidiaries and
minority-owned affiliates amounted to $14.6 million in the current year period
compared to $9.1 million in the prior year period. Higher operating profits in
Latin America more than offset lower results in Europe, primarily France and
Holland. Latin America's increase in operating profits includes a $3.1 million
benefit from the consolidation of the results of Brink's Colombia. The
consolidation of this now 51% owned subsidiary had a de minimus effect on the
Brink's Group net income. Brazil (100% owned) achieved increases in revenue and
operating profit of $10.7 million and $1.9 million, respectively, for the first
nine months of 1996 compared to the same period in 1995. Revenues for Brink's
Brazil were $89.6 million and $79.0 million for the first nine months of 1996
and 1995, respectively, and operating profits were $4.7 million and $2.8 million
for the first nine months of 1996 and 1995, respectively. Equity in earnings
from Brink's Mexican affiliate (20% owned) amounted to $2.1 million compared
with a $2.2 million loss recorded in the first nine months of 1995.
BHS
- ---
The following is a table of selected financial data for BHS on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
(In thousands) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 39,531 32,451 114,881 93,823
Operating expenses 20,452 16,051 59,810 48,715
Selling, general and administrative 7,570 6,014 21,059 16,406
- ------------------------------------------------------------------------------------------------------------------
Total costs and expenses 28,022 22,065 80,869 65,121
- ------------------------------------------------------------------------------------------------------------------
Operating profit $ 11,509 10,386 34,012 28,702
- ------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 6,936 5,469 20,745 15,889
- ------------------------------------------------------------------------------------------------------------------
Cash capital expenditures $ 14,702 11,882 44,751 31,023
- ------------------------------------------------------------------------------------------------------------------
Annualized recurring revenues (a) $ 121,254 100,862
- ------------------------------------------------------------------------------------------------------------------
Number of subscribers:
Beginning of period 412,591 346,540 378,659 318,029
Installations 23,327 20,580 72,030 58,942
Disconnects (8,125) (5,917) (22,896) (15,768)
- ------------------------------------------------------------------------------------------------------------------
End of period 427,793 361,203 427,793 361,203
- ------------------------------------------------------------------------------------------------------------------
(a) Annualized recurring 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.
</TABLE>
--
12
<PAGE>
Revenues for BHS increased by $7.1 million (22%) to $39.5 million in the third
quarter of 1996 from $32.5 million in the 1995 quarter. In the first nine months
of 1996, revenues for BHS increased by $21.1 million (22%) to $114.9 million
from $93.8 million in the first nine months of 1995. The increase in revenues
was predominantly from higher ongoing monitoring and services revenues, caused
by an 18% growth in the subscriber base for the nine months. As a result of such
growth, annualized recurring revenues in force at the end of the third quarter
of 1996 grew 20% over the amount in effect at the end of the third quarter of
1995. The total amount of installation revenue in the third quarter and first
nine months of 1996 also grew by 24% and 26%, respectively, over the amount
recorded in the same periods of 1995, largely as a result of the increased
volume of installations. Revenue per installation decreased from amounts
achieved in the first half of this year due to the competitive environment in
the marketplace.
Operating profit of $11.5 million in the third quarter of 1996 represented an
increase of $1.1 million (11%) compared to the $10.4 million earned in the 1995
third quarter. In the first nine months of 1996, operating profit increased $5.3
million (19%) to $34.0 million from $28.7 million earned in the first nine
months of 1995. The increase in operating profit largely stemmed from the growth
in the subscriber base and higher average monitoring and services revenues,
somewhat offset by higher depreciation and increased account servicing and
administrative expenses, which are a consequence of the larger subscriber base.
In addition, installation and marketing costs incurred and expensed during the
third quarter increased by $0.9 million from the prior year period.
The subscriber base on September 30, 1996, totaled 427,793 customers, 18% higher
than the balance at the end of the third quarter of 1995. Annualized recurring
revenues amounted to $121.3 million at September 30, 1996, 20% higher than
September 30, 1995. The favorable change reflects the increased subscriber base
as well as higher average monthly revenues, principally generated by customer
service contracts.
Coal
- ----
The following is a table of selected financial data for the Coal operations on a
comparative basis:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
(In thousands) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 172,603 173,985 507,967 545,255
Cost of sales 164,251 164,032 520,367 532,977
Selling, general and administrative 4,985 5,394 19,366 17,096
Restructuring and other charges,
including litigation accrual - - (35,650) -
- ------------------------------------------------------------------------------------------------------------------
Total costs and expenses 169,236 169,426 504,083 550,073
- ------------------------------------------------------------------------------------------------------------------
Other operating income 2,026 3,516 11,076 20,014
- ------------------------------------------------------------------------------------------------------------------
Operating profit $ 5,393 8,075 14,960 15,196
- ------------------------------------------------------------------------------------------------------------------
Coal sales (tons):
Metallurgical 1,979 1,950 5,978 6,583
Utility and industrial 3,837 3,943 11,240 12,471
- ------------------------------------------------------------------------------------------------------------------
Total coal sales 5,816 5,893 17,218 19,054
- ------------------------------------------------------------------------------------------------------------------
Production/purchased (tons):
Deep 924 984 2,977 3,025
Surface 2,764 3,143 8,351 10,272
Contract 408 459 1,261 1,500
- ------------------------------------------------------------------------------------------------------------------
4,096 4,586 12,589 14,797
Purchased 1,380 1,289 4,365 4,791
- ------------------------------------------------------------------------------------------------------------------
Total 5,476 5,875 16,954 19,588
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
--
13
<PAGE>
Coal operations generated an operating profit of $5.4 million in the third
quarter of 1996, compared to $8.1 million generated in the 1995 third quarter.
Included in the current quarter's results is a $0.7 million reduction in
expenses resulting from the recently enacted Commonwealth of Virginia law
providing refundable credits for coal produced in Virginia. The third quarter of
1995 included a pretax gain of $1.5 million for the disposition of highwall
mining equipment.
Coal operations had an operating profit of $15.0 million in the first nine
months of 1996 compared to an operating profit of $15.2 million in the prior
year period. Operating profit for the first nine months of 1996 included a
benefit from the Virginia tax credit of $2.4 million, and a benefit of $35.7
million from the settlement of the Evergreen lawsuit at an amount lower than
previously accrued in 1993. These benefits were mostly offset by a $27.8 million
charge related to the implementation of a new accounting standard regarding the
impairment of long-lived assets (discussed further below). The charge is
included in cost of sales ($24.2 million) and selling, general and
administrative expenses ($3.6 million). Operating profit in the first nine
months of 1995 included a pretax gain of $9.8 million from the sale of coal
assets.
The operating profit of Coal operations, excluding the effects of the Evergreen
settlement and the implementation of SFAS 121, is analyzed as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
(In thousands, Ended September 30 Ended September 30
except per ton amounts) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net coal sales $ 170,301 173,032 502,759 543,265
Current production cost of coal sold 156,027 154,341 471,050 507,519
- ------------------------------------------------------------------------------------------------------------------
Coal margin 14,274 18,691 31,709 35,746
Non-coal margin 620 33 1,476 339
Other operating income (net) 2,026 3,516 10,930 20,014
- ------------------------------------------------------------------------------------------------------------------
Margin and other income 16,920 22,240 44,115 56,099
- ------------------------------------------------------------------------------------------------------------------
Other costs and expenses:
Idle equipment and closed mines 266 3,933 729 8,493
Inactive employee cost 6,275 4,838 20,758 15,314
General and administrative 4,986 5,394 15,478 17,096
- ------------------------------------------------------------------------------------------------------------------
Total other costs and expenses 11,527 14,165 36,965 40,903
- ------------------------------------------------------------------------------------------------------------------
Operating profit (adjusted as stated above) $ 5,393 8,075 7,150 15,196
- ------------------------------------------------------------------------------------------------------------------
Coal margin per ton:
Realization $ 29.28 29.36 29.20 28.51
Current production cost of coal sold 26.83 26.19 27.36 26.63
- ------------------------------------------------------------------------------------------------------------------
Coal margin $ 2.45 3.17 1.84 1.88
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Sales volume of 5.8 million tons in the 1996 third quarter was 0.1 million tons
less than the 5.9 million tons sold in the prior year quarter. Third quarter
steam coal sales which represent 66% of the total volume of coal sales,
decreased by 0.1 million tons, to 3.8 million tons.
Total coal margin of $14.3 million for the third quarter of 1996 represented a
decrease of $4.4 million from the comparable period in 1995. The decrease in
coal margin reflects a $.72 per ton (23%) decrease in the average coal margin
and a 1% decrease in sales volume. Coal margin per ton decreased to $2.45 per
ton in the current quarter from $3.17 per ton for the comparable 1995 quarter as
a $0.08 per ton (0.3%) decrease in realization was augmented by a $0.64 per ton
increase in current production cost of coal sold. The decrease in realization
was primarily attributable to lower steam coal pricing. However, while steam
coal spot pricing remains at low levels, the majority of Coal operations' steam
coal sales were, and continue to be, sold under long term contracts at prices
which are somewhat higher than steam coal spot prices. The current production
cost of coal sold increase of $0.64 per ton to $26.83 per ton in the third
quarter of 1996 over the third quarter of 1995 was due to higher surface mine
and purchased coal costs, partially offset by lower company deep mine and
contract coal costs.
--
14
<PAGE>
Production in the 1996 third quarter totaled 4.1 million tons, an 11% decrease
compared to the 4.6 million tons produced in the 1995 third quarter. The decline
primarily reflected lower surface mine production, which was caused by
exhaustion of reserves at certain mines, idling of a mine subsequent to the
third quarter of 1995 and the sale of Coal operations' Ohio operations at the
end of 1995. Third quarter surface production accounted for 67% and 69% of total
production in 1996 and 1995, respectively. Overall productivity of 38.1 tons per
man day represented a 3% decrease from 1995 levels as decreases in surface mine
productivity more than offset increases in deep mine productivity. The Coal
operations will reactivate a coal preparation and loading facility and open
three new underground coal mines in southwest Virginia. When in full operation
in early 1997, the mines will produce approximately 1.0 million tons annually of
premium grade metallurgical coal. Based on current reserve estimates, it is
anticipated that the mines will have an operating life of six to eight years.
Non-coal margin in the third quarter of 1996 increased by $0.6 million from the
third quarter of 1995. The increase reflected the impact of a favorable change
in natural gas prices. Other operating income, reflecting sales of properties
and equipment and third party royalties, amounted to $2.0 million in the third
quarter of 1996, $1.5 million less than the third quarter of 1995. The higher
level of income recorded in the 1995 third quarter reflects $1.5 million of
income generated from the disposition of highwall mining equipment.
Idle equipment and closed mine costs decreased by $3.7 million in the 1996 third
quarter. Idle equipment expenses were reduced from the prior year level as a
result of Coal operations' improved equipment management program. Inactive
employee costs, which primarily represent long term employee liabilities for
pension and retiree medical cost, increased by $1.4 million to $6.3 million in
the third quarter of 1996 primarily due to the use of lower long term interest
rates to calculate the present value of the long term liabilities as compared to
the 1995 period.
Sales volume of 17.2 million tons in the first nine months of 1996 was 1.9
million tons less than the 19.1 million tons sold in the same 1995 period.
Metallurgical coal sales decreased by 0.6 million tons (9%) to 6.0 million tons
and steam coal sales decreased by 1.2 million tons (10%) to 11.2 million tons
compared to the prior year period. Steam coal sales represented 65% of the total
sales volume for the nine months ended 1996 and 1995.
Total coal margin of $31.7 million for the first nine months of 1996 represented
a decrease of $4.0 million from the comparable period in 1995. The decline in
coal margin reflects a $0.73 per ton (3%) increase in the current production
cost of coal sold which was partially offset by a $0.69 per ton (2%) increase in
realization. The increase in realization was mostly due to the timing of the
improved metallurgical pricing for the contract year that began in April 1,
1995, the full effect of which was not realized until after the first half of
1995.
The current production cost of coal sold for the first nine months of 1996
increased by $0.73 per ton compared to the prior year period, as higher company
surface mine and purchased coal costs were only partially offset by lower
company deep mine and contract coal costs. Production for the year-to-date 1996
period totaled 12.6 million tons, a decrease of 15% from the comparable 1995
period. Surface mine production accounted for 66% and 69% of the total volume
produced in the 1996 and 1995 periods, respectively. Productivity of 37.2 tons
per man day represents a slight decrease from the 1995 period.
Non-coal margin for the first nine months of 1996 increased by $1.1 million from
the first nine months of 1995 reflecting higher gas prices. Other operating
income, including litigation settlements, sales of properties and equipment and
third party royalties, amounted to $10.9 million in the third quarter of 1996,
$9.1 million less than the third quarter of 1995. The higher level of income
recorded in the 1995 period reflects $9.8 million income from the sale of coal
assets.
--
15
<PAGE>
Idle equipment and closed mine costs decreased by $7.8 million in the first nine
months of 1996. Idle equipment expenses were reduced from the prior period level
as a result of Coal operations' improved equipment management program. Inactive
employee costs, which primarily represent long term employee liabilities for
pension and retiree medical cost, increased by $5.4 million to $20.8 million in
the first nine months of 1996. The unfavorable variance is due to the use of
lower long term interest rates to calculate the present value of the long term
liabilities in 1996. In addition, the 1995 nine month results include a benefit
of $2.5 million from a favorable litigation decision.
In 1988, the trustees of certain pension and benefit trust funds (the "Trust
Funds") established under collective bargaining agreements with the United Mine
Workers of America ("UMWA") brought an action (the "Evergreen Case") against the
Company and a number of its coal subsidiaries, claiming that the defendants were
obligated to contribute to such Trust Funds in accordance with the provisions of
the 1988 and subsequent National Bituminous Coal Wage Agreements, to which
neither the Company nor any of its subsidiaries was a signatory.
In late March 1996, a settlement was reached in the Evergreen Case. Under the
terms of the settlement, the coal subsidiaries which had been signatories to
earlier National Bituminous Coal Wage Agreements agreed to make various lump sum
payments in full satisfaction of all amounts allegedly due to the Trust Funds
through January 31, 1996, to be paid over time as follows: $25.8 million upon
dismissal of the Evergreen Case in March 1996 and the remainder of $24.0 million
in installments of $7.0 million in August 1996 and $8.5 million in each of 1997
and 1998. The first payment was entirely funded through an escrow account
previously established by the Coal operations. The second payment of $7.0
million was paid in the third quarter of 1996 and was funded through cash
provided by operating activities. In addition, the coal subsidiaries agreed to
future participation in the UMWA 1974 Pension Plan. Separate lawsuits against
each of the UMWA and the Bituminous Coal Operators Association, previously
reported, have also been dismissed.
As a result of the settlement of these cases at an amount lower than previously
accrued in 1993, the Company recorded a pretax benefit of $35.7 million ($23.2
million after tax) in the first quarter of 1996 in its consolidated financial
statements.
As of January 1, 1996, the Company implemented a new accounting standard,
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". SFAS No. 121 requires companies to review long-lived assets and certain
identifiable intangibles to be held and used by an entity for impairment
whenever circumstances indicate that the carrying amount for an asset may not be
recoverable.
In accordance with SFAS No. 121, the Company grouped its long-lived assets at
the lowest level for which there are identifiable cash flows that are
independent of the cash flows of other groups of assets, and determined the
recoverability of such assets by comparing the sum of the expected undiscounted
future cash flows with the carrying amount of the assets. The impact of adopting
SFAS No. 121 resulted in a pretax charge to earnings as of January 1, 1996 for
the Company's Coal operations of $27.8 million ($18.1 million after tax), of
which $24.2 million was included in cost of sales and $3.6 million was included
in selling, general and administrative expenses. Assets for which the impairment
loss was recognized consisted of property, plant and equipment, advanced
royalties and goodwill. These assets primarily related to mines scheduled for
closure in the near term and idled facilities and related equipment. Based on
current mining plans, geological conditions, and current assumptions related to
future realization and costs, the sum of the expected undiscounted future cash
flows was less than the carrying amount of the assets, and accordingly, an
impairment loss was recognized. The loss was calculated based on the excess of
the carrying value of the assets over the present value of estimated expected
future cash flows, using a discount rate commensurate with the risks involved.
