SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
[ ] 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, Richmond, 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 ___
41,142,679 shares of $1 par value Pittston Brink's Group Common Stock,
20,578,200 shares of $1 par value Pittston Burlington Group Common Stock and
8,405,908 shares of $1 par value Pittston Minerals Group Common Stock were
outstanding as of May 5, 1997.
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1
<PAGE>
<TABLE>
Part I - Financial Information
The Pittston Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<CAPTION>
March 31 December 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 50,827 41,217
Short-term investments, at lower of cost or market 1,173 1,856
Accounts receivable (net of estimated amount uncollectible:
1997 - $16,925; 1996 -$16,116) 485,471 456,135
Inventories, at lower of cost or market 44,442 37,127
Prepaid expenses 44,708 32,798
Deferred income taxes 47,873 49,557
- -------------------------------------------------------------------------------------------------------------------
Total current assets 674,494 618,690
Property, plant and equipment, at cost (net of depreciation, depletion
and amortization: 1997 - $473,011; 1996 - $457,756) 575,497 540,851
Intangibles, net of amortization 309,388 317,062
Deferred pension assets 123,530 124,241
Deferred income taxes 57,929 58,690
Other assets 158,242 153,345
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 1,899,080 1,812,879
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 36,449 31,669
Current maturities of long-term debt 5,372 5,450
Accounts payable 248,713 251,572
Accrued liabilities 278,369 280,276
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 568,903 568,967
Long-term debt, less current maturities 234,711 158,837
Postretirement benefits other than pensions 227,586 226,697
Workers' compensation and other claims 114,635 116,893
Deferred income taxes 15,307 15,075
Other liabilities 119,970 119,703
Shareholders' equity:
Preferred stock, par value $10 per share: Authorized: 2,000 shares
$31.25 Series C Cumulative Convertible Preferred Stock:
Issued: 1997 - 1,154 shares; 1996 - 1,154 shares 1,154 1,154
Pittston Brink's Group common stock, par value $1 per share:
Authorized: 100,000 shares;
Issued: 1997 - 41,142 shares; 1996 - 41,296 shares 41,142 41,296
Pittston Burlington Group common stock, par value $1 per share:
Authorized: 50,000 shares
Issued: 1997 - 20,578 shares; 1996 - 20,711 shares 20,578 20,711
Pittston Minerals Group common stock, par value $1 per share:
Authorized 20,000 shares;
Issued: 1997 - 8,406 shares; 1996 - 8,406 shares 8,406 8,406
Capital in excess of par value 390,898 400,135
Retained earnings 287,030 273,118
Equity adjustment from foreign currency translation (26,945) (21,188)
Employee benefits trust, at market value (104,295) (116,925)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 617,968 606,707
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,899,080 1,812,879
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
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2
<PAGE>
<TABLE>
The Pittston Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Quarter Ended March 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 158,883 170,252
Operating revenues 622,793 560,655
- -------------------------------------------------------------------------------------------------------------------
Net sales and operating revenues 781,676 730,907
Costs and expenses:
Cost of sales 153,412 195,885
Operating expenses 518,819 473,066
Restructuring and other credits, including litigation accrual -- (37,758)
Selling, general and administrative expenses 75,643 72,296
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 747,874 703,489
Other operating income, net 3,576 2,815
- -------------------------------------------------------------------------------------------------------------------
Operating profit 37,378 30,233
Interest income 1,019 525
Interest expense (5,564) (3,745)
Other expense, net (2,389) (2,397)
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 30,444 24,616
Provision for income taxes 9,103 5,996
- -------------------------------------------------------------------------------------------------------------------
Net income 21,341 18,620
Preferred stock dividends, net (901) (1,065)
- -------------------------------------------------------------------------------------------------------------------
Net income attributed to common shares $ 20,440 17,555
- -------------------------------------------------------------------------------------------------------------------
Pittston Brink's Group:
Net income attributed to common shares $ 15,306 11,839
- -------------------------------------------------------------------------------------------------------------------
Net income per common share $ .40 .31
- -------------------------------------------------------------------------------------------------------------------
Cash dividend per common share $ .025 .025
- -------------------------------------------------------------------------------------------------------------------
Pittston Burlington Group:
Net income attributed to common shares $ 5,088 3,761
- -------------------------------------------------------------------------------------------------------------------
Net income per common share $ .26 .20
- -------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .06 .06
- -------------------------------------------------------------------------------------------------------------------
Pittston Minerals Group:
Net income attributed to common shares $ 46 1,955
- -------------------------------------------------------------------------------------------------------------------
Net income per common share $ .01 .25
- -------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .1625 .1625
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
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3
<PAGE>
<TABLE>
The Pittston Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Quarter Ended March 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 21,341 18,620
Adjustments to reconcile net income to net cash provided by
operating activities:
Noncash charges and other write-offs -- 29,948
Depreciation, depletion and amortization 30,139 27,051
Provision for aircraft heavy maintenance 8,186 7,718
Provision for deferred income taxes 2,328 4,470
Provision for pensions, noncurrent 141 62
Provision for uncollectible accounts receivable 1,768 1,599
Equity in earnings of unconsolidated affiliates, net of dividends received 861 358
Other operating, net 2,539 (319)
Change in operating assets and liabilities, net of effects of acquisitions
and dispositions:
Increase in accounts receivable (14,285) (3,169)
Increase in inventories (7,314) (6,990)
Increase in prepaid expenses (9,793) (4,220)
Decrease in accounts payable and accrued liabilities (4,083) (19,309)
Increase in other assets (3,292) (643)
Decrease in other liabilities (2,852) (33,760)
Decrease in workers' compensation and other claims, noncurrent (2,256) (3,560)
Other, net 366 94
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 23,794 17,950
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (40,031) (31,877)
Property, plant and equipment pending lease financing (372) (71)
Aircraft heavy maintenance expenditures (9,473) (4,131)
Proceeds from disposal of property, plant and equipment 3,939 4,709
Acquisitions, net of cash acquired, and related contingency payments (54,094) (746)
Other, net 14,273 3,636
- -------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (85,758) (28,480)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net additions to debt 80,834 1,975
Repurchase of stock (6,514) --
Proceeds from exercise of stock options 1,303 614
Dividends paid (4,049) (4,415)
Cost of stock proposals -- (1,838)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 71,574 (3,664)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 9,610 (14,194)
Cash and cash equivalents at beginning of period 41,217 52,823
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 50,827 38,629
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
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4
<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 Pittston Coal
Company ("Coal Operations") and Pittston Mineral Ventures ("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 Group Common Stock ("Burlington
Stock") and Pittston Minerals Group Common Stock ("Minerals Stock") which
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 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
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 each of
the Groups.
(2) The average number of shares outstanding used in the net income per share
computations were as follows:
<TABLE>
<CAPTION>
As of March 31
1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Brink's Stock 38,189 38,057
Burlington Stock 19,406 19,040
Minerals Stock 8,002 7,822
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The average number of shares outstanding used in the net income 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 2,958 (3,468 in 1996), 1,167 (1,705 in 1996) and 350 (558 in 1996),
respectively, at March 31, 1997.
(3) Depreciation, depletion and amortization of property, plant and equipment
in the first quarters of 1997 and 1996 were $23,661 and $21,881,
respectively.
(4) Cash payments made for interest and income taxes (net of refunds received)
were as follows:
<TABLE>
<CAPTION>
Quarter Ended March 31
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest $ 5,439 4,344
- ----------------------------------------------------------------------------------------------------------
Income taxes $ 4,530 5,054
- ----------------------------------------------------------------------------------------------------------
</TABLE>
During the three months ended March 31, 1997 and 1996, capital lease
obligations of $1,109 and $292, respectively, were incurred for leases of
property, plant and equipment.
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5
<PAGE>
(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 were a signatory. In 1993, the Company recognized in its
consolidated financial statements the potential liability that might have
resulted from an ultimate adverse judgment in the Evergreen Case.
In 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 and the remainder of $24,000
in installments of $7,000 in 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 1996 and
was funded from cash provided by operating activities. In addition, the
coal subsidiaries agreed to future participation in the UMWA 1974 Pension
Plan.
As a result of the settlement of the Evergreen Case 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) In 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 assets for impairment
whenever circumstances indicate that the carrying amount of an asset may
not be recoverable. SFAS No. 121 resulted in a pretax charge to earnings in
1996 for Coal Operations of $29,948 ($19,466 after tax), of which $26,312
was included in cost of sales and $3,636 was included in selling, general
and administrative expenses.
(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 three months of 1997 and 1996
by $1,178 and $1,047, respectively. The effect of this change increased net
income per common share of the Brink's Group for the first three months of
1997 and 1996 by $.02.
(8) As of January 1, 1997, BHS prospectively adjusted its annual depreciation
rate for capitalized subscribers' installation costs to more accurately
match depreciation expense with revenue generated from demonstrated
customer experience. This change in accounting estimate reduced
depreciation expense for capitalized installation costs in the first
quarter of 1997 for the Company and the BHS segment by approximately
$2,100. The effect of this change increased net income of the Company and
the Brink's Group by $1,365 or $.04 per common share of Brink's Stock.
(9) The Company will implement a new accounting standard, Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", in
the fourth quarter of 1997. SFAS No. 128 will require the Company to report
both basic and diluted earnings per share ("EPS") calculations as well as
provide a reconciliation between basic and diluted EPS computations. SFAS
No. 128 supersedes previous guidance from Accounting Principles Board
Opinion ("APB") No. 15, "Earnings per Share". After the effective date, all
prior-period EPS data presented will be restated to conform with the
provisions of SFAS No. 128.
(10) Certain prior period amounts have been reclassified to conform to current
period's financial statement presentation.
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6
<PAGE>
(11) In the opinion of management, all adjustments have been made which are
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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7
<PAGE>
The Pittston Company and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(In thousands)
The financial statements of The Pittston Company (the "Company") include balance
sheets, results of operations and cash flows of the Brink's, Incorporated
("Brink's"), Brink's Home Security, Inc. ("BHS"), Burlington Air Express Inc.
("Burlington"), Pittston Coal Company ("Coal Operations") and Pittston Mineral
Ventures ("Mineral Ventures") operations of the Company as well as the Company's
corporate assets and liabilities and related transactions which are not
separately identified with operations of a specific segment.
The following discussion is a summary of the key factors management considers
necessary in reviewing the Company's results of operations, liquidity and
capital resources.
<TABLE>
RESULTS OF OPERATIONS
<CAPTION>
Quarter Ended March 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales and operating revenues:
Brink's $ 209,199 175,854
BHS 42,185 36,706
Burlington 371,409 348,095
Coal Operations 154,593 165,468
Mineral Ventures 4,290 4,784
- -------------------------------------------------------------------------------------------------------------------
Net sales and operating revenues $ 781,676 730,907
- -------------------------------------------------------------------------------------------------------------------
Operating profit (loss):
Brink's $ 15,801 9,378
BHS 12,779 11,102
Burlington 10,756 8,686
Coal Operations 3,623 4,377
Mineral Ventures (455) 1,174
- -------------------------------------------------------------------------------------------------------------------
Segment operating profit 42,504 34,717
General corporate expense (5,126) (4,484)
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 37,378 30,233
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
In the first quarter of 1997, the Company reported net income of $21.3 million
compared with $18.6 million in the first quarter of 1996. Operating profit
totaled $37.4 million in the 1997 first quarter compared with $30.2 million in
the comparable prior year period. Increased operating profits at Brink's ($6.4
million); BHS ($1.7 million); and Burlington ($2.1 million) were partially
offset by a decrease in operating profits at Coal Operations ($0.8 million) and
at Mineral Ventures ($1.6 million). Coal Operations' first quarter 1996 earnings
included three non-recurring items: a benefit from the settlement of the
Evergreen Case at an amount lower than previously accrued ($35.7 million or
$23.2 million after tax); a charge related to a new accounting standard
regarding the impairment of long-lived assets ($29.9 million or $19.5 million
after tax), and a benefit from the reversal of excess restructuring liabilities
($2.1 million or $1.4 million after tax).
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<PAGE>
Brink's
The following is a table of selected financial data for Brink's on a comparative
basis:
<TABLE>
<CAPTION>
Quarter Ended March 31
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues:
North America (United States and Canada) $ 110,772 98,180
International subsidiaries 98,427 77,674
- -------------------------------------------------------------------------------------------------------------------
Total operating revenues $ 209,199 175,854
Operating expenses 167,056 143,508
Selling, general and administrative expenses 25,721 22,474
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 192,777 165,982
- -------------------------------------------------------------------------------------------------------------------
Other operating expense, net (621) (494)
- -------------------------------------------------------------------------------------------------------------------
Operating profit:
North America (United States and Canada) $ 7,754 5,930
International operations 8,047 3,448
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 15,801 9,378
- -------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 7,547 6,029
- -------------------------------------------------------------------------------------------------------------------
Cash capital expenditures $ 9,814 6,806
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Brink's consolidated revenues totaled $209.2 million in the first quarter of
1997 compared with $175.9 million in the first quarter of 1996. Brink's
operating profit of $15.8 million in the first three months of 1997 represented
a $6.4 million or 68% increase over the $9.4 million operating profit reported
in the comparable prior year period. The revenue increase of $33.3 million (19%)
in the 1997 first quarter was offset in part by an increase in operating
expenses and selling, general and administrative expenses of $26.8 million
(16%).
Revenues from North American operations (United States and Canada) increased
$12.6 million (13%) to $110.8 million in the first quarter of 1997 from $98.2
million in the prior year quarter. North American operating profit increased
$1.9 million, or 32%, to $7.8 million in the 1997 quarter from $5.9 million in
the first quarter of 1996. Approximately $1.2 million of the increase in
operating profit related to the continued improvement of armored car operations,
which includes ATM servicing. The remainder of the increase related to modest
improvements in currency processing and domestic diamond and jewelry operations.
Revenues from international subsidiaries increased $20.7 million, or 27%, to
$98.4 million in the 1997 first quarter from $77.7 million in the 1996 period.
Operating profit from international subsidiaries and minority- owned affiliates
amounted to $8.0 million in the first three months of 1997 which was $4.6
million higher than the operating profit of $3.4 million in the first quarter of
1996. The increase in both revenues and operating profit was primarily
attributable to strong results in Latin America. Revenues and operating profits
in this region increased $17.1 million and $4.1 million, respectively, in the
first quarter of 1997 as compared to the first quarter of 1996. More than half
of these increases were due to the consolidation of the results of Brink's
Venezuelan affiliate, Custodia y Traslado de Valores C.A. ("Custravalca"), where
Brink's increased its ownership from 15% to 61% during January 1997. The Latin
America region also benefited from improvements in Colombia and Mexico during
the first quarter of 1997. The operating profits in both the Europe and Asia
Pacific regions in the first quarter of 1997 were essentially unchanged from the
comparable quarter of 1996. In Europe, improvements in both Holland and Belgium
were largely offset by unfavorable results of Brink's affiliate in France.
Finally, operating profits from Brink's international diamond and jewelry
operations also improved in the first quarter of 1997 versus the same period in
1996.
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9
<PAGE>
As mentioned above, Brink's increased its ownership in Custravalca from 15% to
61% in the first quarter of 1997. The acquisition was financed through
contributions from a group of local Venezuelan investors (the "Investors") of
$8.0 million and external debt of $49.9 million. The ownership interest in
Custravalca is held 61% by Brink's and 39% by the Investors. In conjunction with
the Custravalca transaction, Brink's also acquired a further 31% interest in
Brink's Peru S.A., increasing its ownership position in this affiliate to 36%.
Also during the first quarter, Brink's acquired the remaining interests in
Brink's Hong Kong and Brink's Holland, increasing ownership in these affiliates
to 100% and acquired additional interests in Brink's Bolivia and Brink's Taiwan.
In the first quarter of 1997, interest expense and minority interest expense
associated with the Venezuelan acquisition approximated $2 million.
BHS
The following is a table of selected financial data for BHS on a comparative
basis:
<TABLE>
<CAPTION>
Quarter Ended March 31
(Dollars in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues $ 42,185 36,706
Operating expenses 20,852 19,058
Selling, general and administrative expenses 8,554 6,546
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 29,406 25,604
- -------------------------------------------------------------------------------------------------------------------
Operating profit $ 12,779 11,102
- -------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 6,666 6,822
- -------------------------------------------------------------------------------------------------------------------
Cash capital expenditures $ 16,520 14,898
- -------------------------------------------------------------------------------------------------------------------
Annualized service revenues (a) $ 132,598 110,191
- -------------------------------------------------------------------------------------------------------------------
Number of subscribers:
Beginning of period 446,505 378,659
Installations 25,590 24,256
Disconnects, net (8,088) (7,239)
- -------------------------------------------------------------------------------------------------------------------
End of period 464,007 395,676
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized service revenues are calculated based on the number of
subscribers at period end multiplied by the average fee per subscriber received
in the last month of the period for monitoring, maintenance and related
services.
Revenues for BHS increased by $5.5 million (15%) to $42.2 million in the first
quarter of 1997 from $36.7 million in the 1996 period. The increase in revenues
was predominantly due to higher ongoing monitoring and service revenues,
resulting from the 17% growth in the subscriber base and increased average
monitoring fees. As a result of such growth, annualized service revenues in
force at March 31, 1997 grew 20% over the amount in effect at March 31, 1996.
However, while the number of new security system installations increased in
1997, the revenue per installation decreased from the first quarter of 1996 due
to continuing competitive installation pricing in the marketplace.
