UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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, Glen Allen, Virginia 23058-4229
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 553-3600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
As of November 11, 1997, 41,129,679 shares of $1 par value Pittston Brink's
Group Common Stock, 20,378,000 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.
<PAGE>
<TABLE>
Part I - Financial Information
The Pittston Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
<CAPTION>
September 30 December 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 59,992 41,217
Short-term investments, at lower of cost or market 1,662 1,856
Accounts receivable (net of estimated amount uncollectible:
1997 - $18,734; 1996 - $16,116) 550,132 475,859
Inventories, at lower of cost or market 52,743 37,127
Prepaid expenses 41,338 32,798
Deferred income taxes 49,055 49,557
- -------------------------------------------------------------------------------------------------------------------
Total current assets 754,922 638,414
Property, plant and equipment, at cost (net of accumulated depreciation,
depletion and amortization:
1997 - $513,828 1996 - $457,756) 636,289 540,851
Intangibles, net of amortization 302,937 317,062
Deferred pension assets 123,230 124,241
Deferred income taxes 53,569 58,690
Other assets 145,100 153,345
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 2,016,047 1,832,603
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 31,098 31,669
Current maturities of long-term debt 12,943 5,450
Accounts payable 276,064 271,296
Accrued liabilities 302,180 280,276
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 622,285 588,691
Long-term debt, less current maturities 269,146 158,837
Postretirement benefits other than pensions 231,211 226,697
Workers' compensation and other claims 110,515 116,893
Deferred income taxes 15,512 15,075
Other liabilities 114,030 119,703
Shareholders' equity:
Preferred stock, par value $10 per share: Authorized: 2,000 shares
$31.25 Series C Cumulative Convertible Preferred Stock;
Issued: 1997 - 114 shares; 1996 - 115 shares 1,138 1,154
Pittston Brink's Group Common Stock, par value $1 per share:
Authorized: 100,000 shares;
Issued: 1997 - 41,130 shares; 1996 - 41,296 shares 41,130 41,296
Pittston Burlington Group Common Stock, par value $1 per share:
Authorized: 50,000 shares;
Issued: 1997 - 20,378 shares; 1996 - 20,711 shares 20,378 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 433,204 400,135
Retained earnings 326,405 273,118
Equity adjustment from foreign currency translation (34,802) (21,188)
Employee benefits trust, at market value (142,511) (116,925)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 653,348 606,707
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,016,047 1,832,603
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
The Pittston Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 150,998 177,195 467,693 522,715
Operating revenues 719,503 605,199 2,010,638 1,747,973
- ------------------------------------------------------------------------------------------------------------------
Net sales and operating revenues 870,501 782,394 2,478,331 2,270,688
Costs and expenses:
Cost of sales 144,338 167,907 451,586 533,236
Operating expenses 583,027 497,743 1,655,280 1,454,058
Restructuring and other credits,
including litigation accrual - - - (37,758)
Selling, general and administrative expenses 85,478 74,711 255,576 218,033
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 812,843 740,361 2,362,442 2,167,569
Other operating income, net 2,898 3,684 9,349 13,742
- -------------------------------------------------------------------------------------------------------------------
Operating profit 60,556 45,717 125,238 116,861
Interest income 1,067 880 3,077 2,216
Interest expense (7,282) (3,409) (19,268) (10,533)
Other expense, net (810) (2,506) (5,098) (6,912)
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 53,531 40,682 103,949 101,632
Provision for income taxes 17,194 11,638 31,608 28,542
- -------------------------------------------------------------------------------------------------------------------
Net income 36,337 29,044 72,341 73,090
Preferred stock dividends, net (789) 146 (2,592) (773)
- -------------------------------------------------------------------------------------------------------------------
Net income attributed to common shares $ 35,548 29,190 69,749 72,317
- -------------------------------------------------------------------------------------------------------------------
Pittston Brink's Group:
Net income attributed to common shares $ 19,372 15,841 52,417 41,714
- -------------------------------------------------------------------------------------------------------------------
Net income per common share $ .51 .41 1.37 1.09
- -------------------------------------------------------------------------------------------------------------------
Cash dividend per common share $ .025 .025 .075 .075
- -------------------------------------------------------------------------------------------------------------------
Pittston Burlington Group:
Net income attributed to common shares $ 15,993 10,705 19,168 23,214
- -------------------------------------------------------------------------------------------------------------------
Net income per common share:
Primary $ .82 .56 .99 1.21
Fully diluted .79 .56 .95 1.21
- -------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .06 .06 .18 .18
- -------------------------------------------------------------------------------------------------------------------
Pittston Minerals Group:
Net income (loss) attributed to common
shares $ 183 2,644 (1,836) 7,389
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share:
Primary $ .02 .33 (.23) .94
Fully diluted .02 .25 (.23) .82
- -------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .1625 .1625 .4875 .4875
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
The Pittston Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended September 30
1997 1996
- -------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 72,341 73,090
Adjustments to reconcile net income to net cash provided by
operating activities:
Noncash charges and other write-offs - 29,948
Depreciation, depletion and amortization 96,467 83,315
Provision for aircraft heavy maintenance 25,009 23,980
Provision for deferred income taxes 5,306 10,496
Provision for pensions, noncurrent 725 1,043
Provision for uncollectible accounts receivable 6,837 5,313
Equity in loss (earnings) of unconsolidated affiliates,
net of dividends received 3,727 (1,364)
Other operating, net 7,454 5,401
Change in operating assets and liabilities, net of effects of acquisitions
and dispositions:
Increase in accounts receivable (58,484) (20,199)
(Increase) decrease in inventories (15,532) 4,999
Increase in prepaid expenses (4,984) (1,105)
Increase (decrease) in accounts payable and accrued liabilities 16,389 (22,851)
Increase in other assets (6,619) (7,622)
Decrease in other liabilities (5,630) (49,437)
Decrease in workers' compensation and other claims, noncurrent (6,377) (9,659)
Other, net (650) 338
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 135,979 125,686
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (133,911) (116,294)
Aircraft heavy maintenance expenditures (24,790) (15,215)
Proceeds from disposal of property, plant and equipment 5,455 11,732
Acquisitions, net of cash acquired, and related contingency payments (65,271) (971)
Other, net 8,925 6,519
- -------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (209,592) (114,229)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 144,137 20,375
Reductions of debt (31,090) (9,510)
Repurchase of stock (12,373) (8,268)
Proceeds from exercise of stock options and employee stock purchase plan 4,060 3,463
Dividends paid (12,346) (13,242)
Cost of stock proposal - (2,475)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 92,388 (9,657)
- -------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 18,775 1,800
Cash and cash equivalents at beginning of period 41,217 52,823
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 59,992 54,623
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<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 BAX Global Inc. ("BAX Global" formerly
Burlington Air Express Inc.) 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, the 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 common shares outstanding used in the net income per share
computations were as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brink's Stock 38,309 38,264 38,243 38,158
Burlington Stock:
Primary 19,470 19,283 19,449 19,161
Fully diluted 20,140 19,283 20,125 19,161
Minerals Stock:
Primary 8,096 7,926 8,055 7,872
Fully diluted 9,899 9,819 8,055 9,920
- ----------------------------------------------------------------------------------------
</TABLE>
The average common 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 2,788 (3,256 in 1996), 975 (1,389 in 1996) and 287 (446 in 1996),
respectively, at September 30, 1997.
For the quarter and nine months ended September 31, 1996, fully diluted net
income per share for the Burlington Group is considered to be the same as
primary since the effect of common stock equivalents was either
antidilutive or insignificant.
For the quarter and nine months ended September 30, 1997, fully diluted net
income (loss) per share for the Minerals Group is considered to be the same
as primary since the effect of common stock equivalents and the assumed
conversion of preferred stock was either antidilutive or insignificant.
(3) Depreciation, depletion and amortization of property, plant and equipment
in the third quarter and nine-month period of 1997 totaled $28,978 ($23,601
in 1996) and $77,476 ($67,850 in 1996), respectively.
<PAGE>
(4) Cash payments made for interest and income taxes (net of refunds received)
were as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest $ 7,146 3,264 19,424 11,285
- ----------------------------------------------------------------------------------------
Income taxes $ 7,771 7,567 25,335 15,749
- ----------------------------------------------------------------------------------------
</TABLE>
During the nine months ended September 30, 1997 and 1996, capital lease
obligations of $3,074 and $2,130, respectively, were incurred for leases of
property, plant and equipment.
(5) In 1988, the trustees of certain pension and benefit trust funds (the
"Trust Funds") established under collective bargaining agreements with the
United Mine Workers of America ("UMWA") brought an action (the "Evergreen
Case") against the Company and a number of its coal subsidiaries, claiming
that the defendants were obligated to contribute to such Trust Funds in
accordance with the provisions of the 1988 and subsequent National
Bituminous Coal Wage Agreements, to which neither the Company nor any of
its subsidiaries 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 and third payments were paid in the
third quarters of 1996 and 1997, respectively, and 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 $35,650
($23,173 after-tax) in the first quarter of 1996 in its consolidated
financial statements.
(6) In 1996, the Company 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
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 Brink's Group and the BHS segment for the first nine months of 1997 and
1996 by $3,567 and $3,472, respectively, and for the third quarter of 1997
and 1996 by $1,199 and $1,296, respectively. The effect of this change
increased net income per common share of the Brink's Group by $0.06 in the
first nine months of 1997 and 1996, and by $0.02 in the third quarter of
1997 and 1996.
<PAGE>
(8) Based on demonstrated retention of customers, beginning in the first
quarter of 1997, BHS prospectively adjusted its annual depreciation rate
for capitalized subscribers' installation costs. This change more
accurately matches depreciation expense with monthly recurring revenue
generated from customers. This change in accounting estimate reduced
depreciation expense for capitalized installation costs for the quarter and
nine months ended September 30, 1997 for the Brink's Group and the BHS
segment by $2,262 and $6,484, respectively. The effect of this change
increased net income of the Brink's Group in the third quarter and first
nine months of 1997 by $1,471 ($0.04 per common share) and $4,215 ($0.11
per common share), respectively.
(9) During the three months ended September 30, 1997 and 1996, the Company
purchased no shares of Brink's Stock; 200,200 shares (at a cost of $4,855)
and 15,300 shares (at a cost of $280), respectively, of Burlington Stock;
and no shares of Minerals Stock, under the share repurchase program
authorized by the Board of Directors of the Company (the "Board"). During
the nine months ended September 30, 1997 and 1996, the Company purchased
166,000 shares (at a cost of $4,347) and no shares, respectively, of
Brink's Stock; 332,300 shares (at a cost of $7,405) and 20,300 shares (at a
cost of $373), respectively, of Burlington Stock; and no shares of Minerals
Stock, under the share repurchase program.
(10) During the quarter and nine months ended September 30, 1997, the Company
purchased 1,515 shares (at a cost of $617) of its Series C Cumulative
Convertible Preferred Stock (the "Convertible Preferred Stock"). During the
quarter and nine months ended September 30, 1996, the Company purchased
10,320 shares (at a cost of $3,922) and 20,920 shares (at a cost of
$7,897), respectively of the Convertible Preferred Stock. Preferred
dividends included on the Company's Statement of Operations for the quarter
and nine months ended September 30, 1997 are net of $108, which is the
excess of the carrying amount of the Convertible Preferred Stock over the
cash paid to holders of the stock. Preferred dividends included on the
Company's Statement of Operations for the quarter and nine months ended
September 30, 1996, are net of $1,020 and $2,120, respectively, which is
the excess of the carrying amount of the Convertible Preferred Stock over
the cash paid to holders of the stock.
(11) The Company will implement the following new accounting standards.
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", will be implemented 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". On the effective date,
all prior-period EPS data presented will be restated to conform with
the provisions of SFAS No. 128.
SFAS No. 130, "Reporting Comprehensive Income", will be implemented in
the first quarter of 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in
financial statements. Comprehensive income generally represents all
changes in shareholders' equity except those resulting from
investments by or distributions to shareholders. With the exception of
foreign currency translation adjustments, such changes are not
significant to the Company.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", will be implemented in the financial statements for the
year ended December 31, 1998. SFAS No. 131 requires publicly-held
companies to report financial and descriptive information about
operating segments in financial statements issued to shareholders for
interim and annual periods. The SFAS also requires additional
disclosures with respect to products and services, geographic areas of
operation, and major customers. The adoption of this SFAS is not
expected to have a material impact on the financial statements of the
Company.
<PAGE>
(12) Certain prior period amounts have been reclassified to conform to the
current period's financial statement presentation.
(13) 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.
<PAGE>
The Pittston Company and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
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"), BAX Global Inc. ("BAX Global"
formerly Burlington Air Express Inc.), 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.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
(In thousands) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Net sales and operating revenues:
<S> <C> <C> <C> <C>
Brink's $ 234,004 192,491 667,753 551,756
BHS 46,071 39,531 132,481 114,881
BAX Global 439,428 373,177 1,210,404 1,081,336
Coal Operations 145,616 172,603 454,282 507,967
Mineral Ventures 5,382 4,592 13,411 14,748
- -------------------------------------------------------------------------------------------------------------------
Net sales and operating revenues $ 870,501 782,394 2,478,331 2,270,688
- -------------------------------------------------------------------------------------------------------------------
Operating profit (loss):
Brink's $ 20,861 16,033 55,805 37,935
BHS 13,402 11,509 39,454 34,012
BAX Global 28,926 20,466 39,117 45,479
Coal Operations 2,640 5,393 7,495 14,960
Mineral Ventures (347) (324) (2,112) 1,425
- -------------------------------------------------------------------------------------------------------------------
Segment operating profit 65,482 53,077 139,759 133,811
General corporate expense (4,926) (7,360) (14,521) (16,950)
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 60,556 45,717 125,238 116,861
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
In the third quarter of 1997, the Company reported net income of $36.3 million
compared with $29.0 million in the third quarter of 1996. Operating profit
totaled $60.6 million in the 1997 third quarter compared with $45.7 million in
the prior year third quarter. Increased operating profits at Brink's ($4.8
million), BHS ($1.9 million) and BAX Global ($8.5 million) as well as lower
general corporate expenses ($2.4 million), were offset by lower operating
results at Coal Operations ($2.8 million) and Mineral Ventures. 1996 general
corporate expenses included $2.7 million related to the relocation of the
Company's headquarters to Richmond, Virginia.
<PAGE>
In the first nine months of 1997, the Company reported net income of $72.3
million compared with $73.1 million in the first nine months of 1996. Operating
profit totaled $125.2 million in the first nine months of 1997 compared with
$116.9 million in the prior year period. Coal Operations' first nine months of
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). Increased operating profits in the
first nine months of 1997 at Brink's ($17.9 million) and BHS ($5.4 million) were
offset by decreases in operating results at BAX Global ($6.4 million, including
a $12.5 million charge for consulting costs related to the redesign of BAX
Global's business processes and new information systems architecture), Coal
Operations ($7.5 million) and Mineral Ventures ($3.5 million).
Brink's
The following is a table of selected financial data for Brink's on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
(In thousands) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Operating revenues:
<S> <C> <C> <C> <C>
North America (United States & Canada) $ 123,363 106,156 351,752 308,271
International subsidiaries 110,641 86,335 316,001 243,485
- -------------------------------------------------------------------------------------------------------------------
Total operating revenues 234,004 192,491 667,753 551,756
Operating expenses 184,974 154,527 527,471 447,177
Selling, general and administrative expenses 28,814 23,579 84,618 68,122
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 213,788 178,106 612,089 515,299
Other operating income, net 645 1,648 141 1,478
- -------------------------------------------------------------------------------------------------------------------
Operating profit:
North America (United States & Canada) 10,783 9,292 28,195 23,383
International operations 10,078 6,741 27,610 14,552
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 20,861 16,033 55,805 37,935
- -------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 10,410 6,484 24,768 18,221
- -------------------------------------------------------------------------------------------------------------------
Cash capital expenditures $ 15,520 8,514 35,625 24,518
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Brink's consolidated revenues totaled $234.0 million in the third quarter of
1997 compared with $192.5 million in the third quarter of 1996. Brink's
operating profit of $20.9 million in the third quarter of 1997 represented a
$4.9 million (31%) increase over the $16.0 million operating profit reported in
the prior year quarter. The revenue increase of $41.5 million (22%) was offset,
in part, by an increase in operating expenses and selling, general and
administrative expenses of $35.7 million and a decrease in other operating
income of $1.0 million.
Revenues from North American operations (United States and Canada) increased
$17.2 million (16%) to $123.4 million in the 1997 third quarter from $106.2
million in the prior year quarter. North American operating profit increased
$1.5 million (16%) to $10.8 million in the current year quarter from $9.3
million in the third quarter of 1996. The operating profit improvement primarily
resulted from improved armored car operations, which include ATM services.
Revenues from international subsidiaries increased $24.3 million to $110.6
million in the 1997 third quarter from $86.3 million in the comparable 1996
quarter. Operating profits from international subsidiaries and minority-owned
affiliates amounted to $10.1 million in the current year third quarter compared
to $6.7 million in the prior year third quarter. More than half of the revenue
and operating profit increases were due to the consolidation of the results of
Brink's Venezuelan subsidiary, Custodia y Traslado de Valores C.A.
("Custravalca"), where Brink's increased its ownership from 15% to 61% during
January 1997. However, non-operating expenses, including net interest and
minority ownership expense net of foreign translation gains associated with the
acquisition, offset more than one half of the operating profit generated by
Custravalca. The Latin America region, whose operating profits increased $1.6
million during the third quarter 1997, benefited from increased ownership
positions in Venezuela and Peru. The region's results also reflected
improvements in Colombia and Chile, offset, in part, by a decrease in results in
Mexico and start-up operations in Argentina. In Europe, operating profits
increased $1.2 million due primarily to improved performance in the Netherlands
partially offset by lower results of the 38% owned affiliate in France. The
operating profits in the Asia/Pacific region in the third quarter of 1997 were
essentially unchanged from the comparable quarter of 1996. Operating profits
from Brink's international diamond and jewelry operations increased slightly in
the third quarter of 1997 versus the same period in 1996.
Brink's consolidated revenues totaled $667.8 million in the first nine months of
1997 compared with $551.8 million in the first nine months of 1996. Brink's
operating profit of $55.8 million in the first nine months of 1997 represented a
$17.9 million (47%) increase over the $37.9 million operating profit reported in
the prior year period. The revenue increase of $116.0 million (21%) in the first
nine months of 1997 was offset, in part, by an increase in operating expenses
and selling, general and administrative expenses of $96.8 million and a decrease
in other operating income of $1.3 million.
Revenues from North American operations increased $43.5 million (14%) to $351.8
million in the first nine months of 1997 from $308.3 million in the same period
of 1996. North American operating profit increased $4.8 million (21%) to $28.2
million in the current year period from $23.4 million in the same period of
1996. The operating profit improvement for the nine months of 1997 primarily
resulted from improved armored car operations, which includes ATM services, and
to a lesser extent, improved currency processing operations.
Revenues from international subsidiaries increased $72.5 million to $316.0
million in the first nine months of 1997 from $243.5 million in the first nine
months of 1996. Operating profits from international subsidiaries and
minority-owned affiliates amounted to $27.6 million in the current year period
compared to $14.6 million in the prior year period. More than half of the
revenue and operating profit increases were due to the consolidation of the
results of Brink's Venezuelan subsidiary which benefited the Latin America
region. However, non-operating expenses, including net interest and minority
ownership expense net of foreign translation gains associated with the
acquisition, offset more than one half of the operating profit generated by
Custravalca. Results in Latin America also reflected improvements in Chile and
Colombia offset, in part, by lower results in Brazil and Mexico and by start-up
operations in Argentina. Operating profits in Europe increased $1.9 million in
the first nine months of 1997 due to improved results in most countries, largely
offset by unfavorable results in France. Operating profits in the Asia/Pacific
region remained essentially unchanged, while Brink's international diamond and
jewelry operations showed improved performance in the nine-month period ended
September 30, 1997.