--
16
<PAGE>
Coal operations continued cash funding for charges recorded in prior years for
facility closure costs recorded as restructuring and other charges. The
following table analyzes the changes in liabilities during the first nine months
of 1996 for such costs:
<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, 1995 $ 1,218 28,983 36,077 66,278
Payments 652 4,218 3,369 8,239
- ---------------------------------------------------------------------------------------------------------
Balance as of September 30, 1996 $ 566 24,765 32,708 58,039
- ---------------------------------------------------------------------------------------------------------
</TABLE>
In April 1996, the Commonwealth of Virginia enacted into law the "Coalfield
Employment Enhancement Tax Credit." The new law, which is effective from January
1, 1996 through December 31, 2001, provides Virginia coal producers with a
refundable credit against taxes imposed by the Commonwealth for coal produced in
Virginia. The credit ranges from $.40 per ton for surface coal to $1 to $2 per
ton of underground coal mined, depending upon seam thickness, with certain
modifications to the surface and deep mined credit rates based on employment
levels. The credit can be utilized under a predetermined schedule beginning with
the 1999 tax year through the 2008 tax year. At current production levels, Coal
operations estimates it will generate approximately $4.0 million in tax credits
in 1996 to be realized in future years according to the regulations.
Mineral Ventures
- ----------------
The following is a table of selected financial data for Mineral Ventures on a
comparative basis:
<TABLE>
<CAPTION>
Three Months Nine Months
(Dollars in thousands, except Ended September 30 Ended September 30
per ounce data) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 4,592 3,717 14,748 12,398
Cost of sales 3,657 3,229 10,761 9,084
Selling, general and administrative 1,045 1,047 2,784 2,624
- ------------------------------------------------------------------------------------------------------------------
Total costs and expenses 4,702 4,276 13,545 11,708
Other operating (expense) income, net (214) (257) 222 (15)
- ------------------------------------------------------------------------------------------------------------------
Operating (loss) profit $ (324) (816) 1,425 675
- ------------------------------------------------------------------------------------------------------------------
Stawell Gold Mine:
Mineral Ventures's 50% direct share:
Ounces sold 10,775 8,737 35,375 30,229
Ounces produced 10,756 8,918 34,738 30,206
- ------------------------------------------------------------------------------------------------------------------
Average per ounce sold (US$):
Realization $ 424 413 415 405
Cash cost $ 321 293 289 358
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The operating loss from Mineral Ventures' operations, primarily a 67% direct and
indirect interest in the Stawell gold mine in western Victoria, Australia,
amounted to $0.3 million in the third quarter, compared to an operating loss of
$0.8 million in the third quarter of 1995. This reduction in operating loss
reflects a 23% increase in ounces sold, higher realized gold prices per ounce
sold, partially offset by 10% higher costs than the prior year period. Operating
costs in the 1996 third quarter were negatively impacted by four lost-time
accidents, two late in the second quarter, that resulted in production
shortfalls and higher operating cost as compared to the first half of 1996 and
the 1995 third quarter. In the third quarter of 1995, costs and production were
negatively impacted by adverse geological conditions. Operating profit for the
first nine months increased $0.7 million to $1.4 million from the comparable
period in 1995 as volume, price and cost all improved from the prior year.
--
17
<PAGE>
During the second quarter, the Australian joint venture in which Mineral
Ventures owns a 34% direct interest, formally announced that the Silver Swan
nickel deposit in Australia (50% owned by the Australian joint venture) will be
developed as an underground mine with production expected to commence in
mid-1997. As of September 30, 1996, the main production shaft has reached 809
meters. In addition, exploration drilling has indicated the presence of a
previously unknown area of high grade mineralization (approximately 8 -10%
nickel) some 100 meters to the south of Silver Swan and 750 meters below the
surface. However, at this time, sufficient data has not been developed to
determine whether this area will be commercially significant.
Foreign Operations
- ------------------
A portion of the Company's financial results is derived from activities in
several foreign countries, each with a local currency other than the U.S.
dollar. Since the financial results of the Company are reported in U.S. dollars,
they are affected by the changes in the value of the various foreign currencies
in relation to the U.S. dollar. The Company's international activity is not
concentrated in any single currency, which limits the risks of foreign rate
fluctuations. In addition, foreign currency rate fluctuations may adversely
affect transactions which are denominated in currencies other than the
functional currency. The Company routinely enters into such transactions in the
normal course of its business. Although the diversity of its foreign operations
limits the risks associated with such transactions, the Company uses foreign
exchange forward contracts to hedge the risks associated with certain
transactions denominated in currencies other than the functional currency.
Realized and unrealized gains and losses on these contracts are deferred and
recognized as part of the specific transaction hedged. In addition, cumulative
translation adjustments relating to operations in countries with highly
inflationary economies are included in net income, along with all transaction
gains or losses for the period. Subsidiaries in Brazil operate in such a highly
inflationary economy. Additionally, current conditions in Mexico where the
Brink's Group has an affiliate (20% owned), indicate that that economy may be
considered highly inflationary by early 1997.
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. Other operating income in
the third quarter of 1996 increased $0.5 million to $3.7 million from $3.1
million in the third quarter of 1995, and in the first nine months of 1996
decreased $8.7 million to $13.7 million from $22.4 million in the first nine
months of 1995. The decrease in the first nine months of 1996 from the
comparable period of 1995 is largely due to lower gains from the sales of coal
assets as results in the first nine months of 1995 included an $8.3 million gain
on the sale of coal reserves and $1.5 million gain on the disposition of
highwall mining equipment. Brink's share of the reported results of its equity
affiliates for the third quarter and first nine months of 1996 increased $2.2
million and $1.0 million, respectively, compared with the same periods for the
prior year. The results of Brink's equity affiliates in the third quarter and
first nine months of 1995 included $0.2 million and $1.2 million, respectively,
in equity income from Colombia which became a consolidated subsidiary during the
third quarter of 1995, subsequent to an additional investment bringing Brink's
ownership to a majority interest in the operation. The consolidation of this now
51% owned subsidiary had a de minimus effect on the Brink's Group's net income.
Corporate Expenses
- ------------------
The Company's corporate office was relocated to Richmond, Virginia during
September 1996. The costs of this move, including moving expenses, employee
relocation, severance pay and temporary employee costs, amounted to $2.9 million
year-to-date with $2.7 million in the third quarter.
--
18
<PAGE>
Interest Expense
- ----------------
Interest expense decreased $0.3 million to $3.4 million in the third quarter of
1996 from $3.7 million in the prior year quarter, and in the first nine months
of 1996 increased $0.1 million to $10.5 million from $10.4 million in the first
nine months of 1995.
Other Income (Expense), Net
- ---------------------------
Other net expense for the third quarter of 1996 increased $0.7 million to a net
expense of $2.5 million from a net expense of $1.8 million in the third quarter
of 1995, and in the first nine months of 1996 increased $2.9 million to a net
expense of $6.9 million from a net expense of $4 million in the same period a
year earlier. Higher minority interest expense at Brink's contributed to the
increased expense for the current year quarter and nine month periods. In
addition, other net expense in the first nine months of 1996 includes a loss for
the termination of an overseas sublease agreement at Burlington.
FINANCIAL CONDITION
- -------------------
Cash Provided by Operations
- ---------------------------
Cash provided by operating activities during the first nine months of 1996
totaled $124.9 million compared with $89.3 million in the first nine months of
1995. Net income, noncash charges and changes in operating assets and
liabilities in the first nine months of 1996 were significantly affected by two
non-recurring items, a benefit from the settlement of the Evergreen case at an
amount less than originally accrued and a charge related to the implementation
of SFAS 121; these items had no effect on cash generated by operations except
that the second settlement payment of $7.0 million was paid from operating cash
in the 1996 third quarter. The initial payment of $25.8 million related to the
Evergreen case settlement was entirely funded by an escrow account previously
established by the Company. The amount previously escrowed and accrued was
included in "Short-term investments" and "Accrued liabilities" on the Company's
balance sheet.
Capital Expenditures
- --------------------
Cash capital expenditures for the first nine months of 1996 totaled $116.3
million, $35.0 million higher than in the comparable period in 1995. Of the 1996
amount, $25.7 million was spent by Burlington, $24.5 million was spent by
Brink's, $44.8 million was spent by BHS, $14.1 million was spent by Coal, $2.0
million was spent by Mineral Ventures and $5.2 million consisted of corporate
expenditures, the majority of which related to the purchase of the Company's new
corporate headquarters. For the full year 1996, company-wide capital
expenditures are projected to be between $165.0 million and $180.0 million. The
foregoing amounts exclude equipment expenditures that have been or are expected
to be financed through capital and operating leases. Increased full-year
expenditures in 1996 compared to 1995 are largely attributable to Burlington to
support new airfreight stations and implementation of new information systems,
BHS resulting from continued expansion of the subscriber base and Brink's in
support of business expansion.
Other Investing Activities
- --------------------------
All other investing activities in the first nine months of 1996 provided net
cash of $2.8 million, primarily from the disposal of property, plant and
equipment and other investing assets, net of expenditures for aircraft heavy
maintenance.
Financing
- ---------
The Company intends to fund its capital expenditure requirements during the
remainder of 1996 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 and also permits additional borrowings, repayments, and
reborrowings of up to an aggregate of $250 million. During the second quarter of
1996, the maturity date of both the term loan and revolving credit portion of
the Facility was extended to May 31, 2001. As of September 30, 1996, borrowings
of $100 million were outstanding under the term loan portion of the Facility and
$15.6 million of additional borrowings were outstanding under the remainder of
the facility. The Company also maintains agreements with financial institutions
whereby it has the right to sell certain coal receivables, with recourse, to
those institutions. As of September 30, 1996, no coal receivables were sold
under such agreements.
--
19
<PAGE>
Debt
- ----
Outstanding debt, including borrowings under revolving credit agreements,
aggregated $190.7 million at September 30, 1996, up from $177.6 million at
year-end 1995. Cash provided from operating activities, other investing
activities and the exercise of stock options were not sufficient to fund capital
expenditures, dividend payments, purchase of Company stock and the cost of the
Brink's Stock proposal, resulting in additional borrowings.
Capitalization
- --------------
On January 18, 1996, the shareholders of the Company approved the Brink's Stock
Proposal, resulting in the modification of the capital structure of the Company
to include an additional class of common stock. The outstanding shares of
Pittston Services Group Common Stock ("Services Stock") were redesignated as
Pittston Brink's Group Common Stock ("Brink's Stock") on a share-for-share
basis, and a new class of common stock, designated as Pittston Burlington Group
Common Stock ("Burlington Stock"), was distributed on the basis of one-half
share of Burlington Stock for each share of Services Stock previously held by
shareholders of record on January 19, 1996. The Pittston Brink's Group (the
"Brink's Group") consists of the Brink's and BHS operations of the Company. The
Pittston Burlington Group (the "Burlington Group") consists of the Burlington
operations of the Company. The Pittston Minerals Group (the "Minerals Group")
consists of the Coal and Mineral Ventures operations of the Company. The
approval of the Brink's Stock Proposal did not result in any transfer of assets
and liabilities of the Company or any of its subsidiaries. The Company prepares
separate financial statements for the Minerals, Brink's and Burlington Groups in
addition to consolidated financial information of the Company.
Brink's Stock, Burlington Stock and Pittston Minerals Group Common Stock
("Minerals Stock") were designed to provide shareholders with separate
securities reflecting the performance of the Brink's Group, Burlington Group and
Minerals Group, respectively, without diminishing the benefits of remaining a
single corporation or precluding future transactions affecting any of the
Groups.
The redesignation of the Company's Services Stock as Brink's Stock and the
distribution of Burlington Stock as a result of the approval of the Brink's
Stock Proposal and the distribution of Minerals Stock in July 1993 (the
"Services Stock Proposal") did not result in any transfer of assets and
liabilities of the Company or any of its subsidiaries. Holders of all three
classes of stock are shareholders of the Company, which continues to be
responsible for all its liabilities. Therefore, financial developments affecting
the Brink's Group, the Burlington Group or the Minerals Group that affect the
Company's financial condition could affect the results of operations and
financial condition of all three Groups. The changes in the capital structure of
the Company had no effect on the Company's total capital, except as to expenses
incurred in the execution of the Brink's Stock Proposal. Since the approval of
the Brink's Stock Proposal including the earlier Services Stock Proposal,
capitalization of the Company has been affected by the share activity related to
each of the classes of common stock.
In November 1995, the Board authorized a revised share repurchase program which
allows for the purchase, from time to time, of up to 1,500,000 shares of Brink's
Stock, 1,500,000 shares of Burlington Stock and 1,000,000 shares of Minerals
stock, not to exceed an aggregate purchase price of $45.0 million. As of
September 30, 1996, 20,300 shares of Burlington Stock at a total cost of $0.4
million were purchased under the program. Between October 1, 1996 and November
11, 1996, the Company purchased 47,600 shares of Burlington Stock at a total
cost of $0.9 million.
In 1994, the Board authorized the purchase from time to time of up to $15
million of the Company's Series C Cumulative Convertible preferred stock. In
November 1995, the Board authorized an increase in the remaining authority to
$15 million. No share purchases were made in 1995 subsequent to the increased
authorization. During the third quarter and the Company purchased 10,320 and
20,920 shares, respectively, of its Series C Cumulative Convertible preferred
stock at a total cost of $3.9 million and $7.9 million, respectively.
--
20
<PAGE>
Dividends
- ---------
The Board intends to declare and pay dividends on Brink's Stock, Burlington
Stock and Minerals Stock based on the earnings, financial condition, cash flow
and business requirements of the Brink's Group, Burlington Group and the
Minerals Group, respectively. Since the Company remains subject to Virginia law
limitations on dividends and to dividend restrictions in its public debt and
bank credit agreements, losses by one Group could affect the Company's ability
to pay dividends in respect of stock relating to the other Group. Dividends on
Minerals Stock are also limited by the Available Minerals Dividend Amount as
defined in the Company's Articles of Incorporation. At September 30, 1996, the
Available Minerals Dividend Amount was at least $21.4 million.
During the first nine months of 1996 and 1995, the Board declared and the
Company paid cash dividends of 48.75 cents per share of Minerals Stock. During
the first nine months of 1996, the Board declared and the Company paid dividends
of 7.5 cents per share of Brink's Stock and 18 cents per share of Burlington
Stock. In the first nine months of 1995, the Board declared and the Company paid
dividends of 15 cents per share of Services Stock which has been attributed: 6.9
cents for each share of Brink's Stock and 16.2 cents for each share of
Burlington Stock, which reflects the distribution of one-half share of
Burlington Stock for each share of Services Stock. Dividends paid on the Series
C Cumulative Convertible preferred stock in the first nine months of 1996 and
1995 were $2.9 million and $3.3 million, respectively. Preferred dividends
included on the Company's Statement of Operations for the nine months ended
September 30, 1996 and 1995, are net of $2.1 million and $1.6 million,
respectively, which was the excess of the carrying amount of the preferred stock
over the cash paid to holders of the preferred stock.