Operating profit of $12.8 million in the first quarter of 1997 represented an
increase of $1.7 million (15%) compared to the $11.1 million earned in the
comparable 1996 period. This increase included a $2.1 million reduction in
depreciation expense in the first quarter of 1997 resulting from a change in
accounting estimate (discussed below). Operating profit in the first quarter of
1997 was also impacted by a $1.4 million increase in net installation and
marketing costs incurred and expensed. While these costs to obtain subscribers
increased during the first quarter of 1997, the cash margins per subscriber
generated from recurring revenues remained consistent between the 1997 and 1996
periods. Total cash margins were favorably impacted by the 17% growth in the
average subscriber base and higher average monitoring fees, partially offset by
increased account servicing and administrative expenses, which were a
consequence of the larger subscriber base.
It is BHS' policy to depreciate capitalized subscriber installation expenditures
over the estimated life of the security system based on subscriber retention
percentages. BHS initially developed its annual depreciation rate based on
information about subscriber retention which was available at the time. However,
accumulated historical data about actual subscriber retention has indicated that
approximately 50% of subscribers are still active after a period of ten years.
Therefore, in order to reflect the higher demonstrated subscriber retention
experience, and to more accurately match depreciation expense with revenues
generated from active subscribers, BHS prospectively adjusted its annual
depreciation rate for capitalized subscriber installation costs in the first
quarter of 1997. BHS will continue its practice of charging the remaining net
book value of all capitalized subscriber installation expenditures to
depreciation expense as soon as a system is identified for disconnection. This
change in estimate reduced depreciation expense for capitalized installation
costs in the first quarter of 1997 by $2.1 million.
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10
<PAGE>
Burlington
The following is a table of selected financial data for Burlington on a
comparative basis:
<TABLE>
<CAPTION>
(In thousands - except per Quarter Ended March 31
pound/shipment amounts) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues:
Expedited freight services:
Domestic U.S. $ 136,672 128,780
International 180,891 169,715
- -------------------------------------------------------------------------------------------------------------------
Total expedited freight services 317,563 298,495
Customs clearances 27,637 28,414
Ocean and other (a) 26,209 21,186
- -------------------------------------------------------------------------------------------------------------------
Total operating revenues 371,409 348,095
Operating expense 330,911 310,500
Selling, general and administrative 30,391 29,132
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 361,302 339,632
- -------------------------------------------------------------------------------------------------------------------
Other operating income, net 649 223
- -------------------------------------------------------------------------------------------------------------------
Operating profit:
Domestic U.S. 4,117 3,708
International 6,639 4,978
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 10,756 8,686
- -------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 6,908 5,400
- -------------------------------------------------------------------------------------------------------------------
Cash capital expenditures $ 6,175 4,771
- -------------------------------------------------------------------------------------------------------------------
Expedited freight services shipment growth rate (b) (1.8%) 5.5%
Expedited freight services weight growth rate (b):
Domestic U.S. 0.8% 2.9%
International 2.5% 9.4%
Worldwide 1.7% 6.2%
- -------------------------------------------------------------------------------------------------------------------
Expedited freight services weight (millions of pounds) 350.5 344.7
Expedited freight services shipments (thousands) 1,275 1,298
- -------------------------------------------------------------------------------------------------------------------
Expedited freight services average:
Yield (revenue per pound) $ .906 .866
Revenue per shipment $ 249 230
Weight per shipment (pounds) 275 266
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Primarily includes international ocean freight revenues. Ocean and other
also includes domestic revenues of $1,721 and $668 for the quarters ended March
31, 1997 and 1996, respectively.
(b) Compared to the same period in the prior year.
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11
<PAGE>
Worldwide revenues increased by 7% in the first quarter of 1997 to $371.4
million, from $348.1 million in the 1996 quarter. The $23.3 million growth in
revenues principally reflects a 1.7% increase in worldwide expedited freight
services pounds shipped, combined with a 5% increase in the world-wide expedited
freight services average yield. Burlington's first quarter 1997 operating profit
amounted to $10.8 million, an increase of $2.1 million (24%) from the level
reported in the first quarter of 1996.
The worldwide expedited freight services revenues' increase of 6%, from $298.5
million in the first quarter 1996 to $317.6 million in the first quarter 1997,
was the result of a 1.7% increase in worldwide expedited freight services weight
shipped, from 344.7 million pounds in 1996 to 350.5 million pounds in 1997,
combined with a 5% increase in the average expedited freight services yield.
Other revenues increased 9% from $49.6 million in 1996 to $53.8 million in 1997,
due to growth in ocean and other freight services. Total costs and expenses
increased by 6% from $339.6 million in 1996 to $361.3 million in 1997,
reflecting increased transportation costs, due in part to additional business
volume.
Domestic expedited freight services revenues in the first quarter of 1997
increased $7.9 million (6%) to $136.7 million from $128.8 million in the
comparable quarter in 1996. Other domestic freight services revenues increased
$1.1 million from $0.6 in 1996 to $1.7 million in the first quarter of 1997.
Domestic operating profit increased to $4.1 million in the first quarter of 1997
compared to $3.7 million in the prior year period. The increase in operating
profit reflects slightly higher volume of domestic expedited freight services
weight shipped combined with a 5% increase in the domestic expedited freight
services average yield. The increase in yield was due to a combination of a
higher average pricing and an increase in the proportion of overnight freight in
the sales mix. The improvement in the average yield during the 1997 first
quarter was offset in large part by higher transportation costs.
International expedited freight services revenues of $180.9 million in the first
quarter of 1997 represent an $11.2 million (7%) increase over the $169.7 million
reported in the comparable period in 1996. This increase in revenue is due to a
3% growth in expedited freight services weight shipped during the first quarter
of 1997 as compared to 1996, combined with a 4% increase in the average yield.
The increase in average yield was due in part to a fuel surcharge implemented by
Burlington in March of 1997 in reaction to a corresponding surcharge implemented
by our third party transportation providers. In addition, international
non-expedited services revenues increased 7%, or $3.2 million, to $52.1 million
in the first three months of 1997 from $48.9 million in 1996. The growth in such
revenue was due to the continued expansion of ocean freight services.
International operating profit amounted to $6.6 million in the first quarter of
1997, 33% higher than the 1996 level. The higher level of operating profit
during the first quarter of 1997 reflects improved operating margins in both
U.S. exports and ocean freight services.
As part of its ongoing efforts to further enhance service quality and improve
efficiencies, Burlington has formed a Global Innovation Team composed of senior
management from various regions and assisted by two independent consulting
firms. The team is reviewing Burlington's operating activities to better ensure
that Burlington provides the highest possible level of customer service in a
cost efficient manner. A key component of this process is a review of
Burlington's current information systems and technology needs on a global basis.
The innovation team is responsible for optimizing Burlington's investment in
technology to assure delivery of "state of the art" information systems for both
customer and operational requirements. Other cost and service improvement
programs have been identified through this process and are expected to be
implemented during the balance of 1997.
---
12
<PAGE>
Coal Operations
The following is a table of selected financial data for the Coal Operations on a
comparative basis:
<TABLE>
<CAPTION>
Quarter Ended March 31
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 154,593 165,468
Cost of sales 149,739 192,918
Selling, general and administrative expenses 4,936 8,872
Restructuring and other credits, including litigation accrual -- (37,758)
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 154,675 164,032
Other operating income, net 3,705 2,941
- -------------------------------------------------------------------------------------------------------------------
Operating profit $ 3,623 4,377
- -------------------------------------------------------------------------------------------------------------------
Coal sales (tons):
Metallurgical 1,891 2,045
Utility and industrial 3,229 3,572
- -------------------------------------------------------------------------------------------------------------------
Total coal sales 5,120 5,617
- -------------------------------------------------------------------------------------------------------------------
Production/purchased (tons):
Deep 1,102 1,062
Surface 2,659 2,716
Contract 363 395
- -------------------------------------------------------------------------------------------------------------------
4,124 4,173
Purchased 1,340 1,608
- -------------------------------------------------------------------------------------------------------------------
Total 5,464 5,781
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Coal Operations generated an operating profit of $3.6 million in the first
quarter of 1997, compared to the $4.4 million recorded in the 1996 period.
Operating profit in the first quarter of 1996 included a benefit of $35.7
million from the settlement of the Evergreen lawsuit at an amount lower than
previously accrued and a $2.1 million benefit from the reversal of excess
restructuring liabilities. These benefits were offset, in part, by a $29.9
million charge related to a new accounting standard regarding the impairment of
long-lived assets. This charge was included in cost of sales ($26.3 million) and
selling, general and administrative expenses ($3.6 million). Excluding the three
first quarter 1996 non-recurring items, operating profits from Coal Operations
increased by $7.1 million in the 1997 period.
---
13
<PAGE>
The operating profit of Coal Operations, excluding restructuring and other
non-recurring items, is analyzed as follows:
<TABLE>
<CAPTION>
(In thousands, Quarter Ended March 31
except per ton amounts) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net coal sales (a) $ 152,698 163,907
Current production cost of coal sold (a) 141,572 157,971
- -------------------------------------------------------------------------------------------------------------------
Coal margin 11,126 5,936
Non-coal margin 717 608
Other operating income, net 3,705 2,941
- -------------------------------------------------------------------------------------------------------------------
Margin and other income 15,548 9,485
- -------------------------------------------------------------------------------------------------------------------
Other costs and expenses:
Idle equipment and closed mines 307 258
Inactive employee costs 6,683 7,424
Selling general and administrative expenses 4,935 5,236
- -------------------------------------------------------------------------------------------------------------------
Total other costs and expenses 11,925 12,918
- -------------------------------------------------------------------------------------------------------------------
Operating profit (before restructuring and other credits and
SFAS No. 121) (b) $ 3,623 (3,433)
- -------------------------------------------------------------------------------------------------------------------
Coal margin per ton:
Realization $ 29.82 29.18
Current production costs 27.65 28.13
- -------------------------------------------------------------------------------------------------------------------
Coal margin $ 2.17 1.05
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes non-coal components.
(b) Restructuring and other credits and SFAS No. 121 in 1996 consisted of an
impairment loss related to the adoption of SFAS No. 121 of $29,948 ($26,312 in
cost of sales and $3,636 in selling, general and administrative expenses), a
gain from the settlement of the Evergreen Case of $35,650 and a benefit from
excess restructuring liabilities of $2,108. Both the gain from the Evergreen
Case and the benefit from excess restructuring liabilities are included in the
operating profit of the Coal Operations as "Restructuring and other credits,
including litigation accrual".
Sales volume of 5.1 million tons in the first quarter of 1997 was 0.5 million
tons less than the 5.6 million tons sold in the prior year quarter. Compared to
the first quarter of 1996, 1997 steam coal sales decreased by 0.3 million tons
(10%), to 3.2 million tons, and metallurgical coal sales declined by 0.2 million
tons (8%), to 1.9 million tons. Steam coal sales represented 63% of total volume
in 1997 and 64% in 1996.
Total coal margin of $11.1 million for the first quarter of 1997 represented an
increase of $5.2 million from the comparable 1996 quarter. The growth in coal
margin primarily reflects a $0.64 per ton (2%) increase in realization, combined
with a decrease of $0.48 per ton (2%) in the current production cost of coal
sold. Partially offsetting these improvements in coal margin was a decrease in
first quarter 1997 sales volume of 0.5 million tons. The increase in average
realization per ton was due in part to a favorable change in the metallurgical
coal sales mix which resulted in an increase in the average sales price per ton.
In addition, steam coal realization improved modestly since the majority of
steam coal production is sold under long-term contracts containing price
escalation provisions.
Negotiations with metallurgical customers for the contract year which began
April 1, 1997, are essentially complete. Price settlements to date have been
slightly below those of the previous two years due to a softening in the
metallurgical market. Coal Operations is continuing its strategy of
participating in the metallurgical market when such participation will generate
acceptable profitability and demonstrate long-term viability. As a result, Coal
Operations adjusted, and will continue to adjust, metallurgical coal production
levels as necessary in order to take advantage of opportunities to maximize
metallurgical coal realization.
The current production cost of coal sold in the first quarter 1997 represents a
$0.48 per ton decrease from the 1996 level due to lower costs at surface mines
and a $1.0 million state credit for coal produced in Virginia. These savings
were offset, in part, by higher costs at certain deep mines due to temporary
adverse geological conditions. In addition, current production costs in 1996
were negatively impacted by severe winter weather and higher surface mine costs.
Production in the 1997 quarter of 4.1 million tons, was essentially unchanged
from the 4.2 million tons produced in 1996. Production levels for surface mines
in 1997 have been adjusted to produce at or near contract levels in order to
limit the exposure to the spot market. Production levels in 1996 were negatively
impacted by severe winter weather. First quarter surface production accounted
for 64% and 65% of total production in 1997 and 1996, respectively. Productivity
of 37 tons per man day represented a 4% increase from the 1996 level.
---
14
<PAGE>
Non-coal margin which reflects earnings from the oil, gas and timber businesses,
amounted to $0.7 million, up slightly from the $0.6 million recognized in the
first quarter of 1996. Other operating income, primarily reflecting gains on
sales of properties and equipment and third party royalties, amounted to $3.7
million in the first three months of 1997, $0.8 million higher than the
comparable 1996 period.
Idle equipment and closed mine costs remained consistent at $0.3 million in both
the 1997 and 1996 quarters. Inactive employee costs, which primarily represent
long-term employee liabilities for pension and retiree medical costs, decreased
by $0.7 million to $6.7 million in the 1997 first quarter. This favorable change
reflects lower premiums from the Coal Industry Retiree Health Benefit Act of
1992 and, to a lesser extent, the use of a higher long-term interest rate to
calculate the present value of the long-term liabilities during 1997 compared to
the rate used in 1996. Selling, general and administrative expenses declined in
the first quarter of 1997 as a result of Coal Operations cost control efforts.
These costs decreased $0.3 million (6%) in 1997 over the 1996 quarter.
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 were a signatory. In 1993, the
Company recognized in its consolidated financial statements the potential
liability that might have resulted from an ultimate adverse judgment in the
Evergreen Case.
In 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 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 Company. The second payment of $7.0 million was paid in 1996
and was funded from cash provided by operating activities. In addition, the coal
subsidiaries agreed to future participation in the UMWA 1974 Pension Plan.
As a result of the settlement of the Evergreen Case at an amount lower than
previously accrued, 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.
In 1996, the Minerals Group adopted 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 assets for impairment whenever circumstances
indicate that the carrying amount for an asset may not be recoverable. SFAS No.
121 resulted in a pretax charge to earnings in 1996 for Coal Operations of $29.9
million ($19.5 million after tax), of which $26.3 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.
---
15
<PAGE>
Coal Operations continues 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 quarter of
1997 for such costs:
<TABLE>
<CAPTION>
Employee
Mine Termination,
Leased and Medical
Machinery Plant and
and Closure Severance
(In thousands) Equipment Costs Costs Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance as of December 31, 1996 $ 376 12,439 25,285 38,100
Payments 132 699 321 1,152
- -------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 1997 $ 244 11,740 24,964 36,948
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Mineral Ventures
The following is a table of selected financial data for Mineral Ventures on a
comparative basis:
<TABLE>
<CAPTION>
(In thousands, except Quarter Ended March 31
ounce and per ounce data) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Stawell Gold Mine (50% direct interest):
Gold sales $ 4,281 4,702
Other revenue 9 82
- -------------------------------------------------------------------------------------------------------------------
Net sales 4,290 4,784
Cost of sales 3,631 2,966
Selling, general and administrative expenses 298 262
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 3,929 3,228
- -------------------------------------------------------------------------------------------------------------------
Operating profit-Stawell Gold Mine (50% direct interest) 361 1,556
Other operating expense, net (a) (816) (382)
- -------------------------------------------------------------------------------------------------------------------
Operating (loss) profit $ (455) 1,174
- -------------------------------------------------------------------------------------------------------------------
Stawell Gold Mine:
Mineral Ventures' 50% direct interest:
Ounces sold 10,576 11,759
Ounces produced 10,951 12,114
Average per ounce sold (US$):
Realization $ 405 400
Cash cost 327 242
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes $42 and $617 of non-Stawell related cost of sales and selling,
general and administrative expenses, respectively, for the quarter ended March
31, 1997. Includes $1 and $526 of non-Stawell related cost of sales and selling,
general and administrative expenses, respectively, for the quarter ended March
31, 1996. Such costs are reclassified to cost of sales and selling, general and
administrative expenses for presentation in the Minerals Group income statement.
Mineral Ventures, which primarily consists of a 50% direct and a 17% indirect
interest in the Stawell gold mine ("Stawell") in western Victoria, Australia,
generated an operating loss of $0.5 million in the first quarter of 1997 as
compared to an operating profit of $1.2 million in the 1996 period. Mineral
Ventures' 50% direct interest in Stawell's operations generated net sales of
$4.3 million in 1997 compared to $4.8 million in the first quarter of 1996 as
the ounces of gold sold decreased from 11.8 thousand ounces to 10.6 thousand
ounces (10%). Operating profits at Stawell of $0.4 million were $1.2 million
lower than first quarter 1996 and were affected by an $85 per ounce increase
(35%) in the cash cost of gold sold, which was partially offset by a $5 per
ounce increase in the selling price of gold. Stawell's cost of gold sold in 1997
was negatively impacted by temporary unfavorable ground conditions which
increased ore dilution causing a decrease in recovery and an increase in mine
production costs. Accordingly, production decreased 1.2 thousand ounces to 11.0
thousand ounces in the first quarter of 1997.
---
16
<PAGE>
Other operating expense, net, which includes gold exploration costs and equity
earnings from joint ventures, primarily consisting of Mineral Ventures 17%
indirect interest in Stawell's operations, increased by $0.4 million, primarily
due to joint venture losses. Gold exploration costs were essentially unchanged
from 1996, and are being incurred by Mineral Ventures in Nevada and Australia
with its joint venture partner.
In addition to its interest in Stawell, Mineral Ventures has a 17% indirect
interest in the Silver Swan base metals property in Western Australia. During
the second quarter of 1996, it was formally announced that this nickel deposit
was going to be developed as an underground mine with production expected to
commence in mid-1997.