In conjunction with Brink's increased ownership in Custravalca from 15% to 61%
in the first quarter of 1997, Brink's also acquired a further 31% interest in
Brink's Peru S.A., increasing its ownership position in this affiliate to 36%.
Brink's also acquired the remaining interests in Brink's Hong Kong, Brink's
Taiwan and Brink's Holland, increasing ownership in these subsidiaries to 100%,
and acquired additional interests in Brink's Bolivia and Brink's Chile.
<PAGE>
BHS
The following is a table of selected financial data for BHS on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
(Dollars in thousands) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 46,071 39,531 132,481 114,881
Operating expenses 22,908 20,452 66,060 59,810
Selling, general and administrative expenses 9,761 7,570 26,967 21,059
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 32,669 28,022 93,027 80,869
- -------------------------------------------------------------------------------------------------------------------
Operating profit $ 13,402 11,509 39,454 34,012
- -------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 7,880 7,839 21,662 22,083
- -------------------------------------------------------------------------------------------------------------------
Cash capital expenditures $ 19,774 14,702 53,853 44,751
- -------------------------------------------------------------------------------------------------------------------
Annualized recurring revenues (a) $ 149,524 121,254
- -------------------------------------------------------------------------------------------------------------------
Number of subscribers:
Beginning of period 482,065 412,591 446,505 378,659
Installations 28,000 23,327 80,388 72,030
Disconnects (9,691) (8,125) (26,519) (22,896)
- -------------------------------------------------------------------------------------------------------------------
End of period 500,374 427,793 500,374 427,793
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Annualized recurring 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 $6.6 million (17%) to $46.1 million in the third
quarter of 1997 from $39.5 million in the 1996 quarter. In the first nine months
of 1997, revenues for BHS increased by $17.6 million (15%) to $132.5 million
from $114.9 million in the first nine months of 1996. The increase in revenues
in both periods was predominantly from higher ongoing monitoring and service
revenues, reflecting a 17% increase in the subscriber base as well as higher
average monitoring fees. As a result of such growth, annualized recurring
revenues at the end of the third quarter of 1997 grew 23% over the amount in
effect at the end of the third quarter of 1996. The increase in monitoring and
service revenues for the 1997 nine-month period was partially offset by a
decrease in installation revenue. Installation revenue for the third quarter of
1997 increased slightly over the same 1996 period. While the number of new
security system installations has increased, the revenue per installation has
decreased in both the three and nine-month periods ended September 30, 1997, as
compared to the 1996 periods, due to continuing aggressive installation pricing
and marketing by competitors.
Operating profit of $13.4 million in the third quarter of 1997 represented an
increase of $1.9 million (17%) compared to the $11.5 million earned in the 1996
third quarter. In the first nine months of 1997, operating profit increased $5.5
million (16%) to $39.5 million from $34.0 million earned in the first nine
months of 1996. These increases included a $2.3 million and $6.5 million
reduction in depreciation expense in the third quarter and first nine months of
1997, respectively, resulting from a change in estimate (discussed below).
Operating profit for the quarter and nine months ended September 30, 1997 was
favorably impacted by the 17% growth in the subscriber base, higher average
monitoring fees and the aforementioned change in estimate, partially offset by
increased account servicing and administrative expenses, which were a
consequence of the larger subscriber base. Operating profit in the same
respective periods of 1997 was also impacted by a $2.1 million and $5.5 million
increase in net installation and marketing costs incurred and expensed. While
these costs to obtain subscribers increased during the 1997 periods, the cash
margins per subscriber generated from recurring revenues increased slightly over
1996 periods.
<PAGE>
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 retention of subscribers,
and to more accurately match depreciation expense with monthly recurring revenue
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 third quarter and first nine months of 1997 by $2.3 million and
$6.5 million, respectively.
As of January 1, 1992, BHS elected to capitalize categories of costs not
previously capitalized for home security installations. The additional costs not
previously capitalized consisted of costs for installation labor and related
benefits for supervisory, installation scheduling, equipment testing and other
support personnel and costs incurred in maintaining facilities and vehicles
dedicated to the installation process. The effect of this change in accounting
principle was to increase operating profit for the Brink's Group and the BHS
segment for the first nine months of 1997 and 1996 by $3.6 million and $3.5
million, respectively, and for the third quarter of 1997 and 1996 by $1.2
million and $1.3 million, respectively. The effect of this change increased net
income per common share of the Brink's Group by $0.06 in the first nine months
of 1997 and 1996, and by $0.02 in the third quarter of 1997 and 1996.
<PAGE>
BAX Global
The following is a table of selected financial data for BAX Global on a
comparative basis:
<TABLE>
<CAPTION>
Three Months Nine Months
(In thousands - except per Ended September 30 Ended September 30
pound/shipment amounts) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Operating revenues:
Intra-U.S.
<S> <C> <C> <C> <C>
Expedited freight services $ 176,332 142,506 457,672 405,238
Other 1,761 1,216 5,372 3,318
- -------------------------------------------------------------------------------------------------------------------
Total Intra-U.S. 178,093 143,722 463,044 408,556
International
Expedited freight services 196,829 175,516 570,451 517,692
Customs clearances 32,096 30,017 91,396 88,793
Ocean and other 32,410 23,922 85,513 66,295
- -------------------------------------------------------------------------------------------------------------------
Total International 261,335 229,455 747,360 672,780
Total operating revenues 439,428 373,177 1,210,404 1,081,336
- -------------------------------------------------------------------------------------------------------------------
Operating expenses 375,145 322,764 1,061,749 947,071
Selling, general and administrative expenses 35,708 30,172 111,397 89,752
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 410,853 352,936 1,173,146 1,036,823
Other operating income, net 351 225 1,859 966
- -------------------------------------------------------------------------------------------------------------------
Operating profit:
Intra-U.S. 16,938 11,783 24,553 25,520
International 11,988 8,683 27,064 19,959
Other (a) - - (12,500) -
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 28,926 20,466 39,117 45,479
- -------------------------------------------------------------------------------------------------------------------
Expedited freight services
shipment growth rate 41.8% (0.5%) 13.5% 2.8%
Expedited freight services weight growth rate:
Intra-U.S. 16.5% 6.7% 7.1% 5.0%
International 14.5% (1.7%) 8.3% 4.5%
Worldwide 15.5% 2.2% 7.7% 4.7%
- -------------------------------------------------------------------------------------------------------------------
Expedited freight services
weight (millions of pounds) 418.1 362.0 1,141.2 1,059.2
Expedited freight services
shipments (thousands) 1,836 1,294 4,441 3,914
- -------------------------------------------------------------------------------------------------------------------
Expedited freight services average:
Yield (revenue per pound) $ .893 .879 .901 .871
Revenue per shipment $ 203 246 232 236
Weight per shipment (pounds) 228 280 257 271
- -------------------------------------------------------------------------------------------------------------------
(a) Consulting expenses related to the redesign of BAX Global Inc.'s business
processes and new information systems architecture.
</TABLE>
<PAGE>
Reflecting the company's global orientation and expanded services, on October 1,
1997, Burlington Air Express Inc. changed its name to BAX Global Inc. The new
BAX Global name reflects the Company's current position as one of the world's
leading global freight transportation and logistics companies.
BAX Global's third quarter operating profit amounted to $28.9 million, an
increase of $8.4 million from the $20.5 million operating profit reported in the
third quarter of 1996. Worldwide revenues increased 18% to $439.4 million from
$373.2 million in the 1996 quarter. The $66.2 million growth in revenues
principally reflects a 16% increase in worldwide expedited freight services
pounds shipped, which reached 418.1 million pounds in the third quarter of 1997,
combined with a 2% increase in yield on this volume. In addition, non-expedited
freight services revenues, increased $11.1 million (20%) during the third
quarter of 1997 as compared to the same quarter in 1996. Worldwide expenses
amounted to $410.9 million, $57.9 million (16%) higher than in the third quarter
of 1996.
In the third quarter of 1997, BAX Global's intra-U.S. revenues increased from
$143.7 million to $178.1 million. This $34.4 million (24%) increase was
primarily due to an increase of $33.8 million in intra-U.S. expedited freight
services revenues. The higher level of intra-U.S. expedited freight services
revenues in 1997 was due to a 17% increase in weight shipped combined with a 6%
increase in the average yield. The yield increase was due to higher average
pricing on both overnight and second-day freight, due in large part to the
effects of a strike against United Parcel Service (the "UPS Strike") and to an
intra-U.S. shipment surcharge which was initiated in September 1996 to offset
various cost increases. In addition, the average revenue per shipment and the
average weight per shipment decreased as a result of the UPS Strike since, the
additional volume, on average, consisted of a large number of smaller shipments.
Excluding the estimated effects of the UPS Strike, the intra-U.S. expedited
freight services average revenue per shipment increased, while the weight per
shipment remained relatively unchanged. Intra-U.S. operating profit during the
third quarter of 1997 increased $5.2 million from the $11.8 million recorded in
the third quarter of 1996. Approximately $2.6 million of the increase was
attributable to business from the UPS Strike.
International revenues in the third quarter of 1997 increased $31.8 million
(14%) to $261.3 million from the $229.5 million recorded in the third quarter of
1996. International expedited freight services revenue increased $21.3 million
(12%) due to a 15% increase in weight shipped. In addition, international
non-expedited freight services revenue increased $10.6 million (20%) in the
third quarter of 1997 as compared to the same period in 1996. The increase
primarily relates to increases in international shipment volume and the
continued expansion of ocean freight services. International operating profit in
the third quarter of 1997 increased $3.3 million (38%) from the $8.7 million
recorded in the third quarter of 1996. Operating profit during the third quarter
of 1997 benefited from increased revenues combined with improved margins.
BAX Global operating profit for the first nine months of 1997, after a $12.5
million charge related to consulting expenses for the redesign of BAX Global's
business processes and new information system architecture, amounted to $39.1
million, a decrease of $6.4 million from the $45.5 million reported in the first
nine months of 1996. Worldwide revenues in the 1997 period increased 12% to
$1,210.4 million from $1,081.3 million in the 1996 period. The $129.1 million
growth in revenues principally reflects an 8% increase in worldwide expedited
freight services pounds shipped, which reached 1,141.2 million pounds in the
first nine months of 1997, combined with a 3% increase in yield on this volume.
In addition, non-expedited freight services revenues increased $23.9 million
(15%) during the first nine months of 1997 as compared to 1996. Worldwide
expenses in the 1997 period, which include the $12.5 million charge, amounted to
$1,173.1 million, $136.3 million (13%) higher than the 1996 period.
In the first nine months of 1997, BAX Global's intra-U.S. revenues increased
from $408.6 million to $463.0 million. This $54.4 million (13%) increase was
primarily due to an increase of $52.4 million in intra-U.S. expedited freight
services revenues. The higher level of expedited freight services revenue in
1997 resulted from a 7% increase in weight shipped coupled with a 6% increase in
the average yield. The increase in average yield was the combination of higher
average pricing and a slight increase in the proportion of overnight freight in
the sales mix. The higher average pricing was due, in large part, to the effects
of the UPS Strike and to an intra-U.S. shipment surcharge which was initiated in
September 1996 to offset various cost increases. In addition, the average
revenue per shipment and the average weight per shipment decreased as a result
of the UPS Strike since, the additional volume, on average, consisted of a large
number of smaller shipments. Excluding the estimated effects of the UPS Strike,
both of these averages increased over the 1996
<PAGE>
nine-month period. Intra-U.S. operating profit during the first nine months of
1997, excluding any impact of the aforementioned $12.5 million charge, decreased
$1.0 million from the $25.5 million recorded in the first nine months of 1996.
Intra-U.S. operating profit in the first nine months of 1996 benefited from the
reduction in Federal excise tax liabilities while intra-U.S. operating profit in
the first nine months of 1997 was impacted by higher expenses associated with
additional capacity designed to improve on-time customer service and to meet the
rising demand in some of BAX Global's high growth markets, offset by an
estimated $2.6 million impact attributed to the UPS Strike.
International revenues in the first nine months of 1997 increased $74.6 million
(11%) to $747.4 million from the $672.8 million recorded in the comparable
period of 1996. International expedited freight services revenue increased $52.8
million (10%) due to an 8% increase in weight shipped combined with a 2%
increase in the average yield. The increase in the average yield on
international expedited freight is primarily due to the fuel surcharge
implemented by BAX Global in March 1997 in reaction to a corresponding surcharge
implemented by its third party transportation providers. In addition,
international non-expedited freight services revenue increased $21.8 million
(14%) in the first nine months of 1997 as compared to the same period in 1996.
The increase primarily relates to increases in international shipment volume and
the continued expansion of ocean freight services. International operating
profit in the first nine months of 1997 increased $7.1 million (36%) from the
$20.0 million recorded in the comparable period of 1996. Operating profit during
the first nine months of 1997 benefited from increased revenues combined with
improved margins.
In June 1997, BAX Global completed its acquisition of Cleton & Co. ("Cleton"), a
leading logistics provider in the Netherlands. BAX Global acquired Cleton for
the equivalent of US $10.7 million (paid in July 1997), the assumption of the
equivalent of US $10 million of debt, and additional contingent payments ranging
from the current equivalent of US $0 to US $18 million to be paid over the next
three years based on certain performance criteria of Cleton.
As part of its ongoing efforts to further enhance service quality and improve
efficiencies, BAX Global has formed a Global Innovation Team composed of
management from various regions assisted by third party consultants. The team is
reviewing BAX Global's operating activities to better ensure that BAX Global
provides a high level of customer service in a cost efficient manner. A key
component of this process is a review of BAX Global's future information systems
and technology needs on a global basis. A comprehensive plan is being developed
for worldwide implementation over the next two to three years to assure delivery
of information systems to meet both customer and operational requirements. In
connection with these efforts, BAX Global recorded a charge of $12.5 million in
the second quarter of 1997 which included most of the consulting fees and other
project expenses attributable to the planning stage of the redesign program.
Other cost and service improvement programs have been identified through this
process and are expected to be implemented during the balance of 1997.
Annualized cost savings from this phase of these initiatives are projected at $5
to $10 million.
<PAGE>
Coal Operations
The following is a table of selected financial data for the Coal Operations on a
comparative basis.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
(In thousands) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 145,616 172,603 454,282 507,967
- -------------------------------------------------------------------------------------------------------------------
Cost of sales 140,287 164,251 440,170 522,475
Selling, general and
administrative expenses 5,009 4,985 14,720 19,366
Restructuring and other credits,
including litigation accrual - - - (37,758)
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 145,296 169,236 454,890 504,083
Other operating income, net 2,320 2,026 8,103 11,076
- -------------------------------------------------------------------------------------------------------------------
Operating profit 2,640 5,393 7,495 14,960
- -------------------------------------------------------------------------------------------------------------------
Coal sales (tons):
Metallurgical 1,863 1,979 5,577 5,978
Utility and industrial 3,046 3,837 9,569 11,240
- -------------------------------------------------------------------------------------------------------------------
Total coal sales 4,909 5,816 15,146 17,218
- -------------------------------------------------------------------------------------------------------------------
Production/purchased (tons):
Deep 1,320 924 3,746 2,977
Surface 2,594 2,764 7,991 8,351
Contract 352 408 1,090 1,261
- -------------------------------------------------------------------------------------------------------------------
4,266 4,096 12,827 12,589
Purchased 769 1,380 3,072 4,365
- -------------------------------------------------------------------------------------------------------------------
Total 5,035 5,476 15,899 16,954
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Coal Operations generated an operating profit of $2.6 million in the third
quarter of 1997, compared to $5.4 million recorded in the 1996 third quarter.
Coal Operations had an operating profit of $7.5 million in the first nine months
of 1997 compared to an operating profit of $15.0 million in the prior year.
Operating profit in the first nine months of 1996 included a $3.0 million
benefit from a litigation settlement. In addition, the first nine months of 1996
operating results also 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 the
implementation of 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).
<PAGE>
The following is a schedule of selected financial data for Coal Operations,
excluding restructuring and other non-recurring items.
<TABLE>
<CAPTION>
Three Months Nine Months
(In thousands, Ended September 30 Ended September 30
except per ton amounts) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net coal sales (a) $ 143,958 170,301 447,959 502,760
Current production cost
of coal sold (a) 131,591 156,027 413,717 470,945
- -------------------------------------------------------------------------------------------------------------------
Coal margin 12,367 14,274 34,242 31,815
Non-coal margin 436 620 1,681 1,477
Other operating income, net 2,320 2,026 8,103 11,076
- -------------------------------------------------------------------------------------------------------------------
Margin and other income 15,123 16,920 44,026 44,368
- -------------------------------------------------------------------------------------------------------------------
Other costs and expenses:
Idle equipment and closed mines 623 266 1,180 729
Inactive employee cost 6,851 6,275 20,631 20,758
Selling, general and
administrative expenses 5,009 4,986 14,720 15,731
- -------------------------------------------------------------------------------------------------------------------
Total other costs and expenses 12,483 11,527 36,531 37,218
- -------------------------------------------------------------------------------------------------------------------
Operating profit (before
restructuring and other
credits and SFAS No. 121) (b) $ 2,640 5,393 7,495 7,150
- -------------------------------------------------------------------------------------------------------------------
Coal margin per ton:
Realization $ 29.33 29.28 29.58 29.20
Current production costs 26.81 26.83 27.32 27.36
- -------------------------------------------------------------------------------------------------------------------
Coal margin $ 2.52 2.45 2.26 1.84
- -------------------------------------------------------------------------------------------------------------------
(a) Excludes non-coal components.
(b) Restructuring and other credits in the nine months ended September 30, 1996
consist of an impairment loss related to the implementation 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 Coal Operations as
"Restructuring and other credits, including litigation accrual".
</TABLE>
Sales volume of 4.9 million tons in the third quarter of 1997 was 0.9 million
tons less than the 5.8 million tons sold in the prior year quarter. Compared to
the third quarter of 1996, steam coal sales in 1997 decreased by 0.8 million
tons (21%), to 3.0 million tons, and metallurgical coal sales declined by 0.1
million tons (6%), to 1.9 million tons. Steam coal sales represented 62% of
total volume in 1997 and 66% in 1996.
The relatively weak pricing in the steam and metallurgical coal markets have
contributed to the decrease in coal sales as well as an increase in inventory
levels in 1997 over 1996. As a result, Coal Operations has adjusted and will
continue to adjust its production and purchased coal levels in order to address
the challenges of these current markets. In addition, a realignment of Coal
Operations' operating units was undertaken in the quarter to streamline the
metallurgical and steam coal business units.
<PAGE>
Total coal margin of $12.4 million for the third quarter of 1997 represented a
decrease of $1.9 million from the comparable 1996 period. The decrease in total
coal margin reflects the effect of lower volume which was offset, in part, by an
increase in the realization of $0.05 per ton and by a decrease in current
production costs of $0.02 per ton. The increase in realization reflects an
increase in the overall steam coal realization as the majority of steam coal
production is sold under long-term contracts containing price escalation
provisions. This increase was partially offset by a decrease in the
metallurgical coal realization due to lower price settlements with metallurgical
customers for the contract year which began on April 1, 1997.