--
21
<PAGE>
<TABLE>
Pittston Brink's Group
BALANCE SHEETS
(In thousands)
<CAPTION>
September 30, December 31,
1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 25,575 21,977
Short-term investments, at lower of cost or market 2,223 3,288
Accounts receivable (net of estimated amount uncollectible:
1996 - $4,693; 1995 - $3,756) 121,314 113,790
Receivable - Pittston Minerals Group 1,782 3,945
Inventories, at lower of cost or market 2,616 2,795
Prepaid expenses 12,674 10,380
Deferred income taxes 12,655 13,146
- --------------------------------------------------------------------------------------------------------------------------
Total current assets 178,839 169,321
Property, plant and equipment, at cost (net of accumulated depreciation and
amortization: 1996 - $236,394; 1995 - $214,424) 245,286 214,653
Intangibles, net of amortization 28,055 28,893
Investment in and advances to unconsolidated affiliates 29,092 28,406
Deferred pension assets 34,049 33,923
Deferred income taxes 1,517 1,081
Other assets 10,384 8,449
- --------------------------------------------------------------------------------------------------------------------------
Total assets $ 527,222 484,726
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 3,541 4,858
Current maturities of long-term debt 2,192 4,117
Accounts payable 29,780 35,460
Accrued liabilities 96,956 86,006
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities 132,469 130,441
Long-term debt, less current maturities 5,786 5,795
Postretirement benefits other than pensions 3,985 3,475
Workers' compensation and other claims 10,786 11,292
Deferred income taxes 35,056 37,529
Payable - Pittston Minerals Group 6,967 7,844
Minority interests 22,470 21,361
Other liabilities 8,424 8,184
Shareholders' equity 301,279 258,805
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 527,222 484,726
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
--
22
<PAGE>
<TABLE>
Pittston Brink's Group
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 232,022 208,958 666,637 573,964
Operating expenses 174,979 158,155 506,987 439,043
Selling, general and administrative expenses 33,706 28,708 95,065 80,456
- ------------------------------------------------------------------------------------------------------------------
Total costs and expenses 208,685 186,863 602,052 519,499
- ------------------------------------------------------------------------------------------------------------------
Other operating income (expense), net 1,648 (588) 1,478 585
- ------------------------------------------------------------------------------------------------------------------
Operating profit 24,985 21,507 66,063 55,050
Interest income 719 491 1,708 1,476
Interest expense (424) (527) (1,410) (1,478)
Other expense, net (1,462) (1,260) (3,634) (2,502)
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes 23,818 20,211 62,727 52,546
Provision for income taxes 7,977 5,598 21,013 16,422
- ------------------------------------------------------------------------------------------------------------------
Net income $ 15,841 14,613 41,714 36,124
- ------------------------------------------------------------------------------------------------------------------
Per common share:
Net income $ .41 .38 1.09 .95
- ------------------------------------------------------------------------------------------------------------------
Cash dividends $ .025 .023 .075 .069
- ------------------------------------------------------------------------------------------------------------------
Average shares outstanding 38,264 37,916 38,158 37,914
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
--
23
<PAGE>
<TABLE>
Pittston Brink's Group
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine months Ended September 30
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 41,714 36,124
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 39,077 32,219
(Credit) provision for deferred income taxes (1,877) 146
Provision (credit) for pensions, noncurrent 1,189 (289)
Provision for uncollectible accounts receivable 3,221 1,987
Equity in earnings of unconsolidated affiliates, net of dividends received (971) 1,642
Other operating, net 4,633 1,781
Change in operating assets and liabilities:
Increase in accounts receivable (10,745) (19,308)
Decrease (increase) in inventories 180 (578)
Increase in prepaid expenses (2,294) (1,777)
Increase in accounts payable and accrued liabilities 5,574 10,821
Increase in other assets (3,404) (944)
Increase (decrease) in other liabilities 430 (7)
Other, net 87 280
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 76,814 62,097
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (71,146) (46,835)
Proceeds from disposal of property, plant and equipment 2,878 2,244
Other, net 1,068 (1,191)
- ------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (67,200) (45,782)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 1,882 2,000
Reductions of debt (6,916) (4,080)
Payments from (to) - Minerals Group 2,163 (9,936)
Proceeds from exercise of stock options 909 1,174
Proceeds from stock purchased by benefit plans 89 395
Dividends paid (2,905) (2,668)
Repurchase of common stock - (2,301)
Cost of Brink's Stock Proposal (1,238) -
- ------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (6,016) (15,416)
- ------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,598 899
Cash and cash equivalents at beginning of period 21,977 20,226
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 25,575 21,125
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
--
24
<PAGE>
Pittston Brink's Group
NOTES TO FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
(1) The financial statements of the Pittston Brink's Group (the "Brink's
Group") include the balance sheets, results of operations and cash flows of
the 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 Brink's 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 Brink's Group Common Stock
("Brink's Stock") separate financial statements, financial reviews,
descriptions of business and other relevant information for the Brink's
Group in addition to consolidated financial information of the Company.
Holders of Brink's Stock are shareholders of the Company, which is
responsible for all its liabilities. Therefore, financial developments
affecting the Pittston Burlington Group (the "Burlington Group"), Pittston
Minerals Group (the "Minerals Group") or the Brink's Group that affect the
Company's financial condition could affect the results of operations and
financial condition of all three Groups. Accordingly, the Company's
consolidated financial statements must be read in conjunction with the
Brink's 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 Brink's Group and the BHS segment for the first nine months of 1996 and
1995 by $3,472 and $3,204, respectively, and for the third quarter of 1996
and 1995 by $1,296 and $1,255, respectively. The effect of this change
increased net income per common share of the Brink's Group for the first
nine months of 1996 and 1995 by $.06 and $.05, respectively, and by $.02
for both the third quarters of 1996 and 1995.
(3) Depreciation and amortization of property, plant and equipment in the third
quarter and nine month period of 1996 totaled $13,142 ($10,846 in 1995) and
$38,118 ($31,097 in 1995), respectively.
(4) Cash payments made for interest and income taxes (net of refunds received)
were as follows:
<TABLE>
<CAPTION>
Third quarter Nine months
1996 1995 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest $ 414 565 1,416 1,523
- --------------------------------------------------------------------------
Income taxes $ 8,246 2,878 23,791 13,379
- --------------------------------------------------------------------------
</TABLE>
During the nine month period ended September 30, 1996 and 1995, capital
lease obligations of $1,575 and $150, respectively, were incurred for
leases of property, plant and equipment.
(5) As of January 1, 1996, the Brink's Group implemented a new accounting
standard, Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". SFAS No. 121 requires companies to review
long-lived assets and certain identifiable intangibles to be held and used
by an entity for impairment whenever circumstances indicate that the
carrying amount for an asset may not be recoverable. SFAS No. 121 requires
companies to utilize a two-step approach to determining whether impairment
of such assets has occurred and, if so, the amount of such impairment. The
adoption of SFAS No. 121 had no impact on the Brink's Group's financial
statements as of January 1, 1996.
--
25
<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 for a fair presentation of results of operations for the periods
reported herein. All such adjustments are of a normal recurring nature.
--
26
<PAGE>
Pittston Brink's Group
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The financial statements of the Pittston Brink's Group (the "Brink's Group")
include the balance sheets, results of operations and cash flows of the 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 Brink's 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 Brink's 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 Brink's Group Common Stock ("Brink's
Stock") separate financial statements, financial reviews, descriptions of
business and other relevant information for the Brink's Group in addition to
consolidated financial information of the Company. Holders of Brink's 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"), the Pittston Burlington Group (the "Burlington
Group") or the Brink's Group that affect the Company's financial condition could
affect the results of operations and financial condition of all three Groups.
Accordingly, the Company's consolidated financial statements must be read in
conjunction with the Brink's Group's financial statements.
The following discussion is a summary of the key factors management considers
necessary in reviewing the Brink's Group's results of operations, liquidity and
capital resources. This discussion should be read in conjunction with the
financial statements and related notes of the Company.
<TABLE>
SEGMENT INFORMATION
(In thousands)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Brink's $ 192,491 176,507 551,756 480,141
BHS 39,531 32,451 114,881 93,823
- ------------------------------------------------------------------------------------------------------------------
Revenues $ 232,022 208,958 666,637 573,964
- ------------------------------------------------------------------------------------------------------------------
Operating profit:
Brink's $ 16,033 12,263 37,935 29,882
BHS 11,509 10,386 34,012 28,702
- ------------------------------------------------------------------------------------------------------------------
Segment operating profit 27,542 22,649 71,947 58,584
General corporate expense (2,557) (1,142) (5,884) (3,534)
- ------------------------------------------------------------------------------------------------------------------
Operating profit $ 24,985 21,507 66,063 55,050
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
--
27
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
Net income totaled $15.8 million or $.41 per share in the third quarter of 1996
compared with $14.6 million in the third quarter of 1995. Operating profit for
the 1996 third quarter increased to $25.0 million from $21.5 million in the
third quarter of 1995. The increase in net income and operating profit for the
1996 third quarter compared with the same period of 1995 was attributable to
improved operating earnings for both the Brink's and BHS businesses, partially
offset by increased general corporate expenses primarily related to the
relocation of the Company's corporate headquarters to Richmond, Virginia, which
resulted in additional pretax expenses of $1.0 million in the third quarter of
1996. Net income in 1995's third quarter benefited from a lower than normal
quarterly tax rate which was required to adjust to the effective nine month tax
rate. Revenues for the 1996 third quarter compared to the 1995 third quarter
increased $23.1 million or 11% consisting of $16.0 million and $7.1 million from
Brink's and BHS, respectively. Operating expenses and selling, general and
administrative expenses for the 1996 third quarter increased $21.8 million or
12% compared with the same period last year, of which $14.4 million was from
Brink's, $6.0 million was from BHS and $1.4 million was from general corporate
expenses. Other net operating income of $1.6 million amounted to a $2.2 million
increase from a $0.6 million net loss recorded in the third quarter of 1995.
In the first nine months of 1996, net income totaled $41.7 million compared with
$36.1 million in the first nine months of 1995. Operating profit for the first
nine months of 1996 increased to $66.1 million from $55.1 million in the same
period of 1995. The increase in net income and operating profit for the first
nine months of 1996 compared with the same period of 1995 was attributable to
improved operating earnings for both Brink's and BHS businesses, only partially
offset by increased general corporate expenses. Revenues for the first nine
months of 1996 increased $92.7 million or 16% compared with the first nine
months of 1995, consisting of $71.6 million from Brink's and $21.1 million from
BHS. Operating expenses and selling, general and administrative expenses for the
first nine months of 1996 increased $82.6 million or 16% compared with the same
period last year, which represented $64.5 million from Brink's, $15.7 million
from BHS and $2.4 million from general corporate expenses. Other net expense of
$3.6 million amounted to a $1.1 million increase from $2.5 million recorded in
the first nine months of 1995.
Brink's
- -------
The following is a table of selected financial data for Brink's on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
(In thousands) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
North America (United States and Canada) $ 106,156 97,103 308,271 278,084
International 86,335 79,404 243,485 202,057
- ------------------------------------------------------------------------------------------------------------------
Total revenues $ 192,491 176,507 551,756 480,141
Operating expenses 154,527 142,105 447,177 390,328
Selling, general and administrative 23,579 21,551 68,122 60,516
- ------------------------------------------------------------------------------------------------------------------
Total costs and expenses 178,106 163,656 515,299 450,844
- ------------------------------------------------------------------------------------------------------------------
Other operating income (expense) 1,648 (588) 1,478 585
- ------------------------------------------------------------------------------------------------------------------
Operating profit:
North America (United States and Canada) $ 9,292 8,226 23,383 20,752
International 6,741 4,037 14,552 9,130
- ------------------------------------------------------------------------------------------------------------------
Total operating profit $ 16,033 12,263 37,935 29,882
- ------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 6,522 5,757 18,259 16,253
- ------------------------------------------------------------------------------------------------------------------
Cash capital expenditures $ 8,514 4,234 24,518 15,710
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
--
28
<PAGE>
Brink's worldwide consolidated revenues totaled $192.5 million in the third
quarter of 1996 compared with $176.5 million in the third quarter of 1995.
Brink's operating profit of $16.0 million represented a $3.8 million (31%)
increase over the $12.3 million operating profit reported in the prior year
quarter. Other operating income increased $2.2 million to $1.6 million, from a
prior year quarter net loss of $0.6 million.
Revenues from North American operations (United States and Canada) increased
$9.1 million, or 9%, to $106.2 million in the 1996 third quarter from $97.1
million in the prior year quarter. North American operating profit increased
$1.1 million, or 13%, to $9.3 million in the current year quarter from $8.2
million in the third quarter of 1995. The operating profit improvement was
primarily due to improved armored car operations, which includes ATM servicing,
and money processing and reflects operating efficiencies.
Revenues from international subsidiaries increased $6.9 million to $86.3 million
in the 1996 third quarter from $79.4 million in the 1995 quarter. Substantially
all the increase in international revenues was due to the consolidation of the
results of Brink's Colombia, in which Brink's increased its ownership from 47%
to 51% during the third quarter of 1995. Operating profits from international
subsidiaries and minority-owned affiliates amounted to $6.7 million in the
current year quarter compared to $4.0 million in the prior year third quarter.
The earnings increase for the third quarter of 1996 reflected higher operating
profits in Latin America which more than offset lower results in Europe,
primarily Holland. Latin America's increase in operating profits reflects a $1.2
million benefit from the consolidation of Colombia's operating profits. Brazil's
(100% owned) operating profits amounted to $1.7 million in the third quarter of
1996, compared to $1.9 million in the third quarter of 1995. The $1.1 million in
equity earnings generated by Brink's Mexican affiliate (20% owned) was an
improvement over the $1.2 million loss recorded in the third quarter of 1995, as
the benefits of workforce reductions, cost controls and operational improvements
continue to be realized.
Brink's worldwide consolidated revenues totaled $551.8 million in the first nine
months of 1996 compared with $480.1 million in the first nine months of 1995.
Brink's operating profit of $37.9 million in the first nine months of 1996
represented an $8.1 million (27%) increase over the $29.9 million operating
profit reported in the prior year period. The revenue increase of $71.6 million
(15%) in the first nine months of 1996 was only partially offset by a
corresponding increase in operating expenses and selling, general and
administrative expenses of $64.5 million (14%). Other operating income increased
$0.9 million to $1.5 million, from $0.6 million in the prior year.
Revenues from North American operations (United States and Canada) increased
$30.2 million, or 11%, to $308.3 million in the first nine months of 1996 from
$278.1 million in the same period of 1995. North American operating profit
increased $2.6 million (13%) to $23.4 million in the current year period from
$20.8 million in the same period of 1995. The operating profit improvement for
the nine months of 1996 primarily resulted from improved armored car operations,
which includes ATM servicing, and money processing and reflects operating
efficiencies.
Revenues from international subsidiaries increased $41.4 million to $243.5
million in the first nine months of 1996 from $202.1 million in the first nine
months of 1995. Consolidation of the results of Brink's Colombia accounted for
approximately half of the increase in international revenues for the nine-month
comparative period. Operating profits from international subsidiaries and
minority-owned affiliates amounted to $14.6 million in the current year period
compared to $9.1 million in the prior year period. Higher operating profits in
Latin America more than offset lower results in Europe, primarily France and
Holland. Latin America's increase in operating profits includes a $3.1 million
benefit from the consolidation of the results of Brink's Colombia. The
consolidation of this now 51% owned subsidiary had a de minimus effect on the
Brink's Group net income. Brazil (100% owned) achieved increases in revenue and
operating profit of $10.7 million and $1.9 million, respectively, for the first
nine months of 1996 compared to the same period in 1995. Revenues for Brink's
Brazil were $89.6 million and $79.0 million for the first nine months of 1996
and 1995, respectively, and operating profits were $4.7 million and $2.8 million
for the first nine months of 1996 and 1995, respectively. Equity in earnings
from Brink's Mexican affiliate (20% owned) amounted to $2.1 million compared
with a $2.2 million loss recorded in the first nine months of 1995.