Foreign Operations
A portion of the Company's financial results is derived from activities in
several foreign countries, each with a local currency other than the U.S.
dollar. Because the financial results of the Company are reported in U.S.
dollars, they are affected by the changes in the value of the various foreign
currencies in relation to the U.S. dollar. The Company's international activity
is not concentrated in any single currency, which limits the risks of foreign
currency rate fluctuations. In addition, these rate fluctuations may adversely
affect transactions which are denominated in currencies other than the
functional currency. The Company routinely enters into such transactions in the
normal course of its business. Although the diversity of its foreign operations
limits the risks associated with such transactions, the Company uses foreign
currency forward contracts to hedge the risks associated with such transactions.
Realized and unrealized gains and losses on these contracts are deferred and
recognized as part of the specific transaction hedged. In addition, 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 Venezuela and Brazil operate in such highly
inflationary economies. Additionally, current conditions in Mexico have resulted
in that economy being considered highly inflationary as of January 1, 1997.
The Company is subject to other risks customarily associated with doing business
in foreign countries, including labor and economic conditions, controls on
repatriation of earnings and capital, nationalization, political instability,
expropriation and other forms of restrictive action by local governments. The
future effects, if any, of such risks on the Company cannot be predicted.
Other Operating Income, Net
Other net operating income includes the Company's share of net earnings of
unconsolidated affiliates, primarily equity affiliates of Brink's, royalty
income and gains and losses from sales of coal assets. The $0.8 million increase
in other net operating income in the first quarter of 1997, compared to the
first quarter of 1996, is largely attributable to an increase in foreign
currency exchange gains offset, in part, by a decrease in the reported results
of equity affiliates.
Interest Income
Interest income increased $0.5 million to $1.0 million in the first quarter of
1997 from $0.5 million in the same 1996 period. This increase was primarily due
to increases in interest income earned on short-term cash investments from
international subsidiaries.
Interest Expense
Interest expense increased $1.8 million to $5.6 million in the first quarter of
1997 from $3.7 million in the prior year quarter due to higher borrowings
related to working capital needs and acquisitions, offset, in part, by a lower
average rate of interest.
---
17
<PAGE>
Income Taxes
In both 1997 and 1996, the provision for income taxes was less than the
statutory federal income tax rate of 35% due to the tax benefits of percentage
depletion and lower taxes on foreign income, partially offset by provisions for
goodwill amortization and state income taxes. Based on the Company's historical
and expected taxable earnings, management believes it is more likely than not
that the Company will realize the benefit of the existing deferred tax asset at
March 31, 1997.
FINANCIAL CONDITION
Cash Flow Requirements
Cash provided by operating activities during the first three months of 1997
totaled $23.8 million compared with $18.0 million in the first quarter of 1996.
Net income, noncash charges and changes in operating assets and liabilities in
the first three months of 1996 were significantly affected by three
non-recurring items: a benefit from the settlement of the Evergreen case at an
amount less than originally accrued; a charge related to the implementation of
SFAS No. 121; and a benefit from the reversal of excess restructuring
liabilities. These items had no effect on cash generated by operations in the
first three months of 1996. The increase in cash generated from operating
activities was due primarily to higher levels of net income and recurring
noncash charges such as depreciation and amortization. Cash generated by
operating activities was not sufficient to fund investing activities. As a
result of the excess funding requirements for capital expenditures, aircraft
heavy maintenance, share activity and the Brink's Custravalca acquisition, the
Company's net borrowings increased $80.8 million during the quarter. The
combination of these activities increased cash and cash equivalents by $9.3
million.
Capital Expenditures
Cash capital expenditures for the first quarter of 1997 totaled $40.0 million,
$8.1 million higher than in the comparable period in 1996. Of the 1997 amount,
$6.2 million was spent by Burlington, $9.8 million was spent by Brink's, $16.5
million was spent by BHS, $6.7 million was spent by Coal Operations and $0.8
million was spent by Mineral Ventures. For the full year 1997, company-wide
capital expenditures are estimated to range between $165 million and $180
million. The foregoing amounts exclude equipment expenditures that have been or
are expected to be financed through capital and operating leases.
Financing
The Company intends to fund its capital expenditure requirements through
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 short-term borrowing
arrangements.
The Company has a $350.0 million revolving credit agreement with a syndicate of
banks (the "Facility"). The Facility includes a $100.0 million term loan and
also permits additional borrowings, repayments and reborrowings of up to an
aggregate of $250.0 million. As of March 31, 1997, borrowings of $100.0 million
were outstanding under the term loan portion of the Facility and $59.7 million
of additional borrowings were outstanding under the remainder of the Facility.
In connection with its acquisition of Custravalca, Brink's entered into a
borrowing arrangement with a syndicate of local Venezuelan banks. The borrowings
consisted of a long-term loan denominated in the local currency equivalent to
$40 million and a $10 million short-term loan denominated in U.S. dollars. The
long-term portion of the loan bears interest based on the Venezuelan prime rate
and is payable in installments through the year 2000. A portion of the
short-term loan, $5.3 million, was repaid during March 1997, with the remaining
balance repaid in April 1997. As of March 31, 1997, total borrowings under this
arrangement were the equivalent of $44.7 million.
Debt
Total outstanding debt as of March 31, 1997, amounted to $276.5 million, up from
$196.1 million at year-end 1996. The $80.4 million increase reflects additional
cash required to fund operating, investing and financing activities of the
Company.
---
18
<PAGE>
Capitalization
The Company has three classes of common stock: Pittston Brink's Group Common
Stock ("Brink's Stock"), Pittston Burlington Group Common Stock ("Burlington
Stock"), and Pittston Minerals Group Common Stock ("Minerals Stock") which were
designed to provide shareholders with separate securities reflecting the
performance of the Pittston Brink's Group ("Brink's Group"), the Pittston
Burlington Group ("Burlington Group") and the Pittston Minerals Group ("Minerals
Group"), respectively, without diminishing the benefits of remaining a single
corporation or precluding future transactions affecting any of the Groups. 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 Operations and Mineral Ventures operations
of the Company. The Company prepares separate financial statements for the
Brink's, Burlington and Minerals Groups in addition to consolidated financial
information of the Company.
During the three months ended March 31, 1997 and 1996, 153,000 shares (at a cost
of $4.0 million) and no shares, respectively, of Brink's Stock; 132,100 shares
(at a cost of $2.6 million) and no shares, respectively, of Burlington Stock;
and no shares of Minerals Stock, were repurchased under the share repurchase
program approved by the Board of Directors of the Company (the "Board").
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 March 31, 1997, the
Available Minerals Dividend Amount was at least $21.7 million.
During the first quarters of 1997 and 1996, the Board declared and the Company
paid cash dividends of 16.25 cents per share of Minerals Stock, 2.5 cents per
share of Brink's Stock and 6 cents per share of Burlington Stock. Preferred
dividends included on the Company's statement of operations for the three months
ended March 31, 1997 and 1996, are net of $0.9 million and $1.1 million,
respectively, which was the excess of the carrying amount of the preferred stock
over the cash paid to holders of the Series C Cumulative Convertible Preferred
Stock ("Convertible Preferred Stock").
The Company pays an annual cumulative dividend on its Convertible Preferred
Stock of $31.25 per share payable quarterly, in cash, in arrears, out of all
funds of the Company legally available therefore, when, as and if declared by
the Board. Such stock bears a liquidation preference of $500 per share, plus an
attributed amount equal to accrued and unpaid dividends thereon.
Pending Accounting Change
The Company will implement a new accounting standard, Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share", in the fourth
quarter of 1997. SFAS No. 128 will require the Company to report both basic and
diluted earnings per share ("EPS") calculations as well as provide a
reconciliation between basic and diluted EPS computations. SFAS No. 128
supersedes previous guidance from Accounting Principles Board Opinion ("APB")
No. 15, "Earnings per Share". After the effective date, all prior-period EPS
data presented will be restated to conform with the provisions of SFAS No. 128.
---
19
<PAGE>
<TABLE>
Pittston Brink's Group
BALANCE SHEETS
(In thousands)
<CAPTION>
March 31 December 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 28,957 20,012
Short-term investments, at lower of cost or market 1,173 1,856
Accounts receivable (net of estimated amount uncollectible:
1997 - $6,223; 1996 - $4,970) 138,230 124,928
Receivable - Pittston Minerals Group 2,344 14,027
Inventories, at lower of cost or market 2,534 3,073
Prepaid expenses 21,235 11,680
Deferred income taxes 13,748 14,481
- -------------------------------------------------------------------------------------------------------------------
Total current assets 208,221 190,057
Property, plant and equipment, at cost (net of accumulated
depreciation and amortization: 1997 - $251,579; 1996 - $240,741) 289,273 256,759
Intangibles, net of amortization 23,555 28,162
Investment in and advances to unconsolidated affiliates 25,315 26,594
Deferred pension assets 32,855 33,670
Deferred income taxes 2,357 2,120
Other assets 25,195 14,303
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 606,771 551,665
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings $ 7,081 1,751
Current maturities of long-term debt 2,125 2,139
Accounts payable 33,098 36,995
Accrued liabilities 98,281 98,507
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 140,585 139,392
Long-term debt, less current maturities 45,254 5,542
Postretirement benefits other than pensions 3,912 3,835
Workers' compensation and other claims 11,056 11,056
Deferred income taxes 38,178 38,539
Payable - Pittston Minerals Group 13,219 8,760
Minority interests 21,862 22,929
Other liabilities 9,323 8,234
Shareholder's equity 323,382 313,378
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 606,771 551,665
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
---
20
<PAGE>
<TABLE>
Pittston Brink's Group
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Quarter Ended March 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues $ 251,384 212,560
Cost and expenses:
Operating expenses 187,908 162,566
Selling, general and administrative expenses 36,063 30,575
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 223,971 193,141
- -------------------------------------------------------------------------------------------------------------------
Other operating expense, net (621) (494)
- -------------------------------------------------------------------------------------------------------------------
Operating profit 26,792 18,925
Interest income 653 234
Interest expense (2,239) (467)
Other expense, net (1,658) (1,017)
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 23,548 17,675
Provision for income taxes 8,242 5,836
- -------------------------------------------------------------------------------------------------------------------
Net income $ 15,306 11,839
- -------------------------------------------------------------------------------------------------------------------
Net income per common share $ .40 .31
- -------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .025 .025
- -------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 38,189 38,057
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
---
21
<PAGE>
<TABLE>
Pittston Brink's Group
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Quarter Ended March 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 15,306 11,839
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 14,260 12,886
Provision (credit) for deferred income taxes 517 (268)
Provision for pensions, noncurrent 422 135
Provision for uncollectible accounts receivable 1,018 1,007
Equity in earnings of unconsolidated affiliates, net of dividends received 704 570
Other operating, net 2,375 (270)
Change in operating assets and liabilities, net of the effects of acquisitions
and dispositions:
Decrease in accounts receivable 2,572 6,811
Decrease (increase) in inventories 539 (26)
Increase in prepaid expenses (4,427) (3,640)
Decrease in accounts payable and accrued liabilities (6,015) (1,227)
Increase in other assets (3,366) (1,357)
(Decrease) increase in other liabilities (794) 470
Other, net (301) 473
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 22,810 27,403
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (26,367) (21,715)
Proceeds from disposal of property, plant and equipment 2,291 110
Acquisitions, net of cash acquired (53,303) --
Other, net 10,558 762
- -------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (66,821) (20,843)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net additions (reductions) to debt 45,080 (3,530)
Payments from (to) - Minerals Group 11,685 (5,049)
Proceeds from exercise of stock options 1,035 295
Repurchase of common stock (3,964) --
Dividends paid (880) (945)
Cost of stock proposals -- (919)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 52,956 (10,148)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 8,945 (3,588)
Cash and cash equivalents at beginning of period 20,012 21,977
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 28,957 18,389
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
---
22
<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
amounts reflected in these financial statements are determined based upon
methods which management believes to be a reasonable and an equitable
estimate of the cost attributable to the Brink's Group.
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 liabilities. Therefore, financial developments
affecting the Brink's Group, the Pittston Burlington Group (the "Burlington
Group") or the Pittston Minerals Group (the "Minerals Group") that affect
the Company's financial condition could affect the results of operations
and financial condition of each of the Groups. Accordingly, the Company's
consolidated financial statements must be read in connection 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 three months of 1997
and 1996 by $1,178 and $1,047, respectively. The effect of this change
increased net income per common share of the Brink's Group for the first
three months of 1997 and 1996 by $.02.
(3) As of January 1, 1997, BHS prospectively adjusted its annual depreciation
rate for capitalized subscribers' installation costs to more accurately
match depreciation expense with revenue generated from demonstrated
customer experience. This change in accounting estimate reduced
depreciation expense for capitalized installation costs in the first
quarter of 1997 by approximately $2,100. The effect of this change
increased net income of the Brink's Group by $1,365 or $.04 per common
share.
(4) Depreciation and amortization of property, plant and equipment in the first
quarters of 1997 and 1996 totaled $12,897 and $12,600, respectively.
(5) Cash payments made for interest and income taxes (net of refunds received)
were as follows:
<TABLE>
<CAPTION>
Quarter Ended March 31
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest $ 2,216 509
- ----------------------------------------------------------------------------------------------------------
Income taxes $ 3,650 3,474
- ----------------------------------------------------------------------------------------------------------
</TABLE>
During the three month periods ended March 31, 1997 and 1996, capital lease
obligations of $713 and $157, respectively, were incurred for leases of
property, plant and equipment.
---
23
<PAGE>
(6) 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 were a signatory. In 1993, the Company recognized in its
consolidated financial statements the potential liability that might have
resulted from an ultimate adverse judgment in the Evergreen Case.
In 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 and the remainder of $24,000
in installments of $7,000 in 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 1996 and
was funded from cash provided by operating activities. In addition, the
coal subsidiaries agreed to future participation in the UMWA 1974 Pension
Plan.
As a result of the settlement of the Evergreen Case at an amount lower than
previously accrued, the Company and the Minerals Group recorded a pretax
benefit of $35,650 ($23,173 after tax) in the first quarter of 1996 in
their respective financial statements.
(7) In 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 assets for impairment
whenever circumstances indicate that the carrying amount of an asset may
not be recoverable. SFAS No. 121 resulted in a pretax charge to earnings in
the first quarter of 1996 for the Company and the Minerals Group of $29,948
($19,466 after-tax), of which $26,312 was included in cost of sales and
$3,636 was included in selling, general and administrative expenses. SFAS
No. 121 had no impact on the Brink's Group.
(8) The Brink's Group will implement a new accounting standard, Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", in
the fourth quarter of 1997. SFAS No. 128 will require the Brink's Group to
report both basic and diluted earnings per share ("EPS") calculations as
well as provide a reconciliation between basic and diluted EPS
computations. SFAS No. 128 supersedes previous guidance from Accounting
Principles Board Opinion ("APB") No. 15, "Earnings per Share". After the
effective date, all prior-period EPS data presented will be restated to
conform with the provisions of SFAS No. 128.
(9) Certain prior period amounts have been reclassified to conform to the
current period's financial statement presentation.
(10) In the opinion of management, all adjustments have been made which are
necessary for a fair presentation of results of operations for the periods
reported herein. All such adjustments are of a normal recurring nature.
---
24
<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 amounts reflected in these financial statements
are determined based upon methods which management believes to be a reasonable
and an equitable estimate of the cost attributable to the Brink's Group.
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 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 each of the Groups.
Accordingly, the Company's consolidated financial statements must be read in
connection 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 must be read in conjunction with the
financial statements and related notes of the Brink's Group and the Company.
<TABLE>
RESULTS OF OPERATIONS
<CAPTION>
Quarter Ended March 31
(In thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues:
Brink's $ 209,199 175,854
BHS 42,185 36,706
- -------------------------------------------------------------------------------------------------------------------
Operating revenues $ 251,384 212,560
- -------------------------------------------------------------------------------------------------------------------
Operating profit:
Brink's $ 15,801 9,378
BHS 12,779 11,102
- -------------------------------------------------------------------------------------------------------------------
Segment operating profit 28,580 20,480
General corporate expense (1,788) (1,555)
- -------------------------------------------------------------------------------------------------------------------
Operating profit $ 26,792 18,925
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The Brink's Group's net income totaled $15.3 million in the first quarter of
1997 compared with $11.8 million in the first quarter of 1996. Operating profit
for the 1997 quarter increased to $26.8 million from $18.9 million in the
comparable quarter of 1996. The increase in net income and operating profit for
1997 compared with 1996 was attributable to improved operating results for
Brink's and BHS businesses. Revenues for the 1997 first quarter increased $38.8
million (18%) compared with the 1996 first quarter, of which $33.3 million was
from Brink's and $5.5 million was from BHS. Operating expenses and selling,
general and administrative expenses for 1997 increased $30.8 million (16%)
compared with 1996, of which $26.8 million was from Brink's and $3.8 million was
from BHS. In addition, interest expense increased $1.8 million due to additional
debt used to fund the acquisition of Brink's Venezuelan affiliate during the
first quarter of 1997 (discussed in further detail below).