The current cost of coal sold decreased $0.02 per ton to $26.81 in the third
quarter of 1997 over the third quarter of 1996. Production in the 1997 third
quarter increased 0.2 million tons over the 1996 third quarter to 4.3 million
tons and purchased coal decreased 0.6 million tons to 0.8 million tons.
Productivity of 38.7 tons per man day in the 1997 third quarter increased
slightly from the 38.1 tons per man day in the 1996 third quarter.
Non-coal margin, which reflects earnings from the oil, gas and timber
businesses, amounted to $0.4 million in the third quarter of 1997, which was
$0.2 million lower than in the third quarter of 1996. The decrease largely
reflects the impact of changes in natural gas prices. Other operating income,
primarily reflecting the benefits from sales of property and equipment and third
party royalties, amounted to $2.3 million in the third quarter of 1997 as
compared to $2.0 million in the comparable period of 1996.
Idle equipment and closed mine costs increased $0.4 million to $0.6 million in
the 1997 third quarter due to costs associated with scheduled mine closings.
Inactive employee costs, which primarily represent long-term employee
liabilities for pension and retiree medical costs, increased $0.6 million to
$6.9 million for the third quarter of 1997 partially reflecting expenses related
to the streamlining of Coal Operations' business units. Selling, general and
administrative expenses remained unchanged at $5.0 million in the third quarter
of 1997 and 1996.
Sales volume of 15.1 million tons in the first nine months of 1997 was 2.1
million tons less than the 17.2 million tons sold in the 1996 period due to
market conditions discussed above. Metallurgical coal sales declined by 0.4
million tons (7%) to 5.6 million tons and steam coal sales decreased by 1.7
million tons (15%) to 9.6 million tons compared to the prior year. Steam coal
sales represented 63% of the total 1997 sales volume, as compared to 65% in
1996.
For the first nine months of 1997, coal margin was $34.2 million, an increase of
$2.4 million over the 1996 period. Coal margin per ton increased to $2.26 per
ton in the first nine months of 1997 from $1.84 per ton for the same period of
1996, due to a combination of a $0.38 per ton increase in realization and a
slight decrease in the current production cost of coal sold, $0.04 per ton.
Again, the increase in average realization per ton was due, in part, to an
increase in steam realization partially offset by a decrease in metallurgical
realization.
The current production cost of coal sold for the first nine months of 1997 was
$27.32 per ton as compared to $27.36 per ton for the first nine months of 1996.
The higher 1996 per ton cost reflected the impact of severe winter weather and
higher surface mine costs. Production for the year-to-date 1997 period totaled
12.8 million tons, a slight increase from the 1996 period production of 12.6
million tons. Surface production accounted for 63% and 67% of the total volume
in the 1997 and 1996 periods, respectively. Productivity of 37.6 tons per man
day in the 1997 period was up slightly over the 37.2 tons per man day for the
nine months of 1996.
Non-coal margin was $1.7 million for the first nine months of 1997, an increase
of $0.2 million which largely reflects the impact of changes in natural gas
prices over the 1996 period. Other operating income was $8.1 million for the
1997 period, a decrease of $3.0 million from the 1996 period. The 1996 period
included a one-time benefit of $3.0 million for litigation settlements.
Idle equipment and closed mine costs increased by $0.5 million in the first nine
months of 1997 over 1996. Inactive employee costs, which primarily represent
long-term employee liabilities for pension and retiree medical costs were
relatively unchanged in the nine months of 1997 as compared to the 1996 period,
decreasing only by $0.1 million. Selling, general and administrative expenses
declined by $1.0 million (6%) in the nine months of 1997 as compared to the 1996
period, as a result of Coal Operations cost control efforts.
<PAGE>
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 and third payments were paid in the third
quarters of 1996 and 1997, respectively, and were 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 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.
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 nine months
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> <C> <C>
Balance as of December 31, 1996 $ 376 12,439 25,285 38,100
Payments 280 1,335 1,274 2,889
- -------------------------------------------------------------------------------------------------------------------
Balance as of September 30, 1997 $ 96 11,104 24,011 35,211
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Mineral Ventures
The following is a table of selected financial data for Mineral Ventures on a
comparative basis:
<TABLE>
<CAPTION>
Three Months Nine Months
(In thousands, except ounce Ended September 30 Ended September 30
and per ounce data) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Stawell Gold Mine:
<S> <C> <C> <C> <C>
Gold sales $ 5,396 4,566 13,395 14,671
Other (expense) revenue (14) 26 16 77
- -------------------------------------------------------------------------------------------------------------------
Net sales 5,382 4,592 13,411 14,748
Cost of sales (a) 4,021 3,657 11,319 10,761
Selling, general and
administrative expenses (a) 331 323 1,010 857
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 4,352 3,980 12,329 11,618
- -------------------------------------------------------------------------------------------------------------------
Operating profit - Stawell
Gold Mine 1,030 612 1,082 3,130
Other operating expense, net (1,377) (936) (3,194) (1,705)
- -------------------------------------------------------------------------------------------------------------------
Operating (loss) profit $ (347) (324) (2,112) 1,425
- -------------------------------------------------------------------------------------------------------------------
Stawell Gold Mine:
Mineral Ventures' 50% direct share:
Ounces sold 11,176 10,775 31,417 35,375
Ounces produced 11,516 10,756 31,782 34,738
Average per ounce sold (US$):
Realization $ 483(b) 424 426(b) 415
Cash cost 263 319 318 288
- -------------------------------------------------------------------------------------------------------------------
(a) Excludes $30 and $97, and $924 and $2,343, of non-Stawell related cost of
sales and selling, general and administrative expenses for the quarter and nine
months ended September 30, 1997, respectively. Excludes $722 and $1,926, of
non-Stawell related selling, general and administrative expenses for the quarter
and nine months ended September 30, 1996, respectively. Such costs are
reclassified to cost of sales and selling, general and administrative expenses
in the Minerals Group income statement.
(b) Includes allocation of the proceeds from the liquidation of a gold forward
sale hedge position in July 1997.
</TABLE>
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 $0.3 million in the third quarter of 1997 and
1996. Mineral Ventures' 50% direct interest in Stawell's operations generated
net sales of $5.4 million in the third quarter of 1997 compared to $4.6 million
in the 1996 period as the ounces of gold sold increased from 10.8 thousand
ounces to 11.2 thousand ounces (4%). The operating profit at Stawell of $1.0
million was $0.4 million higher than the operating profit of $0.6 million in the
third quarter of 1996 reflecting a $56 per ounce decrease (18%) in the cash cost
of gold sold combined with a $59 per ounce increase (14%) in average
realization. Operating costs in the 1996 third quarter were negatively impacted
by four lost-time accidents, two late in the second quarter, that resulted in
production shortfalls and higher operating cost as compared to the 1997 third
quarter. Stawell's operating profit in the third quarter of 1997 was also
impacted by the collapse during construction of a new ventilation shaft in the
second quarter of 1997 that resulted in a third quarter write-off of $1.0
million, approximately $0.75 million of which is attributed to Mineral Ventures'
50% direct interest in Stawell.
During the first nine months of 1997, Mineral Ventures generated an operating
loss of $2.1 million compared to an operating profit of $1.4 million in the 1996
period. Mineral Ventures' 50% direct interest in Stawell's operations generated
net sales of $13.4 million in the first nine months of 1997 compared to $14.7
million in the 1996 period as the ounces of gold sold decreased from 35.4
thousand ounces to 31.4 thousand ounces
<PAGE>
(11%). The operating profit at Stawell of $1.1 million was $2.0 million lower
than the operating profit of $3.1 million in the first nine months of 1996
reflecting a $30 per ounce increase (10%) in the cash cost of gold sold
partially offset by a $11 per ounce increase (3%) in average realization.
Stawell's results were negatively impacted by unfavorable ground conditions
through the first half of 1997. In addition, the collapse of the aforementioned
ventilation shaft resulted in lower production and higher costs through the
first half of 1997 and a write-off of the ventilation shaft in the third quarter
of 1997.
In July 1997, in reaction to the continued decline in the market price of gold,
Mineral Ventures closed a gold forward sale hedge position relating to 16,397
ounces and realized proceeds of $2.6 million. These proceeds, which equate to
approximately $160 per ounce, will be recognized for accounting purposes as
ounces of gold are sold in the market. Approximately $1.5 million of these
proceeds was recognized on gold sales in the third quarter. The remaining
proceeds will be recognized over the next 7,026 ounces of gold sales. As of
September 30, 1997, approximately 9% of Mineral Ventures' recoverable proven and
probable reserves had been sold forward under forward sales contracts that
mature periodically through early 1998.
Other operating expense, net, includes equity earnings from joint ventures,
primarily consisting of Mineral Ventures' 17% indirect interest in Stawell's
operations and gold exploration costs on all operations including Mineral
Ventures' 50% direct interest in Stawell. Other operating expenses increased by
$0.4 million and $1.5 million in the third quarter and first nine months of
1997, respectively, primarily due to joint venture losses. Gold exploration
costs increased slightly from 1996, and are being incurred by Mineral Ventures
in Nevada and Australia with its joint venture partners.
In addition to its interest in Stawell, Mineral Ventures has a 17% indirect
interest in the Silver Swan base metals property in Western Australia. The
initial mining and commissioning of Silver Swan has proceeded according to plan.
Recent delays in concentrate shipments due to problems at a customer's smelter
have deferred the anticipated positive impact of this operation. However, a
regular shipping schedule has resumed during the fourth quarter.
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 fluctuation. 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 Brazil and Venezuela and an affiliate in Mexico
operate in such highly inflationary economies. Current conditions indicate that
Brazil may no longer be considered highly inflationary by early 1998.
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 operating income, net, includes the Company's share of net earnings of
unconsolidated affiliates, primarily equity affiliates of Brink's and Minerals,
royalty income and gains and losses from sales of coal assets. Other operating
income, net, decreased $0.8 million and $4.4 million in the third quarter and
first nine months of 1997, respectively, as compared to the same periods in
1996. The decline in the quarter is largely the result of a $1.3 million
decrease in equity in earnings of unconsolidated affiliates. The year to date
decline reflects a $2.7 million decrease in equity in earnings of unconsolidated
affiliates and a $3.0 million benefit from litigation settlements present in the
prior year nine-month period.
<PAGE>
Interest Expense
Interest expense increased $3.9 million to $7.3 million in the third quarter of
1997 from $3.4 million in the prior year quarter, and in the first nine months
of 1997, increased $8.8 million to $19.3 million from $10.5 million in the first
nine months of 1996. These increases are due to higher total borrowings related
to capital expenditures and acquisitions as well as higher average interest
rates largely attributed to foreign borrowings.
Income Taxes
In both 1997 and 1996 periods presented, 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 September 30, 1997.
FINANCIAL CONDITION
Cash Flow Requirements
Cash provided by operating activities during the first nine months of 1997
totaled $136.0 million compared with $125.7 million in the first nine months of
1996. Net income, noncash charges and changes in operating assets and
liabilities in the first nine 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 nine months of 1996. The initial payment of $25.8
million related to the Evergreen case settlement was entirely funded by an
escrow account previously established by the Company. The increase in cash
generated by operating activities during 1997 is primarily attributable to lower
funding requirements for operating assets and liabilities. Cash generated from
operations was not sufficient to fund investing activities, primarily capital
expenditures, acquisitions, and aircraft heavy maintenance. As a result of these
items and funds used for share activities, the Company required additional net
cash borrowings of approximately $113.0 million. The combination of these
activities increased cash and cash equivalents by $18.8 million.
Capital Expenditures
Cash capital expenditures for the first nine months of 1997 totaled $133.9
million, $17.6 million higher than in the comparable period in 1996. Of the 1997
amount, $35.6 million was spent by Brink's, $53.9 million was spent by BHS,
$22.3 million was spent by BAX Global, $18.5 million was spent by Coal
Operations and $3.3 million was spent by Mineral Ventures. For the remainder of
1997, company-wide capital expenditures are expected to range between $65.0 and
$85.0 million. The foregoing amounts exclude expenditures that have been or are
expected to be financed through capital and operating leases, and any
acquisition expenditures.
Financing
The Company intends to fund its capital expenditure requirements during the
remainder of 1997 with anticipated cash flows from operating activities and
through operating leases if the latter are financially attractive. Shortfalls,
if any, will be financed through the Company's revolving credit agreements or
other borrowing arrangements.
Total outstanding debt amounted to $313.2 million at September 30, 1997, up from
$196.0 million at year-end 1996. The $117.2 million increase primarily reflects
additional cash required to fund capital expenditures and acquisitions.
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 September 30, 1997, borrowings of $100.0
million were outstanding under the term loan portion of the Facility and $101.8
million of additional borrowings were outstanding under the remainder of the
Facility.
In July 1997, the Company repaid the $14.3 million 4% subordinated debentures
which were outstanding at December 31, 1996. Borrowings under the facility were
used to make this payment.
<PAGE>
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 of US
$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. The short-term loan of $10
million has subsequently been repaid. As of September 30, 1997, total borrowings
under this arrangement were the equivalent of US $36.2 million.
Off-Balance Sheet Instruments
During July 1997, Mineral Ventures closed a gold forward sale hedge position and
realized proceeds of $2.6 million. Approximately $1.5 million of these proceeds
were recognized on gold sales in the third quarter. The remaining proceeds will
be recognized over the next 7,026 ounces of gold sales. As of September 30,
1997, approximately 9% of Mineral Ventures' recoverable proven and probable
reserves had been sold forward under forward sales contracts that mature
periodically through early-1998.
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 BAX Global 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, BAX Global and Minerals Groups in addition to consolidated financial
information of the Company.
During the three months ended September 30, 1997 and 1996, the Company purchased
no shares of Brink's Stock; 200,200 shares (at a cost of $4.8 million) and
15,300 shares (at a cost of $0.3 million), respectively, of Burlington Stock;
and no shares of Minerals Stock under the share repurchase program authorized by
the Board of Directors of the Company (the "Board"). During the nine months
ended September 30, 1997 and 1996, the Company purchased 166,000 shares (at a
cost of $4.3 million) and no shares, respectively, of Brink's Stock; 332,300
shares (at a cost of $7.4 million) and 20,300 shares (at a cost of $0.4
million), respectively, of Burlington Stock; and no shares of Minerals Stock
under the share repurchase program.
During the quarter and nine months ended September 30, 1997, the Company
purchased 1,515 shares (at a cost of $0.6 million) of its Series C Cumulative
Convertible Preferred Stock (the "Convertible Preferred Stock"). During the
quarter and nine months ended September 30, 1996, the Company purchased 10,320
shares (at a cost of $3.9 million) and 20,920 shares (at a cost of $7.9 million)
of the Convertible Preferred Stock, respectively. In May 1997, the Board
authorized an increase in the remaining repurchase authority to $25.0 million,
leaving the Company remaining authority to repurchase an additional $24.4
million of the Convertible Preferred Stock.
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 bank credit
agreements, losses by one Group could affect the Company's ability to pay
dividends in respect of stock relating to the other Group. Dividends on Minerals
Stock are also limited by the Available Minerals Dividend Amount as defined in
the Company's Articles of Incorporation. At September 30, 1997, the Available
Minerals Dividend Amount was at least $15.6 million.
During the first nine months of 1997 and 1996, the Board declared and the
Company paid cash dividends of 48.75 cents per share of Minerals Stock, 7.5
cents per share of Brink's Stock, and 18 cents per share of Burlington Stock.
Dividends paid on the Convertible Preferred Stock in the first nine months of
1997 and 1996 were $2.8 million and $2.9 million, respectively. Preferred
dividends included on the Company's Statement of Operations for the quarter and
nine months ended September 30, 1997 are net of $0.1 million, which is the
excess of the carrying amount of the Convertible Preferred Stock over the cash
paid to holders of the stock.
<PAGE>
Preferred dividends included on the Company's Statement of Operations for the
quarter and nine months ended September 30, 1996, are net of $1.0 million and
$2.1 million, respectively, which was the excess of the carrying amount of the
Convertible Preferred Stock over the cash paid to holders of the stock for stock
repurchases.
Pending Accounting Changes
The Company will implement the following new accounting standards.
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share", will be implemented 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". On the effective date, all prior-period EPS data presented will
be restated to conform with the provisions of SFAS No. 128.
SFAS No. 130, "Reporting Comprehensive Income", will be implemented in the
first quarter of 1998. SFAS No. 130 establishes standards for the reporting
and display of comprehensive income and its components in financial
statements. Comprehensive income generally represents all changes in
shareholders' equity except those resulting from investments by or
distributions to shareholders. With the exception of foreign currency
translation adjustments, such changes are not significant to the Company.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", will be implemented in the financial statements for the year
ended December 31, 1998. SFAS No. 131 requires publicly-held companies to
report financial and descriptive information about operating segments in
financial statements issued to shareholders for interim and annual periods.
The SFAS also requires additional disclosures with respect to products and
services, geographic areas of operation, and major customers. The adoption
of this SFAS is not expected to have a material impact on the financial
statements of the Company.
Forward Looking Information
Certain of the matters discussed herein, including statements regarding the
expected benefits from BAX Global redesign initiatives, involve forward looking
information which is subject to known and unknown risks and uncertainties which
could cause actual results to differ materially from those which are
anticipated. Such risks and uncertainties include, but are not limited to,
overall economic and business conditions, the demand for the Company's products
and services, geological conditions, pricing and other competitive factors in
the industry, new government regulations, the implementation of systems
initiatives and the integration of acquisitions.