--
29
<PAGE>
BHS
- ---
The following is a table of selected financial data for BHS on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
(In thousands) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 39,531 32,451 114,881 93,823
Operating expenses 20,452 16,051 59,810 48,715
Selling, general and administrative 7,570 6,014 21,059 16,406
- ------------------------------------------------------------------------------------------------------------------
Total costs and expenses 28,022 22,065 80,869 65,121
- ------------------------------------------------------------------------------------------------------------------
Operating profit $ 11,509 10,386 34,012 28,702
- ------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 6,936 5,469 20,745 15,889
- ------------------------------------------------------------------------------------------------------------------
Cash capital expenditures $ 14,702 11,882 44,751 31,023
- ------------------------------------------------------------------------------------------------------------------
Annualized recurring revenues (a) $ 121,254 100,862
- ------------------------------------------------------------------------------------------------------------------
Number of subscribers:
Beginning of period 412,591 346,540 378,659 318,029
Installations 23,327 20,580 72,030 58,942
Disconnects (8,125) (5,917) (22,896) (15,768)
- ------------------------------------------------------------------------------------------------------------------
End of period 427,793 361,203 427,793 361,203
- ------------------------------------------------------------------------------------------------------------------
(a) Annualized recurring 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.
</TABLE>
Revenues for BHS increased by $7.1 million (22%) to $39.5 million in the third
quarter of 1996 from $32.5 million in the 1995 quarter. In the first nine months
of 1996, revenues for BHS increased by $21.1 million (22%) to $114.9 million
from $93.8 million in the first nine months of 1995. The increase in revenues
was predominantly from higher ongoing monitoring and services revenues, caused
by an 18% growth in the subscriber base for the nine months. As a result of such
growth, annualized recurring revenues in force at the end of the third quarter
of 1996 grew 20% over the amount in effect at the end of the third quarter of
1995. The total amount of installation revenue in the third quarter and first
nine months of 1996 also grew by 24% and 26%, respectively, over the amount
recorded in the same periods of 1995, largely as a result of the increased
volume of installations. Revenue per installation decreased from amounts
achieved in the first half of this year due to the competitive environment in
the marketplace.
Operating profit of $11.5 million in the third quarter of 1996 represented an
increase of $1.1 million (11%) compared to the $10.4 million earned in the 1995
third quarter. In the first nine months of 1996, operating profit increased $5.3
million (19%) to $34.0 million from $28.7 million earned in the first nine
months of 1995. The increase in operating profit largely stemmed from the growth
in the subscriber base and higher average monitoring and services revenues,
somewhat offset by higher depreciation and increased account servicing and
administrative expenses, which are a consequence of the larger subscriber base.
In addition, installation and marketing costs incurred and expensed during the
third quarter increased by $0.9 million from the prior year period.
The subscriber base on September 30, 1996, totaled 427,793 customers, 18% higher
than the balance at the end of the third quarter of 1995. Annualized recurring
revenues amounted to $121.3 million at September 30, 1996, 20% higher than
September 30, 1995. The favorable change reflects the increased subscriber base
as well as higher average monthly revenues, principally generated by customer
service contracts.
--
30
<PAGE>
Foreign Operations
- ------------------
A portion of the Brink's Group's financial results is derived from activities in
several foreign countries, each with a local currency other than the U.S.
dollar. Because the financial results of the Brink's 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 Brink's Group's international
activity is not concentrated in any single currency, which limits the risks of
foreign currency rate fluctuations. In addition, foreign currency rate
fluctuations may adversely affect transactions which are denominated in
currencies other than the functional currency. The Brink's 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 Brink's 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. 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. A subsidiary in Brazil operates in
such a highly inflationary economy. Additionally, current conditions in Mexico
where the Brink's Group has an affiliate (20% owned), indicate that that economy
may be considered highly inflationary by early 1997.
Additionally, the Brink's 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 Brink's 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 Brink's 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 Brink's
Group. These allocations were $2.6 million and $1.1 million for the third
quarter of 1996 and 1995, respectively and $5.9 million and $3.5 million for the
first nine months of 1996 and 1995, respectively.
The Company's corporate office was relocated to Richmond, Virginia during
September 1996. The costs of this move for the first nine months of 1996,
including moving expenses, employee relocation, severance pay and temporary
employee costs, amounted to $2.9 million. Approximately $1.0 million of these
costs were attributed to the Brink's Group.
Other Operating Income (Expense), Net
- -------------------------------------
Other net operating income increased $2.2 million to income of $1.6 million in
the 1996 third quarter from a loss of $0.6 million in the 1995 third quarter. In
the first nine months of 1996, other net operating income amounted to $1.5
million, increasing $0.9 million from other net operating income of $0.6 million
in the first nine months of 1995. Other operating income consists primarily of
equity earnings of foreign affiliates. These equity earnings, which are
primarily attributable to equity affiliates of Brink's, amounted to income of
$1.5 million and an expense of $0.7 million for the third quarter of 1996 and
1995, respectively, and income of $1.1 million and $0.1 million in the first
nine months of 1996 and 1995, respectively. Increases in Brink's share of equity
earnings is partially due to a significant improvement in the earnings of
Brink's Mexican affiliate. The results of Brink's equity affiliates in the third
quarter and first nine months of 1995 included $0.2 million and $1.2 million,
respectively, in equity income from Colombia which became a consolidated
subsidiary during the third quarter of 1995, subsequent to an additional
investment bringing Brink's ownership to a majority interest in the operation.
Other Income (Expense), Net
- ---------------------------
Other net expense for the third quarter of 1996 increased by $0.2 million to a
net expense of $1.5 million from $1.3 million in the third quarter of 1995 and
for the first nine months of 1996 increased by $1.1 million to a net expense of
$3.6 million from $2.5 million for the first nine months of 1995. The higher
level of other expense for the third quarter and first nine months of 1996
primarily reflects increased charges for minority interest, mainly as a result
of the consolidation of Brink's Colombia.
--
31
<PAGE>
Income Taxes
- ------------
The third quarter of 1995 reflected a lower than normal quarterly tax rate
required to adjust to the effective nine month tax rate.
FINANCIAL CONDITION
- -------------------
A portion of the Company's corporate assets and liabilities has been attributed
to the Brink's Group based upon utilization of the shared services from which
assets and liabilities are generated, which management believes to be equitable
and a reasonable estimate.
Cash Provided by Operating Activities
- -------------------------------------
Cash provided by operating activities amounted to $76.8 million in the first
nine months of 1996, representing a $14.7 million favorable change from the
prior year period. The increase in cash flow reflects higher net income and
noncash charges as well as a reduction in funding requirements for net operating
assets and liabilities.
Capital Expenditures
- --------------------
Cash capital expenditures for the first nine months of 1996 and 1995 totaled
$71.1 million and $46.8 million, respectively, excluding equipment expenditures
that have been or are expected to be financed through capital and operating
leases, and any acquisition expenditures. In 1996, BHS and Brink's spent $44.8
million and $24.5 million, respectively, and $1.8 million was allocated to the
Brink's Group for corporate expenditures primarily relating to the purchase of
the Company's new corporate office building. Expenditures incurred by BHS in the
first nine months of 1996 were primarily for customer installations,
representing the expansion in the subscriber base. For the full year of 1996,
capital expenditures excluding expenditures that have been or are expected to be
financed through capital and operating leases are estimated to be between $95.0
million and $100.0 million. Increased expenditures in 1996 are expected at BHS
resulting from continued expansion of the subscriber base, and at Brink's in
support of business expansion.
Financing
- ---------
The Brink's Group intends to fund its capital expenditure requirements during
the remainder of 1996 primarily with anticipated cash flows from operating
activities and through operating and capital leases if the latter are
financially attractive. Shortfalls, if any, will be financed through the
Company's revolving credit agreements or short-term borrowing arrangements or
repayments from the Minerals Group. The Company has a $350 million revolving
credit agreement with a syndicate of banks (the "Facility"). The Facility
includes a $100 million term loan and also permits additional borrowings,
repayments, and reborrowings of up to an aggregate of $250 million. During the
second quarter of 1996, the maturity date of both the term loan and revolving
credit portion of the Facility was extended to May 31, 2001. Of the total amount
outstanding under the Facility at September 30, 1996, none was attributed to the
Brink's Group.
Debt
- ----
Outstanding debt at quarter end totaled $11.5 million, $3.3 million lower than
the $14.8 million reported at December 31, 1995. Cash flow from operating
activities and a repayment of borrowings by the Minerals Group were more than
sufficient to fund investing activities, dividend payments and the cost of the
Brink's Stock proposal, as well as enable the Brink's Group to reduce debt.
Related Party Transactions
- --------------------------
At September 30, 1996, under an interest bearing borrowing arrangement, the
Minerals Group owed the Brink's Group $15.8 million, a decrease of $2.1 million
from the $17.9 million owed at December 31, 1995.
At September 30, 1996, in accordance with the Company's tax allocation policy,
the Brink's Group owed the Minerals Group $21.0 million for tax benefits, a
decrease of $0.8 million from the $21.8 million owed at December 31, 1995. Of
the total amount of tax benefits owed the Minerals Group at September 30, 1996,
$14.0 million is expected to be paid within one year.
--
32
<PAGE>
Capitalization
- --------------
On January 18, 1996, the shareholders of the Company approved the Brink's Stock
Proposal, resulting in the modification of the capital structure of the Company
to include an additional class of common stock. The outstanding shares of
Pittston Services Group Common Stock ("Services Stock") were redesignated as
Pittston Brink's Stock on a share-for-share basis, and a new class of common
stock, designated as Pittston Burlington Group Common Stock ("Burlington
Stock"), was distributed on the basis of one-half share of Burlington Stock for
each share of Services Stock previously held by shareholders of record on
January 19, 1996. The Brink's Group consists of the Brink's and BHS operations
of the Company. The Burlington Group consists of the Burlington operations of
the Company. The Minerals Group consists of the Coal and Mineral Ventures
operations of the Company. The approval of the Brink's Stock Proposal did not
result in any transfer of assets and liabilities of the Company or any of its
subsidiaries. The Company prepares separate financial statements for the
Brink's, Minerals and Burlington Groups in addition to consolidated financial
information of the Company.
Brink's Stock, Burlington Stock and Pittston Minerals Group Common Stock
("Minerals Stock") were designed to provide shareholders with separate
securities reflecting the performance of the Brink's Group, Burlington Group and
Minerals Group, respectively, without diminishing the benefits of remaining a
single corporation or precluding future transactions affecting any of the
Groups.
The redesignation of the Company's Services Stock as Brink's Stock and the
distribution of Burlington Stock as a result of the approval of the Brink's
Stock Proposal and the distribution of Minerals Stock in July 1993 (the
"Services Stock Proposal") did not result in any transfer of assets and
liabilities of the Company or any of its subsidiaries. Holders of all three
classes of stock are shareholders of the Company, which continues to be
responsible for all its liabilities. Therefore, financial developments affecting
the Brink's Group, the Burlington Group or the Minerals Group that affect the
Company's financial condition could affect the results of operations and
financial condition of all three Groups. The changes in the capital structure of
the Company had no effect on the Company's total capital, except as to expenses
incurred in the execution of the Brink's Stock Proposal. Since the approval of
the Brink's Stock Proposal and the earlier Services Stock Proposal,
capitalization of the Company has been affected by the share activity related to
each of the classes of common stock.
In November 1995, the Board authorized, subject to shareholder approval of the
Brink's Stock Proposal, a revised share repurchase program which allows for the
purchase, from time to time, of up to 1,500,000 shares of Brink's Stock,
1,500,000 shares of Burlington Stock and 1,000,000 shares of Minerals Stock, not
to exceed an aggregate purchase price of $45.0 million. As of September 30,
1996, no shares of Brink's Stock were purchased under the program. Between
October 1, 1996 and November 11, 1996, the Company purchased 47,600 shares of
Burlington Stock at a total cost of $0.9 million.
In 1994, the Board authorized the purchase from time to time of up to $15
million of the Company's Series C Cumulative Convertible preferred stock. In
November 1995, the Board authorized an increase in the remaining authority to
$15 million. No share purchases were made in 1995 subsequent to the increased
authorization. During the third quarter and first nine months of 1996, the
Company purchased 10,320 and 20,920 shares, respectively, of its Series C
Cumulative Convertible preferred stock at a total cost of $3.9 million and $7.9
million, respectively.
Dividends
- ---------
The Board intends to declare and pay dividends on Brink's Stock based on
earnings, financial condition, cash flow and business requirements of the
Brink's 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 or the Burlington Group
could affect the Company's ability to pay dividends in respect of stock relating
to the Brink's Group.
--
33
<PAGE>
During the first nine months of 1996, the Board declared and the Company paid
cash dividends of 7.5 cents per share of Brink's Stock. During the first nine
months of 1995, the Board declared and the Company paid cash dividends of 15
cents per share of Services Stock of which 6.9 cents per share was attributed to
Brink's Stock.
The Company pays an annual cumulative dividend on its Series C Cumulative
Convertible preferred stock of $31.25 per share payable quarterly, in cash, in
arrears, out of all funds of the Company legally available when, and if declared
by the Board of Directors of the Company. Such stock also bears a liquidation
preference of $500 per share, plus an amount equal to accrued and unpaid
dividends thereon. In the first nine months of 1996 and 1995, dividends paid on
the Series C Cumulative Convertible preferred stock were $2.9 million and $3.3
million, respectively.
--
34
<PAGE>
<TABLE>
Pittston Burlington Group
BALANCE SHEETS
(In thousands)
<CAPTION>
September 30, December 31,
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 24,517 25,847
Accounts receivable (net of estimated amount uncollectible:
1996 - $9,761; 1995 - $10,373) 225,481 219,681
Receivable - Pittston Minerals Group 5,356 5,910
Inventories, at lower of cost or market 2,076 1,684
Prepaid expenses 12,552 13,603
Deferred income taxes 8,265 11,512
- ------------------------------------------------------------------------------------------------------------------
Total current assets 278,247 278,237
Property, plant and equipment, at cost (net of accumulated
depreciation and amortization: 1996 - $61,407; 1995 - $56,269) 97,551 72,171
Intangibles, net of amortization 177,472 180,739
Deferred pension assets 9,356 10,427
Deferred income taxes 17,328 12,875
Other assets 14,320 17,628
- ------------------------------------------------------------------------------------------------------------------
Total assets $ 594,274 572,077
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 32,104 32,181
Current maturities of long-term debt 2,739 1,964
Accounts payable 151,756 157,770
Accrued liabilities 72,289 62,311
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 258,888 254,226
Long-term debt, less current maturities 27,429 26,697
Postretirement benefits other than pensions 3,050 2,713
Deferred income taxes 268 1,996
Payable - Pittston Minerals Group 6,143 8,029
Other liabilities 4,395 6,563
Shareholders' equity 294,101 271,853
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 594,274 572,077
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
--
35
<PAGE>
<TABLE>
Pittston Burlington Group
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 377,656 365,793 1,093,017 1,031,687
Operating expenses 327,242 318,459 958,752 907,696
Selling, general and administrative expenses 32,730 31,491 95,636 89,444
- ------------------------------------------------------------------------------------------------------------------
Total costs and expenses 359,972 349,950 1,054,388 997,140
- ------------------------------------------------------------------------------------------------------------------
Other operating income 224 464 966 1,833
- ------------------------------------------------------------------------------------------------------------------
Operating profit 17,908 16,307 39,595 39,380
Interest income 628 1,026 2,177 3,014
Interest expense (944) (1,238) (2,984) (3,461)
Other expense, net (597) (338) (1,939) (862)
- ------------------------------------------------------------------------------------------------------------------
Income before income taxes 16,995 15,757 36,849 35,071
Provision for income taxes 6,290 5,233 13,635 12,489
- ------------------------------------------------------------------------------------------------------------------
Net income $ 10,705 10,524 23,214 22,582
- ------------------------------------------------------------------------------------------------------------------
Per common share:
Net income $ .56 .55 1.21 1.19
- ------------------------------------------------------------------------------------------------------------------
Cash dividends $ .06 .054 .18 .162
- ------------------------------------------------------------------------------------------------------------------
Average shares outstanding 19,283 18,958 19,161 18,957
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
--
36
<PAGE>
Pittston Burlington Group
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended September 30
1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 23,214 22,582
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 16,129 14,744
Provision for aircraft heavy maintenance 23,980 19,226
Credit for deferred income taxes (2,757) (2,767)
Provision for pensions, noncurrent 1,115 195
Provision for uncollectible accounts receivable 1,841 1,654
Equity in earnings of unconsolidated affiliates, net of dividends received (171) (141)
Other operating, net 1,522 714
Change in operating assets and liabilities net of effects of acquisitions:
Increase in accounts receivable (7,642) (47,547)
(Increase) decrease in inventories (392) 212
Decrease (increase) in prepaid expenses 1,113 (4,977)
(Decrease) increase in accounts payable and accrued liabilities (21,410) 9,105
Increase in other assets (870) (439)
(Decrease) increase in other liabilities (1,308) 1,581
Other, net (509) (905)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 33,855 13,237
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (27,486) (19,900)
Proceeds from disposal of property, plant and equipment 5,899 169
Aircraft heavy maintenance (15,215) (11,406)
Acquisitions, net of cash acquired, and related contingent payments (225) (1,693)
Other, net 2,566 2,922
- --------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (34,461) (29,908)
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 2,878 16,482
Reductions of debt (1,361) (558)
Payments from - Minerals Group 554 3,746
Proceeds from exercise of stock options 2,183 578
Proceeds from stock purchased by benefit plans 110 195
Dividends paid (3,479) (3,268)
Repurchase of common stock (372) (1,134)
Cost of Brink's Stock Proposal (1,237) -
- --------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (724) 16,041
- --------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,330) (630)
Cash and cash equivalents at beginning of period 25,847 18,384
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 24,517 17,754
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
--
37
<PAGE>
Pittston Burlington Group
NOTES TO FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
(1) The financial statements of the Pittston Burlington Group (the "Burlington
Group") include the balance sheets, results of operations and cash flows of
the Burlington Air Express Inc. ("Burlington") 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 Burlington 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 Burlington Group Common Stock
("Burlington Stock") separate financial statements, financial reviews,
descriptions of business and other relevant information for the Burlington
Group in addition to consolidated financial information of the Company.