---
25
<PAGE>
Brink's
The following is a table of selected financial data for Brink's on a comparative
basis:
<TABLE>
<CAPTION>
Quarter Ended March 31
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues:
North America (United States and Canada) $ 110,772 98,180
International subsidiaries 98,427 77,674
- -------------------------------------------------------------------------------------------------------------------
Total operating revenues $ 209,199 175,854
Operating expenses 167,056 143,508
Selling, general and administrative expenses 25,721 22,474
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 192,777 165,982
- -------------------------------------------------------------------------------------------------------------------
Other operating expense, net (621) (494)
- -------------------------------------------------------------------------------------------------------------------
Operating profit:
North America (United States and Canada) $ 7,754 5,930
International operations 8,047 3,448
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 15,801 9,378
- -------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 7,547 6,029
- -------------------------------------------------------------------------------------------------------------------
Cash capital expenditures $ 9,814 6,806
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Brink's consolidated revenues totaled $209.2 million in the first quarter of
1997 compared with $175.9 million in the first quarter of 1996. Brink's
operating profit of $15.8 million in the first three months of 1997 represented
a $6.4 million or 68% increase over the $9.4 million operating profit reported
in the comparable prior year period. The revenue increase of $33.3 million (19%)
in the 1997 first quarter was offset in part by an increase in operating
expenses and selling, general and administrative expenses of $26.8 million
(16%).
Revenues from North American operations (United States and Canada) increased
$12.6 million (13%) to $110.8 million in the first quarter of 1997 from $98.2
million in the prior year quarter. North American operating profit increased
$1.9 million, or 32%, to $7.8 million in the 1997 quarter from $5.9 million in
the first quarter of 1996. Approximately $1.2 million of the increase in
operating profit related to the continued improvement of armored car operations,
which includes ATM servicing. The remainder of the increase related to modest
improvements in currency processing and domestic diamond and jewelry operations.
Revenues from international subsidiaries increased $20.7 million, or 27%, to
$98.4 million in the 1997 first quarter from $77.7 million in the 1996 period.
Operating profit from international subsidiaries and minority- owned affiliates
amounted to $8.0 million in the first three months of 1997 which was $4.6
million higher than the operating profit of $3.4 million in the first quarter of
1996. The increase in both revenues and operating profit was primarily
attributable to strong results in Latin America. Revenues and operating profits
in this region increased $17.1 million and $4.1 million, respectively, in the
first quarter of 1997 as compared to the first quarter of 1996. More than half
of these increases were due to the consolidation of the results of Brink's
Venezuelan affiliate, Custodia y Traslado de Valores C.A. ("Custravalca"), where
Brink's increased its ownership from 15% to 61% during January 1997. The Latin
America region also benefited from improvements in Colombia and Mexico during
the first quarter of 1997. The operating profits in both the Europe and Asia
Pacific regions in the first quarter of 1997 were essentially unchanged from the
comparable quarter of 1996. In Europe, improvements in both Holland and Belgium
were largely offset by unfavorable results of Brink's affiliate in France.
Finally, operating profits from Brink's international diamond and jewelry
operations also improved in the first quarter of 1997 versus the comparable
period in 1996.
As mentioned above, Brink's increased its ownership in Custravalca from 15% to
61% in the first quarter of 1997. The acquisition was financed through
contributions from a group of local Venezuelan investors (the "Investors") of
$8.0 million and external debt of $49.9 million. The ownership interest in
Custravalca is held 61% by Brink's and 39% by the Investors. In conjunction with
the Custravalca transaction, Brink's also acquired a further 31% interest in
Brink's Peru S.A., increasing its ownership position in this affiliate to 36%.
Also during the first quarter, Brink's acquired the remaining interests in
Brink's Hong Kong and Brink's Holland, increasing ownership in these affiliates
to 100% and acquired additional interests in Brink's Bolivia and Brink's Taiwan.
---
26
<PAGE>
In the first quarter of 1997, interest expense and minority interest expense
associated with the Venezuelan acquisition approximated $2 million.
BHS
The following is a table of selected financial data for BHS on a comparative
basis:
<TABLE>
<CAPTION>
Quarter Ended March 31
(Dollars in thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues $ 42,185 36,706
Operating expenses 20,852 19,058
Selling, general and administrative expenses 8,554 6,546
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 29,406 25,604
- -------------------------------------------------------------------------------------------------------------------
Operating profit $ 12,779 11,102
- -------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 6,666 6,822
- -------------------------------------------------------------------------------------------------------------------
Cash capital expenditures $ 16,520 14,898
- -------------------------------------------------------------------------------------------------------------------
Annualized service revenues (a) $ 132,598 110,191
- -------------------------------------------------------------------------------------------------------------------
Number of subscribers:
Beginning of period 446,505 378,659
Installations 25,590 24,256
Disconnects, net (8,088) (7,239)
- -------------------------------------------------------------------------------------------------------------------
End of period 464,007 395,676
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized service revenues are calculated based on the number of
subscribers at period end multiplied by the average fee per subscriber received
in the last month of the period for monitoring, maintenance and related
services.
Revenues for BHS increased by $5.5 million (15%) to $42.2 million in the first
quarter of 1997 from $36.7 million in the 1996 period. The increase in revenues
was predominantly due to higher ongoing monitoring and service revenues,
resulting from the 17% growth in the subscriber base and increased average
monitoring fees. As a result of such growth, annualized service revenues in
force at March 31, 1997 grew 20% over the amount in effect March 31, 1996.
However, while the number of new security system installations has increased,
the revenue per installation decreased from the first quarter of 1996 due to
continuing competitive installation pricing in the marketplace.
Operating profit of $12.8 million in the first quarter of 1997 represented an
increase of $1.7 million (15%) compared to the $11.1 million earned in the 1996
period. This increase included a $2.1 million reduction in depreciation expense
in the first quarter of 1997 resulting from a change in accounting estimate
(discussed below). Operating profit in the first quarter of 1997 was also
impacted by a $1.4 million increase in net installation and marketing costs
incurred and expensed. While these costs to obtain subscribers increased during
the first quarter of 1997, the cash margins per subscriber generated from
recurring revenues remained consistent between the 1997 and 1996 periods. Total
cash margins were favorably impacted by the 17% growth in the average subscriber
base and higher average monitoring fees, partially offset by increased account
servicing and administrative expenses, which were a consequence of the larger
subscriber base.
It is BHS' policy to depreciate capitalized subscriber installation expenditures
over the estimated life of the security system based on subscriber retention
percentages. BHS initially developed its annual depreciation rate based on
information about subscriber retention which was available at the time. However,
accumulated historical data about actual subscriber retention has indicated that
approximately 50% of subscribers are still active after a period of ten years.
Therefore, in order to reflect the higher actual subscriber retention
experience, and to more accurately match depreciation expense with revenues
generated from active subscribers, BHS prospectively adjusted its annual
depreciation rate for capitalized subscriber installation costs in the first
quarter of 1997. BHS will continue its practice of charging the remaining net
book value of all capitalized subscriber installation expenditures to
depreciation expense as soon as a system is identified for disconnection. This
change in estimate reduced depreciation expense for capitalized installation
costs in the first quarter of 1997 by $2.1 million.
---
27
<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, these 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 Company, on
behalf of the Brink's Group, from time to time, uses foreign currency forward
contracts to hedge the risks associated with such transactions. Realized and
unrealized gains and losses on these contracts are deferred and recognized as
part of the specific transaction hedged. In addition, 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 and Venezuela operate in such highly inflationary
economies. Additionally, current conditions in Mexico, where the Brink's Group
has an affiliate (20% owned), have resulted in that economy being considered
highly inflationary as of January 1, 1997.
The Brink's Group is subject to other risks customarily associated with doing
business in foreign countries, including labor and economic conditions, controls
on repatriation of earnings and capital, nationalization, political instability,
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 attributed to the Brink's Group based upon
utilization and other methods and criteria which management believes to be a
reasonable and an equitable estimate of the cost attributable to the Brink's
Group. These attributions were $1.8 million and $1.6 million for the first
quarters of 1997 and 1996, respectively.
Other Operating Expense, Net
Other net operating expense increased $0.1 million to $0.6 million in the 1997
first quarter as compared to $0.5 million in the 1996 first quarter. Other net
operating expense consists primarily of net equity earnings of Brink's foreign
affiliates. These net earnings amounted to an expense of $0.7 million and of
$0.6 million for the first quarters of 1997 and 1996, respectively.
Interest Income
Interest income increased $0.4 million during the first quarter 1997 to $0.6
million from $0.2 million in the comparable 1996 quarter. The increase in
interest income was primarily due to increases in interest earned on short-term
cash investments from international subsidiaries.
Interest Expense
Interest expense increased from $0.5 million in the first quarter of 1996 to
$2.2 million in the first quarter of 1997. The increase was mainly due to
additional debt in 1997 related to the acquisition of Custravalca.
Other Expense, Net
Other net expense, which principally includes foreign translation gains and
losses and minority interest earnings or losses, increased by $0.7 million to
$1.7 million from $1.0 million in the first quarter of 1997 versus 1996. The
higher level of expense in 1997 reflects an increase in minority interest,
resulting primarily from the recent consolidation of Custravalca, and increased
earnings in Brink's Colombian affiliate.
---
28
<PAGE>
Income Taxes
The effective tax rate in the first quarter of 1997 was equal to the federal
statutory rate of 35%. This is an increase from the first quarter 1996 rate of
33%, which was lower than the statutory rate due to lower taxes on foreign
income partially offset by additional provisions for state income taxes.
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. Management believes this attribution to be
an equitable and a reasonable estimate of the cost attributable to the Brink's
Group.
Cash Flow Requirements
Cash provided by operating activities amounted to $22.8 million in the 1997
first quarter, a decrease of $4.6 million from the comparable 1996 period. The
decrease in cash flow reflects higher funding requirements for net operating
assets and liabilities, which were not fully offset by the Group's higher net
income and noncash charges. Cash generated from operating activities did not
fund the cash required for investing activities due to the cash used in the
Custravalca acquisition. However, excess funding requirements for investing and
net share activities were more than offset by additions to debt and by payments
from the Minerals Group. As a result, cash and cash equivalents increased $8.9
million in the first three months of 1997.
Capital Expenditures
Cash capital expenditures for the first quarters of 1997 and 1996 totaled $26.4
million and $21.7 million, respectively, excluding equipment expenditures that
have been or are expected to be financed through capital and operating leases,
and any acquisition expenditures. In 1997, $16.5 million was spent by BHS and
$9.8 million was spent by Brink's. Expenditures incurred by BHS were primarily
for customer security system installations, representing the expansion in the
subscriber base and expenditures incurred by Brink's were primarily for
replacement or maintenance of ongoing business operations. For the remainder of
1997, capital expenditures, excluding expenditures that have been or are
expected to be financed through capital and operating leases, are expected to
range between $90 million and $95 million.
Financing
The Brink's Group intends to fund its capital expenditure requirements through
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, short-term borrowing
arrangements or repayments from the Minerals Group.
The Company has a $350.0 million revolving credit agreement with a syndicate of
banks (the "Facility"). The Facility includes a $100.0 million term loan and
also permits additional borrowings, repayments and reborrowings of up to an
aggregate of $250.0 million. As of March 31, 1997, borrowings of $100.0 million
were outstanding under the term loan portion of the Facility and $59.7 million
of additional borrowings were outstanding under the remainder of the Facility.
No portion of the total amount outstanding under the Facility at March 31, 1997,
was attributed to the Brink's Group.
In connection with its acquisition of Custravalca, Brink's entered into a
borrowing arrangement with a syndicate of local Venezuelan banks. The borrowings
consisted of a long-term loan denominated in the local currency equivalent to
$40 million and a $10 million short-term loan denominated in U.S. dollars. The
long-term portion of the loan bears interest based on the Venezuelan prime rate
and is payable in installments through the year 2000. A portion of the
short-term loan, $5.3 million, was repaid during March 1997, with the remaining
balance repaid in April 1997. As of March 31, 1997, total borrowings under this
arrangement were the equivalent of $44.7 million.
Debt
Total outstanding debt at March 31, 1997 was $54.5 million, $45.1 million higher
than the $9.4 million reported at December 31, 1996. The increase in debt is
largely attributable to additional borrowings associated with the acquisition of
Custravalca. At March 31, 1997, no portion of total debt outstanding was payable
to either the Burlington Group or the Minerals Group.
---
29
<PAGE>
Related Party Transactions
At March 31, 1997, under an interest bearing borrowing arrangement, the Minerals
Group owed the Brink's Group $12.3 million, a decrease of $11.7 million from the
$24.0 million owed at December 31, 1996.
At March 31, 1997, the Brink's Group owed the Minerals Group $23.2 million for
tax payments representing the utilization of the Minerals Group's tax benefits
by the Brink's Group in accordance with the Company's tax sharing policy. Of the
total tax benefits owed to the Minerals Group at March 31, 1997, $10.0 million
is expected to be paid within one year.
Capitalization
The Company has three classes of common stock: Brink's Stock, Pittston
Burlington Group Common Stock ("Burlington Stock") and Pittston Minerals Group
Common Stock ("Minerals Stock") which 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 Brink's Group consists of the Brink's and 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
Pittston Coal Company ("Coal Operations") and Pittston Mineral Ventures
("Mineral Ventures") operations of the Company. The Company prepares separate
financial statements for the Brink's, Burlington and Minerals Groups in addition
to consolidated financial information of the Company.
During the three month period ended March 31, 1997 and 1996, 153,000 shares (at
a cost of $4.0 million) and no shares, respectively, of Brink's Stock were
repurchased under the share repurchase program authorized by the Board of
Directors of the Company (the "Board").
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, losses by the Minerals Group and/or the Burlington Group could
affect the Company's ability to pay dividends in respect of stock relating to
the Brink's Group.
During the first quarters of 1997 and 1996, the Board declared and the Company
paid cash dividends of 2.5 cents per share of Brink's Stock. Preferred dividends
included on the Company's statement of operations for the three months ended
March 31, 1997 and 1996, are net of $0.9 million and $1.1 million, respectively,
which was the excess of the carrying amount of the preferred stock over the cash
paid to holders of the Series C Cumulative Convertible Preferred Stock
("Convertible Preferred Stock").
The Company pays an annual cumulative dividend on its Convertible Preferred
Stock of $31.25 per share payable quarterly, in cash, in arrears, out of all
funds of the Company legally available therefore, when, as and if declared by
the Board. Such stock bears a liquidation preference of $500 per share, plus an
attributed amount equal to accrued and unpaid dividends thereon.
Pending Accounting Change
The Brink's Group will implement a new accounting standard, Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", in the
fourth quarter of 1997. SFAS No. 128 will require the Brink's Group to report
both basic and diluted earnings per share ("EPS") calculations as well as
provide a reconciliation between basic and diluted EPS computations. SFAS No.
128 supersedes previous guidance from Accounting Principles Board Opinion
("APB") No. 15, "Earnings per Share". After the effective date, all prior-period
EPS data presented will be restated to conform with the provisions of SFAS No.
128.
---
30
<PAGE>
<TABLE>
Pittston Burlington Group
BALANCE SHEETS
(In thousands)
<CAPTION>
March 31 December 31
1997 1996
- ------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,191 17,818
Accounts receivable (net of estimated amount uncollectible:
1997 - $9,190; 1996 - $9,528) 258,397 242,654
Inventories, at lower of cost or market 2,173 2,251
Prepaid expenses 14,391 12,459
Deferred income taxes 7,550 7,847
- ------------------------------------------------------------------------------------------------------------------
Total current assets 302,702 283,029
Property, plant and equipment, at cost (net of accumulated depreciation
and amortization: 1997 - $66,118; 1996 - $62,900) 112,778 113,283
Intangibles, net of amortization 175,483 177,797
Deferred pension assets 8,761 9,504
Deferred income taxes 19,458 19,015
Other assets 12,093 13,046
- ------------------------------------------------------------------------------------------------------------------
Total assets $ 631,275 615,674
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings $ 29,368 29,918
Current maturities of long-term debt 2,816 2,916
Accounts payable 165,455 155,474
Payable - Pittston Minerals Group 9,263 3,270
Accrued liabilities 65,845 67,299
- ------------------------------------------------------------------------------------------------------------------
Total current liabilities 272,747 258,877
Long-term debt, less current maturities 28,227 28,723
Postretirement benefits other than pensions 3,248 3,145
Deferred income taxes 2,530 1,880
Payable - Pittston Minerals Group 13,070 13,310
Other liabilities 4,811 4,750
Shareholder's equity 306,642 304,989
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 631,275 615,674
- ------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
---
31
<PAGE>
<TABLE>
Pittston Burlington Group
STATEMENTS OF OPERATIONS
(In thousands, except per share)
(Unaudited)
<CAPTION>
Quarter Ended March 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues $ 371,409 348,095
Costs and expenses:
Operating expenses 330,911 310,500
Selling, general and administrative expenses 32,171 30,687
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 363,082 341,187
- -------------------------------------------------------------------------------------------------------------------
Other operating income, net 649 223
- -------------------------------------------------------------------------------------------------------------------
Operating profit 8,976 7,131
Interest income 330 892
Interest expense (946) (1,052)
Other expense, net (281) (1,007)
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 8,079 5,964
Provision for income taxes 2,991 2,203
- -------------------------------------------------------------------------------------------------------------------
Net income $ 5,088 3,761
- -------------------------------------------------------------------------------------------------------------------
Net income per common share $ .26 .20
- -------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .06 .06
- -------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 19,406 19,040
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
---
32
<PAGE>
<TABLE>
Pittston Burlington Group
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Quarter Ended March 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,088 3,761
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 6,959 5,437
Provision for aircraft heavy maintenance 8,186 7,718
Credit for deferred income taxes (190) (356)
Provision for pensions, noncurrent 567 29
Provision for uncollectible accounts receivable 699 592
Other operating, net 556 251
Change in operating assets and liabilities, net of effects of acquisitions
and dispositions:
(Increase) decrease in accounts receivable (16,443) 5,464
Decrease (increase) in inventories 78 (397)
Increase in prepaid expenses (1,941) (1,165)
Increase (decrease) in accounts payable and accrued liabilities 10,059 (9,118)
(Increase) decrease in other assets (150) 261
(Decrease) increase in other liabilities (444) 683
Other, net 776 (478)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 13,800 12,682
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (6,207) (4,782)
Proceeds from disposal of property, plant and equipment 115 3,155
Aircraft heavy maintenance expenditures (9,473) (4,131)
Other, net 2,106 1,903
- -------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (13,459) (3,855)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net reductions of debt (603) (3,150)
Payments from (to) - Minerals Group 6,002 (13,177)
Repurchase of common stock (2,550) --
Proceeds from exercise of stock options 263 309
Dividends paid (1,080) (1,127)
Cost of stock proposals -- (919)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 2,032 (18,064)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,373 (9,237)
Cash and cash equivalents at beginning of period 17,818 25,847
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 20,191 16,610
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
---
33
<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 amounts reflected in
these financial statements are determined based upon methods which
management believes to be a reasonable and an equitable estimate of the
cost attributable to the Burlington Group.