<PAGE>
<TABLE>
Pittston Brink's Group
BALANCE SHEETS
(In thousands)
<CAPTION>
September 30 December 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 33,415 20,012
Short-term investments, at lower of cost or market 1,662 1,856
Accounts receivable (net of estimated amount uncollectible:
1997 - $7,720; 1996 - $4,970) 156,112 124,928
Receivable - Pittston Minerals Group - 14,027
Inventories, at lower of cost or market 2,963 3,073
Prepaid expenses 17,310 11,680
Deferred income taxes 15,230 14,481
- -------------------------------------------------------------------------------------------------------------------
Total current assets 226,692 190,057
Property, plant and equipment, at cost (net of accumulated
depreciation and amortization: 1997 - $275,371;
1996 - $240,741) 333,798 256,759
Intangibles, net of amortization 18,659 28,162
Investment in and advances to unconsolidated affiliates 26,997 26,594
Deferred pension assets 32,293 33,670
Deferred income taxes 2,308 2,120
Other assets 14,569 14,303
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 655,316 551,665
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings $ 2,813 1,751
Current maturities of long-term debt 9,438 2,139
Accounts payable 33,120 36,995
Accrued liabilities 109,644 98,507
Payable - Pittston Minerals Group 8,274 -
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 163,289 139,392
Long-term debt, less current maturities 38,521 5,542
Postretirement benefits other than pensions 4,065 3,835
Workers' compensation and other claims 11,397 11,056
Deferred income taxes 40,157 38,539
Payable - Pittston Minerals Group 5,883 8,760
Minority interests 22,807 22,929
Other liabilities 10,125 8,234
Shareholder's equity 359,072 313,378
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 655,316 551,665
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Pittston Brink's Group
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 280,075 232,022 800,234 666,637
Costs and expenses:
Operating expenses 207,882 174,979 593,531 506,987
Selling, general and administrative
expenses 40,287 33,706 116,646 95,065
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 248,169 208,685 710,177 602,052
Other operating income, net 645 1,648 141 1,478
- -------------------------------------------------------------------------------------------------------------------
Operating profit 32,551 24,985 90,198 66,063
Interest income 639 719 1,845 1,708
Interest expense (2,971) (424) (7,874) (1,410)
Other expense, net (422) (1,462) (3,527) (3,634)
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 29,797 23,818 80,642 62,727
Provision for income taxes 10,425 7,977 28,225 21,013
- -------------------------------------------------------------------------------------------------------------------
Net income $ 19,372 15,841 52,417 41,714
- -------------------------------------------------------------------------------------------------------------------
Net income per common share $ .51 .41 1.37 1.09
- -------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .025 .025 .075 .075
- -------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 38,309 38,264 38,243 38,158
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Pittston Brink's Group
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended September 30
1997 1996
- -------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 52,417 41,714
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 46,787 40,415
Provision (credit) for deferred income taxes 1,605 (1,877)
Provision for pensions, noncurrent 1,401 1,189
Provision for uncollectible accounts receivable 3,690 3,221
Equity in loss (earnings) of unconsolidated affiliates,
net of dividends received 2,701 (971)
Other operating, net 6,776 4,633
Change in operating assets and liabilities, net of the effects of acquisitions
and dispositions:
Increase in accounts receivable (18,055) (10,745)
Decrease in inventories 109 180
Increase in prepaid expenses (557) (2,294)
(Decrease) increase in accounts payable and accrued liabilities (2,075) 5,574
Increase in other assets (3,007) (3,404)
Increase in other liabilities 1,593 430
Other, net (185) 87
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 93,200 78,152
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (89,577) (71,146)
Proceeds from disposal of property, plant and equipment 1,372 1,540
Acquisitions, net of cash acquired (55,349) --
Other, net 7,110 1,068
- -------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (136,444) (68,538)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 54,574 1,882
Reductions of debt (13,472) (6,916)
Net payments from Minerals Group 20,300 2,163
Proceeds from exercise of stock options and employee stock purchase plan 2,250 998
Dividends paid (2,658) (2,905)
Repurchase of common stock (4,347) --
Cost of stock proposal - (1,238)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 56,647 (6,016)
- -------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 13,403 3,598
Cash and cash equivalents at beginning of period 20,012 21,977
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 33,415 25,575
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<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 nine months of 1997 and
1996 by $3,567 and $3,472, respectively, and for the third quarter of 1997
and 1996 by $1,199 and $1,296, respectively. The effect of this change
increased net income per common share of the Brink's Group by $0.06 in the
first nine months of 1997 and 1996, and by $0.02 in the third quarter of
1997 and 1996.
(3) Based on demonstrated retention of customers, beginning in the first
quarter of 1997, BHS prospectively adjusted its annual depreciation rate
for capitalized subscribers' installation costs. This change more
accurately matches depreciation expense with monthly recurring revenue
generated from customers. This change in accounting estimate reduced
depreciation expense for capitalized installation costs for the quarter and
nine months ended September 30, 1997 for the Brink's Group and the BHS
segment by $2,262 and $6,484, respectively. The effect of this change
increased net income of the Brink's Group in the third quarter and first
nine months of 1997 by $1,471 ($0.04 per common share) and $4,215 ($0.11
per common share), respectively.
(4) Depreciation and amortization of property, plant and equipment in the third
quarter and nine-month periods of 1997 totaled $17,145 ($14,046 in 1996)
and $43,453 ($39,457 in 1996), respectively.
(5) Cash payments made for interest and income taxes (net of refunds received)
were as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest $ 2,947 414 7,878 1,416
- ----------------------------------------------------------------------------------------
Income taxes $ 10,545 8,246 31,130 23,791
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
During the nine months ended September 30, 1997 and 1996, capital lease
obligations of $2,373 and $1,575, respectively, were incurred for leases of
property, plant and equipment.
(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 and third payments were paid in the
third quarters of 1996 and 1997, respectively, and 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 $35,650
($23,173 after-tax) in the first quarter of 1996.
(7) In 1996, the Brink's 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 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) During the three months ended September 30, 1997 and 1996, the Company
purchased no shares of Brink's Stock. During the nine months ended
September 30, 1997 and 1996, the Company purchased 166,000 shares (at a
cost of $4,347) and no shares, respectively, of Brink's Stock.
(9) During the quarter and nine months ended September 30, 1997, the Company
purchased 1,515 shares (at a cost of $617) of its Series C Cumulative
Convertible Preferred Stock (the "Convertible Preferred Stock"). During the
quarter and nine months ended September 30, 1996, the Company purchased
10,320 shares (at a cost of $3,922) and 20,920 shares (at a cost of
$7,897), respectively of the Convertible Preferred Stock. Preferred
dividends included on the Company's Statement of Operations for the quarter
and nine months ended September 30, 1997 are net of $108, which is the
excess of the carrying amount of the Convertible Preferred Stock over the
cash paid to holders of the stock. Preferred dividends included on the
Company's Statement of Operations for the quarter and nine months ended
September 30, 1996, are net of $1,020 and $2,120, respectively, which is
the excess of the carrying amount of the Convertible Preferred Stock over
the cash paid to holders of the stock.
<PAGE>
(10) The Brink's Group will implement the following new accounting standards.
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", will be implemented 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". On the effective date,
all prior-period EPS data presented will be restated to conform with
the provisions of SFAS No. 128.
SFAS No. 130, "Reporting Comprehensive Income", will be implemented in
the first quarter of 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in
financial statements. Comprehensive income generally represents all
changes in shareholders' equity except those resulting from
investments by or distributions to shareholders. With the exception of
foreign currency translation adjustments, such changes are not
significant to the Brink's Group.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", will be implemented in the financial statements for the
year ended December 31, 1998. SFAS No. 131 requires publicly-held
companies to report financial and descriptive information about
operating segments in financial statements issued to shareholders for
interim and annual periods. The SFAS also requires additional
disclosures with respect to products and services, geographic areas of
operation, and major customers. The adoption of this SFAS is not
expected to have a material impact on the financial statements of the
Brink's Group.
(11) Certain prior period amounts have been reclassified to conform to the
current period's financial statement presentation.
(12) 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.
<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 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.
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>
Three Months Nine Months
Ended September 30 Ended September 30
(In thousands) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Operating revenues:
<S> <C> <C> <C> <C>
Brink's $ 234,004 192,491 667,753 551,756
BHS 46,071 39,531 132,481 114,881
- -------------------------------------------------------------------------------------------------------------------
Total operating revenues $ 280,075 232,022 800,234 666,637
- -------------------------------------------------------------------------------------------------------------------
Operating profit:
Brink's $ 20,861 16,033 55,805 37,935
BHS 13,402 11,509 39,454 34,012
- -------------------------------------------------------------------------------------------------------------------
Segment operating profit 34,263 27,542 95,259 71,947
General corporate expense (1,712) (2,557) (5,061) (5,884)
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 32,551 24,985 90,198 66,063
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The Brink's Group net income totaled $19.4 million ($0.51 per share) in the
third quarter of 1997 compared with $15.8 million ($0.41 per share) in the third
quarter of 1996. Operating profit for the 1997 third quarter increased to $32.6
million from $25.0 million in the third quarter of 1996. The increase in net
income and operating profit for the 1997 third quarter compared with the same
period of 1996 was attributable to improved operating earnings for the Brink's
and BHS businesses. Revenues for the 1997 third quarter increased $48.0 million
or 21% compared with the 1996 third quarter, of which $41.5 million was from
Brink's and $6.5 million was from BHS. Operating expenses and selling, general
and administrative expenses for the 1997 third quarter increased $39.5 million
or 19% compared with the same period last year, of which $35.7 million was from
Brink's and $4.6 million was from BHS. Net interest expense during the third
quarter of 1997 increased $2.6 million primarily 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).
In the first nine months of 1997, net income totaled $52.4 million ($1.37 per
share) compared with $41.7 million ($1.09 per share) in the first nine months of
1996. Operating profit for the first nine months of 1997 increased to $90.2
million from $66.1 million in the same period of 1996. The increase in net
income and operating profit for the first nine months of 1997 compared with the
same period of 1996 was attributable to improved operating earnings for the
Brink's and BHS businesses. Revenues for the first nine months of 1997 increased
$133.6 million or 20% compared with the first nine months of 1996, of which
$116.0 million was from Brink's and $17.6 million was from BHS. Operating
expenses and selling general and administrative expenses for the first nine
months of 1997 increased $108.1 million or 18% compared with the same period
last year, of which $96.8 million was from Brink's and $12.2 million was from
BHS. Net interest expense increased $6.3 million during the first nine months of
1997 as compared to 1996 primarily due to the additional debt used to fund the
acquisition of Brink's Venezuelan affiliate during the first quarter of 1997.
Brink's
The following is a table of selected financial data for Brink's on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
(In thousands) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Operating revenues:
<S> <C> <C> <C> <C>
North America (United States & Canada) $ 123,363 106,156 351,752 308,271
International subsidiaries 110,641 86,335 316,001 243,485
- -------------------------------------------------------------------------------------------------------------------
Total operating revenues 234,004 192,491 667,753 551,756
Operating expenses 184,974 154,527 527,471 447,177
Selling, general and administrative expenses 28,814 23,579 84,618 68,122
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 213,788 178,106 612,089 515,299
Other operating income, net 645 1,648 141 1,478
- -------------------------------------------------------------------------------------------------------------------
Operating profit:
North America (United States & Canada) 10,783 9,292 28,195 23,383
International operations 10,078 6,741 27,610 14,552
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 20,861 16,033 55,805 37,935
- -------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 10,410 6,484 24,768 18,221
- -------------------------------------------------------------------------------------------------------------------
Cash capital expenditures $ 15,520 8,514 35,625 24,518
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Brink's consolidated revenues totaled $234.0 million in the third quarter of
1997 compared with $192.5 million in the third quarter of 1996. Brink's
operating profit of $20.9 million in the third quarter of 1997 represented a
$4.9 million (31%) increase over the $16.0 million operating profit reported in
the prior year quarter. The revenue increase of $41.5 million (22%) was offset,
in part, by an increase in operating expenses and selling, general and
administrative expenses of $35.7 million and a decrease in other operating
income of $1.0 million.
<PAGE>
Revenues from North American operations (United States and Canada) increased
$17.2 million (16%) to $123.4 million in the 1997 third quarter from $106.2
million in the prior year quarter. North American operating profit increased
$1.5 million (16%) to $10.8 million in the current year quarter from $9.3
million in the third quarter of 1996. The operating profit improvement primarily
resulted from improved armored car operations, which include ATM services.
Revenues from international subsidiaries increased $24.3 million to $110.6
million in the 1997 third quarter from $86.3 million in the comparable 1996
quarter. Operating profits from international subsidiaries and minority-owned
affiliates amounted to $10.1 million in the current year third quarter compared
to $6.7 million in the prior year third quarter. More than half of the revenue
and operating profit increases were due to the consolidation of the results of
Brink's Venezuelan subsidiary, Custodia y Traslado de Valores C.A.
("Custravalca"), where Brink's increased its ownership from 15% to 61% during
January 1997. However, non-operating expenses, including net interest and
minority ownership expense net of foreign translation gains associated with the
acquisition, offset more than one half of the operating profit generated by
Custravalca. The Latin America region, whose operating profits increased $1.6
million during the third quarter 1997, benefited from increased ownership
positions in Venezuela and Peru. The region's results also reflected
improvements in Colombia and Chile, offset, in part, by a decrease in results in
Mexico and start-up operations in Argentina. In Europe, operating profits
increased $1.2 million due primarily to improved performance in the Netherlands
partially offset by lower results of the 38% owned affiliate in France. The
operating profits in the Asia/Pacific region in the third quarter of 1997 were
essentially unchanged from the comparable quarter of 1996. Operating profits
from Brink's international diamond and jewelry operations increased slightly in
the third quarter of 1997 versus the same period in 1996.
Brink's consolidated revenues totaled $667.8 million in the first nine months of
1997 compared with $551.8 million in the first nine months of 1996. Brink's
operating profit of $55.8 million in the first nine months of 1997 represented a
$17.9 million (47%) increase over the $37.9 million operating profit reported in
the prior year period. The revenue increase of $116.0 million (21%) in the first
nine months of 1997 was offset, in part, by an increase in operating expenses
and selling, general and administrative expenses of $96.8 million and a decrease
in other operating income of $1.3 million.
Revenues from North American operations increased $43.5 million (14%) to $351.8
million in the first nine months of 1997 from $308.3 million in the same period
of 1996. North American operating profit increased $4.8 million (21%) to $28.2
million in the current year period from $23.4 million in the same period of
1996. The operating profit improvement for the nine months of 1997 primarily
resulted from improved armored car operations, which includes ATM services, and
to a lesser extent, improved currency processing operations.
Revenues from international subsidiaries increased $72.5 million to $316.0
million in the first nine months of 1997 from $243.5 million in the first nine
months of 1996. Operating profits from international subsidiaries and
minority-owned affiliates amounted to $27.6 million in the current year period
compared to $14.6 million in the prior year period. More than half of the
revenue and operating profit increases were due to the consolidation of the
results of Brink's Venezuelan subsidiary which benefited the Latin America
region. However, non-operating expenses, including net interest and minority
ownership expense net of foreign translation gains associated with the
acquisition, offset more than one half of the operating profit generated by
Custravalca. Results in Latin America also reflected improvements in Chile and
Colombia offset, in part, by lower results in Brazil and Mexico and by start-up
operations in Argentina. Operating profits in Europe increased $1.9 million in
the first nine months of 1997 due to improved results in most countries, largely
offset by unfavorable results in France. Operating profits in the Asia/Pacific
region remained essentially unchanged, while Brink's international diamond and
jewelry operations showed improved performance in the nine-month period ended
September 30, 1997.
In conjunction with Brink's increased ownership in Custravalca from 15% to 61%
in the first quarter of 1997, Brink's also acquired a further 31% interest in
Brink's Peru S.A., increasing its ownership position in this affiliate to 36%.
Brink's also acquired the remaining interests in Brink's Hong Kong, Brink's
Taiwan and Brink's Holland, increasing ownership in these subsidiaries to 100%,
and acquired additional interests in Brink's Bolivia and Brink's Chile.
<PAGE>
BHS
The following is a table of selected financial data for BHS on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
(Dollars in thousands) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 46,071 39,531 132,481 114,881
Operating expenses 22,908 20,452 66,060 59,810
Selling, general and administrative expenses 9,761 7,570 26,967 21,059
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 32,669 28,022 93,027 80,869
- -------------------------------------------------------------------------------------------------------------------
Operating profit $ 13,402 11,509 39,454 34,012
- -------------------------------------------------------------------------------------------------------------------
Depreciation and amortization $ 7,880 7,839 21,662 22,083
- -------------------------------------------------------------------------------------------------------------------
Cash capital expenditures $ 19,774 14,702 53,853 44,751
- -------------------------------------------------------------------------------------------------------------------
Annualized recurring revenues (a) $ 149,524 121,254
- -------------------------------------------------------------------------------------------------------------------
Number of subscribers:
Beginning of period 482,065 412,591 446,505 378,659
Installations 28,000 23,327 80,388 72,030
Disconnects (9,691) (8,125) (26,519) (22,896)
- -------------------------------------------------------------------------------------------------------------------
End of period 500,374 427,793 500,374 427,793
- -------------------------------------------------------------------------------------------------------------------
(a) Annualized recurring 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.
</TABLE>
Revenues for BHS increased by $6.6 million (17%) to $46.1 million in the third
quarter of 1997 from $39.5 million in the 1996 quarter. In the first nine months
of 1997, revenues for BHS increased by $17.6 million (15%) to $132.5 million
from $114.9 million in the first nine months of 1996. The increase in revenues
in both periods was predominantly from higher ongoing monitoring and service
revenues, reflecting a 17% increase in the subscriber base as well as higher
average monitoring fees. As a result of such growth, annualized recurring
revenues at the end of the third quarter of 1997 grew 23% over the amount in
effect at the end of the third quarter of 1996. The increase in monitoring and
service revenues for the 1997 nine-month period was partially offset by a
decrease in installation revenue. Installation revenue for the third quarter of
1997 increased slightly over the same 1996 period. While the number of new
security system installations has increased, the revenue per installation has
decreased in both the three and nine-month periods ended September 30, 1997, as
compared to the 1996 periods, due to continuing aggressive installation pricing
and marketing by competitors.
Operating profit of $13.4 million in the third quarter of 1997 represented an
increase of $1.9 million (17%) compared to the $11.5 million earned in the 1996
third quarter. In the first nine months of 1997, operating profit increased $5.5
million (16%) to $39.5 million from $34.0 million earned in the first nine
months of 1996. These increases included a $2.3 million and $6.5 million
reduction in depreciation expense in the third quarter and first nine months of
1997, respectively, resulting from a change in estimate (discussed below).
Operating profit for the quarter and nine months ended September 30, 1997 was
favorably impacted by the 17% growth in the subscriber base, higher average
monitoring fees and the aforementioned change in estimate, partially offset by
increased account servicing and administrative expenses, which were a
consequence of the larger subscriber base. Operating profit in the same
respective periods of 1997 was also impacted by a $2.1 million and $5.5 million
increase in net installation and marketing costs incurred and expensed. While
these costs to obtain subscribers increased during the 1997 periods, the cash
margins per subscriber generated from recurring revenues increased slightly over
1996 periods.
<PAGE>
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 retention of subscribers,
and to more accurately match depreciation expense with monthly recurring revenue
generated from active subscribers, beginning in the first quarter of 1997, BHS
prospectively adjusted its annual depreciation rate for capitalized subscriber
installation costs. 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 third quarter and first nine months of 1997 by $2.3 million and
$6.5 million, respectively.
As of January 1, 1992, BHS elected to capitalize categories of costs not
previously capitalized for home security installations. The additional costs not
previously capitalized consisted of costs for installation labor and related
benefits for supervisory, installation scheduling, equipment testing and other
support personnel and costs incurred in maintaining facilities and vehicles
dedicated to the installation process. The effect of this change in accounting
principle was to increase operating profit for the Brink's Group and the BHS
segment for the first nine months of 1997 and 1996 by $3.6 million and $3.5
million, respectively, and for the third quarter of 1997 and 1996 by $1.2
million and $1.3 million, respectively. The effect of this change increased net
income per common share of the Brink's Group by $0.06 in the first nine months
of 1997 and 1996, and by $0.02 in the third quarter of 1997 and 1996.
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 and an affiliate in Mexico operate
in such highly inflationary economies. Current conditions indicate that Brazil
may no longer be considered highly inflationary by early 1998.
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 allocated to the Brink's 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 Brink's
Group. These attributions were $1.7 million and $2.6 million for the third
quarter of 1997 and 1996, respectively, and $5.1 million and $5.9 million for
the first nine months of 1997 and 1996, respectively. The decrease in the 1997
periods is due to expenses associated with the Company's corporate office
relocation during the third quarter of 1996.
<PAGE>
Other Operating Income, Net
Other operating income consists primarily of net equity earnings of Brink's
foreign affiliates. These net equity earnings amounted to income of $0.6 and
$1.5 million for the third quarter of 1997 and 1996, respectively, and an
expense of $0.1 million and income of $1.5 million in the first nine months of
1997 and 1996, respectively.
Net Interest Expense
Net interest expense increased from $0.3 million in the third quarter of 1996 to
$2.3 million in the third quarter of 1997. Net interest expense increased to
$6.0 million in the first nine months of 1997 from net interest income of $0.3
million in the first nine months of 1996. These increases were due to additional
debt as well as higher average interest rates related to the acquisition of
Custravalca in 1997.