Holders of Burlington Stock are shareholders of the Company, which is
responsible for all its liabilities. Therefore, financial developments
affecting the Pittston Minerals Group (the "Minerals Group"), the Pittston
Brink's Group (the "Brink's Group") or the Burlington Group that affect the
Company's financial condition could affect the results of operations and
financial condition of all three Groups. Accordingly, the Company's
consolidated financial statements must be read in conjunction with the
Burlington Group's financial statements.
(2) Depreciation and amortization of property, plant and equipment in the third
quarter and nine months periods of 1996 and 1995 totaled $3,594 ($3,386 in
1995) and $11,247 ($9,822 in 1995), respectively.
(3) Cash payments made for interest and income taxes (net of refunds received)
were as follows:
<TABLE>
<CAPTION>
Third quarter Nine months
1996 1995 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest $ 1,238 845 3,793 3,312
- --------------------------------------------------------------------------
Income taxes $ 7,320 2,601 15,881 20,821
- --------------------------------------------------------------------------
</TABLE>
During the nine month period ended September 30, 1996 and 1995, capital
lease obligations of $61 and $4,284, respectively, were incurred for leases
of property, plant and equipment.
(4) As of January 1, 1996, the Burlington Group implemented a new accounting
standard, Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". SFAS No. 121 requires companies to review
long-lived assets and certain identifiable intangibles to be held and used
by an entity for impairment whenever circumstances indicate that the
carrying amount for an asset may not be recoverable. SFAS No. 121 requires
companies to utilize a two-step approach to determining whether impairment
of such assets has occurred and, if so, the amount of such impairment. The
adoption of SFAS No. 121 had no impact on the Burlington Group's financial
statements as of January 1, 1996.
(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 for a fair presentation of results of operations for the periods
reported herein. All such adjustments are of a normal recurring nature.
--
38
<PAGE>
Pittston Burlington Group
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The financial statements of the Pittston Burlington Group (the "Burlington
Group") include the balance sheets, results of operations and cash flows of the
Burlington Air Express Inc. ("Burlington") 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 Burlington 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 Burlington 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 Burlington Group Common Stock
("Burlington Stock") separate financial statements, financial reviews,
descriptions of business and other relevant information for the Burlington Group
in addition to consolidated financial information of the Company. Holders of
Burlington 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"), the Pittston Brink's Group
(the "Brink's Group") or the Burlington Group that affect the Company's
financial condition could affect the results of operations and financial
condition any of the Groups. Accordingly, the Company's consolidated financial
statements must be read in conjunction with the Burlington Group's financial
statements.
The following discussion is a summary of the key factors management considers
necessary in reviewing the Burlington Group's results of operations, liquidity
and capital resources. This discussion should be read in conjunction with the
financial statements and related notes of the Company.
<TABLE>
SEGMENT INFORMATION
(In thousands)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Burlington $ 377,656 365,793 1,093,017 1,031,687
- ------------------------------------------------------------------------------------------------------------------
Operating profit:
Burlington $ 20,466 17,449 45,479 39,913
General corporate expense (2,558) (1,142) (5,884) (3,533)
- ------------------------------------------------------------------------------------------------------------------
Operating profit $ 17,908 16,307 39,595 36,380
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
In the third quarter of 1996, the Burlington Group reported net income of $10.7
million, or $.56 per share, compared with $10.5 million, or $.55 per share, in
the third quarter of 1995. Operating profit totaled $17.9 million in the 1996
third quarter compared with $16.3 million in the prior year third quarter.
Increases in general corporate expenses were primarily related to the relocation
of the Company's Corporate headquarters to Richmond, Virginia, which resulted in
additional pretax expenses of $1.0 million in the third quarter of 1996. Results
in 1995's third quarter benefited from a lower than normal quarterly tax rate
which was required to adjust to the effective nine month tax rate. Revenues
increased $11.9 million or 3%, compared with the 1995 third quarter. Operating
expenses and selling, general and administrative expenses for the 1996 quarter
increased $10.0 million, or 3%, compared with the same 1995 period.
--
39
<PAGE>
In the first nine months of 1996, the Burlington Group reported net income of
$23.2 million, or $1.21 per share, compared with $22.6 million, or $1.19 per
share, in the first nine months of 1995. Operating profit totaled $39.6 million
in the first nine months of 1996 compared with $39.4 million in the prior year
nine month period. Revenues increased $61.3 million or 6%, compared with the
same nine month period of 1995. Operating expenses and selling, general and
administrative expenses for the 1996 nine month period increased $57.2 million,
or 6%, compared with the same period last year.
Burlington
- ----------
The following is a table of selected financial data for Burlington on a
comparative basis:
<TABLE>
<CAPTION>
Three Months Nine Months
(In thousands - except per Ended September 30 Ended September 30
pound/shipment amounts) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Expedited freight services:
Domestic U.S. $ 142,506 133,430 405,238 389,712
International 175,516 179,281 517,692 509,526
- ------------------------------------------------------------------------------------------------------------------
Total expedited freight services $ 318,022 312,711 922,930 899,238
Customs clearances 34,496 32,308 100,473 80,592
Ocean and other (a) 25,138 20,774 69,614 51,857
- ------------------------------------------------------------------------------------------------------------------
Total revenues $ 377,656 365,793 1,093,017 1,031,687
- ------------------------------------------------------------------------------------------------------------------
Operating profit:
Domestic U.S. $ 11,783 8,781 25,520 20,261
International 8,683 8,668 19,959 19,652
- ------------------------------------------------------------------------------------------------------------------
Total operating profit $ 20,466 17,449 45,479 39,913
- ------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 5,143 4,957 15,957 14,659
- ------------------------------------------------------------------------------------------------------------------
Cash capital expenditures $ 10,495 6,299 25,609 19,799
- ------------------------------------------------------------------------------------------------------------------
Expedited freight services shipment growth rate (b) (0.5%) 8.2% 2.8% 5.8%
Expedited freight services weight growth rate (b):
Domestic U.S. 6.7% (4.3%) 5.0% (4.2%)
International (1.7%) 31.9% 4.5% 30.6%
Worldwide 2.2% 12.1% 4.7% 11.5%
Expedited freight services weight (million pounds) 362.0 354.0 1,059.2 1,011.3
- ------------------------------------------------------------------------------------------------------------------
Expedited freight services shipments (thousands) 1,294 1,300 3,914 3,808
- ------------------------------------------------------------------------------------------------------------------
Expedited freight services average:
Yield (revenue per pound) $ .879 .883 .871 .889
Revenue per shipment $ 246 241 236 236
Weight per shipment (pounds) 280 272 271 266
- ------------------------------------------------------------------------------------------------------------------
(a) Primarily international ocean freight.
(b) Compared to the same period in the prior year.
</TABLE>
--
40
<PAGE>
Burlington's third quarter worldwide operating profit amounted to $20.5 million,
an increase of $3.0 million (17%) from the level reported in the third quarter
of 1995. Worldwide revenues increased by 3% to $377.7 million from $365.8
million in the 1995 quarter. The $11.9 million growth in revenues principally
reflects a 2% increase in worldwide expedited freight services pounds shipped,
which reached 362.0 million pounds in the third quarter of 1996, and a 12%
increase in other revenues (primarily customs clearance and ocean). Worldwide
expenses amounted to $357.2 million, $8.8 million (3%) higher than in the third
quarter of 1995.
Domestic expedited freight services revenue of $142.5 million was $9.1 million
(7%) higher than the prior year quarter. Domestic operating profit increased to
$11.8 million in the third quarter of 1996 from $8.8 million in the prior year
quarter. Operating profit benefited from stable pricing and higher volumes in
the aerospace, electronics and consumer products segments, partially offset by
declines in the automotive sector. Domestic average yields continued to be
modestly higher than the levels of late 1995 and early 1996. During the quarter,
Burlington benefited from the initiation in mid September of a 4.2(cents) per
pound surcharge on domestic shipments. This surcharge is designed to partially
offset some of the cost increases experienced by Burlington's domestic
operations during 1996. These costs include the reimposition of a Federal Excise
Tax on air cargo, higher jet fuel prices, a Federal Fuel Tax and new
FAA-mandated security and maintenance requirements.
International expedited freight services revenue of $175.5 million in the third
quarter decreased slightly from the $179.3 million reported in the comparable
quarter in 1995. Revenues from other activities, primarily international, which
include transactions such as import related services as well as ocean freight
services, increased 12% or $6.6 million to $59.6 million. International
operating profit amounted to $8.7 million in the third quarter of 1996,
unchanged from the 1995 quarter. International expedited freight services
pricing slightly decreased from the third quarter of 1995 as overseas price
weakness was only partially offset by improvement in U.S. export pricing.
Burlington's worldwide operating profit amounted to $45.5 million in the first
nine months of 1996, an increase of $5.6 million (14%) from the level reported
in the first nine months of 1995. Worldwide revenues increased by 6% to $1,093.0
million from $1,031.7 million in the 1995 nine months. The $61.3 million growth
in revenues principally reflects a 5% increase in worldwide expedited freight
services pounds shipped, reaching 1,059.2 million pounds in the third quarter of
1996, and a 28% increase in other revenues (primarily customs clearance and
ocean), partially offset by a 2% decline in the worldwide average yield.
Worldwide expenses amounted to $1,047.5 million, $55.7 million (6%) higher than
in the first nine months of 1995.
Domestic expedited freight services revenue of $405.2 million in the first nine
months of 1996 was $15.5 million (4%) higher than the prior year period.
Domestic operating profit increased to $25.5 million in the first nine months of
1996 from $20.3 million in the prior year period. The higher operating profit
reflected higher volume, lower average transportation costs, primarily the
benefit of reduced Federal Excise Tax liabilities for the first nine months of
the year, partially offset by lower average yields and higher fuel costs. The
lower domestic average yield for the first nine months of 1996 versus the same
1995 period was due to lower average pricing and sales mix for Burlington's
overnight service.
International expedited freight services revenue of $517.7 million in the first
nine months of 1996 represented an $8.2 million (2%) increase over the $509.5
million reported in the comparable period in 1995. Revenues from other
activities increased 28% or $37.6 million to $170.1 million. International
operating profit amounted to $20.0 million in the first nine months of 1996, a
2% increase from the first nine months of 1995, principally due to a 5% increase
in international expedited freight service weight shipped, increased margin from
import services and ocean freight and lower average transportation costs,
partially offset by lower average yields.
Foreign Operations
- ------------------
A portion of the Burlington 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 Burlington 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 Burlington Group's international
activity is not concentrated in any single currency, which limits the risks of
foreign currency rate fluctuations. In addition, foreign currency rate
fluctuations may adversely affect transactions which are denominated in
currencies other than the functional currency. The Burlington 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
--
41
<PAGE>
transactions, the Burlington 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. A subsidiary in
Brazil operates in such a highly inflationary economy.
Additionally, the Burlington 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 Burlington 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 Burlington 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 Burlington
Group. These allocations were $2.6 million and $1.1 million for the third
quarter of 1996 and 1995, respectively, and $5.9 million and $3.5 million for
the first nine months of 1996 and 1995, respectively.
The Company's corporate office was relocated to Richmond, Virginia during
September 1996. The costs of this move for the first nine months of 1996,
including moving expenses, employee relocation, severance pay and temporary
employee costs, amounted to $2.9 million. Approximately $1.0 million of these
costs were attributed to the Burlington Group.
Other Income (Expense), Net
- ---------------------------
Other net expense for the third quarter of 1996 increased $0.3 million to $0.6
million as compared to the third quarter of 1995. For the first nine months of
1996 other net expense increased by $1.0 million to a net expense of $1.9
million from $0.9 million for the first nine months of 1995. Other net expense
in the first nine months of 1996 included a loss for the termination of an
overseas sublease agreement at Burlington.
Income Taxes
- ------------
The third quarter of 1995 reflected a lower than normal quarterly tax rate
required to adjust to the effective nine month tax rate.
FINANCIAL CONDITION
- -------------------
A portion of the Company's corporate assets and liabilities has been attributed
to the Burlington 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 1996
totaled $33.9 million compared with $13.2 million in the first nine months of
1995. The increase in cash generated occurred principally as a result of higher
noncash charges and a reduction in funding requirements for operating assets and
liabilities.
Capital Expenditures
- --------------------
Cash capital expenditures for the first nine months of 1996 totaled $27.5
million, $25.7 million of which was spent by Burlington and $1.8 million of
which was allocated to the Burlington Group for corporate expenditures primarily
relating to the purchase of the Company's new corporate office building. For the
full year 1996, capital expenditures are projected to be between $45.0 million
and $50.0 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. 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.
--
42
<PAGE>
Other Investing Activities
- --------------------------
Other investing activities required $7.0 million of cash compared to cash
requirements of $10.0 million in the 1995 nine month period. Aircraft heavy
maintenance outlays were $15.2 million and $11.4 million in the first nine
months of 1996 and 1995, respectively. Cash proceeds from the disposal of assets
increased by $5.7 million compared to the prior year period.
Financing
- ---------
The Burlington Group intends to fund its capital expenditure requirements during
the remainder of 1996 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 or repayments from the Minerals Group. The Company
has a $350 million revolving credit agreement with a syndicate of banks (the
"Facility"). The Facility includes a $100 million term loan and also permits
additional borrowings, repayments, and reborrowings of up to an aggregate of
$250 million. During the second quarter of 1996, the maturity date of both the
term loan and revolving credit portion of the Facility was extended to May 31,
2001. Of the total outstanding under the Facility at September 30, 1996, none
was attributed to the Burlington Group.
Debt
- ----
Outstanding debt totaled $62.3 million at September 30, 1996, an increase of
$1.4 million from the $60.8 million reported at December 31, 1995.