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 liabilities. Therefore, financial developments
affecting the Burlington Group, the Pittston Brink's Group (the "Brink's
Group") and the Pittston Minerals Group (the "Minerals Group") that affect
the Company's financial condition could affect the results of operations
and financial condition of each of the Groups. Accordingly, the Company's
consolidated financial statements must be read in connection with the
Burlington Group's financial statements.
(2) Depreciation and amortization of property, plant and equipment in the first
quarters of 1997 and 1996 totaled $5,315 and $3,830, respectively.
(3) Cash payments made for interest and income taxes (net of refunds received)
were as follows:
<TABLE>
<CAPTION>
Quarter Ended March 31
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest $ 829 1,728
- ----------------------------------------------------------------------------------------------------------
Income taxes $ 867 1,525
- ----------------------------------------------------------------------------------------------------------
</TABLE>
During the three month periods ended March 31, 1997 and 1996, capital lease
obligations of $50 and $135, respectively, were incurred for leases 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 were a signatory. In 1993, the Company recognized in its
consolidated financial statements the potential liability that might have
resulted from an ultimate adverse judgment in the Evergreen Case.
In 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 and the remainder of $24,000
in installments of $7,000 in 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 1996 and
was funded from cash provided by operating activities. In addition, the
coal subsidiaries agreed to future participation in the UMWA 1974 Pension
Plan.
---
34
<PAGE>
As a result of the settlement of the Evergreen Case at an amount lower than
previously accrued, the Company and the Minerals Group recorded a pretax
benefit of $35,650 ($23,173 after tax) in the first quarter of 1996 in its
consolidated financial statements.
(5) In 1996, the Burlington Group implemented 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 assets for impairment whenever circumstances indicate
that the carrying amount of an asset may not be recoverable. SFAS No. 121
resulted in a pretax charge to earnings in the first quarter of 1996 for
the Company and the Minerals Group of $29,948 ($19,466 after-tax), of which
$26,312 was included in cost of sales and $3,636 was included in selling,
general and administrative expenses. SFAS No. 121 had no impact on the
Burlington Group.
(6) The Burlington Group will implement a new accounting standard, Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", in
the fourth quarter of 1997. SFAS No. 128 will require the Burlington Group
to report both basic and diluted earnings per share ("EPS") calculations as
well as provide a reconciliation between basic and diluted EPS
computations. SFAS No. 128 supersedes previous guidance from Accounting
Principles Board Opinion ("APB") No. 15, "Earnings per Share". After the
effective date, all prior-period EPS data presented will be restated to
conform with the provisions of SFAS No. 128.
(7) Certain prior period amounts have been reclassified to conform to current
period's financial statement presentation.
(8) In the opinion of management, all adjustments have been made which are
necessary for a fair presentation of results of operations for the periods
reported herein. All such adjustments are of a normal recurring nature.
---
35
<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
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 amounts reflected in these financial statements are determined based
upon methods which management believes to be a reasonable and an equitable
estimate of the cost attributable to the Burlington Group.
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 liabilities. Therefore, financial developments affecting the
Burlington Group, the Pittston Brink's Group (the "Brink's Group") or the
Pittston Minerals Group (the "Minerals Group") that affect the Company's
financial condition could affect the results of operations and financial
condition of each of the Groups. Accordingly, the Company's consolidated
financial statements must be read in connection 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 must be read in conjunction with the
financial statements and related notes of the Burlington Group and the Company.
<TABLE>
RESULTS OF OPERATIONS
<CAPTION>
Quarter Ended March 31
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues:
Burlington $ 371,409 348,095
Operating profit:
Burlington $ 10,756 8,686
General corporate expense (1,780) (1,555)
- -------------------------------------------------------------------------------------------------------------------
Operating profit $ 8,976 7,131
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
In the first quarter of 1997, the Burlington Group reported net income of $5.1
million, or $0.26 per share, compared with $3.8 million, or $.20 per share, in
the first quarter of 1996. Operating profit during the first three months of
1997 totaled $9.0 million as compared with $7.1 million in the corresponding
1996 period. Revenues increased $23.3 million or 7%, compared with the 1996
first quarter. Operating expenses and selling, general and administrative
expenses for the 1997 period increased $21.9 million, or 6%, compared with the
same period last year.
---
36
<PAGE>
Burlington
The following is a table of selected financial data for Burlington on a
comparative basis:
<TABLE>
<CAPTION>
(In thousands - except per Quarter Ended March 31
pound/shipment amounts) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues:
Expedited freight services:
Domestic U.S. $ 136,672 128,780
International 180,891 169,715
- -------------------------------------------------------------------------------------------------------------------
Total expedited freight services 317,563 298,495
Customs clearances 27,637 28,414
Ocean and other (a) 26,209 21,186
- -------------------------------------------------------------------------------------------------------------------
Total operating revenues 371,409 348,095
Operating expense 330,911 310,500
Selling, general and administrative 30,391 29,132
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 361,302 339,632
- -------------------------------------------------------------------------------------------------------------------
Other operating income, net 649 223
- -------------------------------------------------------------------------------------------------------------------
Operating profit:
Domestic U.S. 4,117 3,708
International 6,639 4,978
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 10,756 8,686
- -------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 6,908 5,400
- -------------------------------------------------------------------------------------------------------------------
Cash capital expenditures $ 6,175 4,771
- -------------------------------------------------------------------------------------------------------------------
Expedited freight services shipment growth rate (b) (1.8%) 5.5%
Expedited freight services weight growth rate (b):
Domestic U.S. 0.8% 2.9%
International 2.5% 9.4%
Worldwide 1.7% 6.2%
- -------------------------------------------------------------------------------------------------------------------
Expedited freight services weight (millions of pounds) 350.5 344.7
Expedited freight services shipments (thousands) 1,275 1,298
- -------------------------------------------------------------------------------------------------------------------
Expedited freight services average:
Yield (revenue per pound) $ .906 .866
Revenue per shipment $ 249 230
Weight per shipment (pounds) 275 266
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Primarily includes international ocean freight revenues. Ocean and other
also includes domestic revenues of $1,721 and $668 for the quarters ended March
31, 1997 and 1996, respectively.
(b) Compared to the same period in the prior year.
Worldwide revenues increased by 7% in the first quarter of 1997 to $371.4
million, from $348.1 million in the 1996 quarter. The $23.3 million growth in
revenues principally reflects a 1.7% increase in worldwide expedited freight
services pounds shipped, combined with a 5% increase in the world-wide expedited
freight services average yield. Burlington's first quarter 1997 operating profit
amounted to $10.8 million, an increase of $2.1 million (24%) from the level
reported in the first quarter of 1996.
The worldwide expedited freight services revenues' increase of 6%, from $298.5
million in the first quarter 1996 to $317.6 million in the first quarter 1997,
was the result of a 1.7% increase in worldwide expedited freight services weight
shipped, from 344.7 million pounds in 1996 to 350.5 million pounds in 1997,
combined with a 5% increase in the average expedited freight services yield.
Other revenues increased 9% from $49.6 million in 1996 to $53.8 million in 1997,
due to growth in ocean and other freight services. Total costs and expenses
increased by 6% from $339.6 million in 1996 to $361.3 million in 1997,
reflecting increased transportation costs, due in part to additional business
volume.
---
37
<PAGE>
Domestic expedited freight services revenues in the first quarter of 1997
increased $7.9 million (6%) to $136.7 million from $128.8 million in the
comparable quarter in 1996. Other domestic freight services revenues increased
$1.1 million from $0.6 in 1996 to $1.7 million in the first quarter of 1997.
Domestic operating profit increased to $4.1 million in the first quarter of 1997
compared to $3.7 million in the prior year period. The increase in operating
profit reflects slightly higher volume of domestic expedited freight services
weight shipped combined with a 5% increase in the domestic expedited freight
services average yield. The increase in yield was due to a combination of a
higher average pricing and an increase in the proportion of overnight freight in
the sales mix. The improvement in the average yield during the 1997 first
quarter was offset in large part by higher transportation costs.
International expedited freight services revenues of $180.9 million in the first
quarter of 1997 represent an $11.2 million (7%) increase over the $169.7 million
reported in the comparable period in 1996. This increase in revenue is due to a
3% growth in expedited freight services weight shipped during the first quarter
of 1997 as compared to 1996, combined with a 4% increase in the average yield.
The increase in average yield was due in part to a fuel surcharge implemented by
Burlington in March of 1997 in reaction to a corresponding surcharge implemented
by our third party transportation providers. In addition, international
non-expedited services revenues increased 7%, or $3.2 million, to $52.1 million
in the first three months of 1997 from $48.9 million in 1996. The growth in such
revenue was due to the continued expansion of ocean freight services.
International operating profit amounted to $6.6 million in the first quarter of
1997, 33% higher than the 1996 level. The higher level of operating profit
during the first quarter of 1997 reflects improved operating margins in both
U.S. exports and ocean freight services.
As part of its ongoing efforts to further enhance service quality and improve
efficiencies, Burlington has formed a Global Innovation Team composed of senior
management from various regions and assisted by two independent consulting
firms. The team is reviewing Burlington's operating activities to better ensure
that Burlington provides the highest possible level of customer service in a
cost efficient manner. A key component of this process is a review of
Burlington's current information systems and technology needs on a global basis.
The innovation team is responsible for optimizing Burlington's investment in
technology to assure delivery of "state of the art" information systems for both
customer and operational requirements. Other cost and service improvement
programs have been identified through this process and are expected to be
implemented during the balance of 1997.
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. Because 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 fluctuation. In addition, these 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
transactions, the Company, on behalf of the Burlington Group, uses foreign
currency forward contracts to hedge the risks associated with such transactions.
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, current conditions in Mexico, where
Burlington has a subsidiary, have resulted in that economy being considered
highly inflationary as of January 1, 1997.
Additionally, the Burlington Group is subject to other risks customarily
associated with doing business in foreign countries, including labor and
economic conditions, controls on repatriation of earnings and capital,
nationalization, political instability, 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.
---
38
<PAGE>
Corporate Expenses
A portion of the Company's corporate general and administrative expenses and
other shared services has been attributed to the Burlington Group based on
utilization and other methods and criteria which management believes to be a
reasonable and an equitable estimate of the costs attributable to the Burlington
Group. These attributions were $1.8 million and 1.6 million in the first
quarters of 1997 and 1996, respectively.
Interest Income
Interest income decreased $0.6 million to $0.3 million in the first quarter of
1997. The fluctuation was primarily attributed to interest income earned from
amounts owed by the Minerals Group of $0.2 million and $0.7 million in the first
quarters of 1997 and 1996, respectively.
Interest Expense
Interest expense for the first quarter of 1997 decreased $0.2 million to $0.9
million from $1.1 million in the first quarter of 1996. The lower level of
interest in 1997 as compared to 1996, was primarily due to lower level of total
outstanding debt.
Other Expense, Net
In the first quarter of 1997, other net expense decreased by $0.7 million to a
net expense of $0.3 million. The decrease in 1997 largely reflects a loss
recorded in the first three months of 1996 related to the termination of an
overseas sublease agreement.
Income Taxes
In the first quarters of 1997 and 1996, the provision for income taxes exceeded
the statutory federal income tax rate of 35% primarily due to provisions for
state income taxes and goodwill amortization, partially offset by lower taxes on
foreign income.
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. Management believes this attribution to be
a reasonable and an equitable of the cost attributable to the Burlington Group.
Cash Flow Requirements
Cash provided by operating activities amounted to $13.8 million in the first
quarter of 1997 compared with $12.7 million in the first quarter of 1996. The
increase in cash generated by operating activities occurred as a result of
higher net income and noncash charges, partially offset by an increase in
funding requirements for net operating assets and liabilities. Cash generated
from operating activities and payments from the Minerals Group were sufficient
to fund net investing and share activities, resulting in an increase in cash and
cash equivalents of $2.4 million during the 1997 quarter.
Capital Expenditures
Cash capital expenditures for the first quarters of 1997 and 1996 totaled $6.2
million and $4.8 million, respectively, excluding equipment expenditures that
have been or are expected to be financed through capital or operating leases.
For the remainder of 1997, capital expenditures are expected to range between
$50 million and $55 million, excluding equipment expenditures that have been or
are expected to be financed through capital and operating leases. These
expenditures will primarily relate to the support of new facilities and to the
implementation of new information systems that are intended to provide improved
efficiency and customer service.
Financing
The Burlington Group intends to fund its capital expenditure requirements
through 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, short-term borrowing
arrangements or repayments from the Minerals Group.
---
39
<PAGE>
The Company has a $350.0 million revolving credit agreement with a syndicate of
banks (the "Facility"). The Facility includes a $100.0 million term loan and
also permits additional borrowings, repayments, and reborrowings of up to an
aggregate of $250.0 million. As of March 31, 1997, borrowings of $100.0 million
were outstanding under the term loan portion of the Facility and $59.7 million
of additional borrowings were outstanding under the remainder of the Facility.
No portion of the total outstanding amount under the Facility at March 31, 1997,
was attributed to the Burlington Group.
Debt
Total outstanding debt was $60.4 million at March 31, 1997, a decrease of $1.2
million from the $61.6 million reported at December 31, 1996. At March 31, 1997,
no portion of total debt outstanding was payable to either the Brink's Group or
the Minerals Group.
Related Party Transactions
At March 31, 1997, under an interest bearing borrowing arrangement, the Minerals
Group owed the Burlington Group $1.7 million, a decrease of $6.0 million from
the $7.7 million owed at December 31, 1996.
At March 31, 1997, the Burlington Group owed the Minerals Group $24.1 million
for tax payments representing the utilization of the Minerals Group's tax
benefits by the Burlington Group in accordance with the Company's tax sharing
policy. Of the total tax benefits owed to the Minerals Group at March 31, 1997,
$11.0 million is expected to be paid within one year.
Capitalization
The Company's three classes of common stock: Burlington Stock; Pittston Brink's
Group Common Stock ("Brink's Stock"); and Pittston Minerals Group Common Stock
("Minerals Stock") which were designed to provide shareholders with separate
securities reflecting the performance of the Burlington Group, Brink's Group and
Minerals Group, respectively, without diminishing the benefits of remaining a
single corporation or precluding future transactions affecting any of the
Groups. The Burlington Group consists of the Burlington operations of the
Company. The Brink's Group consists of the Brink's, Incorporated ("Brink's") and
Brink's Home Security, Inc. ("BHS") operations of the Company. The Minerals
Group consists of the Pittston Coal Company ("Coal Operations") and Pittston
Mineral Ventures ("Mineral Ventures") operations of the Company. The Company
prepares separate financial statements for the Burlington, Brink's and Minerals
Groups in addition to consolidated financial information of the Company.
During the three month period ended March 31, 1997 and 1996, 132,100 shares (at
a cost of $2.6 million) and no shares, respectively, of Burlington Stock were
repurchased under the share repurchase program authorized by the Board of
Directors of the Company (the "Board").
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, losses by the Minerals Group and/or the Brink's Group could affect
the Company's ability to pay dividends in respect to stock relating to the
Burlington Group.
During the first quarters of 1997 and 1996, the Board declared and paid cash
dividends of 6 cents per share of Burlington Stock. Preferred dividends included
on the Company's statement of operations for the three months ended March 31,
1997 and 1996, are net of $0.9 million and $1.1 million, respectively, which was
the excess of the carrying amount of the preferred stock over the cash paid to
holders of the Series C Cumulative Convertible Preferred Stock ("Convertible
Preferred Stock").
The Company pays an annual cumulative dividend on its Convertible Preferred
Stock of $31.25 per share payable quarterly, in cash, in arrears, out of all
funds of the Company legally available therefore, when, as and if declared by
the Board. Such stock bears a liquidation preference of $500 per share, plus an
amount equal to accrued and unpaid dividends thereon.
---
40
<PAGE>
Pending Accounting Change
The Burlington Group will implement a new accounting standard, Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", in the
fourth quarter of 1997. SFAS No. 128 will require the Burlington Group to report
both basic and diluted earnings per share ("EPS") calculations as well as
provide a reconciliation between basic and diluted EPS computations. SFAS No.
128 supersedes previous guidance from Accounting Principles Board Opinion
("APB") No. 15, "Earnings per Share". After the effective date, all prior-period
EPS data presented will be restated to conform with the provisions of SFAS No.
128.