Other Expense, Net
Other net expense, which principally includes foreign translation gains and
losses and minority interest earnings or losses, decreased for the third quarter
and nine months ended September 30, 1997 by $1.0 million and $0.1 million,
respectively. The lower level of expense during the 1997 periods reflects an
increase in foreign translation gains partially offset by higher minority
ownership expense.
Income Taxes
The effective tax rate in the third quarter and first nine months of 1997 was
35%. This is an increase from the comparable periods of 1996 which had effective
tax rates of 34%. The 1996 rates were 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, which management believes to be a
reasonable and an equitable estimate of the cost attributable to the Brink's
Group.
Cash Flow Requirements
Cash provided by operating activities amounted to $93.2 million in the first
nine months of 1997, representing a $15.0 million increase from the prior year
period. The increase in cash flow primarily reflects the Group's higher net
income and noncash charges offset by additional funds used to finance working
capital. Cash generated from operating activities was not sufficient for
investing activities mainly due to the cash used to fund the Custravalca
acquisition. However, the funding requirements for investing and net share
activities were more than offset by cash from operating activities, additional
borrowings and by repayments from the Minerals Group. As a result, cash and cash
equivalents increased $13.4 million in the first nine months of 1997.
Capital Expenditures
Cash capital expenditures for the first nine months of 1997 totaled $89.6
million, excluding expenditures that have been or are expected to be financed
through capital and operating leases, and any acquisition expenditures. The
comparable amount in the 1996 period was $71.1 million. In 1997, $53.9 million
was spent by BHS and $35.6 million was spent by Brink's. Expenditures incurred
by BHS in the first nine months of 1997 were primarily for customer
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 $35 million and $45
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.
<PAGE>
Total outstanding debt at September 30, 1997 was $50.8 million, $41.4 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 September 30, 1997, no portion of total debt outstanding was
payable to either the Burlington Group or 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 September 30, 1997, borrowings of $100.0
million were outstanding under the term loan portion of the Facility and $101.8
million of additional borrowings were outstanding under the remainder of the
Facility. No portion of the total amount outstanding under the Facility at
September 30, 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 of US
$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. The short-term loan of $10
million has subsequently been repaid. As of September 30, 1997, total borrowings
under this arrangement were equivalent to US $36.2 million.
Related Party Transactions
At September 30, 1997, under an interest bearing borrowing arrangement, the
Minerals Group owed the Brink's Group $3.7 million, a decrease of $20.3 million
from the $24.0 million owed at December 31, 1996.
At September 30, 1997, the Brink's Group owed the Minerals Group $17.9 million
versus $18.8 million at December 31, 1996 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 September 30, 1997, $12 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 BAX Global Inc. ("BAX Global")
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, BAX Global and Minerals Groups, in addition to consolidated
financial information of the Company.
During the three months ended September 30, 1997 and 1996, the Company purchased
no shares of Brink's Stock. During the nine-month periods ended September 30,
1997 and 1996, 166,000 shares (at a cost of $4.3 million) and no shares,
respectively, of Brink's Stock were repurchased. During the quarter and nine
months ended September 30, 1997, the Company repurchased 1,515 shares (at a cost
of $0.6 million) of its Series C Cumulative Convertible Preferred Stock (the
"Convertible Preferred Stock"). During the quarter and nine months ended
September 30, 1996, the Company repurchased 10,320 shares and 20,920 shares,
respectively, of its Convertible Preferred Stock at a total cost of $3.9 million
and $7.9 million, respectively. In May 1997, the Board authorized an increase in
the remaining repurchase authority to $25.0 million, leaving the Company
remaining authority to repurchase an additional $24.4 million of the Convertible
Preferred Stock.
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 bank credit agreements, financial
developments of the Minerals Group or the Burlington Group could affect the
Company's ability to pay dividends in respect of stock relating to the Brink's
Group.
<PAGE>
During the first nine months of 1997 and 1996, the Board declared and the
Company paid cash dividends of 7.5 cents per share of Brink's Stock. Preferred
dividends included on the Company's Statement of Operations for the quarter and
nine months ended September 30, 1997 are net of $0.1 million, which is the
excess of the carrying amount of the Convertible Preferred Stock over the cash
paid to holders of the stock. Preferred dividends included on the Company's
statement of operations for the quarter and nine months ended September 30,
1996, are net of $1.0 million and $2.1 million, respectively, which was the
excess of the carrying amount of the Convertible Preferred Stock over the cash
paid to holders of the stock for stock repurchases.
Pending Accounting Changes
The Brink's Group will implement the following new accounting standards.
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", will be implemented 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". On the effective date,
all prior-period EPS data presented will be restated to conform with
the provisions of SFAS No. 128.
SFAS No. 130, "Reporting Comprehensive Income", will be implemented in
the first quarter of 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in
financial statements. Comprehensive income generally represents all
changes in shareholders' equity except those resulting from
investments by or distributions to shareholders. With the exception of
foreign currency translation adjustments, such changes are not
significant to the Brink's Group.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", will be implemented in the financial statements for the
year ended December 31, 1998. SFAS No. 131 requires publicly-held
companies to report financial and descriptive information about
operating segments in financial statements issued to shareholders for
interim and annual periods. The SFAS also requires additional
disclosures with respect to products and services, geographic areas of
operation, and major customers. The adoption of this SFAS is not
expected to have a material impact on the financial statements of the
Brink's Group.
Forward Looking Information
Certain of the matters discussed herein involve forward looking information
which is subject to known and unknown risks and uncertainties which could cause
actual results to differ materially from those which are anticipated. Such risks
and uncertainties include, but are not limited to, overall economic and business
conditions, the demand for the Brink's Group's services, pricing and other
competitive factors in the industry, new government regulations and the
integration of acquisitions.
<PAGE>
<TABLE>
Pittston Burlington Group
BALANCE SHEETS
(In thousands)
<CAPTION>
September 30 December 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 22,653 17,818
Accounts receivable (net of estimated amount uncollectible:
1997 - $9,670; 1996 -$9,528) 312,230 262,378
Inventories, at lower of cost or market 1,747 2,251
Prepaid expenses 13,251 12,459
Deferred income taxes 7,215 7,847
- -------------------------------------------------------------------------------------------------------------------
Total current assets 357,096 302,753
Property, plant and equipment, at cost (net of accumulated depreciation and
amortization:
1997 - $77,566; 1996 - $62,900) 128,010 113,283
Intangibles, net of amortization 175,432 177,797
Deferred pension assets 7,775 9,504
Deferred income taxes 20,781 19,015
Other assets 12,135 13,046
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 701,229 635,398
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings $ 28,285 29,918
Current maturities of long-term debt 3,243 2,916
Accounts payable 196,082 175,198
Payable - Pittston Minerals Group 11,220 3,270
Accrued liabilities 74,593 67,299
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 313,423 278,601
Long-term debt, less current maturities 54,183 28,723
Postretirement benefits other than pensions 3,454 3,145
Deferred income taxes 2,649 1,880
Payable - Pittston Minerals Group 8,199 13,310
Other liabilities 6,894 4,750
Shareholder's equity 312,427 304,989
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 701,229 635,398
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Pittston Burlington Group
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 439,428 373,177 1,210,404 1,081,336
Costs and expenses:
Operating expenses 375,145 322,764 1,061,749 947,071
Selling, general and administrative expenses 37,423 32,730 116,446 95,636
- --------------------------------------------------------------------------------------------------------------------
Total costs and expenses 412,568 355,494 1,178,195 1,042,707
Other operating income, net 351 225 1,859 966
- --------------------------------------------------------------------------------------------------------------------
Operating profit 27,211 17,908 34,068 39,595
Interest income 124 628 599 2,177
Interest expense (1,558) (944) (3,570) (2,984)
Other expense, net (390) (597) (671) (1,939)
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes 25,387 16,995 30,426 36,849
Provision for income taxes 9,394 6,290 11,258 13,635
- --------------------------------------------------------------------------------------------------------------------
Net income $ 15,993 10,705 19,168 23,214
- --------------------------------------------------------------------------------------------------------------------
Net income per common share:
Primary $ .82 .56 .99 1.21
Fully diluted $ .79 .56 .95 1.21
- --------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .06 .06 .18 .18
- --------------------------------------------------------------------------------------------------------------------
Average common shares outstanding:
Primary 19,470 19,283 19,449 19,161
Fully diluted 20,140 19,283 20,125 19,161
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Pittston Burlington Group
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended September 30
1997 1996
- -------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 19,168 23,214
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 21,637 16,129
Provision for aircraft heavy maintenance 25,009 23,980
Credit for deferred income taxes (1,436) (2,757)
Provision for pensions, noncurrent 1,403 1,115
Provision for uncollectible accounts receivable 3,134 1,841
Equity in loss (earnings) of unconsolidated affiliates,
net of dividends received 263 (171)
Other operating, net 1,597 1,522
Change in operating assets and liabilities, net of effects of acquisitions
and dispositions:
Increase in accounts receivable (47,109) (13,197)
Decrease (increase) in inventories 505 (392)
(Increase) decrease in prepaid expenses (613) 1,113
Increase (decrease) in accounts payable and accrued liabilities 16,863 (15,855)
Increase in other assets (2,395) (870)
Increase (decrease) in other liabilities 1,661 (1,308)
Other, net (263) (509)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 39,424 33,855
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (22,420) (27,486)
Proceeds from disposal of property, plant and equipment 471 5,899
Aircraft heavy maintenance (24,790) (15,215)
Acquisitions, net of cash acquired, and related contingency payments (9,131) (225)
Other, net 2,664 2,566
- -------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (53,206) (34,461)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 37,984 2,878
Reductions of debt (17,246) (1,361)
Payments from Minerals Group 6,949 554
Proceeds from exercise of stock options and employee stock purchase plan 1,786 2,293
Dividends paid (3,449) (3,479)
Repurchase of common stock (7,407) (372)
Cost of stock proposal - (1,237)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 18,617 (724)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4,835 (1,330)
Cash and cash equivalents at beginning of period 17,818 25,847
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 22,653 24,517
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<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 BAX Global Inc. ("BAX Global" formerly Burlington Air Express Inc.)
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 third
quarter and nine-month periods of 1997 and 1996 totaled $5,847 ($3,592 in
1996) and $16,679 ($11,245 in 1996), respectively.
(3) Cash payments made for interest and income taxes (net of refunds received)
were as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest $ 1,284 1,238 3,536 3,793
- ----------------------------------------------------------------------------------------
Income taxes $ 3,285 7,320 12,024 15,881
- ----------------------------------------------------------------------------------------
</TABLE>
During the nine months ended September 30, 1997 and 1996, capital lease
obligations of $52 and $61, respectively, were incurred for leases of
property, plant and equipment.
(4) For the quarter and nine months ended September 30, 1996 fully diluted net
income per share for the Burlington Group is considered to be the same as
primary since the effect of common stock equivalents was either
antidilutive or insignificant.
(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
<PAGE>
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 and third payments were paid in
the third quarters of 1996 and 1997, respectively, and 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 $35,650
($23,173 after-tax) in the first quarter of 1996.
(6) 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 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.
(7) During the three months ended September 30, 1997 and 1996, the Company
purchased 200,200 shares (at a cost of $4,855) and 15,300 shares (at a cost
of $280), respectively, of Burlington Stock. During the nine months ended
September 30, 1997 and 1996, the Company purchased 332,300 shares (at a
cost of $7,405) and 20,300 shares (at a cost of $373), respectively, of
Burlington Stock.
(8) During the quarter and nine months ended September 30, 1997, the Company
purchased 1,515 shares (at a cost of $617) of its Series C Cumulative
Convertible Preferred Stock (the "Convertible Preferred Stock"). During the
quarter and nine months ended September 30, 1996, the Company purchased
10,320 shares (at a cost of $3,922) and 20,920 shares (at a cost of
$7,897), respectively, of the Convertible Preferred Stock. Preferred
dividends included on the Company's Statement of Operations for the quarter
and nine months ended September 30, 1997 are net of $108, which is the
excess of the carrying amount of the Convertible Preferred Stock over the
cash paid to holders of the stock. Preferred dividends included on the
Company's Statement of Operations for the quarter and nine months ended
September 30, 1996, are net of $1,020 million and $2,120 million,
respectively, which is the excess of the carrying amount of the Convertible
Preferred Stock over the cash paid to holders of the stock.
(9) The Burlington Group will implement the following new accounting standards.
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", will be implemented 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". On the effective
date, all prior-period EPS data presented will be restated to conform
with the provisions of SFAS No. 128.
SFAS No. 130, "Reporting Comprehensive Income", will be implemented in
the first quarter of 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in
financial statements. Comprehensive income generally represents all
changes in shareholders' equity except those resulting from
investments by or distributions to shareholders. With the exception of
foreign currency translation adjustments, such changes are not
significant to the Burlington Group.
<PAGE>
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", will be implemented in the financial statements for the
year ended December 31, 1998. SFAS No. 131 requires publicly-held
companies to report financial and descriptive information about
operating segments in financial statements issued to shareholders for
interim and annual periods. The SFAS also requires additional
disclosures with respect to products and services, geographic areas of
operation, and major customers. The adoption of this SFAS is not
expected to have a material impact on the financial statements of the
Burlington Group.
(10) Certain prior period amounts have been reclassified to conform to the
current period's financial statement presentation.
(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.
<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 BAX
Global Inc. ("BAX Global" formerly Burlington Air Express Inc.) 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.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
(In thousands) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Operating revenues:
<S> <C> <C> <C> <C>
BAX Global $ 439,428 373,177 1,210,404 1,081,336
- -------------------------------------------------------------------------------------------------------------------
Operating profit:
BAX Global $ 28,926 20,466 39,117 45,479
General corporate expense (1,715) (2,558) (5,049) (5,884)
- --------------------------------------------------------------------------------------------------------------------
Operating profit $ 27,211 17,908 34,068 39,595
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
In the third quarter of 1997, the Burlington Group reported net income of $16.0
million ($0.82 per share primary and $0.79 per share fully diluted). This
compares to net income of $10.7 million ($0.56 per share) in the third quarter
of 1996. Included in the third quarter 1997 net income was an estimated benefit
of approximately $1.6 million ($0.08 per share) resulting from the Teamsters
Strike against United Parcel Service (the "UPS Strike") during the third
quarter. Operating profit totaled $27.2 million in the 1997 third quarter
compared to $17.9 million in the prior year third quarter. Revenues increased
$66.3 million or 18% compared with the 1996 third quarter. Operating expenses
and selling, general and administrative expenses for the 1997 period increased
$57.1 million (16%) compared with the same period last year.
In the first nine months of 1997, the Burlington Group reported net income of
$19.2 million ($0.99 per share primary and $0.95 per share fully diluted),
including a $12.5 million pre-tax charge ($7.9 million after-tax) related to
consulting expenses for the redesign of BAX Global's business processes and new
information systems architecture, compared with $23.2 million ($1.21 per share)
in the first nine months of 1996.
Operating profit, after the $12.5 million charge, totaled $34.1 million in the
first nine months of 1997 compared with $39.6 million in the prior year
nine-month period. Revenues increased $129.1 million or 12% compared with the
first nine months of 1996. Operating expenses and selling, general and
administrative expenses, including the $12.5 million charge, for the 1997 period
increased $135.5 million (13%) compared with the same period last year.
<PAGE>
BAX Global
The following is a table of selected financial data for BAX Global on a
comparative basis:
<TABLE>
<CAPTION>
Three Months Nine Months
(In thousands - except per Ended September 30 Ended September 30
pound/shipment amounts) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Operating revenues:
Intra-U.S.
<S> <C> <C> <C> <C>
Expedited freight services $ 176,332 142,506 457,672 405,238
Other 1,761 1,216 5,372 3,318
- -------------------------------------------------------------------------------------------------------------------
Total Intra-U.S. 178,093 143,722 463,044 408,556
International
Expedited freight services 196,829 175,516 570,451 517,692
Customs clearances 32,096 30,017 91,396 88,793
Ocean and other 32,410 23,922 85,513 66,295
- -------------------------------------------------------------------------------------------------------------------
Total International 261,335 229,455 747,360 672,780
Total operating revenues 439,428 373,177 1,210,404 1,081,336
- -------------------------------------------------------------------------------------------------------------------
Operating expenses 375,145 322,764 1,061,749 947,071
Selling, general and administrative expenses 35,708 30,172 111,397 89,752
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 410,853 352,936 1,173,146 1,036,823
Other operating income, net 351 225 1,859 966
- -------------------------------------------------------------------------------------------------------------------
Operating profit:
Intra-U.S. 16,938 11,783 24,553 25,520
International 11,988 8,683 27,064 19,959
Other (a) - - (12,500) -
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 28,926 20,466 39,117 45,479
- -------------------------------------------------------------------------------------------------------------------
Expedited freight services
shipment growth rate 41.8% (0.5%) 13.5% 2.8%
Expedited freight services weight growth rate:
Intra-U.S. 16.5% 6.7% 7.1% 5.0%
International 14.5% (1.7%) 8.3% 4.5%
Worldwide 15.5% 2.2% 7.7% 4.7%
- -------------------------------------------------------------------------------------------------------------------
Expedited freight services
weight (millions of pounds) 418.1 362.0 1,141.2 1,059.2
Expedited freight services
shipments (thousands) 1,836 1,294 4,441 3,914
- -------------------------------------------------------------------------------------------------------------------
Expedited freight services average:
Yield (revenue per pound) $ .893 .879 .901 .871
Revenue per shipment $ 203 246 232 236
Weight per shipment (pounds) 228 280 257 271
- -------------------------------------------------------------------------------------------------------------------
(a) Consulting expenses related to the redesign of BAX Global Inc.'s business
processes and new information systems architecture.
</TABLE>
<PAGE>
Reflecting the company's global orientation and expanded services, on October 1,
1997, Burlington Air Express Inc. changed its name to BAX Global Inc. The new
BAX Global name reflects the Company's current position as one of the world's
leading global freight transportation and logistics companies.
BAX Global's third quarter operating profit amounted to $28.9 million, an
increase of $8.4 million from the $20.5 million operating profit reported in the
third quarter of 1996. Worldwide revenues increased 18% to $439.4 million from
$373.2 million in the 1996 quarter. The $66.2 million growth in revenues
principally reflects a 16% increase in worldwide expedited freight services
pounds shipped, which reached 418.1 million pounds in the third quarter of 1997,
combined with a 2% increase in yield on this volume. In addition, non-expedited
freight services revenues, increased $11.1 million (20%) during the third
quarter of 1997 as compared to the same quarter in 1996. Worldwide expenses
amounted to $410.9 million, $57.9 million (16%) higher than in the third quarter
of 1996.
In the third quarter of 1997, BAX Global's intra-U.S. revenues increased from
$143.7 million to $178.1 million. This $34.4 million (24%) increase was
primarily due to an increase of $33.8 million in intra-U.S. expedited freight
services revenues. The higher level of intra-U.S. expedited freight services
revenues in 1997 was due to a 17% increase in weight shipped combined with a 6%
increase in the average yield. The yield increase was due to higher average
pricing on both overnight and second-day freight, due in large part to the
effects of the UPS Strike and to an intra-U.S. shipment surcharge which was
initiated in September 1996 to offset various cost increases. In addition, the
average revenue per shipment and the average weight per shipment decreased as a
result of the UPS Strike since, the additional volume, on average, consisted of
a large number of smaller shipments. Excluding the estimated effects of the UPS
Strike, the intra-U.S. expedited freight services average revenue per shipment
increased, while the weight per shipment remained relatively unchanged.