Related Party Transactions
- --------------------------
At September 30, 1996, under an interest bearing borrowing arrangement, the
Minerals Group owed the Burlington Group $19.4 million, a $0.5 million decrease
from the $19.9 million owed at December 31, 1995.
At September 30, 1996, in accordance with the Company's tax allocation policy,
the Burlington Group owed the Minerals Group $20.1 million for tax benefits, a
decrease of $1.9 million from the $22.0 million owed at December 31, 1995. Of
the total amount of tax benefits owed the Minerals Group at September 30, 1996,
$14.0 million is expected to be paid within one year.
Capitalization
- --------------
On January 18, 1996, the shareholders of the Company approved the Brink's Stock
Proposal, resulting in the modification of the capital structure of the Company
to include an additional class of common stock. The outstanding shares of
Pittston Services Group Common Stock ("Services Stock") were redesignated as
Pittston Brink's Group Common Stock ("Brink's Stock") on a share-for-share
basis, and a new class of common stock, designated as Burlington Stock, was
distributed on the basis of one-half share of Burlington Stock for each share of
Services Stock previously held by shareholders of record on January 19, 1996.
The Brink's Group consists of the Brink's and BHS operations of the Company. The
Burlington Group consists of the Burlington operations of the Company. The
Minerals Group consists of the Coal and Mineral Ventures operations of the
Company. The approval of the Brink's Stock Proposal did not result in any
transfer of assets and liabilities of the Company or any of its subsidiaries.
The Company prepares separate financial statements for the Minerals, Brink's and
Burlington Groups in addition to consolidated financial information of the
Company.
Brink's Stock, Burlington Stock and the Pittston Minerals Group Common Stock
("Minerals Stock") were designed to provide shareholders with separate
securities reflecting the performance of the Brink's Group, Burlington Group and
Minerals Group, respectively, without diminishing the benefits of remaining a
single corporation or precluding future transactions affecting any of the
Groups.
--
43
<PAGE>
The redesignation of the Company's Services Stock as Brink's Stock and the
distribution of Burlington Stock as a result of the approval of the Brink's
Stock Proposal and the distribution of Minerals Stock in July 1993 (the
"Services Stock Proposal") did not result in any transfer of assets and
liabilities of the Company or any of its subsidiaries. Holders of all three
classes of stock are shareholders of the Company, which continues to be
responsible for all its liabilities. Therefore, financial developments affecting
the Brink's Group, the Burlington Group or the Minerals Group that affect the
Company's financial condition could affect the results of operations and
financial condition of all three Groups. The changes in the capital structure of
the Company had no effect on the Company's total capital, except as to expenses
incurred in the execution of the Brink's Stock Proposal. Since the approval of
the Brink's Stock Proposal and the earlier Service Stock Proposal,
capitalization of the Company has been affected by the share activity related to
each of the classes of common stock.
In November 1995, the Board authorized, subject to shareholder approval of the
Brink's Stock Proposal, a revised share repurchase program which allows for the
purchase, from time to time, of up to 1,500,000 shares of Brink's Stock,
1,500,000 shares of Burlington Stock and 1,000,000 shares of Minerals stock, not
to exceed an aggregate purchase price of $45.0 million. As of September 30,
1996, 20,300 shares of Burlington Stock at a total cost of $0.4 million have
been purchased under the program. Between October 1, 1996 and November 11, 1996,
the Company purchased 47,600 shares of Burlington Stock at a total cost of $0.9
million.
In 1994, the Board authorized the purchase from time to time of up to $15
million of the Company's Series C Cumulative Convertible preferred stock. In
November 1995, the Board authorized an increase in the remaining authority to
$15 million. No share purchases were made in 1995 subsequent to the increased
authorization. During the third quarter and first nine months of 1996, the
Company purchased 10,320 and 20,920 shares, respectively, of its Series C
Cumulative Convertible preferred stock a total cost of $3.9 and $7.9 million,
respectively.
Dividends
- ---------
The Board intends to declare and pay dividends on Burlington Stock based on
earnings, financial condition, cash flow and business requirements of the
Burlington 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 or the Brink's Group
could affect the Company's ability to pay dividends in respect of stock relating
to the Burlington Group.
During the first nine months of 1996 the Board declared and paid cash dividends
of 18 cents per share of Burlington Stock. During the first nine months of 1995,
the Board declared and the Company paid cash dividends of 15 cents per share of
Services Stock of which 16.2 cents per share was attributed to the Burlington
Stock after taking into account the one-half share distribution of Burlington
Stock for each Services Stock share.
The Company pays an annual cumulative dividend on its Series C Cumulative
Convertible preferred stock of $31.25 per share payable quarterly, in cash, in
arrears, out of all funds of the Company legally available when, and if declared
by the Board of Directors of the Company. Such stock also bears a liquidation
preference of $500 per share, plus an amount equal to accrued and unpaid
dividends thereon. In the first nine months of 1996 and 1995, dividends paid on
the Series C Cumulative Convertible preferred stock were $2.9 million and $3.3
million, respectively.
--
44
<PAGE>
<TABLE>
Pittston Minerals Group
BALANCE SHEETS
(In thousands)
<CAPTION>
September 30, December 31,
1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,531 4,999
Short-term investments, at lower of cost or market - 26,046
Accounts receivable (net of estimated amount uncollectible:
1996 - $1,532; 1995 - $1,946) 80,527 87,775
Inventories, at lower of cost or market:
Coal 32,554 37,329
Other 4,154 4,591
- ------------------------------------------------------------------------------------------------------------------
36,708 41,920
Prepaid expenses 6,764 7,573
Deferred income taxes 28,921 30,677
- ------------------------------------------------------------------------------------------------------------------
Total current assets 157,451 198,990
Property, plant and equipment, at cost (net of accumulated depreciation,
depletion and amortization: 1996 - $157,699; 1995 - $166,653) 176,906 199,344
Deferred pension assets 80,653 79,393
Deferred income taxes 67,530 80,699
Coal supply contracts 55,350 63,455
Intangibles, net of amortization 111,855 117,551
Receivable - Pittston Brink's Group 6,967 7,844
Receivable - Pittston Burlington Group 6,143 8,029
Other assets 46,441 43,304
- ------------------------------------------------------------------------------------------------------------------
Total assets $ 709,296 798,609
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings $ - 24
Current maturities of long-term debt 161 1,199
Accounts payable 57,430 70,214
Payable - Pittston Brink's Group 5,356 3,945
Payable - Pittston Burlington Group 1,782 5,910
Accrued liabilities 121,165 138,384
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 185,894 219,676
Long-term debt, less current maturities 116,752 100,791
Postretirement benefits other than pensions 218,075 213,707
Workers' compensation and other claims 105,449 114,602
Reclamation 43,642 47,126
Other liabilities 51,805 111,386
Shareholders' equity (12,321) (8,679)
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 709,296 798,609
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
--
45
<PAGE>
<TABLE>
Pittston Minerals Group
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 177,195 177,702 522,715 557,653
- --------------------------------------------------------------------------------------------------------------------------
Cost and expenses:
Cost of sales 167,907 167,261 531,128 542,061
Restructuring and other charges, including litigation accrual - - (35,650) -
Selling, general and administrative expenses 8,275 8,182 27,332 25,102
- --------------------------------------------------------------------------------------------------------------------------
Total costs and expenses 176,182 175,443 522,810 567,163
- --------------------------------------------------------------------------------------------------------------------------
Other operating income 1,812 3,259 11,298 19,999
- --------------------------------------------------------------------------------------------------------------------------
Operating profit 2,825 5,518 11,203 10,489
Interest income 187 178 507 372
Interest expense (2,694) (2,693) (8,315) (7,778)
Other expense, net (449) (219) (1,339) (649)
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (131) 2,784 2,056 2,434
Credit for income taxes (2,629) (1,678) (6,106) (7,132)
- --------------------------------------------------------------------------------------------------------------------------
Net income 2,498 4,462 8,162 9,566
Preferred stock dividends, net 146 (521) (773) (1,697)
- --------------------------------------------------------------------------------------------------------------------------
Net income attributed to common shares $ 2,644 3,941 7,389 7,869
- --------------------------------------------------------------------------------------------------------------------------
Per common share:
Net income
Primary $ .33 .51 .94 1.01
Fully diluted $ .25 .45 .82 .96
- --------------------------------------------------------------------------------------------------------------------------
Cash dividends $ .1625 .1625 .4875 .4875
- --------------------------------------------------------------------------------------------------------------------------
Average common shares outstanding
Primary 7,926 7,804 7,872 7,781
Fully diluted 9,819 9,964 9,920 10,013
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
--
46
<PAGE>
<TABLE>
Pittston Minerals Group
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine months Ended September 30
1996 1995
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 8,162 9,566
Adjustments to reconcile net income to net cash provided by operating activities:
Noncash charges and other write-offs 24,259 -
Depreciation, depletion and amortization 27,674 31,747
Provision for deferred income taxes 15,130 11,185
Credit for pensions, noncurrent (1,261) (2,635)
Provision for uncollectible accounts receivable 251 100
Equity in earnings of unconsolidated affiliates, net of dividends received (222) 15
Other operating, net (754) (3,054)
Change in operating assets and liabilities net of effects of acquisitions and dispositions:
Decrease in accounts receivable 3,743 17,308
Decrease (increase) in inventories 5,211 (12,235)
Decrease in prepaid expenses 76 1,618
Decrease in accounts payable and accrued liabilities (7,210) (7,813)
(Increase) decrease in other assets (3,348) 1,426
Decrease in other liabilities (48,559) (18,909)
Decrease in workers' compensation and other claims, noncurrent (9,153) (14,456)
Other, net 254 118
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 14,253 13,981
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (17,662) (14,590)
Proceeds from disposal of property, plant and equipment 3,719 16,112
Acquisitions, net of cash acquired, and related contingent payments (746) (1,078)
Other, net 2,885 220
- --------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities (11,804) 664
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 15,615 -
Reductions of debt (1,233) (9,114)
Payments (to) from - Brink's Group (2,163) 9,936
Payments to - Burlington Group (554) (3,746)
Repurchase of stock (7,896) (7,171)
Proceeds from exercise of stock options 9 1,202
Proceeds from stock purchased by benefit plans 163 177
Dividends paid (6,858) (7,348)
- --------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (2,917) (16,064)
- --------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (468) (1,419)
Cash and cash equivalents at beginning of period 4,999 3,708
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 4,531 2,289
- --------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
--
47
<PAGE>
Pittston Minerals Group
NOTES TO FINANCIAL STATEMENTS
(In thousands, except per share amounts)
(Unaudited)
(1) The financial statements of the Pittston Minerals Group (the "Minerals
Group") include the balance sheets, results of operations and cash flows of
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, the Pittston Brink's Group (the
"Brink's Group") or the Pittston Burlington Group (the "Burlington Group")
that affect the Company's financial condition could affect the results of
operations and financial condition of all three Groups. Accordingly, the
Company's consolidated financial statements must be read in conjunction
with the Minerals Group's financial statements.
(2) Depreciation, depletion and amortization of property, plant and equipment
in the third quarter and nine month periods of 1996 and 1995 totaled $5,873
($6,211 in 1995) and $17,058 ($18,858 in 1995), respectively.
(3) Cash payments made for interest and income taxes (net of refunds received)
were as follows:
<TABLE>
<CAPTION>
Third quarter Nine months
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest $ 2,263 2,486 8,253 7,658
- --------------------------------------------------------------------------------------------
Income taxes $ (7,999) (4,286) (23,923) (16,533)
- --------------------------------------------------------------------------------------------
</TABLE>
During the nine month period ended September 30, 1996 and 1995, capital
lease obligations of $494 and $52, respectively, were incurred for leases
of property, plant and equipment.
In June 1995, the Company sold its rights under certain coal reserve leases
and the related equipment for $2,800 in cash and notes totaling $2,882. The
cash proceeds have been included in the Consolidated Statement of Cash
Flows as "Cash flows from investing activities: Proceeds from disposal of
property, plant and equipment".
In March 1995, the Minerals Group sold surplus coal reserves for cash of
$2,878 and a note receivable of $2,317. The cash proceeds have been
included in the Statement of Cash Flows as "Cash flows from investing
activities: Proceeds from disposal of property, plant and equipment".
(4) In 1988, the trustees of certain pension and benefit trust funds (the
"Trust Funds") established under collective bargaining agreements with the
United Mine Workers of America ("UMWA") brought an action (the "Evergreen
Case") against the Company and a number of its coal subsidiaries, claiming
that the defendants were obligated to contribute to such Trust Funds in
accordance with the provisions of the 1988 and subsequent National
Bituminous Coal Wage Agreements, to which neither the Company nor any of
its subsidiaries was a signatory.
--
48
<PAGE>
In late March 1996, a settlement was reached in the Evergreen Case. Under
the terms of the settlement, the coal subsidiaries which had been
signatories to earlier National Bituminous Coal Wage Agreements agreed to
make various lump sum payments in full satisfaction of all amounts
allegedly due to the Trust Funds through January 31, 1996, to be paid over
time as follows: $25,845 upon dismissal of the Evergreen Case in March 1996
and the remainder of $24,000 in installments of $7,000 in August 1996 and
$8,500 in each of 1997 and 1998. The first payment was entirely funded
through an escrow account previously established by the Minerals Group. The
amount previously escrowed and accrued was included in "Short-term
investments" and "Accrued liabilities" on the Minerals Group's balance
sheet. The second payment of $7,000 was paid in the third quarter of 1996
and was funded through cash provided by operating activities. In addition,
the coal subsidiaries agreed to future participation in the UMWA 1974
Pension Plan. Separate lawsuits against each of the UMWA and the Bituminous
Coal Operators Association, previously reported, have also been dismissed.
As a result of the settlement of these cases at an amount lower than
previously accrued in 1993, the Minerals Group recorded a pretax benefit of
$35,650 ($23,173 after tax) in the first quarter of 1996 in its financial
statements.
(5) As of January 1, 1996, the Minerals Group implemented a new accounting
standard, Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". SFAS No. 121 requires companies to review
long-lived assets and certain identifiable intangibles to be held and used
by an entity for impairment whenever circumstances indicate that the
carrying amount of an asset may not be recoverable.
In accordance with SFAS No. 121, the Minerals Group grouped its long-lived
assets at the lowest level for which there are identifiable cash flows that
are independent of the cash flows of other groups of assets, and determined
the recoverability of such assets by comparing the sum of the expected
undiscounted future cash flows with the carrying amount of the assets. The
impact of adopting SFAS No. 121 resulted in a pretax charge to earnings as
of January 1, 1996 for the Minerals Group's Coal operations of $27,839
($18,095 after tax), of which $24,203 was included in cost of sales and
$3,636 was included in selling, general and administrative expenses. Assets
for which the impairment loss was recognized consisted of property, plant
and equipment, advanced royalties and goodwill. These assets primarily
related to mines scheduled for closure in the near term and idled
facilities and related equipment. Based on current mining plans, geological
conditions, and current assumptions related to future realization and
costs, the sum of the expected undiscounted future cash flows was less than
the carrying amount of the assets, and accordingly, an impairment loss was
recognized. The loss was calculated based on the excess of the carrying
value of the assets over the present value of estimated expected future
cash flows, using a discount rate commensurate with the risks involved.
(6) During the quarter and nine months ended September 30, 1996, the Company
purchased 10,320 and 20,920 shares, respectively, of its Series C
Cumulative Convertible Preferred Stock. Preferred dividends included on the
statement of operations for the quarter and nine months ended September 30,
1996, are net of $1,020 and $2,120, respectively, which is the excess of
the carrying amount of the preferred stock over the cash paid to holders of
the preferred stock. During the quarter and nine months ended September 30,
1995, the Company purchased 3,700 and 16,370 shares, respectively, of its
preferred stock. Preferred dividends for the third quarter and first nine
months of 1995 are net of $535 and $1,579, respectively, which was the
excess of the carrying amount of the preferred stock over the cash paid to
holders of the preferred stock.