---
41
<PAGE>
<TABLE>
Pittston Minerals Group
BALANCE SHEETS
(In thousands)
<CAPTION>
March 31 December 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,679 3,387
Accounts receivable (net of estimated amount uncollectible:
1997 - $1,512; 1996 - $1,618) 88,844 88,552
Inventories, at lower of cost or market:
Coal inventory 35,328 26,495
Other inventory 4,407 5,308
- -------------------------------------------------------------------------------------------------------------------
39,735 31,803
Receivable - Pittston Brink's Group/Burlington Group, net 6,919 --
Prepaid expenses 9,082 8,659
Deferred income taxes 26,575 27,229
- -------------------------------------------------------------------------------------------------------------------
Total current assets 172,834 159,630
Property, plant and equipment, at cost (net of accumulated depreciation,
depletion and amortization:
1997 - $155,314; 1996 - $154,115) 173,446 170,809
Deferred pension assets 81,915 81,067
Deferred income taxes 61,515 62,899
Intangibles, net of amortization 110,350 111,103
Coal supply contracts 50,033 52,696
Receivable - Pittston Brink's Group/Burlington Group 26,289 22,071
Other assets 45,605 46,706
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 721,987 706,981
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities:
Current maturities of long-term debt 431 395
Accounts payable 50,160 59,103
Payable - Pittston Brink's Group/Burlington Group, net -- 10,757
Accrued liabilities 114,243 114,470
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 164,834 184,725
Long-term debt, less current maturities 161,230 124,572
Postretirement benefits other than pensions 220,425 219,717
Workers' compensation and other claims 103,580 105,837
Mine closing and reclamation 44,411 43,877
Other liabilities 39,563 39,913
Shareholder's equity (12,056) (11,660)
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 721,987 706,981
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
---
42
<PAGE>
<TABLE>
Pittston Minerals Group
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Quarter Ended March 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 158,883 170,252
Cost and expenses:
Cost of sales 153,412 195,885
Selling, general and administrative expenses 7,409 11,034
Restructuring and other credits, including litigation accrual -- (37,758)
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 160,821 169,161
- -------------------------------------------------------------------------------------------------------------------
Other operating income, net 3,548 3,086
- -------------------------------------------------------------------------------------------------------------------
Operating profit 1,610 4,177
Interest income 282 125
Interest expense (2,625) (2,952)
Other expense, net (450) (373)
- -------------------------------------------------------------------------------------------------------------------
(Loss) income before income taxes (1,183) 977
Credit for income taxes (2,130) (2,043)
- -------------------------------------------------------------------------------------------------------------------
Net income 947 3,020
Preferred stock dividends, net (901) (1,065)
- -------------------------------------------------------------------------------------------------------------------
Net income attributed to common shares $ 46 1,955
- -------------------------------------------------------------------------------------------------------------------
Net income per common share $ .01 .25
- -------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .1625 .1625
- -------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 8,002 7,822
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
---
43
<PAGE>
<TABLE>
Pittston Minerals Group
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Quarter Ended March 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 947 3,020
Adjustments to reconcile net income to net cash used
by operating activities:
Noncash charges and other write-offs -- 29,948
Depreciation, depletion and amortization 8,920 8,728
Provision for deferred income taxes 2,001 5,094
Credit for pensions, noncurrent (847) (102)
Provision for uncollectible accounts receivable 51 --
Equity in earnings of unconsolidated affiliates, net of dividends received 157 (145)
Other operating, net (393) (367)
Change in operating assets and liabilities net of effects of acquisitions and
dispositions:
Increase in accounts receivable (414) (15,444)
Increase in inventories (7,931) (6,567)
(Increase ) decrease in prepaid expenses (3,425) 585
Decrease in accounts payable and accrued liabilities (8,127) (8,964)
Decrease in other assets 223 453
Decrease in other liabilities (1,614) (34,913)
Decrease in workers' compensation and other claims, noncurrent (2,257) (3,560)
Other, net (106) 99
- -------------------------------------------------------------------------------------------------------------------
Net cash used by operating activities (12,815) (22,135)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (7,458) (5,380)
Proceeds from disposal of property, plant and equipment 1,534 1,444
Acquisitions including related contingent payments (791) (746)
Other, net 1,237 900
- -------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (5,478) (3,782)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net additions to debt 36,357 8,655
Payments (to) from - Brink's Group (11,685) 5,049
Payments (to) from - Burlington Group (6,002) 13,177
Proceeds from exercise of stock options 4 10
Dividends paid (2,089) (2,343)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 16,585 24,548
- -------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,708) (1,369)
Cash and cash equivalents at beginning of period 3,387 4,999
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 1,679 3,630
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
---
44
<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
the Pittston Coal Company ("Coal Operations") and Pittston Mineral Ventures
("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 amounts reflected in these financial statements are
determined based upon methods which management believes to be a reasonable
and an equitable estimate of the cost attributable to the Minerals Group.
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 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 each of the Groups. Accordingly, the
Company's consolidated financial statements must be read in connection with
the Minerals Group's financial statements.
(2) Depreciation, depletion and amortization of property, plant and equipment
in the first quarters of 1997 and 1996 totaled $5,449 and $5,486,
respectively.
(3) Cash payments made for interest and income taxes (net of refunds received)
were as follows:
<TABLE>
<CAPTION>
Quarter Ended March 31
1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest $ 2,641 2,833
- ----------------------------------------------------------------------------------------------------------
Income taxes $ 13 55
- ----------------------------------------------------------------------------------------------------------
</TABLE>
During the three month periods ended March 31, 1997 and 1996, capital loss
obligations of $346 and $0, respectively were incurred for loss 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 were a signatory. In 1993, the Company recognized in its
consolidated financial statements the potential liability that might have
resulted from an ultimate adverse judgment in the Evergreen Case.
In 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 and the remainder of $24,000
in installments of $7,000 in 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.
---
45
<PAGE>
The second payment of $7,000 was paid in 1996 and was funded from cash
provided by operating activities. In addition, the coal subsidiaries agreed
to future participation in the UMWA 1974 Pension Plan.
As a result of the settlement of the Evergreen Case at an amount lower than
previously accrued in 1993, the Company and Minerals Group recorded a
pretax benefit of $35,650 ($23,173 after tax) in the first quarter of 1996
in their respective financial statements.
(5) In 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 assets for
impairment whenever circumstances indicate that the carrying amount of an
asset may not be recoverable. SFAS No. 121 resulted in a pretax charge to
earnings in the first quarter of 1996 for the Company and Minerals Group's
Coal Operations of $29,948 ($19,466 after tax), of which $26,312 was
included in cost of sales and $3,636 was included in selling, general and
administrative expenses.
(6) The Minerals Group will implement a new accounting standard, Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", in
the fourth quarter of 1997. SFAS No. 128 will require the Minerals Group to
report both basic and diluted earnings per share ("EPS") calculations as
well as provide a reconciliation between basic and diluted EPS
computations. SFAS No. 128 supersedes previous guidance from Accounting
Principles Board Opinion ("APB") No. 15, "Earnings per Share". After the
effective date, all prior-period EPS data presented will be restated to
conform with the provisions of SFAS No. 128.
(7) Certain prior period amounts have been reclassified to conform to current
period financial statement presentation.
(8) In the opinion of management, all adjustments have been made which are
necessary for a fair presentation of results of operations for the periods
reported herein. All such adjustments are of a normal recurring nature.
---
46
<PAGE>
Pittston Minerals Group
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The financial statements of the Pittston Minerals Group ("Minerals Group")
include the balance sheets, results of operations and cash flows of the Pittston
Coal Company ("Coal Operations") and Pittston Mineral Ventures ("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 amounts reflected in
these financial statements are determined based upon methods which management
believes to be a reasonable and an equitable estimate of the cost attributable
to the Minerals Group.
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 is responsible for all
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 each of the Groups.
Accordingly, the Company's consolidated financial statements must be read in
connection with the Minerals Group's financial statements.
The following discussion is a summary of the key factors management considers
necessary in reviewing the Minerals Group's results of operations, liquidity and
capital resources. This discussion must be read in conjunction with the
financial statements and related notes of the Minerals Group and the Company.
<TABLE>
RESULTS OF OPERATIONS
<CAPTION>
Quarter Ended March 31
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales:
Coal Operations $ 154,593 165,468
Mineral Ventures 4,290 4,784
- -------------------------------------------------------------------------------------------------------------------
Total net sales $ 158,883 170,252
- -------------------------------------------------------------------------------------------------------------------
Operating profit:
Coal Operations $ 3,623 4,377
Mineral Ventures (455) 1,174
- -------------------------------------------------------------------------------------------------------------------
Segment operating profit 3,168 5,551
General corporate expense (1,558) (1,374)
- -------------------------------------------------------------------------------------------------------------------
Operating profit $ 1,610 4,177
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
In the first quarter of 1997, the Minerals Group reported net income of $0.9
million compared to $3.0 million in the first quarter of 1996. Operating profit
totaled $1.6 million in 1997 as compared to $4.2 million in the 1996 quarter.
Net sales during the first three months of 1997 decreased $11.4 million (7%)
compared to the corresponding period in 1996. In the first quarter of 1996, the
Minerals Group's operating profit and net income included three non-recurring
items: a $35.7 million benefit from the settlement of the Evergreen lawsuit at
an amount lower than previously accrued ($23.2 million after tax); a $29.9
million charge related to the adoption of a new accounting standard regarding
the impairment of long-lived assets ($19.5 million after tax); and a $2.1
million benefit from the reversal of excess restructuring liabilities ($1.4
million after tax). Excluding these three items, the Minerals Group would have
recorded an operating loss and a net loss of $3.6 million and $3.1 million,
respectively, during the first quarter of 1996.
---
47
<PAGE>
Coal Operations
The following is a table of selected financial data for the Coal Operations on a
comparative basis:
<TABLE>
<CAPTION>
Quarter Ended March 31
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 154,593 165,468
Cost of sales 149,739 192,918
Selling, general and administrative expenses 4,936 8,872
Restructuring and other credits, including litigation accrual -- (37,758)
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 154,675 164,032
Other operating income, net 3,705 2,941
- -------------------------------------------------------------------------------------------------------------------
Operating profit $ 3,623 4,377
- -------------------------------------------------------------------------------------------------------------------
Coal sales (tons):
Metallurgical 1,891 2,045
Utility and industrial 3,229 3,572
- -------------------------------------------------------------------------------------------------------------------
Total coal sales 5,120 5,617
- -------------------------------------------------------------------------------------------------------------------
Production/purchased (tons):
Deep 1,102 1,062
Surface 2,659 2,716
Contract 363 395
- -------------------------------------------------------------------------------------------------------------------
4,124 4,173
Purchased 1,340 1,608
- -------------------------------------------------------------------------------------------------------------------
Total 5,464 5,781
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Coal Operations generated an operating profit of $3.6 million in the first
quarter of 1997, compared to the $4.4 million recorded in the 1996 period.
Operating profit in the first quarter of 1996 included a benefit of $35.7
million from the settlement of the Evergreen lawsuit at an amount lower than
previously accrued and a $2.1 million benefit from the reversal of excess
restructuring liabilities. These benefits were offset, in part, by a $29.9
million charge related to a new accounting standard regarding the impairment of
long-lived assets. This charge was included in cost of sales ($26.3 million) and
selling, general and administrative expenses ($3.6 million). Excluding the three
first quarter 1996 non-recurring items, operating profits from Coal Operations
increased by $7.1 million in the 1997 period.
---
48
<PAGE>
The operating profit of Coal Operations, excluding restructuring and other
non-recurring items, is analyzed as follows:
<TABLE>
<CAPTION>
(In thousands, Quarter Ended March 31
except per ton amounts) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net coal sales (a) $ 152,698 163,907
Current production cost of coal sold (a) 141,572 157,971
- -------------------------------------------------------------------------------------------------------------------
Coal margin 11,126 5,936
Non-coal margin 717 608
Other operating income, net 3,705 2,941
- -------------------------------------------------------------------------------------------------------------------
Margin and other income 15,548 9,485
- -------------------------------------------------------------------------------------------------------------------
Other costs and expenses:
Idle equipment and closed mines 307 258
Inactive employee costs 6,683 7,424
Selling general and administrative expenses 4,935 5,236
- -------------------------------------------------------------------------------------------------------------------
Total other costs and expenses 11,925 12,918
- -------------------------------------------------------------------------------------------------------------------
Operating profit (before restructuring and other credits and
SFAS No. 121) (b) $ 3,623 (3,433)
- -------------------------------------------------------------------------------------------------------------------
Coal margin per ton:
Realization $ 29.82 29.18
Current production costs 27.65 28.13
- -------------------------------------------------------------------------------------------------------------------
Coal margin $ 2.17 1.05
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes non-coal components.
(b) Restructuring and other credits and SFAS No. 121 in 1996 consisted of an
impairment loss related to the adoption of SFAS No. 121 of $29,948 ($26,312 in
cost of sales and $3,636 in selling, general and administrative expenses), a
gain from the settlement of the Evergreen Case of $35,650 and a benefit from
excess restructuring liabilities of $2,108. Both the gain from the Evergreen
Case and the benefit from excess restructuring liabilities are included in the
operating profit of the Coal Operations as "Restructuring and other credits,
including litigation accrual".
Sales volume of 5.1 million tons in the first quarter of 1997 was 0.5 million
tons less than the 5.6 million tons sold in the prior year quarter. Compared to
the first quarter of 1996, 1997 steam coal sales decreased by 0.3 million tons
(10%), to 3.2 million tons, and metallurgical coal sales declined by 0.2 million
tons (8%), to 1.9 million tons. Steam coal sales represented 63% of total volume
in 1997 and 64% in 1996.
Total coal margin of $11.1 million for the first quarter of 1997 represented an
increase of $5.2 million from the comparable 1996 quarter. The growth in coal
margin primarily reflects a $0.64 per ton (2%) increase in realization, combined
with a decrease of $0.48 per ton (2%) in the current production cost of coal
sold. Partially offsetting these improvements in coal margin was a decrease in
first quarter 1997 sales volume of 0.5 million tons. The increase in average
realization per ton was due in part to a favorable change in the metallurgical
coal sales mix which resulted in an increase in the average sales price per ton.
In addition, steam coal realization improved modestly since the majority of
steam coal production is sold under long-term contracts containing price
escalation provisions.
Negotiations with metallurgical customers for the contract year which began
April 1, 1997, are essentially complete. Price settlements to date have been
slightly below those of the previous two years due to a softening in the
metallurgical market. Coal Operations is continuing its strategy of
participating in the metallurgical market when such participation will generate
acceptable profitability and demonstrate long-term viability. As a result, Coal
Operations adjusted, and will continue to adjust, metallurgical coal production
levels as necessary in order to take advantage of opportunities to maximize
metallurgical coal realization.
The current production cost of coal sold in the first quarter 1997 represents a
$0.48 per ton decrease from the 1996 level due to lower costs at surface mines
and a $1.0 million state credit for coal produced in Virginia. These savings
were offset, in part, by higher costs at certain deep mines due to temporary
adverse geological conditions. In addition, current production costs in 1996
were negatively impacted by severe winter weather and higher surface mine costs.
Production in the 1997 quarter of 4.1 million tons, was essentially unchanged
from the 4.2 million tons produced in 1996. Production levels for surface mines
in 1997 have been adjusted to produce at or near contract levels in order to
limit the exposure to the spot market. Production levels in 1996 were negatively
impacted by severe winter weather. First quarter surface production accounted
for 64% and 65% of total production in 1997 and 1996, respectively. Productivity
of 37 tons per man day represented a 4% increase from the 1996 level.
---
49
<PAGE>
Non-coal margin which reflects earnings from the oil, gas and timber businesses,
amounted to $0.7 million, up slightly from the $0.6 million recognized in the
first quarter of 1996. Other operating income, primarily reflecting gains on
sales of properties and equipment and third party royalties, amounted to $3.7
million in the first three months of 1997, $0.8 million higher than the
comparable 1996 period.
Idle equipment and closed mine costs remained consistent at $0.3 million in both
the 1997 and 1996 quarters. Inactive employee costs, which primarily represent
long-term employee liabilities for pension and retiree medical costs, decreased
by $0.7 million to $6.7 million in the 1997 first quarter. This favorable change
primarily reflects lower premiums from the Coal Industry Retiree Health Benefit
Act of 1992 and, to a lesser extent, the use of a higher long-term interest rate
to calculate the present value of the long-term liabilities during 1997 compared
to the rate used in 1996. Selling, general and administrative expenses declined
in the first quarter of 1997 as a result of Coal Operations cost control
efforts. These costs decreased $0.3 million (6%) in 1997 over the 1996 quarter.
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 were a signatory. In 1993, the
Company recognized in its consolidated financial statements the potential
liability that might have resulted from an ultimate adverse judgment in the
Evergreen Case.
In 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 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 Company. The second payment of $7.0 million was paid in 1996
and was funded from cash provided by operating activities. In addition, the coal
subsidiaries agreed to future participation in the UMWA 1974 Pension Plan.
As a result of the settlement of the Evergreen Case at an amount lower than
previously accrued, 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.
In 1996, the Minerals Group adopted 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 assets for impairment whenever circumstances
indicate that the carrying amount for an asset may not be recoverable. SFAS No.
121 resulted in a pretax charge to earnings in 1996 for Coal Operations of $29.9
million ($19.5 million after tax), of which $26.3 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.
---
50
<PAGE>
Coal Operations continues 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 quarter of
1997 for such costs:
<TABLE>
<CAPTION>
Employee
Mine Termination,
Leased and Medical
Machinery Plant and
and Closure Severance
(In thousands) Equipment Costs Costs Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance as of December 31, 1996 $ 376 12,439 25,285 38,100
Payments 132 699 321 1,152
- -------------------------------------------------------------------------------------------------------------------
Balance as of March 31, 1997 $ 244 11,740 24,964 36,948
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Mineral Ventures
The following is a table of selected financial data for Mineral Ventures on a
comparative basis:
<TABLE>
<CAPTION>
(In thousands, except Quarter Ended March 31
ounce and per ounce data) 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Stawell Gold Mine (50% direct interest):
Gold sales $ 4,281 4,702
Other revenue 9 82
- -------------------------------------------------------------------------------------------------------------------
Net sales 4,290 4,784
Cost of sales 3,631 2,966
Selling, general and administrative expenses 298 262
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 3,929 3,228
- -------------------------------------------------------------------------------------------------------------------
Operating profit-Stawell Gold Mine (50% direct interest) 361 1,556
Other operating expense, net (a) (816) (382)
- -------------------------------------------------------------------------------------------------------------------
Operating (loss) profit $ (455) 1,174
- -------------------------------------------------------------------------------------------------------------------
Stawell Gold Mine:
Mineral Ventures' 50% direct interest:
Ounces sold 10,576 11,759
Ounces produced 10,951 12,114
Average per ounce sold (US$):
Realization $ 405 400
Cash cost 327 242
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes $42 and $617 of non-Stawell related cost of sales and selling,
general and administrative expenses, respectively, for the quarter ended March
31, 1997. Includes $1 and $526 of non-Stawell related cost of sales and selling,
general and administrative expenses, respectively, for the quarter ended March
31, 1996. Such costs are reclassified to cost of sales and selling, general and
administrative expenses for presentation in the Minerals Group income statement.