Intra-U.S. operating profit during the third quarter of 1997 increased $5.2
million from the $11.8 million recorded in the third quarter of 1996.
Approximately $2.6 million of the increase was attributable to business from the
UPS Strike.
International revenues in the third quarter of 1997 increased $31.8 million
(14%) to $261.3 million from the $229.5 million recorded in the third quarter of
1996. International expedited freight services revenue increased $21.3 million
(12%) due to a 15% increase in weight shipped. In addition, international
non-expedited freight services revenue increased $10.6 million (20%) in the
third quarter of 1997 as compared to the same period in 1996. The increase
primarily relates to increases in international shipment volume and the
continued expansion of ocean freight services. International operating profit in
the third quarter of 1997 increased $3.3 million (38%) from the $8.7 million
recorded in the third quarter of 1996. Operating profit during the third quarter
of 1997 benefited from increased revenues combined with improved margins.
BAX Global operating profit for the first nine months of 1997, after the $12.5
million charge, amounted to $39.1 million, a decrease of $6.4 million from the
$45.5 million reported in the first nine months of 1996. Worldwide revenues in
the 1997 period increased 12% to $1,210.4 million from $1,081.3 million in the
1996 period. The $129.1 million growth in revenues principally reflects an 8%
increase in worldwide expedited freight services pounds shipped, which reached
1,141.2 million pounds in the first nine months of 1997, combined with a 3%
increase in yield on this volume. In addition, non-expedited freight services
revenues increased $23.9 million (15%) during the first nine months of 1997 as
compared to 1996. Worldwide expenses in the 1997 period, which include the $12.5
million charge, amounted to $1,173.1 million, $136.3 million (13%) higher than
the 1996 period.
In the first nine months of 1997, BAX Global's intra-U.S. revenues increased
from $408.6 million to $463.0 million. This $54.4 million (13%) increase was
primarily due to an increase of $52.4 million in intra-U.S. expedited freight
services revenues. The higher level of expedited freight services revenue in
1997 resulted from a 7% increase in weight shipped coupled with a 6% increase in
the average yield. The increase in average yield was the combination of higher
average pricing and a slight increase in the proportion of overnight freight in
the sales mix. The higher average pricing was due, in large part, to the effects
of the UPS Strike and to an intra-U.S. shipment surcharge which was initiated in
September 1996 to offset various cost increases. In addition, the average
revenue per shipment and the average weight per shipment decreased as a result
of the UPS Strike since, the additional volume, on average, consisted of a large
number of smaller shipments. Excluding the estimated effects of the UPS Strike,
both of these averages increased over the 1996 nine-month period. Intra-U.S.
operating profit during the first nine months of 1997, excluding any impact of
the
<PAGE>
aforementioned $12.5 million charge, decreased $1.0 million from the $25.5
million recorded in the first nine months of 1996. Intra-U.S. operating profit
in the first nine months of 1996 benefited from the reduction in Federal excise
tax liabilities while intra-U.S. operating profit in the first nine months of
1997 was impacted by higher expenses associated with additional capacity
designed to improve on-time customer service and to meet the rising demand in
some of BAX Global's high growth markets, offset by an estimated $2.6 million
impact attributed to the UPS Strike.
International revenues in the first nine months of 1997 increased $74.6 million
(11%) to $747.4 million from the $672.8 million recorded in the comparable
period of 1996. International expedited freight services revenue increased $52.8
million (10%) due to an 8% increase in weight shipped combined with a 2%
increase in the average yield. The increase in the average yield on
international expedited freight is primarily due to the fuel surcharge
implemented by BAX Global in March 1997 in reaction to a corresponding surcharge
implemented by its third party transportation providers. In addition,
international non-expedited freight services revenue increased $21.8 million
(14%) in the first nine months of 1997 as compared to the same period in 1996.
The increase primarily relates to increases in international shipment volume and
the continued expansion of ocean freight services. International operating
profit in the first nine months of 1997 increased $7.1 million (36%) from the
$20.0 million recorded in the comparable period of 1996. Operating profit during
the first nine months of 1997 benefited from increased revenues combined with
improved margins.
In June 1997, BAX Global completed its acquisition of Cleton & Co. ("Cleton"), a
leading logistics provider in the Netherlands. BAX Global acquired Cleton for
the equivalent of US $10.7 million (paid in July 1997), the assumption of the
equivalent of US $10 million of debt, and additional contingent payments ranging
from the current equivalent of US $0 to US $18 million to be paid over the next
three years based on certain performance criteria of Cleton.
As part of its ongoing efforts to further enhance service quality and improve
efficiencies, BAX Global has formed a Global Innovation Team composed of
management from various regions assisted by third party consultants. The team is
reviewing BAX Global's operating activities to better ensure that BAX Global
provides a high level of customer service in a cost efficient manner. A key
component of this process is a review of BAX Global's future information systems
and technology needs on a global basis. A comprehensive plan is being developed
for worldwide implementation over the next two to three years to assure delivery
of information systems to meet both customer and operational requirements. In
connection with these efforts, BAX Global recorded a charge of $12.5 million in
the second quarter of 1997 which included most of the consulting fees and other
project expenses attributable to the planning stage of the redesign program.
Other cost and service improvement programs have been identified through this
process and are expected to be implemented during the balance of 1997.
Annualized cost savings from this phase of these initiatives are projected at $5
to $10 million.
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. Subsidiaries in Brazil and Mexico operate in
such highly inflationary economies. Current conditions indicate that Brazil may
no longer be considered highly inflationary by early 1998.
<PAGE>
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.
Corporate Expenses
A portion of the Company's corporate general and administrative expenses and
other shared services has been allocated to the Burlington Group based on
utilization and other methods and criteria which management believes to be a
reasonable and an equitable estimate of the costs attributable to the Burlington
Group. These attributions were $1.7 million and $2.6 million for the third
quarter of 1997 and 1996, respectively, and $5.0 million and $5.9 million for
the first nine months of both 1997 and 1996, respectively. The decrease in the
1997 periods is due to expenses associated with the Company's corporate office
relocation during the third quarter of 1996.
Other Operating Income, Net
Other operating income increased $0.1 million to $0.4 million in the third
quarter of 1997, as compared to the same period in 1996, and increased $0.9
million to $1.9 million in the first nine months of 1997. Other operating income
principally includes foreign exchange transaction gains and losses, and the
changes for the comparable periods are due to fluctuations in such gains and
losses.
Interest Expense
Interest expense increased $0.6 million in both the three and nine-month periods
ended September 30, 1997 as compared to the same periods in 1996. The increase
is due to a higher borrowing base as well as slightly higher average interest
rates.
Interest Income
Interest income decreased $0.5 million to $0.1 million in the third quarter of
1997. For the first nine months of 1997, interest income decreased $1.6 million
to $0.6 million, as compared to the prior year period. The fluctuation was
primarily attributed to a decrease in interest income from the Minerals Group.
Other Expense, Net
Other net expense for the third quarter of 1997 decreased slightly from the
prior year quarter. For the first nine months of 1997 other net expense
decreased by $1.2 million to $0.7 million from $1.9 million for the first nine
months of 1996. Other net expense in the first nine months of 1996 includes a
loss for the termination of an overseas sublease agreement by BAX Global.
Income Taxes
In both 1997 and 1996 periods presented, 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 estimate of the cost attributable to the
Burlington Group.
Cash Flow Requirements
Cash provided by operating activities during the first nine months of 1997
totaled $39.4 million as compared to the $33.9 million generated in the first
nine months of 1996. The higher level of cash generated from operating
activities was a result of a higher earnings before noncash charges partially
offset by an increase in the funding requirements for net operating assets and
liabilities in the 1997 period. Cash generated from operating activities,
additional debt borrowings and repayments from the Minerals Group were
sufficient to fund net investing and share activities, resulting in an increase
in cash and cash equivalents of $4.8 million during the first nine months of
1997.
<PAGE>
Capital Expenditures
Cash capital expenditures for the first nine months of 1997 and 1996 totaled
$22.4 million and $27.5 million, respectively, excluding 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 $25
million and $30 million, excluding 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.
Total outstanding debt was $85.7 million at September 30, 1997, an increase of
$24.1 million from the $61.6 million reported at December 31, 1996. The net
increase in debt primarily reflects the equivalent of US $10.7 million of
borrowings related to the Cleton acquisition.
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 September 30, 1997, borrowings of $100.0
million were outstanding under the term loan portion of the Facility and $101.8
million of additional borrowings were outstanding under the remainder of the
Facility. Of the total outstanding amount under the Facility at September 30,
1997, $27.0 million was attributed to the Burlington Group.
In July 1997, the Company repaid the $14.3 million 4% subordinated debentures,
attributed to the Burlington Group, which were outstanding at December 31, 1996.
Borrowings under the Facility were used to make this payment.
Related Party Transactions
At September 30, 1997, under an interest bearing borrowing arrangement, the
Minerals Group owed the Burlington Group $0.8 million, a decrease from the $7.7
million owed at December 31, 1996.
At September 30, 1997, the Burlington Group owed the Minerals Group $20.2
million versus $24.3 million at December 31, 1996 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 September 30, 1997, $12.0 million is expected to be
paid within one year.
Capitalization
The Company has 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 BAX Global 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 BAX Global, Brink's and Minerals
Groups in addition to consolidated financial information of the Company.
<PAGE>
During the three months ended September 30, 1997 and 1996, the Company purchased
200,200 shares (at a cost of $4.8 million) and 15,300 shares (at a cost of $0.3
million), respectively, of Burlington Stock. During the nine months ended
September 30, 1997 and 1996, the Company purchased 332,300 shares (at a cost of
$7.4 million) and 20,300 shares (at a cost of $0.4 million), respectively, of
Burlington Stock. During the quarter and nine months ended September 30, 1997,
the Company repurchased 1,515 shares (at a cost of $0.6 million) of its Series C
Cumulative Convertible Preferred Stock (the "Convertible Preferred Stock").
During the quarter and nine months ended September 30, 1996, the Company
repurchased 10,320 shares and 20,920 shares, respectively, of its Convertible
Preferred Stock at a total cost of $3.9 million and $7.9 million, respectively.
In May 1997, the Board authorized an increase in the remaining repurchase
authority to $25.0 million, leaving the Company remaining authority to
repurchase an additional $24.4 million of the Convertible Preferred Stock.
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 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 nine months of 1997 and 1996, the Board declared and the
Company paid cash dividends of 18 cents per share of Burlington Stock. Preferred
dividends included on the Company's Statement of Operations for the quarter and
nine months ended September 30, 1997 are net of $0.1 million, which is the
excess of the carrying amount of the Convertible Preferred Stock over the cash
paid to holders of the stock. Preferred dividends included on the Company's
statement of operations for the quarter and nine months ended September 30,
1996, are net of $1.0 million and $2.1 million, respectively, which was the
excess of the carrying amount of the Convertible Preferred Stock over the cash
paid to holders of the stock for stock repurchases.
Pending Accounting Changes
The Burlington Group will implement the following new accounting standards.
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", will be implemented 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". On the effective
date, all prior-period EPS data presented will be restated to conform
with the provisions of SFAS No. 128.
SFAS No. 130, "Reporting Comprehensive Income", will be implemented in
the first quarter of 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in
financial statements. Comprehensive income generally represents all
changes in shareholders' equity except those resulting from
investments by or distributions to shareholders. With the exception of
foreign currency translation adjustments, such changes are not
significant to the Burlington Group.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", will be implemented in the financial statements for the
year ended December 31, 1998. SFAS No. 131 requires publicly-held
companies to report financial and descriptive information about
operating segments in financial statements issued to shareholders for
interim and annual periods. The SFAS also requires additional
disclosures with respect to products and services, geographic areas of
operation, and major customers. The adoption of this SFAS is not
expected to have a material impact on the financial statements of the
Burlington Group.
Forward Looking Information
Certain of the matters discussed herein, including statements regarding the
expected benefits from BAX Global redesign initiatives, involve forward looking
information which is subject to known and unknown risks and uncertainties which
could cause actual results to differ materially from those which are
anticipated. Such risks and uncertainties include, but are not limited to,
overall economic and business conditions, the demand for BAX Global's services,
pricing and other competitive factors in the industry, new government
regulations, the implementation of systems initiatives and the integration of
acquisitions.
<PAGE>
<TABLE>
Pittston Minerals Group
BALANCE SHEETS
(In thousands)
<CAPTION>
September 30 December 31
1997 1996
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,924 3,387
Accounts receivable (net of estimated amount uncollectible:
1997 - $1,344; 1996 -$1,618) 81,790 88,552
Inventories, at lower of cost or market:
Coal inventory 44,075 26,495
Other inventory 3,958 5,308
- -------------------------------------------------------------------------------------------------------------------
48,033 31,803
Receivable - Pittston Brink's Group/Burlington Group, net 19,494 --
Prepaid expenses 10,777 8,659
Deferred income taxes 26,610 27,229
- -------------------------------------------------------------------------------------------------------------------
Total current assets 190,628 159,630
Property, plant and equipment, at cost (net of accumulated depreciation,
depletion and amortization:
1997 - $160,891; 1996 -$154,115) 174,481 170,809
Deferred pension assets 83,163 81,067
Deferred income taxes 57,774 62,899
Coal supply contracts, net of amortization 44,457 52,696
Intangibles, net of amortization 108,846 111,103
Receivable - Pittston Brink's Group/Burlington Group, net 14,082 22,071
Other assets 46,941 46,706
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 720,372 706,981
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities:
Current maturities of long-term debt 262 395
Accounts payable 46,862 59,103
Payable - Pittston Brink's Group/Burlington Group, net - 10,757
Accrued liabilities 117,943 114,470
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 165,067 184,725
Long-term debt, less current maturities 176,442 124,572
Postretirement benefits other than pensions 223,692 219,717
Workers' compensation and other claims 99,118 105,837
Mine closing and reclamation 43,405 43,877
Other liabilities 30,799 39,913
Shareholder's equity (18,151) (11,660)
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 720,372 706,981
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Pittston Minerals Group
STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 150,998 177,195 467,693 522,715
Cost and expenses:
Cost of sales 144,338 167,907 451,586 533,236
Restructuring and other credits,
including litigation accrual - - - (37,758)
Selling, general and administrative expenses 7,768 8,275 22,484 27,332
- --------------------------------------------------------------------------------------------------------------------
Total costs and expenses 152,106 176,182 474,070 522,810
Other operating income, net 1,902 1,812 7,349 11,298
- --------------------------------------------------------------------------------------------------------------------
Operating profit 794 2,825 972 11,203
Interest income 361 187 978 507
Interest expense (2,810) (2,694) (8,169) (8,315)
Other income (expense), net 2 (449) (900) (1,339)
- --------------------------------------------------------------------------------------------------------------------
(Loss) income before income taxes (1,653) (131) (7,119) 2,056
Credit for income taxes (2,625) (2,629) (7,875) (6,106)
- --------------------------------------------------------------------------------------------------------------------
Net income 972 2,498 756 8,162
Preferred stock dividends, net (789) 146 (2,592) (773)
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) attributed to common
shares $ 183 2,644 (1,836) 7,389
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share:
Primary $ .02 .33 (.23) .94
Fully diluted .02 .25 (.23) .82
- --------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .1625 .1625 .4875 .4875
- --------------------------------------------------------------------------------------------------------------------
Average common shares outstanding:
Primary 8,096 7,926 8,055 7,872
Fully diluted 9,899 9,819 9,885 9,920
- --------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
Pittston Minerals Group
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<CAPTION>
Nine Months Ended September 30
1997 1996
- -------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 756 8,162
Adjustments to reconcile net income to net cash provided
by operating activities:
Noncash charges and other write-offs - 29,948
Depreciation, depletion and amortization 28,043 27,674
Provision for deferred income taxes 5,137 15,130
Credit for pensions, noncurrent (2,079) (1,261)
Provision for uncollectible accounts receivable 12 251
Equity in loss (earnings) of unconsolidated affiliates,
net of dividends received 763 (222)
Other operating, net (918) (754)
Change in operating assets and liabilities, net of effects of acquisitions
and dispositions:
Decrease in accounts receivable 6,680 3,743
(Increase) decrease in inventories (16,146) 5,211
(Increase) decrease in prepaid expenses (3,814) 76
Increase (decrease) in accounts payable and accrued liabilities 1,601 (12,570)
Increase in other assets (1,217) (3,348)
Decrease in other liabilities (8,884) (48,559)
Decrease in workers' compensation and
other claims, noncurrent (6,719) (9,153)
Other, net 140 254
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,355 14,582
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (21,913) (17,662)
Proceeds from disposal of property, plant and equipment 3,612 3,390
Acquisitions, net of cash acquired, and related contingency payments (791) (746)
Other, net (850) 2,885
- -------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (19,942) (12,133)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 51,579 15,615
Reductions of debt (372) (1,233)
Net payments to - Burlington Group/Brink's Group (27,249) (2,717)
Repurchase of stock (617) (7,896)
Proceeds from exercise of stock options and employee stock purchase plan 22 172
Dividends paid (6,239) (6,858)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 17,124 (2,917)
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 537 (468)
Cash and cash equivalents at beginning of period 3,387 4,999
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,924 4,531
- -------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
</TABLE>
<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 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.
(2) Depreciation, depletion and amortization of property, plant and equipment
in the third quarter and nine-month periods of 1997 and 1996 totaled $5,986
($5,963 in 1996) and $17,344 ($17,148 in 1996), respectively.
(3) Cash payments made for interest and income taxes (net of refunds received)
were as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1997 1996 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest $ 2,973 2,263 8,356 8,253
- ----------------------------------------------------------------------------------------
Income taxes $ (6,059) (7,999) (17,819) (23,923)
- ----------------------------------------------------------------------------------------
</TABLE>
During the nine months ended September 30, 1997 and 1996, capital lease
obligations of $649 and $494, respectively, were incurred for leases of
property, plant and equipment.
(4) For the quarter and nine months ended September, 30, 1997, fully diluted
net income (loss) per share for the Minerals Group is considered to be the
same as primary since the effect of common stock equivalents and the
assumed conversion of preferred stock was either antidilutive or
insignificant.
(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.
<PAGE>
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 and the Minerals Group. The amount previously
escrowed and accrued was included in "Short-term investments" and "Accrued
liabilities" on the Company's and the Minerals Group's balance sheet. The
second and third payments were paid in the third quarters of 1996 and 1997,
respectively, and 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 Minerals Group recorded a pretax
benefit of $35,650 ($23,173 after-tax) in the first quarter of 1996 which
is included in restructuring and other credits, including litigation
accrual, in their respective financial statements.
(6) In 1996, the Minerals 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 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.
(7) During the quarter and nine months ended September 30, 1997, the Company
purchased 1,515 shares (at a cost of $617) of its Series C Cumulative
Convertible Preferred Stock (the "Convertible Preferred Stock"). During the
quarter and nine months ended September 30, 1996, the Company purchased
10,320 shares (at a cost of $3,922) and 20,920 shares (at a cost of
$7,897), respectively of the Convertible Preferred Stock. Preferred
dividends included on the Company's Statement of Operations for the quarter
and nine months ended September 30, 1997 are net of $108, which is the
excess of the carrying amount of the Convertible Preferred Stock over the
cash paid to holders of the stock. Preferred dividends included on the
Company's Statement of Operations for the quarter and nine months ended
September 30, 1996, are net of $1,020 and $2,120, respectively, which is
the excess of the carrying amount of the Convertible Preferred Stock over
the cash paid to holders of the stock.