--
49
<PAGE>
(7) Certain prior period amounts have been reclassified to conform to current
period financial statement presentation.
(8) All adjustments have been made which are, in the opinion of management,
necessary for a fair presentation of results of operations for the periods
reported herein. All such adjustments are of a normal recurring nature.
--
50
<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, the Pittston Brink's Group (the "Brink's Group") or the
Pittston Burlington Group (the "Burlington Group") that affect the Company's
financial condition could affect the results of operations and financial
condition of any of the Groups. Accordingly, the Company's consolidated
financial statements must be read in conjunction with the Minerals Group's
financial statements.
The following discussion is a summary of the key factors management considers
necessary in reviewing the Minerals Group's results of operations, liquidity and
capital resources. This discussion should be read in conjunction with the
financial statements and related notes of the Company.
<TABLE>
SEGMENT INFORMATION
(In thousands)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales:
Coal $ 172,603 173,985 507,967 545,255
Mineral Ventures 4,592 3,717 14,748 12,398
- ------------------------------------------------------------------------------------------------------------------
Net sales $ 177,195 177,702 522,715 557,653
- ------------------------------------------------------------------------------------------------------------------
Operating profit (loss):
Coal $ 5,393 8,075 14,960 15,196
Mineral Ventures (324) (816) 1,425 675
- ------------------------------------------------------------------------------------------------------------------
Segment operating profit 5,069 7,259 16,385 15,871
General corporate expense (2,244) (1,741) (5,182) (5,382)
- ------------------------------------------------------------------------------------------------------------------
Operating profit $ 2,825 5,518 11,203 10,489
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
--
51
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
In the third quarter of 1996, the Minerals Group reported net income of $2.5
million or $.33 per common share ($.25 on a fully diluted basis) compared to
$4.5 million or $.51 per share ($.45 on a fully diluted basis) in the third
quarter of 1995. Operating profit totaled $2.8 million in the 1996 third quarter
compared to $5.5 million in the prior year quarter. Net sales decreased $0.5
million (0.3%), compared with the 1995 third quarter. Cost of sales and selling,
general and administrative expenses for the 1996 period increased $0.7 million
(0.4%), compared with the same period of 1995. Net income and operating expenses
were impacted by a $0.8 million pre-tax increase in general corporate expenses
related to the relocation of the Company's corporate headquarters to Richmond,
Virginia.
In the first nine months of 1996, the Minerals Group reported net income of $8.2
million or $.94 per share ($.82 per share on a fully diluted basis), compared to
net income of $9.6 million or $1.01 per share ($.96 per share on a fully diluted
basis) in the first nine months of 1995. Operating profit totaled $11.2 million
in the first nine months of 1996 compared with $10.5 million in the first nine
months of the prior year. Net sales during the 1996 nine month period decreased
$34.9 million (6%) compared to the corresponding period in 1995. In the first
nine months of 1996, operating profits included two significant non-recurring
items (related to Coal operations): a $35.7 million benefit from the settlement
of the Evergreen lawsuit at an amount lower than previously accrued ($23.2
million after tax) and a $27.8 million charge related to the implementation of a
new accounting standard regarding the impairment of long-lived assets ($18.1
million after tax).
Coal
- ----
The following is a table of selected financial data for the Coal operations on a
comparative basis:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
(In thousands) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 172,603 173,985 507,967 545,255
Cost of sales 164,251 164,032 520,367 532,977
Selling, general and administrative 4,985 5,394 19,366 17,096
Restructuring and other charges,
including litigation accrual - - (35,650) -
- ------------------------------------------------------------------------------------------------------------------
Total costs and expenses 169,236 169,426 504,083 550,073
- ------------------------------------------------------------------------------------------------------------------
Other operating income 2,026 3,516 11,076 20,014
- ------------------------------------------------------------------------------------------------------------------
Operating profit $ 5,393 8,075 14,960 15,196
- ------------------------------------------------------------------------------------------------------------------
Coal sales (tons):
Metallurgical 1,979 1,950 5,978 6,583
Utility and industrial 3,837 3,943 11,240 12,471
- ------------------------------------------------------------------------------------------------------------------
Total coal sales 5,816 5,893 17,218 19,054
- ------------------------------------------------------------------------------------------------------------------
Production/purchased (tons):
Deep 924 984 2,977 3,025
Surface 2,764 3,143 8,351 10,272
Contract 408 459 1,261 1,500
- ------------------------------------------------------------------------------------------------------------------
4,096 4,586 12,589 14,797
Purchased 1,380 1,289 4,365 4,791
- ------------------------------------------------------------------------------------------------------------------
Total 5,476 5,875 16,954 19,588
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
--
52
<PAGE>
Coal operations generated an operating profit of $5.4 million in the third
quarter of 1996, compared to $8.1 million generated in the 1995 third quarter.
Included in the current quarter's results is a $0.7 million reduction in
expenses resulting from the recently enacted Commonwealth of Virginia law
providing refundable credits for coal produced in Virginia. The third quarter of
1995 included a pretax gain of $1.5 million for the disposition of highwall
mining equipment.
Coal operations had an operating profit of $15.0 million in the first nine
months of 1996 compared to an operating profit of $15.2 million in the prior
year period. Operating profit for the first nine months of 1996 included a
benefit from the Virginia tax credit of $2.4 million, and a benefit of $35.7
million from the settlement of the Evergreen lawsuit at an amount lower than
previously accrued in 1993. These benefits were mostly offset by a $27.8 million
charge related to the implementation of a new accounting standard regarding the
impairment of long-lived assets (discussed further below). The charge is
included in cost of sales ($24.2 million) and selling, general and
administrative expenses ($3.6 million). Operating profit in the first nine
months of 1995 included a pretax gain of $9.8 million from the sale of coal
assets.
The operating profit of Coal operations, excluding the effects of the Evergreen
settlement and the implementation of SFAS 121, is analyzed as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
(In thousands, Ended September 30 Ended September 30
except per ton amounts) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net coal sales $ 170,301 173,032 502,759 543,265
Current production cost of coal sold 156,027 154,341 471,050 507,519
- ------------------------------------------------------------------------------------------------------------------
Coal margin 14,274 18,691 31,709 35,746
Non-coal margin 620 33 1,476 339
Other operating income (net) 2,026 3,516 10,930 20,014
- ------------------------------------------------------------------------------------------------------------------
Margin and other income 16,920 22,240 44,115 56,099
- ------------------------------------------------------------------------------------------------------------------
Other costs and expenses:
Idle equipment and closed mines 266 3,933 729 8,493
Inactive employee cost 6,275 4,838 20,758 15,314
General and administrative 4,986 5,394 15,478 17,096
- ------------------------------------------------------------------------------------------------------------------
Total other costs and expenses 11,527 14,165 36,965 40,903
- ------------------------------------------------------------------------------------------------------------------
Operating profit (adjusted as stated above) $ 5,393 8,075 7,150 15,196
- ------------------------------------------------------------------------------------------------------------------
Coal margin per ton:
Realization $ 29.28 29.36 29.20 28.51
Current production cost of coal sold 26.83 26.19 27.36 26.63
- ------------------------------------------------------------------------------------------------------------------
Coal margin $ 2.45 3.17 1.84 1.88
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Sales volume of 5.8 million tons in the 1996 third quarter was 0.1 million tons
less than the 5.9 million tons sold in the prior year quarter. Third quarter
steam coal sales which represent 66% of the total volume of coal sales,
decreased by 0.1 million tons, to 3.8 million tons.
Total coal margin of $14.3 million for the third quarter of 1996 represented a
decrease of $4.4 million from the comparable period in 1995. The decrease in
coal margin reflects a $.72 per ton (23%) decrease in the average coal margin
and a 1% decrease in sales volume. Coal margin per ton decreased to $2.45 per
ton in the current quarter from $3.17 per ton for the comparable 1995 quarter as
a $0.08 per ton (0.3%) decrease in realization was augmented by a $0.64 per ton
increase in current production cost of coal sold. The decrease in realization
was primarily attributable to lower steam coal pricing. However, while steam
coal spot pricing remains at low levels, the majority of Coal operations' steam
coal sales were, and continue to be, sold under long term contracts at prices
which are somewhat higher than steam coal spot prices. The current production
cost of coal sold increase of $0.64 per ton to $26.83 per ton in the third
quarter of 1996 over the third quarter of 1995 was due to higher surface mine
and purchased coal costs, partially offset by lower company deep mine and
contract coal costs.
--
53
<PAGE>
Production in the 1996 third quarter totaled 4.1 million tons, an 11% decrease
compared to the 4.6 million tons produced in the 1995 third quarter. The decline
primarily reflected lower surface mine production, which was caused by
exhaustion of reserves at certain mines, idling of a mine subsequent to the
third quarter of 1995 and the sale of Coal operations' Ohio operations at the
end of 1995. Third quarter surface production accounted for 67% and 69% of total
production in 1996 and 1995, respectively. Overall productivity of 38.1 tons per
man day represented a 3% decrease from 1995 levels as decreases in surface mine
productivity more than offset increases in deep mine productivity. The Coal
operations will reactivate a coal preparation and loading facility and open
three new underground coal mines in southwest Virginia. When in full operation
in early 1997, the mines will produce approximately 1.0 million tons annually of
premium grade metallurgical coal. Based on current reserve estimates, it is
anticipated that the mines will have an operating life of six to eight years.
Non-coal margin in the third quarter of 1996 increased by $0.6 million from the
third quarter of 1995. The increase reflected the impact of a favorable change
in natural gas prices. Other operating income, reflecting sales of properties
and equipment and third party royalties, amounted to $2.0 million in the third
quarter of 1996, $1.5 million less than the third quarter of 1995. The higher
level of income recorded in the 1995 third quarter reflects $1.5 million of
income generated from the disposition of highwall mining equipment.
Idle equipment and closed mine costs decreased by $3.7 million in the 1996 third
quarter. Idle equipment expenses were reduced from the prior year level as a
result of Coal operations' improved equipment management program. Inactive
employee costs, which primarily represent long term employee liabilities for
pension and retiree medical cost, increased by $1.4 million to $6.3 million in
the third quarter of 1996 primarily due to the use of lower long term interest
rates to calculate the present value of the long term liabilities as compared to
the 1995 period.
Sales volume of 17.2 million tons in the first nine months of 1996 was 1.9
million tons less than the 19.1 million tons sold in the same 1995 period.
Metallurgical coal sales decreased by 0.6 million tons (9%) to 6.0 million tons
and steam coal sales decreased by 1.2 million tons (10%) to 11.2 million tons
compared to the prior year period. Steam coal sales represented 65% of the total
sales volume for the nine months ended 1996 and 1995.
Total coal margin of $31.7 million for the first nine months of 1996 represented
a decrease of $4.0 million from the comparable period in 1995. The decline in
coal margin reflects a $0.73 per ton (3%) increase in the current production
cost of coal sold which was partially offset by a $0.69 per ton (2%) increase in
realization. The increase in realization was mostly due to the timing of the
improved metallurgical pricing for the contract year that began in April 1,
1995, the full effect of which was not realized until after the first half of
1995.
The current production cost of coal sold for the first nine months of 1996
increased by $0.73 per ton compared to the prior year period, as higher company
surface mine and purchased coal costs were only partially offset by lower
company deep mine and contract coal costs. Production for the year-to-date 1996
period totaled 12.6 million tons, a decrease of 15% from the comparable 1995
period. Surface mine production accounted for 66% and 69% of the total volume
produced in the 1996 and 1995 periods, respectively. Productivity of 37.2 tons
per man day represents a slight decrease from the 1995 period.
Non-coal margin for the first nine months of 1996 increased by $1.1 million from
the first nine months of 1995 reflecting higher gas prices. Other operating
income, including litigation settlements, sales of properties and equipment and
third party royalties, amounted to $10.9 million in the third quarter of 1996,
$9.1 million less than the third quarter of 1995. The higher level of income
recorded in the 1995 period reflects $9.8 million income from the sale of coal
assets.
--
54
<PAGE>
Idle equipment and closed mine costs decreased by $7.8 million in the first nine
months of 1996. Idle equipment expenses were reduced from the prior period level
as a result of Coal operations' improved equipment management program. Inactive
employee costs, which primarily represent long term employee liabilities for
pension and retiree medical cost, increased by $5.4 million to $20.8 million in
the first nine months of 1996. The unfavorable variance is due to the use of
lower long term interest rates to calculate the present value of the long term
liabilities in 1996. In addition, the 1995 nine month results include a benefit
of $2.5 million from a favorable litigation decision.
In 1988, the trustees of certain pension and benefit trust funds (the "Trust
Funds") established under collective bargaining agreements with the United Mine
Workers of America ("UMWA") brought an action (the "Evergreen Case") against the
Company and a number of its coal subsidiaries, claiming that the defendants were
obligated to contribute to such Trust Funds in accordance with the provisions of
the 1988 and subsequent National Bituminous Coal Wage Agreements, to which
neither the Company nor any of its subsidiaries was a signatory.
In late March 1996, a settlement was reached in the Evergreen Case. Under the
terms of the settlement, the coal subsidiaries which had been signatories to
earlier National Bituminous Coal Wage Agreements agreed to make various lump sum
payments in full satisfaction of all amounts allegedly due to the Trust Funds
through January 31, 1996, to be paid over time as follows: $25.8 million upon
dismissal of the Evergreen Case in March 1996 and the remainder of $24.0 million
in installments of $7.0 million in August 1996 and $8.5 million in each of 1997
and 1998. The first payment was entirely funded through an escrow account
previously established by the Coal operations. The second payment of $7.0
million was paid in the third quarter of 1996 and was funded through cash
provided by operating activities. In addition, the coal subsidiaries agreed to
future participation in the UMWA 1974 Pension Plan. Separate lawsuits against
each of the UMWA and the Bituminous Coal Operators Association, previously
reported, have also been dismissed.
As a result of the settlement of these cases at an amount lower than previously
accrued in 1993, the Company recorded a pretax benefit of $35.7 million ($23.2
million after tax) in the first quarter of 1996 in its consolidated financial
statements.
As of January 1, 1996, the Company implemented a new accounting standard,
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". SFAS No. 121 requires companies to review long-lived assets and certain
identifiable intangibles to be held and used by an entity for impairment
whenever circumstances indicate that the carrying amount for an asset may not be
recoverable.
In accordance with SFAS No. 121, the Company grouped its long-lived assets at
the lowest level for which there are identifiable cash flows that are
independent of the cash flows of other groups of assets, and determined the
recoverability of such assets by comparing the sum of the expected undiscounted
future cash flows with the carrying amount of the assets. The impact of adopting
SFAS No. 121 resulted in a pretax charge to earnings as of January 1, 1996 for
the Company's Coal operations of $27.8 million ($18.1 million after tax), of
which $24.2 million was included in cost of sales and $3.6 million was included
in selling, general and administrative expenses. Assets for which the impairment
loss was recognized consisted of property, plant and equipment, advanced
royalties and goodwill. These assets primarily related to mines scheduled for
closure in the near term and idled facilities and related equipment. Based on
current mining plans, geological conditions, and current assumptions related to
future realization and costs, the sum of the expected undiscounted future cash
flows was less than the carrying amount of the assets, and accordingly, an
impairment loss was recognized. The loss was calculated based on the excess of
the carrying value of the assets over the present value of estimated expected
future cash flows, using a discount rate commensurate with the risks involved.