Mineral Ventures, which primarily consists of a 50% direct and a 17% indirect
interest in the Stawell gold mine ("Stawell") in western Victoria, Australia,
generated an operating loss of $0.5 million in the first quarter of 1997 as
compared to an operating profit of $1.2 million in the 1996 period. Mineral
Ventures' 50% direct interest in Stawell's operations generated net sales of
$4.3 million in 1997 compared to $4.8 million in the first quarter of 1996 as
the ounces of gold sold decreased from 11.8 thousand ounces to 10.6 thousand
ounces (10%). Operating profits at Stawell of $0.4 million were $1.2 million
lower than first quarter 1996 and were affected by an $85 per ounce increase
(35%) in the cash cost of gold sold, which was partially offset by a $5 per
ounce increase in the selling price of gold. Stawell's cost of gold sold in 1997
was negatively impacted by temporary unfavorable ground conditions which
increased ore dilution causing a decrease in recovery and an increase in mine
production costs. Accordingly, production decreased 1.2 thousand ounces to 11.0
thousand ounces in the first quarter of 1997.
---
51
<PAGE>
Other operating expense, net, which includes gold exploration costs and equity
earnings from joint ventures, primarily consisting of Mineral Ventures 17%
indirect interest in Stawell's operations, increased by $0.4 million, primarily
due to joint venture losses. Gold exploration costs were essentially unchanged
from 1996, and are being incurred by Mineral Ventures in Nevada and Australia
with its joint venture partner.
In addition to its interests in Stawell, Mineral Ventures has a 17% indirect
interest in the Silver Swan base metals property in Western Australia. During
the second quarter of 1996, it was formally announced that this nickel deposit
was going to be developed as an underground mine with production expected to
commence in mid-1997.
Foreign Operations
A portion of the Minerals Group's financial results is derived from activities
in Australia, which has a local currency other than the U.S. dollar. Because the
financial results of the Minerals Group are reported in U.S. dollars, they are
affected by the changes in the value of the foreign currency in relation to the
U.S. dollar. Rate fluctuations may adversely affect transactions which are
denominated in the Australian dollar. The Minerals Group routinely enters into
such transactions in the normal course of its business. The Company, on behalf
of the Minerals Group, from time to time uses foreign currency exchange forward
contracts to hedge the risks associated with certain transactions denominated in
the Australian dollar. Realized and unrealized gains and losses on these
contracts are deferred and recognized as part of the specific transaction
hedged.
Corporate Expenses
A portion of the Company's corporate general and administrative expenses and
other shared services has been attributed to the Minerals Group based upon
utilization and other methods and criteria which management believes to be a
reasonable and an equitable estimate of the cost attributable to the Minerals
Group. These attributions were $1.6 million and $1.4 million for the first
quarter of 1997 and 1996, respectively.
Other Operating Income, Net
Other operating income, net for the first quarter of 1997 increased $0.5 million
to $3.6 million from the $3.1 million recognized in the first quarter of 1996.
Other operating income, net principally includes royalty income and gains and
losses from sales of coal assets.
Interest Expense
Interest expense for the first quarter of 1997 decreased by $0.4 million to $2.6
million from $3.0 million in the first quarter of 1996. The decrease in interest
expense in 1997 was the result of a lower average effective interest rate on
outstanding debt.
Income Taxes
In both the 1997 and 1996 first quarters, a credit for income taxes was recorded
despite the Minerals Group's generation of a pretax profit in 1996, due to tax
benefits of percentage depletion which can be used by the Company.
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. Management believes this attribution to be
a reasonable and an equitable estimate of the cost attributable to the Minerals
Group.
---
52
<PAGE>
Cash Flow Requirements
Operating activities for the first quarter of 1997 used cash of $12.8 million,
while operations in the first quarter of 1996 used cash of $22.1 million. The
improvement in cash flow reflects higher levels of net income (excluding the
effect of non-recurring items) combined with lower cash requirements for
worker's compensation and other claims. Net income, noncash charges and changes
in operating assets and liabilities in the 1996 first quarter were significantly
affected by three nonrecurring items, a benefit from the settlement of the
Evergreen case at an amount less than originally accrued, a charge related to
the adoption of SFAS 121 and a benefit from the reversal of excess restructuring
liabilities. These items had no effect on cash generated by operations. Cash
flow used by operating activities combined with cash required for capital
expenditures, payments to the Brink's and Burlington Groups, and the net costs
of share activity, resulted in a net decrease in cash and cash equivalents of
$1.7 million and a net increase of Minerals Group borrowings of $36.4 million.
The Minerals Group intends to fund future cash requirements during 1997 with
anticipated cash flows from operations. Shortfalls, if any, will be financed
through the Company's revolving credit agreements or through borrowings from the
Brink's and Burlington Groups.
Capital Expenditures
Cash capital expenditures for the first quarter of 1997 totaled $7.5 million
compared to $5.4 million in the 1996 first quarter, excluding equipment
expenditures that have been or are expected to be financed through capital and
operating leases. During the first quarter of 1997, Coal Operations and Mineral
Ventures spent $6.7 million and $0.8 million, respectively, on capital
expenditures. For the remainder of 1997, the Minerals Group's capital
expenditures, excluding expenditures that have been or are expected to be
financed through capital and operating leases, are expected to range between $25
million and $30 million.
Financing
The Minerals Group intends to fund capital expenditures during the remainder of
1997 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, short-term borrowing arrangements or borrowings from the Brink's and
Burlington Groups.
The Company has a $350.0 million revolving credit agreement with a syndicate of
banks (the "Facility"). The Facility includes a $100.0 million term loan and
also permits additional borrowings, repayments and reborrowings of up to an
aggregate of $250.0 million. As of March 31, 1997, borrowings of $100.0 million
were outstanding under the term loan portion of the Facility with $59.7 million
of additional borrowings outstanding under the remainder of the Facility. All
outstanding amounts under the Facility at March 31, 1997 were attributed to the
Minerals Group.
Debt
Total debt outstanding at March 31, 1997 was $161.7 million, an increase of
$36.7 million from the $125.0 million outstanding at December 31, 1996. These
increased borrowings, which funded cash flow requirements, were made primarily
under the Facility.
Related Party Transactions
At March 31, 1997, under interest bearing borrowing arrangements, the Minerals
Group owed the Brink's Group $12.3 million, a decrease of $11.7 million from the
$24.0 million owed at December 31, 1996. The Minerals Group also owed the
Burlington Group $1.7 million at the end of the first quarter of 1997, $6.0
million lower than the $7.7 million owed at year-end 1996.
At March 31, 1997, the Brink's Group owed the Minerals Group $23.2 million for
tax payments representing the utilization of the Minerals Group's tax benefits
by the Brink's Group, of which $10.0 million is expected to be paid within one
year. Also at March 31, 1997, the Burlington Group owed the Minerals Group $24.1
million for tax payments representing the utilization of the Minerals Group's
tax benefits by the Burlington Group, of which $11.0 million is expected to be
paid in one year.
---
53
<PAGE>
Capitalization
The Company has three classes of common stock: Minerals Stock; Pittston Brink's
Group Common Stock ("Brink's Stock") and Pittston Burlington Group Common Stock
("Burlington Stock") which were designed to provide shareholders with separate
securities reflecting the performance of the Minerals Group, Brink's Group and
Burlington Group, respectively, without diminishing the benefits of remaining a
single corporation or precluding future transactions affecting any of the
Groups. The Minerals Group consists of the Coal Operations and Mineral Ventures
operations of the Company. The Burlington Group consists of the Burlington Air
Express Inc. ("Burlington") operations of the Company. The Brink's Group
consists of the Brink's, Incorporated ("Brink's") and the Brink's Home Security,
Inc. ("BHS") operations of the Company. The Company prepares separate financial
statements for the Minerals, Brink's and Burlington Groups in addition to
consolidated financial information of the Company.
Dividends
The Board of Directors of the Company 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, losses by the Brink's and/or the Burlington Group could affect the
Company's ability to pay dividends in respect of stock relating to the Minerals
Group. Dividends on Minerals Stock are also limited by the Available Minerals
Dividend Amount (as defined in the Company's Articles of Incorporation), which
is adjusted by net income or losses and other equity transactions. At March 31,
1997, the Available Minerals Dividend Amount was at least $21.7 million.
During the first quarters of 1997 and 1996, the Board declared and the Company
paid cash dividends of 16.25 cents per share of Minerals Stock. Dividends paid
on the Series C Cumulative Convertible Preferred Stock (the "Convertible
Preferred Stock") in the 1997 and 1996 first quarters totaled $0.9 million and
$1.1 million, respectively.
The Company pays an annual cumulative dividend on its Convertible Preferred
Stock of $31.25 per share payable quarterly, in cash, in arrears, out of all
funds of the Company legally available therefore, when, as and if declared by
the Board. Such stock bears a liquidation preference of $500 per share, plus an
attributed amount equal to accrued and unpaid dividends thereon.
Pending Accounting Change
The Minerals Group will implement a new accounting standard, Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share", in the
fourth quarter of 1997. SFAS No. 128 will require the Minerals Group to report
both basic and diluted earnings per share ("EPS") calculations as well as
provide a reconciliation between basic and diluted EPS computations. SFAS No.
128 supersedes previous guidance from Accounting Principles Board Opinion
("APB") No. 15, "Earnings per Share". After the effective date, all prior-period
EPS data presented will be restated to conform with the provisions of SFAS No.
128.
---
54
<PAGE>
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant's annual meeting of shareholders was held on May 2, 1997.
(b) Not required.
(c) The following persons were elected for terms expiring in 2000, by the
following votes:
For Withheld
R. G. Ackerman 57,518,088 1,466,869
J. C. Farrell 57,520,083 1,464,874
R. H. Spilman 57,511,277 1,473,680
The selection of KPMG Peat Marwick LLP as independent certified public
accountants to audit the accounts of the Registrant and its subsidiaries
for the year 1997 was approved by the following vote:
Broker
For Against Abstentions Non-votes
58,553,441 253,223 178,293 -0-
Amendment of the Registrant's 1988 Stock Option Plan was approved by the
following vote:
Broker
For Against Abstentions Non-votes
42,095,663 6,751,808 586,313 9,551,173
As a result of the approval of the amendment by the shareholders, the total
number of shares underlying options authorized for grant, but not yet
granted, together with options granted but not yet exercised, under the
1988 Stock Option Plan is 3,664,064, 3,817,349 and 1,039,169 shares of
Brink's Stock, Burlington Stock and Minerals Stock, respectively.
Amendment of the Registrant's Non-Employee Directors' Stock Option Plan was
approved by the following vote:
Broker
For Against Abstentions Non-votes
45,177,074 3,685,823 570,886 9,551,174
As a result of the approval of the amendment by the shareholders, the total
number of shares underlying options authorized for grant, but not yet
granted, together with options granted but not yet exercised, under the
Non-Employee Directors' Stock Option Plan is 295,879, 213,164 and 67,000
shares of Brink's Stock, Burlington Stock and Minerals Stock, respectively.
---
55
<PAGE>
Amendment of the Registrant's Employee Stock Purchase Plan was approved by
the following vote:
Broker
For Against Abstentions Non-votes
56,492,341 2,012,108 335,282 145,226
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
3(b) The Registrant's Bylaws, as amended through May 2, 1997.
10(a)* Statement of Amendments of The Pittston Company's 1988 Stock Option
Plan. Incorporated by reference to Exhibit A to the Registrant's Proxy
Statement filed March 28, 1997.
10(b)* Statement of Amendments of The Pittston Company's Non-Employee
Directors' Stock Option Plan. Incorporated by reference to Exhibit B
to the Registrant's Proxy Statement filed March 28, 1997.
10(c)* Statement of Amendment of The Pittston Company's Employee Stock
Purchase Plan. Incorporated by reference to Exhibit C to the
Registrant's Proxy Statement filed March 28, 1997.
11 Statement re Computation of Per Share Earnings.
(b) A Report on Form 8-K was filed on January 23, 1997, with respect to fourth
quarter 1996 earnings for each of Pittston Brink's Group Common Stock,
Pittston Burlington Group Common Stock and Pittston Minerals Group Common
Stock.
- ------------------
* Management contract or compensatory plan or arrangement.
---
56
<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
May 15, 1997 G. R. ROGLIANO
-----------------------------------------------------
(G. R. Rogliano)
Senior Vice President
(Duly Authorized Officer and
Chief Accounting Officer)
---
57
<TABLE>
The Pittston Company and Subsidiaries Exhibit 11
Computation of Earnings Per Common Share
(In thousands, except per share amounts)
Fully Diluted Earnings Per Common Share:
<CAPTION>
Quarter Ended March 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Pittston Brink's Group:
Net income attributed to common shares $ 15,306 11,839
- -------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 38,189 38,057
Incremental shares of stock options 419 472
- -------------------------------------------------------------------------------------------------------------------
Pro forma shares outstanding 38,608 38,529
- -------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per common share: $ .40 0.31
- -------------------------------------------------------------------------------------------------------------------
Pittston Burlington Group:
Net income attributed to common shares $ 5,088 3,761
- -------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 19,406 19,040
Incremental shares of stock options 459 513
- -------------------------------------------------------------------------------------------------------------------
Pro forma common shares outstanding 19,865 19,553
- -------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per common share $ .26 0.19
- -------------------------------------------------------------------------------------------------------------------
Pittston Minerals Group:
Net income attributed to common shares $ 46 1,955
Preferred stock dividends, net 901 1,065
- -------------------------------------------------------------------------------------------------------------------
Fully diluted net income attributed to common shares $ 947 3,020
- -------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 8,002 7,822
Incremental shares of stock options 56 61
Conversion preferred stock 1,793 2,118
- -------------------------------------------------------------------------------------------------------------------
Pro forma common shares outstanding 9,851 10,001
- -------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per common share (a): $ .01 0.25
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Antidilutive, therefore the same as primary.
Primary Earnings Per Share:
Primary earnings per share can be computed from the information in the
Consolidated Statements of Operations.
---
58
THE PITTSTON COMPANY
BYLAWS
(As amended effective May 2, 1997)
ARTICLE I
NAME
The name of the corporation is The Pittston Company.
ARTICLE II
OFFICES
1. The corporation shall maintain a registered office and a registered
agent in the Commonwealth of Virginia as required by the laws of said
Commonwealth.
2. The corporation shall in addition to its registered office in the
Commonwealth of Virginia establish and main tain an office or offices at such
place or places as the Board of Directors may from time to time find necessary
or desirable.
ARTICLE III
CORPORATE SEAL
The corporate seal of the corporation shall have inscribed thereon the
name of the corporation, the fact of its establishment in the Commonwealth of
Virginia and the words "Corporate Seal". Such seal may be used by causing it or
a facsimile thereof to be impressed, affixed, printed or otherwise reproduced.
ARTICLE IV
MEETINGS OF SHAREHOLDERS
1. Meetings of the shareholders shall be held at such
place, within or without the Commonwealth of Virginia, as
the Board may determine.
<PAGE>
2. The annual meeting of the shareholders shall be held on the second
Wednesday in May at ten o'clock in the forenoon, local time, or on such other
day or at such other time as the Board may determine. At each annual meeting of
the shareholders they shall elect by plurality vote, in accordance with the
Articles of Incorporation and these bylaws, directors to hold office until the
third annual meeting of the shareholders held after their election and their
successors are respectively elected and qualified or as otherwise provided by
statute, the Articles of Incorpora tion or these bylaws. Any other proper
business may be transacted at the annual meeting. The chairman of the meeting
shall be authorized to declare whether any business is properly brought before
the meeting, and, if he shall declare that it is not so brought, such business
shall not be transacted. Without limiting the generality of the foregoing, the
chairman of the meeting may declare that matters relating to the conduct of the
ordinary business operations of the corporation are not properly brought before
the meeting.
3. A majority of the votes entitled to be cast on a matter shall
constitute a quorum for action on that matter at all meetings of the
shareholders, except as otherwise provided by statute, the Articles of
Incorporation or these bylaws. The shareholders entitled to vote thereat,
present in person or by proxy, or the Chairman of the meeting shall have power
to adjourn the meeting from time to time, without notice other than announcement
at the meeting before adjournment (except as otherwise provided by statute). At
such adjourned meeting any business may be transacted which might have been
transacted at the meeting as originally notified.
4. At all meetings of the shareholders each shareholder having the
right to vote shall be entitled to vote in person, or by proxy appointed by an
appointment form signed by such shareholder and bearing a date not more than
eleven months prior to said meeting, unless such form pro vides for a longer
period. All proxies shall be effective when received by the Secretary or other
officer or agent of the corporation authorized to tabulate votes.
5. Except as otherwise provided in the Articles of Incorporation, at
each meeting of the shareholders each shareholder shall have one vote for each
share having voting power, registered in his name on the share transfer books of
the corporation at the record date fixed in accordance with these bylaws, or
otherwise determined, with respect to such meeting. Except as otherwise
expressly provided by statute, the Articles of Incorporation or these bylaws,
action on a matter, other than the election of directors, by a voting group is
approved if a quorum exists and the votes cast within the voting group favoring
the action exceed the votes cast opposing the action.