(8) The Minerals Group will implement the following new accounting standards.
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", will be implemented 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". On the effective
date, all prior-period EPS data presented will be restated to conform
with the provisions of SFAS No. 128.
SFAS No. 130, "Reporting Comprehensive Income", will be implemented in
the first quarter of 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in
financial statements. Comprehensive income generally represents all
changes in shareholders' equity except those resulting from
investments by or distributions to shareholders. With the exception of
foreign currency translation adjustments, such changes are not
significant to the Minerals Group.
<PAGE>
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", will be implemented in the financial statements for the
year ended December 31, 1998. SFAS No. 131 requires publicly-held
companies to report financial and descriptive information about
operating segments in financial statements issued to shareholders for
interim and annual periods. The SFAS also requires additional
disclosures with respect to products and services, geographic areas of
operation, and major customers. The adoption of this SFAS is not
expected to have a material impact on the financial statements of the
Minerals Group.
(9) Certain prior period amounts have been reclassified to conform to current
period 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.
<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.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
(In thousands) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Net Sales:
<S> <C> <C> <C> <C>
Coal Operations $ 145,616 172,603 454,282 507,967
Mineral Ventures 5,382 4,592 13,411 14,748
- -------------------------------------------------------------------------------------------------------------------
Net sales $ 150,998 177,195 467,693 522,715
- -------------------------------------------------------------------------------------------------------------------
Operating profit:
Coal Operations $ 2,640 5,393 7,495 14,960
Mineral Ventures (347) (324) (2,112) 1,425
- -------------------------------------------------------------------------------------------------------------------
Segment operating profit 2,293 5,069 5,383 16,385
General corporate expense (1,499) (2,244) (4,411) (5,182)
- -------------------------------------------------------------------------------------------------------------------
Operating profit $ 794 2,825 972 11,203
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
In the third quarter of 1997, the Minerals Group reported net income of $1.0
million, $0.02 per share (both primary and fully diluted), compared to net
income of $2.5 million, $0.33 per share ($0.25 per share fully diluted), in the
third quarter of 1996. Operating profit totaled $0.8 million in the 1997 quarter
as compared to an operating profit of $2.8 million in the 1996 quarter. Net
sales during the third quarter of 1997 decreased $26.2 million (15%) compared to
the corresponding period in 1996.
In the first nine months of 1997, the Minerals Group reported net income of $0.8
million, ($0.23) per share (both primary and fully diluted), compared to net
income of $8.2 million, $0.94 per share ($0.82 per share fully diluted), in the
first nine months of 1996. Operating profit totaled $1.0 million in the
nine-month period of 1997
<PAGE>
as compared to $11.2 million in the corresponding 1996 period. Net sales during
the nine-month period of 1997 decreased $55.0 million (11%) compared to the same
period in 1996. In the first nine months 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 implementation 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).
Coal Operations
The following is a table of selected financial data for the Coal Operations on a
comparative basis.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
(In thousands) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 145,616 172,603 454,282 507,967
- ------------------------------------------------------------------------------------------------------------------
Cost of sales 140,287 164,251 440,170 522,475
Selling, general and
administrative expenses 5,009 4,985 14,720 19,366
Restructuring and other credits,
including litigation accrual - - - (37,758)
- ------------------------------------------------------------------------------------------------------------------
Total costs and expenses 145,296 169,236 454,890 504,083
Other operating income, net 2,320 2,026 8,103 11,076
- ------------------------------------------------------------------------------------------------------------------
Operating profit 2,640 5,393 7,495 14,960
- ------------------------------------------------------------------------------------------------------------------
Coal sales (tons):
Metallurgical 1,863 1,979 5,577 5,978
Utility and industrial 3,046 3,837 9,569 11,240
- -------------------------------------------------------------------------------------------------------------------
Total coal sales 4,909 5,816 15,146 17,218
- -------------------------------------------------------------------------------------------------------------------
Production/purchased (tons):
Deep 1,320 924 3,746 2,977
Surface 2,594 2,764 7,991 8,351
Contract 352 408 1,090 1,261
- -------------------------------------------------------------------------------------------------------------------
4,266 4,096 12,827 12,589
Purchased 769 1,380 3,072 4,365
- -------------------------------------------------------------------------------------------------------------------
Total 5,035 5,476 15,899 16,954
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Coal Operations generated an operating profit of $2.6 million in the third
quarter of 1997, compared to $5.4 million recorded in the 1996 third quarter.
Coal Operations had an operating profit of $7.5 million in the first nine months
of 1997 compared to an operating profit of $15.0 million in the prior year.
Operating profit in the first nine months of 1996 included a $3.0 million
benefit from a litigation settlement. In addition, the first nine months of 1996
operating results also 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 the
implementation of 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).
<PAGE>
The following is a schedule of selected financial data for Coal Operations,
excluding restructuring and other non-recurring items.
<TABLE>
<CAPTION>
Three Months Nine Months
(In thousands, Ended September 30 Ended September 30
except per ton amounts) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net coal sales (a) $ 143,958 170,301 447,959 502,760
Current production cost
of coal sold (a) 131,591 156,027 413,717 470,945
- -------------------------------------------------------------------------------------------------------------------
Coal margin 12,367 14,274 34,242 31,815
Non-coal margin 436 620 1,681 1,477
Other operating income, net 2,320 2,026 8,103 11,076
- -------------------------------------------------------------------------------------------------------------------
Margin and other income 15,123 16,920 44,026 44,368
- -------------------------------------------------------------------------------------------------------------------
Other costs and expenses:
Idle equipment and closed mines 623 266 1,180 729
Inactive employee cost 6,851 6,275 20,631 20,758
Selling, general and
administrative expenses 5,009 4,986 14,720 15,731
- -------------------------------------------------------------------------------------------------------------------
Total other costs and expenses 12,483 11,527 36,531 37,218
- -------------------------------------------------------------------------------------------------------------------
Operating profit (before
restructuring and other
credits and SFAS No. 121) (b) $ 2,640 5,393 7,495 7,150
- -------------------------------------------------------------------------------------------------------------------
Coal margin per ton:
Realization $ 29.33 29.28 29.58 29.20
Current production costs 26.81 26.83 27.32 27.36
- -------------------------------------------------------------------------------------------------------------------
Coal margin $ 2.52 2.45 2.26 1.84
- -------------------------------------------------------------------------------------------------------------------
(a) Excludes non-coal components.
(b) Restructuring and other credits in the nine months ended September 30, 1996
consist of an impairment loss related to the implementation 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 Coal Operations as
"Restructuring and other credits, including litigation accrual".
</TABLE>
Sales volume of 4.9 million tons in the third quarter of 1997 was 0.9 million
tons less than the 5.8 million tons sold in the prior year quarter. Compared to
the third quarter of 1996, steam coal sales in 1997 decreased by 0.8 million
tons (21%), to 3.0 million tons, and metallurgical coal sales declined by 0.1
million tons (6%), to 1.9 million tons. Steam coal sales represented 62% of
total volume in 1997 and 66% in 1996.
The relatively weak pricing in the steam and metallurgical coal markets have
contributed to the decrease in coal sales as well as an increase in inventory
levels in 1997 over 1996. As a result, Coal Operations has adjusted and will
continue to adjust its production and purchased coal levels in order to address
the challenges of these current markets. In addition, a realignment of Coal
Operations' operating units was undertaken in the quarter to streamline the
metallurgical and steam coal business units.
<PAGE>
Total coal margin of $12.4 million for the third quarter of 1997 represented a
decrease of $1.9 million from the comparable 1996 period. The decrease in total
coal margin reflects the effect of lower volume which was offset, in part, by an
increase in the realization of $0.05 per ton and by a decrease in current
production costs of $0.02 per ton. The increase in realization reflects an
increase in the overall steam coal realization as the majority of steam coal
production is sold under long-term contracts containing price escalation
provisions. This increase was partially offset by a decrease in the
metallurgical coal realization due to lower price settlements with metallurgical
customers for the contract year which began on April 1, 1997.
The current cost of coal sold decreased $0.02 per ton to $26.81 in the third
quarter of 1997 over the third quarter of 1996. Production in the 1997 third
quarter increased 0.2 million tons over the 1996 third quarter to 4.3 million
tons and purchased coal decreased 0.6 million tons to 0.8 million tons.
Productivity of 38.7 tons per man day in the 1997 third quarter increased
slightly from the 38.1 tons per man day in the 1996 third quarter.
Non-coal margin, which reflects earnings from the oil, gas and timber
businesses, amounted to $0.4 million in the third quarter of 1997, which was
$0.2 million lower than in the third quarter of 1996. The decrease largely
reflects the impact of changes in natural gas prices. Other operating income,
primarily reflecting the benefits from sales of property and equipment and third
party royalties, amounted to $2.3 million in the third quarter of 1997 as
compared to $2.0 million in the comparable period of 1996.
Idle equipment and closed mine costs increased $0.4 million to $0.6 million in
the 1997 third quarter due to costs associated with scheduled mine closings.
Inactive employee costs, which primarily represent long-term employee
liabilities for pension and retiree medical costs, increased $0.6 million to
$6.9 million for the third quarter of 1997 partially reflecting expenses related
to the streamlining of Coal Operations' business units. Selling, general and
administrative expenses remained unchanged at $5.0 million in the third quarter
of 1997 and 1996.
Sales volume of 15.1 million tons in the first nine months of 1997 was 2.1
million tons less than the 17.2 million tons sold in the 1996 period due to
market conditions discussed above. Metallurgical coal sales declined by 0.4
million tons (7%) to 5.6 million tons and steam coal sales decreased by 1.7
million tons (15%) to 9.6 million tons compared to the prior year. Steam coal
sales represented 63% of the total 1997 sales volume, as compared to 65% in
1996.
For the first nine months of 1997, coal margin was $34.2 million, an increase of
$2.4 million over the 1996 period. Coal margin per ton increased to $2.26 per
ton in the first nine months of 1997 from $1.84 per ton for the same period of
1996, due to a combination of a $0.38 per ton increase in realization and a
slight decrease in the current production cost of coal sold, $0.04 per ton.
Again, the increase in average realization per ton was due, in part, to an
increase in steam realization partially offset by a decrease in metallurgical
realization.
The current production cost of coal sold for the first nine months of 1997 was
$27.32 per ton as compared to $27.36 per ton for the first nine months of 1996.
The higher 1996 per ton cost reflected the impact of severe winter weather and
higher surface mine costs. Production for the year-to-date 1997 period totaled
12.8 million tons, a slight increase from the 1996 period production of 12.6
million tons. Surface production accounted for 63% and 67% of the total volume
in the 1997 and 1996 periods, respectively. Productivity of 37.6 tons per man
day in the 1997 period was up slightly over the 37.2 tons per man day for the
nine months of 1996.
Non-coal margin was $1.7 million for the first nine months of 1997, an increase
of $0.2 million which largely reflects the impact of changes in natural gas
prices over the 1996 period. Other operating income was $8.1 million for the
1997 period, a decrease of $3.0 million from the 1996 period. The 1996 period
included a one-time benefit of $3.0 million for litigation settlements.
Idle equipment and closed mine costs increased by $0.5 million in the first nine
months of 1997 over 1996. Inactive employee costs, which primarily represent
long-term employee liabilities for pension and retiree medical costs were
relatively unchanged in the nine months of 1997 as compared to the 1996 period,
decreasing only by $0.1 million. Selling, general and administrative expenses
declined by $1.0 million (6%) in the nine months of 1997 as compared to the 1996
period, as a result of Coal Operations cost control efforts.
<PAGE>
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 and third payments were paid in the third
quarters of 1996 and 1997, respectively, and were 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 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.
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 nine months
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> <C> <C>
Balance as of December 31, 1996 $ 376 12,439 25,285 38,100
Payments 280 1,335 1,274 2,889
- -------------------------------------------------------------------------------------------------------------------
Balance as of September 30, 1997 $ 96 11,104 24,011 35,211
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Mineral Ventures
The following is a table of selected financial data for Mineral Ventures on a
comparative basis:
<TABLE>
<CAPTION>
Three Months Nine Months
(In thousands, except ounce Ended September 30 Ended September 30
and per ounce data) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Stawell Gold Mine:
<S> <C> <C> <C> <C>
Gold sales $ 5,396 4,566 13,395 14,671
Other (expense) revenue (14) 26 16 77
- -------------------------------------------------------------------------------------------------------------------
Net sales 5,382 4,592 13,411 14,748
Cost of sales (a) 4,021 3,657 11,319 10,761
Selling, general and
administrative expenses (a) 331 323 1,010 857
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 4,352 3,980 12,329 11,618
- -------------------------------------------------------------------------------------------------------------------
Operating profit - Stawell
Gold Mine 1,030 612 1,082 3,130
Other operating expense, net (1,377) (936) (3,194) (1,705)
- -------------------------------------------------------------------------------------------------------------------
Operating (loss) profit $ (347) (324) (2,112) 1,425
- -------------------------------------------------------------------------------------------------------------------
Stawell Gold Mine:
Mineral Ventures' 50% direct share:
Ounces sold 11,176 10,775 31,417 35,375
Ounces produced 11,516 10,756 31,782 34,738
Average per ounce sold (US$):
Realization $ 483(b) 424 426(b) 415
Cash cost 263 319 318 288
- -------------------------------------------------------------------------------------------------------------------
(a) Excludes $30 and $97, and $924 and $2,343, of non-Stawell related cost of
sales and selling, general and administrative expenses for the quarter and nine
months ended September 30, 1997, respectively. Excludes $722 and $1,926, of
non-Stawell related selling, general and administrative expenses for the quarter
and nine months ended September 30, 1996, respectively. Such costs are
reclassified to cost of sales and selling, general and administrative expenses
in the Minerals Group income statement.
(b) Includes allocation of the proceeds from the liquidation of a gold forward
sale hedge position in July 1997.
</TABLE>
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 $0.3 million in the third quarter of 1997 and
1996. Mineral Ventures' 50% direct interest in Stawell's operations generated
net sales of $5.4 million in the third quarter of 1997 compared to $4.6 million
in the 1996 period as the ounces of gold sold increased from 10.8 thousand
ounces to 11.2 thousand ounces (4%). The operating profit at Stawell of $1.0
million was $0.4 million higher than the operating profit of $0.6 million in the
third quarter of 1996 reflecting a $56 per ounce decrease (18%) in the cash cost
of gold sold combined with a $59 per ounce increase (14%) in average
realization. Operating costs in the 1996 third quarter were negatively impacted
by four lost-time accidents, two late in the second quarter, that resulted in
production shortfalls and higher operating cost as compared to the 1997 third
quarter. Stawell's operating profit in the third quarter of 1997 was also
impacted by the collapse during construction of a new ventilation shaft in the
second quarter of 1997 that resulted in a third quarter write-off of $1.0
million, approximately $0.75 million of which is attributed to Mineral Ventures'
50% direct interest in Stawell.
During the first nine months of 1997, Mineral Ventures generated an operating
loss of $2.1 million compared to an operating profit of $1.4 million in the 1996
period. Mineral Ventures' 50% direct interest in Stawell's operations generated
net sales of $13.4 million in the first nine months of 1997 compared to $14.7
million in the 1996 period as the ounces of gold sold decreased from 35.4
thousand ounces to 31.4 thousand ounces
<PAGE>
(11%). The operating profit at Stawell of $1.1 million was $2.0 million lower
than the operating profit of $3.1 million in the first nine months of 1996
reflecting a $30 per ounce increase (10%) in the cash cost of gold sold
partially offset by a $11 per ounce increase (3%) in average realization.
Stawell's results were negatively impacted by unfavorable ground conditions
through the first half of 1997. In addition, the collapse of the aforementioned
ventilation shaft resulted in lower production and higher costs through the
first half of 1997 and a write-off of the ventilation shaft in the third quarter
of 1997.
In July 1997, in reaction to the continued decline in the market price of gold,
Mineral Ventures closed a gold forward sale hedge position relating to 16,397
ounces and realized proceeds of $2.6 million. These proceeds, which equate to
approximately $160 per ounce, will be recognized for accounting purposes as
ounces of gold are sold in the market. Approximately $1.5 million of these
proceeds was recognized on gold sales in the third quarter. The remaining
proceeds will be recognized over the next 7,026 ounces of gold sales. As of
September 30, 1997, approximately 9% of Mineral Ventures' recoverable and
probable reserves had been sold forward under forward sales contracts that
mature periodically through early 1998.
Other operating expense, net, includes equity earnings from joint ventures,
primarily consisting of Mineral Ventures' 17% indirect interest in Stawell's
operations and gold exploration costs for all operations including Mineral
Ventures' 50% direct interest in Stawell. Other operating expenses increased by
$0.4 million and $1.5 million in the third quarter and first nine months of
1997, respectively, primarily due to joint venture losses. Gold exploration
costs increased slightly from 1996, and are being incurred by Mineral Ventures
in Nevada and Australia with its joint venture partners.
In addition to its interest in Stawell, Mineral Ventures has a 17% indirect
interest in the Silver Swan base metals property in Western Australia. The
initial mining and commissioning of Silver Swan has proceeded according to plan.
Recent delays in concentrate shipments due to problems at a customer's smelter
have deferred the anticipated positive impact of this operation. However, a
regular shipping schedule has resumed during the fourth quarter.
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 allocated to the Minerals Group based on
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 $1.5 million and $2.2 million for the third
quarter of 1997 and 1996, respectively, and $4.4 million and $5.2 million for
the first nine months of 1997 and 1996, respectively. The decrease in the 1997
periods is due to expenses associated with the Company's corporate office
relocation during the third quarter of 1996.
Other Operating Income, Net
Other operating income for the third quarter of 1997 increased $0.1 million to
$1.9 million from $1.8 million recognized in the 1996 quarter and in the first
nine months of 1997 decreased $4.0 million to $7.3 million from $11.3 million in
the first nine months of 1996. Other operating income principally includes
benefits from litigation settlements, equity in earnings of unconsolidated
affiliates, royalty income and gains and losses from sales of coal assets. The
first nine months of 1996 included a $3.0 million benefit from settlements of
litigation. In addition, equity in earnings of unconsolidated affiliates
declined $1.0 million from the prior year nine-month period to a loss of $0.8
million from income of $0.2 million.
<PAGE>
Interest Expense
Interest expense for the third quarters of 1997 and 1996 was $2.8 million and
$2.7 million, respectively, but decreased slightly, $0.1 million, in the first
nine months of 1997 to $8.2 million.
Income Taxes
In both 1997 and 1996 periods presented, a credit for income taxes was recorded,
despite the Minerals Group's generation of a pretax profit in the nine-month
period of 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
an equitable and a reasonable estimate of the cost attributable to the Minerals
Group.
Cash Flow Requirements
Operating activities for the first nine months of 1997 provided cash of $3.4
million, while operations in the first nine months of 1996 provided cash of
$14.6 million. 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
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 nine
months of 1996. The initial payment of $25.8 million related to the Evergreen
Case settlement was entirely funded by an escrow account previously established
by the Company. In the 1997 period, cash flow from operations declined due to
lower earnings partially offset by a decrease in the amount required to fund
operating assets and liabilities. Cash flow provided by operating activities,
combined with proceeds from asset sales and additional borrowings, was partially
offset by cash required for capital expenditures, payments to the Brink's and
Burlington Groups, and the net costs of share activity. The net effect of these
activities resulted in an increase in cash and cash equivalents of $0.5 million.