--
55
<PAGE>
Coal operations continued cash funding for charges recorded in prior years for
facility closure costs recorded as restructuring and other charges. The
following table analyzes the changes in liabilities during the first nine months
of 1996 for such costs:
<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, 1995 $ 1,218 28,983 36,077 66,278
Payments 652 4,218 3,369 8,239
- ---------------------------------------------------------------------------------------------------------
Balance as of September 30, 1996 $ 566 24,765 32,708 58,039
- ---------------------------------------------------------------------------------------------------------
</TABLE>
In April 1996, the Commonwealth of Virginia enacted into law the "Coalfield
Employment Enhancement Tax Credit." The new law, which is effective from January
1, 1996 through December 31, 2001, provides Virginia coal producers with a
refundable credit against taxes imposed by the Commonwealth for coal produced in
Virginia. The credit ranges from $.40 per ton for surface coal to $1 to $2 per
ton of underground coal mined, depending upon seam thickness, with certain
modifications to the surface and deep mined credit rates based on employment
levels. The credit can be utilized under a predetermined schedule beginning with
the 1999 tax year through the 2008 tax year. At current production levels, Coal
operations estimates it will generate approximately $4.0 million in tax credits
in 1996 to be realized in future years according to the regulations.
Mineral Ventures
- ----------------
The following is a table of selected financial data for Mineral Ventures on a
comparative basis:
<TABLE>
<CAPTION>
Three Months Nine Months
(Dollars in thousands, except Ended September 30 Ended September 30
per ounce data) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 4,592 3,717 14,748 12,398
Cost of sales 3,657 3,229 10,761 9,084
Selling, general and administrative 1,045 1,047 2,784 2,624
- ------------------------------------------------------------------------------------------------------------------
Total costs and expenses 4,702 4,276 13,545 11,708
Other operating (expense) income, net (214) (257) 222 (15)
- ------------------------------------------------------------------------------------------------------------------
Operating (loss) profit $ (324) (816) 1,425 675
- ------------------------------------------------------------------------------------------------------------------
Stawell Gold Mine:
Mineral Ventures's 50% direct share:
Ounces sold 10,775 8,737 35,375 30,229
Ounces produced 10,756 8,918 34,738 30,206
- ------------------------------------------------------------------------------------------------------------------
Average per ounce sold (US$):
Realization $ 424 413 415 405
Cash cost $ 321 293 289 358
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The operating loss from Mineral Ventures' operations, primarily a 67% direct and
indirect interest in the Stawell gold mine in western Victoria, Australia,
amounted to $0.3 million in the third quarter, compared to an operating loss of
$0.8 million in the third quarter of 1995. This reduction in operating loss
reflects a 23% increase in ounces sold, higher realized gold prices per ounce
sold, partially offset by 10% higher costs than the prior year period. Operating
costs in the 1996 third quarter were negatively impacted by four lost-time
accidents, two late in the second quarter, that resulted in production
--
56
<PAGE>
shortfalls and higher operating cost as compared to the first half of 1996 and
the 1995 third quarter. In the third quarter of 1995, costs and production were
negatively impacted by adverse geological conditions. Operating profit for the
first nine months increased $0.7 million to $1.4 million from the comparable
period in 1995 as volume, price and cost all improved from the prior year.
During the second quarter, the Australian joint venture in which Mineral
Ventures owns a 34% direct interest, formally announced that the Silver Swan
nickel deposit in Australia (50% owned by the Australian joint venture) will be
developed as an underground mine with production expected to commence in
mid-1997. As of September 30, 1996, the main production shaft has reached 809
meters. In addition, exploration drilling has indicated the presence of a
previously unknown area of high grade mineralization (approximately 8 -10%
nickel) some 100 meters to the south of Silver Swan and 750 meters below the
surface. However, at this time, sufficient data has not been developed to
determine whether this area will be commercially significant.
Other Operating Income
- ----------------------
Other operating income for the third quarter of 1996 decreased $1.5 million to
$1.8 million from $3.3 million in the 1995 third quarter and in the first nine
months of 1996 decreased $8.7 million to $11.3 million from $20.0 million in the
first nine months of 1995. Other operating income principally includes royalty
income and gains and losses from sales of coal assets. The 1995 third quarter
reflects $1.5 million of income generated from the disposition of highwall
mining equipment and additionally, the first nine months of 1995 included a
pretax gain of $8.3 million related to the disposition of coal reserves. The
first nine months of 1996 included $3.0 million from favorable litigation
settlements.
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 $2.2 million and $1.7 million for the third
quarter of 1996 and 1995, respectively, and $5.2 million and $5.4 million for
the first nine months of 1996 and 1995, respectively.
The Company's corporate office was relocated to Richmond, Virginia during
September 1996. The costs of this relocation for the first nine months of 1996,
including moving expenses, employee relocation, severance pay and temporary
employee costs, amounted to $2.9 million. Approximately $0.9 million of these
costs were attributed to the Minerals Group.
Interest Expense
- ----------------
Interest expense was $2.7 million in both the third quarter of 1996 and 1995,
and increased $0.5 million in the first nine months of 1996 to $8.3 million from
$7.8 million in the first nine months of 1995. The increase in interest expense
in the first nine months of 1996 is the result of higher average debt balances.
Income Taxes
- ------------
Net income in the third quarter and first nine months of 1996 and 1995 includes
a tax credit which exceeds the amount calculated based on the statutory federal
income tax rate of 35% primarily 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.
--
57
<PAGE>
Cash Provided by Operating Activities
- -------------------------------------
Operating activities for the first nine months of 1996 provided cash of $14.3
million, an increase of $0.3 million over the 1995 comparable period. Net
income, noncash charges and changes in operating assets and liabilities in the
first nine months of 1996 were significantly affected by two nonrecurring items,
a benefit from the settlement of the Evergreen case at an amount less than
originally accrued and a charge related to the implementation of SFAS 121. These
items had no effect on cash generated by operations except that the second
settlement payment of $7.0 million was paid from operating cash in the third
quarter. The initial payment of $25.8 million related to the Evergreen case
settlement was entirely funded by an escrow account previously established by
the Company. The amount previously escrowed and accrued was included in
"Short-term investments" and "Accrued liabilities" on the Minerals Group's
balance sheet.
Capital Expenditures
- --------------------
Cash capital expenditures for the first nine months of 1996 and 1995 totaled
$17.7 million and $14.6 million, respectively, excluding equipment expenditures
that have been or are expected to be financed through capital and operating
leases. In 1996, Mineral Ventures and Coal operations spent $2.0 million and
$14.1 million, respectively, and $1.6 million was allocated to the Minerals
Group for corporate expenditures primarily related to the purchase of the
Company's new corporate office building. For the full year of 1996, capital
expenditures, excluding expenditures that have been or are expected to be
financed through capital and operating leases, are estimated to be between $25.0
million and $30.0 million.
Other Investing Activities
- --------------------------
All other investing activities in the first nine months of 1996 provided net
cash of $5.9 million, largely as a result of proceeds from the disposal of
property, plant and equipment.
Financing
- ---------
The Minerals Group intends to fund its capital expenditure requirements during
the remainder of 1996 primarily with anticipated cash flows from operating
activities and through operating and capital leases if the latter are
financially attractive. Shortfalls, if any, will be financed through the
Company's revolving credit agreements, other borrowing arrangements or
borrowings from the Brink's and Burlington Groups. The Company has a $350
million revolving credit agreement with a syndicate of banks (the "Facility").
The Facility includes a $100 million term loan and also permits additional
borrowings, repayments, and reborrowings of up to an aggregate of $250 million.
During the second quarter of 1996, the maturity date of both the term loan and
revolving credit portion of the Facility was extended to May 31, 2001. As of
September 30, 1996, borrowings of $100 million were outstanding under the term
loan portion of the Facility and $15.6 million of additional borrowings were
outstanding under the remainder of the Facility. Of the total borrowings
outstanding under the Facility, all were attributed to the Minerals Group.
Debt
- ----
Total debt outstanding at September 30, 1996 was $116.9 million, an increase of
$14.9 million from the year-end 1995 amount. Borrowings to fund capital
expenditures and net costs related to share activity during the first nine
months of 1996 were made under the Company's revolving credit agreements.
Related Party Transactions
- --------------------------
At September 30, 1996, under interest bearing borrowing arrangements, the
Minerals Group owed the Brink's Group $15.8 million, a decrease of $2.1 million
from the $17.9 million owed at December 31, 1995. The Minerals Group also owed
the Burlington Group $19.4 million at the end of the third quarter of 1996, $0.5
million lower than the $19.9 million owed at year-end 1995.
At September 30, 1996, in accordance with the Company's tax allocation policy,
the Brink's Group owed the Minerals Group $21.0 million and the Burlington Group
owed the Minerals Group $20.1 million for tax benefits. Payments of $14.0
million from each Group are expected to be made within one year.
--
58
<PAGE>
Capitalization
- --------------
On January 18, 1996, the shareholders of the Company approved the Brink's Stock
Proposal, resulting in the modification of the capital structure of the Company
to include an additional class of common stock. The outstanding shares of
Pittston Services Group Common Stock ("Services Stock") were redesignated as
Pittston Brink's Group Common Stock ("Brink's Stock") on a share-for-share
basis, and a new class of common stock, designated as Pittston Burlington Group
Common Stock ("Burlington Stock"), was distributed on the basis of one-half
share of Burlington Stock for each share of Services Stock previously held by
shareholders of record on January 19, 1996. The Brink's Group consists of the
Brink's and BHS operations of the Company. The Burlington Group consists of the
Burlington operations of the Company. The Minerals Group consists of the Coal
and Mineral Ventures operations of the Company. The approval of the Brink's
Stock Proposal did not result in any transfer of assets and liabilities of the
Company or any of its subsidiaries. The Company prepares separate financial
statements for the Minerals, Brink's and Burlington Groups in addition to
consolidated financial information of the Company.
Brink's Stock, Burlington Stock and Minerals Stock were designed to provide
shareholders with separate securities reflecting the performance of the Brink's
Group, Burlington Group and Minerals Group, respectively, without diminishing
the benefits of remaining a single corporation or precluding future transactions
affecting any of the Groups.
The redesignation of the Company's Services Stock as Brink's Stock and the
distribution of Burlington Stock as a result of the approval of the Brink's
Stock Proposal and the distribution of Minerals Stock in July 1993 (the
"Services Stock Proposal") did not result in any transfer of assets and
liabilities of the Company or any of its subsidiaries. Holders of all three
classes of stock are shareholders of the Company, which continues to be
responsible for all its liabilities. Therefore, financial developments affecting
the Brink's Group, the Burlington Group or the Minerals Group that affect the
Company's financial condition could affect the results of operations and
financial condition of all three Groups. The changes in the capital structure of
the Company had no effect on the Company's total capital, except as to expenses
incurred in the execution of the Brink's Stock Proposal. Since the approval of
the Brink's Stock Proposal and the earlier Services Stock Proposal,
capitalization of the Company has been affected by the share activity related to
each of the classes of common stock.
In November 1995, the Board authorized, subject to shareholder approval of the
Brink's Stock Proposal, a revised share repurchase program which allows for the
purchase, from time to time, of up to 1,500,000 shares of Brink's Stock,
1,500,000 shares of Burlington Stock and 1,000,000 shares of Minerals Stock, not
to exceed an aggregate purchase price of $45.0 million. As of September 30,
1996, no shares of Minerals Stock have been purchased under the program. Between
October 1, 1996 and November 11, 1996, the Company purchased 47,600 shares of
Burlington Stock at a total cost of $0.9 million.
In 1994, the Board authorized the purchase from time to time of up to $15
million of the Company's Series C Cumulative Convertible preferred stock. In
November 1995, the Board authorized an increase in the remaining authority to
$15 million. No share purchases were made in 1995 subsequent to the increased
authorization. During the third quarter and first nine months of 1996, the
Company purchased 10,320 and 20,920 shares, respectively, of its Series C
Cumulative Convertible preferred stock a total cost of $3.9 million and $7.9
million, respectively.
Dividends
- ---------
The Board intends to declare and pay dividends on Brink's Stock, Burlington
Stock and Minerals Stock based on earnings, financial condition, cash flow and
business requirements of the each of the Groups, 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, 1996 the Available Minerals Dividend
Amount was at least $21.4 million.
--
59
<PAGE>
During the first nine months of 1996 and 1995, the Board declared and the
Company paid cash dividends of 48.75 cents per share of Minerals Stock.
Dividends paid on the Series C Cumulative Convertible preferred stock in the
first nine months of 1996 and 1995 totaled $2.9 million and $3.3 million,
respectively. Preferred dividends included on the Minerals Group's Statement of
Operations for the nine months ended September 30, 1996 and 1995, are net of
$2.1 million and $1.6 million, respectively, which was the excess of the
carrying amount of the preferred stock over the cash paid to holders of the
preferred stock.
--
60
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number
11 Statement re Computation of
Per Shares Earnings.
(b) No reports on Form 8-K were filed during the third quarter of 1996.
--
61
<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, 1996 By G. R. Rogliano
---------------------------------
(G. R. Rogliano)
Senior Vice President
(Duly Authorized Officer and
Chief Accounting Officer)
--
62
<PAGE>
Exhibit 11
The Pittston Company and Subsidiaries
Computation of Earnings Per Common Share
(In thousands, except per share amounts)
Fully Diluted Earnings Per Common Share:
- ----------------------------------------
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pittston Brink's Group:
Net income attributed to common shares $ 15,841 14,613 41,714 36,124
- --------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 38,264 37,916 38,158 37,914
Incremental shares of stock options 586 376 590 361
- --------------------------------------------------------------------------------------------------------------------
Pro forma shares outstanding 38,850 38,292 38,748 38,275
- --------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per common share: $ .41 .38 1.08 .94
- --------------------------------------------------------------------------------------------------------------------
Pittston Burlington Group:
Net income attributed to common shares $ 10,705 10,524 23,214 22,582
- --------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 19,283 18,958 19,161 18,957
Incremental shares of stock options 435 188 471 181
- --------------------------------------------------------------------------------------------------------------------
Pro forma common shares outstanding 19,718 19,146 19,632 19,138
- --------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per common share $ .54 .55 1.18 1.18
- --------------------------------------------------------------------------------------------------------------------
Pittston Minerals Group:
Net income attributed to common shares $ 2,644 3,941 7,389 7,869
Preferred stock dividends, net (146) 521 773 1,697
- --------------------------------------------------------------------------------------------------------------------
Fully diluted net income attributed to common shares $ 2,498 4,462 8,162 9,566
- --------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 7,926 7,804 7,872 7,781
Incremental shares of stock options 52 23 52 23
Conversion preferred stock 1,841 2,137 1,996 2,209
- --------------------------------------------------------------------------------------------------------------------
Pro forma common shares outstanding 9,819 9,964 9,920 10,013
- --------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per common share: $ .25 .45 (a) .82 .96
- --------------------------------------------------------------------------------------------------------------------
(a) Antidilutive, therefore the same as primary.
</TABLE>
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, 1996, 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-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 54,623
<SECURITIES> 2,223
<RECEIVABLES> 404,285
<ALLOWANCES> 15,986
<INVENTORY> 41,400
<CURRENT-ASSETS> 607,399
<PP&E> 975,243
<DEPRECIATION> 455,500
<TOTAL-ASSETS> 1,788,855
<CURRENT-LIABILITIES> 570,113
<BONDS> 149,967
<COMMON> 70,746
0
1,154
<OTHER-SE> 511,159
<TOTAL-LIABILITY-AND-EQUITY> 1,788,855
<SALES> 522,715
<TOTAL-REVENUES> 2,282,369
<CGS> 531,128
<TOTAL-COSTS> 1,996,867
<OTHER-EXPENSES> (35,650)
<LOSS-PROVISION> 5,314
<INTEREST-EXPENSE> 10,533
<INCOME-PRETAX> 101,632
<INCOME-TAX> 28,542
<INCOME-CONTINUING> 73,090
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,090
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Pittston Brink's Group - Primary - 1.09
Pittston Burlington Group - Primary - 1.21
Pittston Minerals Group - Primary - .94
<F2>Pittston Brink's Group - Diluted - 1.09
Pittston Burlington Group - Diluted - 1.21
Pittston Minerals Group - Diluted - .82
</FN>
</TABLE>