- 2 -
<PAGE>
6. Except as otherwise prescribed by statute, notice of each meeting of
the shareholders shall be given to each shareholder entitled to vote thereat not
less than 10 nor more than 60 days before the meeting. Such notice shall state
the date, time and place of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.
7. Except as otherwise prescribed by statute, special meetings of the
shareholders for any purpose or purposes may be called by the Chairman of the
Board and shall be called by the Chairman of the Board or the Secretary by vote
of the Board of Directors.
8. Business transacted at each special meeting shall be confined to the
purpose or purposes stated in the notice of such meeting.
9. The order of business at each meeting of the shareholders and the
voting and other procedures to be observed at such meeting shall be determined
by the chairman of such meeting.
10. Subject to the rights of holders of shares of the Preferred Stock of the
corporation, nominations for the election of directors shall be made by the
Board of Direc tors or by any shareholder entitled to vote in elections of
directors. However, any shareholder entitled to vote in elections of directors
may nominate one or more persons for election as directors at an annual meeting
only if written notice of such shareholder's intent to make such nomination or
nominations has been given, either by personal delivery or by United States
registered or certified mail, postage prepaid, to the Secretary of the
corporation not less than 120 and not more than 180 calendar days in advance of
the date on which the corporation's proxy statement was released to shareholders
in connection with the immediately preceding annual meeting. Each notice shall
set forth (i) the name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated, (ii) a representation
that the shareholder is entitled to vote at such meeting and intends to appear
in person or by proxy at the meeting to nominate the person or persons specified
in the notice, (iii) the class and number of shares of the corporation that are
owned by the shareholder, (iv) a description of all arrangements, understandings
or relationships between the shareholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder and (v) such other information
regarding each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pur suant to the proxy rules of the
Securities and Exchange Commission, had the nominee been nominated, or intended
to be nominated, by the Board of Directors, and shall include a consent
signed by each such nominee to serve as a director of the corporation if so
elected. The chairman of the meeting may refuse to acknowledge the nomination of
any person not made in compliance with the foregoing procedure.
- 3 -
<PAGE>
11. To be properly brought before an annual meeting of shareholders,
business must be (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (ii) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors or (iii) otherwise properly brought before the annual meeting by a
shareholder. In addition to any other applicable requirements, for business to
be properly brought before a meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a share holder's notice must be given, either by personal delivery or
by United States registered or certified mail, postage prepaid, to the Secretary
of the corporation not less than 120 and not more than 180 calendar days in
advance of the date on which the corporation's proxy statement was released to
shareholders in connection with the immediately preceding annual meeting. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting, including the
complete text of any resolutions to be presented at such meeting with respect to
such business, and the reasons for conducting such business at the annual
meeting, (ii) the name and address of record of the share holder proposing such
business, (iii) a representation that the shareholder is entitled to vote at
such meeting and intends to appear in person or by proxy at the meeting to
propose the business specified in the notice, (iv) the class and number of
shares of the corporation that are owned by the shareholder, (v) any material
interest of the share holder in such business and (vi) full particulars as to
the relationship, if any, of such shareholder to any other person that such
shareholder knows or has reason to believe intends to bring one or more other
items of business before the meeting. In the event that a shareholder attempts
to bring business before an annual meeting without complying with the foregoing
procedure, the chairman of the meeting may declare to the meeting that the
business was not properly brought before the meeting and, if he shall so
declare, such business shall not be transacted.
- 4 -
<PAGE>
ARTICLE V
DIRECTORS
1. All corporate powers shall be exercised by or under the authority
of, and the business and affairs shall be managed under the direction of, the
Board of Directors, subject to any limitation set forth in the Articles of
Incorporation.
2. The Board shall consist of not less than nine or
more than fifteen members.
3. The Board of Directors shall consist of ten members. The terms of
office of the directors shall be staggered and shall otherwise be determined, as
provided in these bylaws, subject to the Articles of Incorporation and
applicable laws. Such terms shall be divided into three groups, one of which
shall consist of four directors and two of which shall consist of three
directors.
4. The number of directors may at any time be increased or decreased,
within the variable range estab lished by the Articles of Incorporation and
these bylaws, by amendment of these bylaws. In case of any such increase the
Board shall have power to elect any additional director to hold office until the
next shareholders' meeting at which directors are elected. Any decrease in the
number of direc tors shall take effect at the time of such amendment only to the
extent that vacancies then exist; to the extent that such decrease exceeds the
number of such vacancies, the decrease shall not become effective, except as
further vacancies may thereafter occur by expiration of the term of directors at
the next shareholders' meeting at which direc tors are elected, or otherwise.
5. If the office of any director becomes vacant, by reason of death,
resignation, increase in the number of directors or otherwise, the directors
remaining in office, although less than a quorum, may fill the vacancy by the
affirmative vote of a majority of such directors.
6. Any director may resign at any time by delivering written notice of
his resignation to the Board of Directors or the Chairman of the Board. Any such
resignation shall take effect upon such delivery or at such later date as may be
specified therein. Any such notice to the Board may be addressed to it in care
of the Secretary.
- 5 -
<PAGE>
ARTICLE VI
COMMITTEES OF DIRECTORS
There shall be an Executive Committee, an Audit and Ethics Committee, a
Compensation and Benefits Committee, a Finance Committee, a Nominating Committee
and a Pension Committee, and the Board of Directors may create one or more other
committees. Each committee of the Board of Directors shall consist of two or
more directors of the corporation who shall be appointed by, and shall serve at
the pleasure of, the Board. The Executive Committee, to the extent determined by
the Board but subject to limitations expressly prescribed by statute, shall have
and may exercise all the powers and authority of the Board in the management of
the business and affairs of the corporation. The Audit and Ethics Committee, the
Compensation and Benefits Committee, the Finance Committee, the Nominating
Committee and the Pension Committee and each such other committee shall have
such of the powers and authority of the Board as may be determined by the Board.
Each committee shall report its proceedings to the Board when required.
Provisions with respect to the Board of Directors which are applicable to
meetings, actions without meetings, notices and waivers of notice and quorum and
voting requirements shall also be applicable to each committee, except that a
quorum of the Executive Committee shall consist of one third of the number of
members of the Committee, three of whom are not employees of the Company or any
of its subsidiaries.
ARTICLE VII
COMPENSATION OF DIRECTORS
The Board of Directors may fix the compensation of the directors for
their services, which compensation may include an annual fee, a fixed sum and
expenses for attendance at regular or special meetings of the Board or any
committee thereof, pension benefits and such other amounts as the Board may
determine. Nothing herein contained shall be construed to preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor.
ARTICLE VIII
MEETINGS OF DIRECTORS;
ACTION WITHOUT A MEETING
1. Regular meetings of the Board of Directors may be held pursuant
to resolutions from time to time adopted by the Board, without further notice
of the date, time, place or purpose of the meeting.
- 6 -
<PAGE>
2. Special meetings of the Board of Directors may be called by the
Chairman of the Board on at least 24 hours' notice to each director of the date,
time and place thereof, and shall be called by the Chairman of the Board or by
the Secretary on like notice on the request in writing of a majority of the
total number of directors in office at the time of such request. Except as may
be otherwise required by the Articles of Incorporation or these bylaws, the pur
pose or purposes of any such special meeting need not be stated in such notice.
3. The Board of Directors may hold its meetings, have one or more
offices and, subject to the laws of the Common wealth of Virginia, keep the
share transfer books and other books and records of the corporation, within or
without said Commonwealth, at such place or places as it may from time to time
determine.
4. At each meeting of the Board of Directors the presence of a majority
of the total number of directors in office immediately before the meeting begins
shall be necessary and sufficient to constitute a quorum for the transaction of
business, and, except as otherwise provided by the Articles of Incorporation or
these bylaws, if a quorum shall be present the affirmative vote of a majority of
the directors present shall be the act of the Board.
5. Any action required or permitted to be taken at any meeting of the
Board of Directors may be taken without a meeting if one or more written
consents stating the action taken, signed by each director either before or
after the action is taken, are included in the minutes or filed with the
corporate records. Any or all directors may participate in any regular or
special meeting of the Board, or conduct such meeting through the use of, any
means of communication by which all directors participating may simultaneously
hear each other, and a director participating in a meeting by this means shall
be deemed to be present in person at such meeting.
ARTICLE IX
OFFICERS
1. The officers of the corporation shall be chosen by the Board of
Directors and shall be a Chairman of the Board, a Vice Chairman of the Board, a
President, one or more Senior Vice Presidents, one or more Vice Presidents, a
General Counsel, a Treasurer and a Secretary. The Board may also appoint a
Controller and one or more Executive Vice Presidents, Assistant Treasurers,
Assistant Controllers and Assistant Secretaries, and such other officers as it
may deem necessary or advisable. Any number of offices may be held by the same
person. The Board may authorize an officer to appoint one or more other officers
or assistant officers. The officers shall hold their offices for such terms and
shall exercise such powers and perform such duties as shall be prescribed from
time to time by the Board or by direction of an officer authorized by the Board
to prescribe duties of other officers.
- 7 -
<PAGE>
2. The Board of Directors, at its first meeting after the annual
meeting of shareholders, shall choose a Chairman of the Board from among the
directors and shall choose the remaining officers who need not be members of the
Board.
3. The salaries of all officers of the corporation
shall be fixed by the Board of Directors, or in such manner
as the Board may prescribe.
4. The officers of the corporation shall hold office until their
successors are chosen and qualified. Any offi cer may at any time be removed by
the Board of Directors or, in the case of an officer appointed by another
officer as provided in these bylaws, by such other officer. If the office of any
officer becomes vacant for any reason, the vacancy may be filled by the Board
or, in the case of an officer so appointed, by such other officer.
5. Any officer may resign at any time by delivering notice of his
resignation to the Board of Directors or the Chairman of the Board. Any such
resignation may be effec tive when the notice is delivered or at such later date
as may be specified therein if the corporation accepts such later date. Any such
notice to the Board shall be addressed to it in care of the Chairman of the
Board or the Secretary.
- 8 -
<PAGE>
ARTICLE X
CHAIRMAN OF THE BOARD
The Chairman of the Board shall preside at meetings of the shareholders
and of the Board of Directors. He shall be the chief executive officer of the
corporation. Subject to the supervision and direction of the Board of Directors,
he shall be responsible for managing the affairs of the corpo ration. He shall
have supervision and direction of all of the other officers of the corporation
and shall have the powers and duties usually and customarily associated with the
office of Chairman of the Board.
ARTICLE XI
PRESIDENT
The President shall be the chief operating officer of the corporation
and shall perform such duties as may be prescribed by these bylaws, or by the
Chairman of the Board. He shall, in case of the absence or inability of the
Chair man of the Board to act, have the powers and perform the duties of the
Chairman of the Board.
ARTICLE XII
VICE CHAIRMAN OF THE BOARD, EXECUTIVE VICE PRESIDENTS,
SENIOR VICE PRESIDENTS AND VICE PRESIDENTS
1. The Vice Chairman of the Board, in case of the absence of the
Chairman of the Board and the President, shall preside at meetings of the
shareholders and of the Board of Directors. He shall have such other powers and
duties as may be delegated to him by the Chairman of the Board.
2. The Executive Vice Presidents, the Senior Vice Presidents and the
Vice Presidents shall have such powers and duties as may be delegated to them by
the Chairman of the Board.
- 9 -
<PAGE>
ARTICLE XIII
GENERAL COUNSEL
The General Counsel shall be the chief legal officer of the corporation
and the head of its legal department. He shall, in general, perform the duties
incident to the office of General Counsel and shall have such other powers and
duties as may be delegated to him by the Chairman of the Board.
ARTICLE XIV
TREASURER
The Treasurer shall be responsible for the care and custody of all the
funds and securities of the corporation. He shall render an account of the
financial condition and operations of the corporation to the Board of Directors
or the Chairman of the Board as often as the Board or the Chairman of the Board
shall require. He shall have such other powers and duties as may be delegated to
him by the Chairman of the Board.
ARTICLE XV
CONTROLLER
The Controller shall maintain adequate records of all assets,
liabilities and transactions of the corporation, and shall see that adequate
audits thereof are currently and regularly made. He shall disburse the funds of
the corpora tion in payment of the just obligations of the corporation, or as
may be ordered by the Board of Directors, taking proper vouchers for such
disbursements. He shall have such other powers and duties as may be delegated to
him by the Chairman of the Board.
ARTICLE XVI
SECRETARY
The Secretary shall act as custodian of the minutes of all meetings of
the Board of Directors and of the share holders and of the committees of the
Board of Directors. He shall attend to the giving and serving of all notices of
the corporation, and he or any Assistant Secretary shall attest the seal of the
corporation upon all contracts and instru ments executed under such seal. He
shall also be custodian of such other books and records as the Board or the
Chairman of the Board may direct. He shall have such other powers and duties as
may be delegated to him by the Chairman of the Board.
- 10 -
<PAGE>
ARTICLE XVII
TRANSFER AGENTS AND REGISTRARS;
CERTIFICATES OF STOCK
1. The Board of Directors may appoint one or more transfer agents and
one or more registrars for shares of capital stock of the corporation and may
require all cer tificates for such shares, or for options, warrants or other
rights in respect thereof, to be countersigned on behalf of the corporation by
any such transfer agent or by any such registrar.
2. The certificates for shares of the corporation shall be numbered and
shall be entered on the books of the corporation as they are issued. Each share
certificate shall state on its face the name of the corporation and the fact
that it is organized under the laws of the Commonwealth of Virginia, the name of
the person to whom such certificate is issued and the number and class of shares
and the designation of the series, if any, represented by such certificate and
shall be signed by the Chairman of the Board, Vice Chairman of the Board, the
President, an Executive or Senior Vice President or a Vice President and by the
Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary. Any
and all signatures on such certificates, including signatures of officers,
transfer agents and registrars may be facsimile. In case any officer who has
signed or whose facsimile signature has been placed on any such certificate
shall have ceased to be such officer before such certificate is issued, then,
unless the Board of Directors shall otherwise determine and cause notification
thereof to be given to such transfer agent and registrar, such certificate shall
nevertheless be valid and may be issued by the corporation (and by its transfer
agent) and registered by its registrar with the same effect as if he were such
officer at the date of issue.
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ARTICLE XVIII
TRANSFERS OF STOCK
1. All transfers of shares of the corporation shall be made on the
books of the corporation by the registered holders of such shares in person or
by their attorneys lawfully constituted in writing, or by their legal
representatives.
2. Certificates for shares of stock shall be
surrendered and canceled at the time of transfer.
3. To the extent that any provision of the Amended and Restated Rights
Agreement dated as of June 30, 1993, between the corporation and Chemical Bank,
as Rights Agent, imposes a restriction on the transfer of any securities of the
corporation, including, without limitation, the Rights, as defined in the
Amended and Restated Rights Agreement, such restriction is hereby authorized.
ARTICLE XIX
FIXING RECORD DATE
In order to make a determination of shareholders for any purpose,
including those who are entitled to notice of and to vote at any meeting of
shareholders or any adjourn ment thereof, or entitled to express consent in
writing to any corporate action without a meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, the Board of Directors may fix in advance a record date which shall
not be more than 70 days before the meeting or other action requiring such
determination. Except as otherwise expressly prescribed by statute, only
shareholders of record on the date so fixed shall be entitled to such notice of,
and to vote at, such meeting and any adjournment thereof, or entitled to express
such consent, or entitled to receive payment of such dividend or other
distribution or allotment of rights, or entitled to exercise such rights in
respect of change, conversion or exchange, or to take such other action, as the
case may be, notwithstanding any trans fer of shares on the share transfer books
of the corporation after any such record date fixed as aforesaid.
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ARTICLE XX
REGISTERED SHAREHOLDERS
The corporation shall be entitled to treat the holder of record of any
share or shares as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share on
the part of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by the laws of the Commonwealth of
Virginia.
ARTICLE XXI
CHECKS
All checks, drafts and other orders for the payment of money and all
promissory notes and other evidences of indebtedness of the corporation shall be
signed in such manner as may be determined by the Board of Directors.
ARTICLE XXII
FISCAL YEAR
The fiscal year of the corporation shall end on December 31 of each
year.
ARTICLE XXIII
NOTICES AND WAIVER
1. Whenever by statute, the Articles of Incorporation or these bylaws
it is provided that notice shall be given to any director or shareholder, such
provision shall not be construed to require personal notice, but such notice may
be given in writing, by mail, by depositing the same in the United States mail,
postage prepaid, directed to such shareholder or director at his address as it
appears on the records of the corporation, or, in default of other address, to
such director or shareholder at the registered office of the corporation in the
Commonwealth of Virginia, and, except for any meeting of directors to be held
within 48 hours after such notice, shall be deemed to be given at the time when
the same shall be thus deposited. Notice of special meetings of the Board of
Directors may also be given to any director by telephone, by telex or telecopy,
or by telegraph or cable, and in case of notice so given otherwise than by
telephone, the notice shall be deemed to be given at the time such notice,
addressed to such director at the address hereinabove provided, shall be
acknowledged by reply telex or telecopy or shall be transmitted or delivered to
and accepted by an authorized telegraph or cable office, as the case may be.
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2. Whenever by statute, the Articles of Incorporation or these bylaws a
notice is required to be given, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, and filed
with the corporate records or the minutes of the meeting, shall be equivalent to
notice. Attendance of any share holder or director at any meeting thereof shall
constitute a waiver of notice of such meeting by such shareholder or director,
as the case may be, except as otherwise provided by statute.
ARTICLE XXIV
BYLAWS
The Board of Directors shall have the power to make, amend or repeal
bylaws of the corporation.
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