Capital Expenditures
Cash capital expenditures for the first nine months of 1997 totaled $21.9
million, excluding expenditures that have been or are expected to be financed
through capital and operating leases. During the 1997 period, Coal Operations
and Mineral Ventures spent $18.5 million and $3.3 million, respectively. 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 $5 million and $10 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.
Total debt outstanding at September 30, 1997 was $176.7 million, an increase of
$51.7 million from the $125.0 million outstanding at December 31, 1996. These
increased borrowings, which funded cash flow requirements (including repayment
of amounts owed to the Brink's and Burlington Groups), were made primarily under
the credit agreement discussed below.
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 September 30, 1997, borrowings of $100.0
million were outstanding under the term loan portion of the Facility with $101.8
million of additional borrowings outstanding under the remainder of the
Facility. Of the outstanding amounts under the Facility at September 30, 1997,
$174.8 million was attributed to the Minerals Group.
<PAGE>
Related Party Transactions
At September 30, 1997, under interest bearing borrowing arrangements, the
Minerals Group owed the Brink's Group $3.7 million, a decrease of $20.3 million
from the $24.0 million owed at December 31, 1996. The Minerals Group owed the
Burlington Group $0.8 million, a decrease from the amount owed at December 31,
1996 of $7.7 million.
At September 30, 1997, the Brink's Group owed the Minerals Group $17.9 million
versus $18.8 million at December 31, 1996 for tax payments representing the
utilization of the Minerals Group's tax benefits by the Brink's Group, of which
$12.0 million is expected to be paid within one year. Also at September 30,
1997, the Burlington Group owed the Minerals Group $20.2 million versus $24.3
million at December 31, 1996 for tax payments representing the utilization of
the Minerals Group's tax benefits by the Burlington Group, of which $12.0
million is expected to be paid within one year.
Off-Balance Sheet Instruments
During July 1997, Mineral Ventures closed a gold forward sale hedge position and
realized proceeds of $2.6 million. Approximately $1.5 million of these proceeds
were recognized on gold sales in the third quarter. The remaining proceeds will
be recognized over the next 7,026 ounces of gold sales. After closing out the
aforementioned position, approximately 9% of Mineral Ventures' recoverable
proven and probable reserves had been sold forward under forward sales contracts
that mature periodically through early-1998.
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 Brink's Group consists of the Brink's,
Incorporated ("Brink's") and the Brink's Home Security, Inc. ("BHS") operations
of the Company. The Burlington Group consists of the BAX Global Inc. ("BAX
Global") 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.
During the quarter and nine months ended September 30, 1997, the Company
repurchased 1,515 shares of its Series C Cumulative Convertible Preferred Stock
(the "Convertible Preferred Stock") at a total cost of $0.6 million. During the
quarter and nine months ended September 30, 1996, the Company repurchased 10,320
shares and 20,920 shares, respectively, of its Convertible Preferred Stock at a
total cost of $3.9 million and $7.9 million, respectively. In May 1997, the
Board authorized an increase in the remaining repurchase authority to $25.0
million, leaving the Company remaining authority to repurchase an additional
$24.4 million of the Convertible Preferred Stock.
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 each of the Groups,
respectively. Since the Company remains subject to Virginia law limitations on
dividends and to dividend restrictions in its 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 September 30, 1997, the
Available Minerals Dividend Amount was at least $15.6 million.
<PAGE>
During the first nine months of 1997 and 1996, the Board declared and the
Company paid cash dividends of 48.75 cents per share of Minerals Stock.
Dividends paid on the Series C Cumulative Convertible Preferred Stock (the
"Convertible Preferred Stock") in the 1997 and 1996 first nine months totaled
$2.7 million and $2.9 million, respectively. Preferred dividends included in the
Minerals Group's Statement of Operations for the quarter and nine months ended
September 30, 1997 are net of $0.1 million, which is the excess of the carrying
amount of the Convertible Preferred Stock over the cash paid to holders of the
stock. Preferred dividends included in the Minerals Group's Statement of
Operations for the quarter and nine months ended September 30, 1996, are net of
$1.0 million and $2.1 million, respectively, which was the excess of the
carrying amount of the Convertible Preferred Stock over the cash paid to holders
of the stock for stock repurchases.
Pending Accounting Changes
The Minerals Group will implement the following new accounting standards.
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", will be implemented 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". On the effective
date, all prior-period EPS data presented will be restated to conform
with the provisions of SFAS No. 128.
SFAS No. 130, "Reporting Comprehensive Income", will be implemented in
the first quarter of 1998. SFAS No. 130 establishes standards for the
reporting and display of comprehensive income and its components in
financial statements. Comprehensive income generally represents all
changes in shareholders' equity except those resulting from
investments by or distributions to shareholders. With the exception of
foreign currency translation adjustments, such changes are not
significant to the Minerals Group.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", will be implemented in the financial statements for the
year ended December 31, 1998. SFAS No. 131 requires publicly-held
companies to report financial and descriptive information about
operating segments in financial statements issued to shareholders for
interim and annual periods. The SFAS also requires additional
disclosures with respect to products and services, geographic areas of
operation, and major customers. The adoption of this SFAS is not
expected to have a material impact on the financial statements of the
Minerals Group.
Forward Looking Information
Certain of the matters discussed herein involve forward looking information
which is subject to known and unknown risks and uncertainties which could cause
actual results to differ materially from those which are anticipated. Such risks
and uncertainties include, but are not limited to, overall economic and business
conditions, the demand for the Minerals Group's products, geological conditions,
pricing and other competitive factors in the industry, new government
regulations and integration of new ventures.
<PAGE>
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Number
10(a)Form of Severance Agreement between Registrant and certain key
executives
10(b)Amendment to Employment Agreement, dated as of October 1, 1997,
between Registrant and David L. Marshall
11 Statement re Computation of Per Share Earnings.
(b) A report on Form 8-K was filed on July 16, 1997, with respect to special
expenses and expected results for the Pittston Burlington Group Common
Stock, a report on Form 8-K was filed on July 24, 1997, with respect to
second quarter 1997 earnings for each of Pittston Brink's Group Common
Stock, Pittston Burlington Group Common Stock and Pittston Minerals Group
Common Stock, and a report on Form 8-K was filed on September 5, 1997, with
respect to remediation costs in connection with the Tankport petroleum
terminal facility in Jersey City, New Jersey.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE PITTSTON COMPANY
November 14, 1997 By G. R. ROGLIANO
(G. R. Rogliano)
Senior Vice President
(Duly Authorized Officer and
Chief Accounting Officer)
Exhibit 10(a)
[Draft--08/14/97]
SEVERANCE AGREEMENT
SEVERANCE AGREEMENT dated as of between THE PITTSTON COMPANY, a Virginia
corporation ("the Company"), and (the "Executive").
The Executive is currently employed by the Company in a senior executive
capacity. The Company and the Board recognize that the Executive's contribution
to the growth and success of the Company has been substantial. The Board desires
to reinforce and encourage the continued attention and dedication by the
Executive to the Company's affairs as a member of the Company's senior
management. The Company believes it to be in the best interests of the Company
and its shareholders to identify and agree upon certain benefits and obligations
of the Executive in the event of the termination of his services and to record
those matters in this severance agreement (the "Agreement").
SECTION 1. Definitions. As used in this Agreement:
(a) "Board" means the Board of Directors of the Company.
(b) "Cause" means (i) an act or acts of dishonesty on the Executive's part
which are intended to result in the Executive's substantial personal enrichment
at the expense of the Company or (ii) repeated material violations by the
Executive of the Executive's obligations hereunder which are demonstrably
willful and deliberate on the Executive's part and which have not been cured by
the Executive within a reasonable time after written notice to the Executive
specifying the nature of such violations. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for Cause without (1)
reasonable notice to the Executive setting forth the reasons for the Company's
intention to terminate for Cause, (2) an opportunity for the Executive, together
with his counsel, to be heard before the Board, and (3) delivery to the
Executive of a Notice of Termination from the Board finding that in the good
faith opinion of three-quarters (3/4) of the Board the Executive was guilty of
conduct set forth above in clause (i) or (ii) hereof, and specifying the
particulars thereof in detail.
(c) "Date of Termination" means (i) if the Executive's employment is
terminated by the Company for Cause or by the Executive for Good Reason, the
date of receipt of the Notice of Termination or any later date specified
therein, as the case may be, (ii) if the Executive's employment is terminated by
the Company other than for Cause or Incapacity, the Date of Termination shall be
the date on which the Company notifies the Executive of such termination, and
(iii) if the Executive's employment is terminated by reason of death or
Incapacity, the Date of Termination shall be the date of death of the Executive
or the effective date of the Incapacity, as the case may be.
(d) "Disposition Date" means the earlier of (i) the date of sale, lease,
exchange or other transfer to a person previously unaffiliated with the Company
of greater than fifty (50%) percent of the assets or shares of Brink's,
Incorporated, Brink's Home Security, Inc., Pittston Coal Company, Burlington Air
Express Inc. or Pittston Mineral Ventures Company or their respective successors
and (ii) the date of the first public announcement of any such sale, lease,
exchange or other transfer which is subsequently completed.
(e) "Good Reason" means:
(i) without the Executive's express written consent and excluding for
this purpose an isolated, insubstantial and inadvertent action not taken in
bad faith and which is remedied by the Company or its affiliates promptly
after receipt of notice thereof given by the Executive, (A) the assignment
to the Executive of any duties inconsistent in any respect with the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by
Section 3(i) hereof, or (B) any other action or inaction by the Company or
its affiliates which results in a diminution in such position, authority,
duties or responsibilities;
<PAGE>
(ii) without the Executive's express written consent, the Company's
requiring the Executive's work location to be other than as set forth in
Section 3(i);
(iii) any failure by the Company to comply with and satisfy Section
10(a); or
(iv) any breach by the Company of any other material provision of this
Agreement.
(f) "Incapacity" means any physical or mental illness or disability of the
Executive which continues for a period of six consecutive months or more and
which at any time after such six-month period the Board shall reasonably
determine renders the Executive incapable of performing his or her duties during
the remainder of the Employment Period.
SECTION 2. Term of Employment Period. This Agreement shall commence on the
date hereof and shall continue in effect for so long as the Executive shall be
employed by the Company or any of its affiliates(the "Employment Period"). In
the event a Change in Control (as defined in the Executive Agreement dated as of
April 23, 1997, between the Company and the Executive, as the same may from time
to time be amended) shall occur during the Employment Period, this Agreement
shall be unaffected thereby, it being the intention of the parties hereto that
their rights and obligations shall be governed by the terms of both such
agreements such that, in the event of a conflict in terms, the benefits most
favorable to the Executive shall apply; provided that there shall be no
duplication of benefits as a result of the operation of both agreements.
SECTION 3. Terms of Employment. Position and Duties. (i) During the
Employment Period: (A) the Executive's position (including status (for example,
base salary and target bonus), offices, titles, reporting requirements,
authority, duties and responsibilities) shall be at least commensurate in all
material respects with the most significant of those held, exercised and
assigned immediately prior to any change thereof, and (B) the Executive's
services shall be performed at the location at which the Executive was based on
the date hereof and the Company shall not require the Executive to travel on
Company business to a substantially greater extent than required immediately
before the date hereof, except for travel and temporary assignments which are
reasonably required for the full discharge of the Executive's responsibilities
and which are consistent with the Executive's being so based.
(ii) During the Employment Period, and excluding any periods of vacation
and sick leave to which the Executive is entitled, the Executive agrees to
devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. All such services as an employee or officer will be subject to
the direction and control of the Chief Executive Officer of the Company or of an
appropriate senior official designated by such Chief Executive Officer.
SECTION 4. Obligations of the Company Upon Termination of Employment. (a)
Termination for Good Reason or for Reasons Other Than for Cause, Death or
Incapacity. If the Company shall terminate the Executive's employment other than
for Cause or Incapacity or the Executive shall terminate his or her employment
for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash (or
in stock if provided by a relevant plan), by the later of (I) 30 days after
the Date of Termination and (II) 10 business days after execution (without
subsequent revocation) by the Executive of the Release required by Section
8(b) of this Agreement, as defined herebelow, the aggregate of the
following amounts:
(A) the sum of (1) the Executive's currently effective annual
base salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) a bonus ("Annual Bonus") not
less than the aggregate amount of the Executive's highest bonus award
under the Key Employees Incentive Plan or any substitute or successor
plan for the last three calendar years preceding the Date of
Termination and (y) a fraction, the numerator of which is the number
of days in the current fiscal year through the Date of Termination,
and the denominator of which is 365, (3) any compensation previously
deferred by the Executive and
<PAGE>
any amounts matched by the Company, whether vested or unvested
(together with any accrued interest or earnings thereon and all
amounts attributable thereto, (4) an amount equal to the value of
those unvested benefits payable in stock or cash which unvested
benefits cannot be the subject of accelerated vesting by reason of the
terms of the relevant plans) and (5) any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the amounts
described in clauses (1) through (5) shall be hereinafter referred to
as the "Accrued Obligations"); and
(B) the amount equal to the product of (1) two and (2) the sum of
(x) the Executive's annual base salary and (y) his or her Annual
Bonus; provided, however that the multiplier in clause (i)(B)(1) of
this Section 4(a) shall be "three" if any such termination of the
Executive by the Company for other than Cause or Incapacity or the
Executive for Good Reason were to occur subsequent to a Disposition
Date;
(ii) in addition to the retirement benefits to which the Executive is
entitled under the Company's Pension-Retirement Plan and Pension
Equalization Plan or any successor plans thereto (collectively, the
"Pension Plans"), the Company shall pay the Executive the excess of (x) the
retirement pension which the Executive would have accrued under the terms
of the Pension Plans (without regard to any amendment to the Pension Plans
made subsequent to the date hereof, which amendment adversely affects in
any manner the computation of retirement benefits thereunder), determined
as if the Executive were fully vested thereunder and had accumulated (after
the Date of Termination) twenty-four additional months (or thirty-six if
such Date of Termination occurs on or after a Disposition Date) of Benefit
Accrual Service credit (as such term is defined in the Pension Plans)
thereunder and treating the amounts paid under clause (i)(B) of this
Section 4(a) as compensation paid during a twenty-four (or thirty-six, as
the case may be) month period for purposes of calculating Average Salary
and benefits under the Pension Plans, over (y) the retirement pension which
the Executive had then accrued pursuant to the provisions of the Pension
Plans;
(iii) for two years after the Executive's Date of Termination (or
three years if such Date of Termination occurs on or after a Disposition
Date), or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to the Executive and/or the Executive's family at least equal to
those which would have been provided to them in accordance with benefit
plans, programs, practices and policies, including, without limitation,
medical, disability, group life, accidental death and travel accident
insurance plans and programs, if the Executive's employment had not been
terminated or, if more favorable to the Executive, as in effect generally
at any time thereafter, provided, however, that if the Executive becomes
reemployed with another employer and is eligible to receive medical
benefits under another employer-provided plan, the medical benefits shall
be secondary to those provided under such other plan during such applicable
period of eligibility and further provided, however, that the rights of the
Executive and/or the Executive's family under Section 4980B(f) of the Code
shall commence at the end of such two-year (or three-year, as the case may
be) period;
(iv) the Company shall, at its sole expense as incurred, provide the
Executive with reasonable outplacement services for a period of up to two
years from the Date of Termination, the provider of which shall be selected
by the Executive in his or her sole discretion;
(v) the Company shall cause to be accelerated and immediately vested
and exercisable all unexercised stock options granted before the Date of
Termination, whether or not such options are exercisable on the Date of
Termination, including, without limitation, the equity retention options
granted in 1993, regardless of whether the retention or non-sale conditions
thereto have been satisfied;
(vi) the Company, if requested within three years of the Date of
Termination, shall arrange for the purchase of the principal residence of
the Executive and the provision of relocation benefits to the Executive
substantially equal to all those provided under the Company's Senior
Executive Relocation Program dated April, 1996 under the captions "Selling
Your Current Home," "Moving Your Family and Household," and "Tax
Allowance";
<PAGE>
(vii) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other vested amounts or
benefits required to be paid or provided or which the Executive is eligible
to receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliates, including earned but unpaid
stock and similar compensation (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death or Incapacity. If the Executive's employment is terminated by
reason of the Executive's death or Incapacity during the Employment Period, this
Agreement shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for (i) timely payment of
Accrued Obligations and (ii) provision by the Company of death benefits or
disability benefits for termination due to death or Incapacity, respectively, as
in effect at the date hereof or, if more favorable to the Executive, at the
Executive's Date of Termination.
(c) Cause; Other than for Good Reason. If the Executive's employment shall
be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligation of the Company to the Executive other than
timely payment to the Executive of (x) the Executive's currently effective
annual base salary through the Date of Termination, (y) the amount of any
compensation previously deferred by the Executive and any and all amounts
matched by the Company or any of its affiliates, including, without limitation,
all proceeds thereof and all amounts attributable thereto, and (z) Other
Benefits, in each case to the extent theretofore unpaid. If the Executive
voluntarily terminates employment during the Employment Period, excluding a
termination for Good Reason, this Agreement shall terminate without further
obligations to the Executive, other than for the timely payment of Accrued
Obligations and Other Benefits.
SECTION 5.
(a) Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliates and for
which the Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any contract or agreement
with the Company or any of its affiliates. Amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plan, policy,
practice or program of or any contract or agreement with the Company or any of
its Affiliates at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or agreement
except as explicitly modified by this Agreement.
(b) Additional Compensation. Nothing in this Agreement shall prevent or
limit the Company's ability to augment the benefits payable pursuant to this
Agreement in the event that in the judgment of the Chairman of the Company or
the Board of Directors it is deemed appropriate to provide additional
compensation and/or benefits to the Executive as a result of facts and
circumstances deemed relevant by the Chairman or the Board of Directors.
SECTION 6. No Mitigation. The Company agrees that, if the Executive's
employment is terminated during the term of this Agreement for any reason, the
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to the Executive hereunder. Further, except as
provided in Section 4(iii) hereof, the amount of any payment or benefit provided
hereunder shall not be reduced by any compensation earned by the Executive as
the result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Executive to the Company, or
otherwise.
SECTION 7. Confidential Information. The Executive will not, during the
Employment Period or for a period of three years following a Termination of
Employment, disclose or reveal to any person, firm or corporation (other than to
employees of the Company and its agents and then only as required on a
need-to-know basis in the performance of such employee's or agent's duties) or
use (except as required in the performance of his duties hereunder) any trade
secrets (such as, without limitation, processes, formulae, programs or data) or
other confidential information relating to the business, techniques, products,
operations, customers, know-how and affairs of the Company or any of its
affiliates. All business records, notes, magnetic or electronic media, papers
and documents (including, without limitation, customer lists, estimates, market
surveys, computer programs and correspondence) kept or made by the Executive
relating to the business or
<PAGE>
products of the Company or any of its affiliates shall be and remain the
property of the Company or the affiliate and shall be promptly delivered to the
Company upon termination of the Employment Period.
SECTION 8. Full Settlement and Form of Release.
(a) Subject to full compliance by the Company with all of its obligations
under this Agreement, this Agreement shall be deemed to constitute the
settlement of such claims as the Executive might otherwise be entitled to assert
against the Company by reason of the termination of the Executive's employment
for any reason during the Employment Period. The Company's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counter claim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. The Company agrees to pay as incurred, to the
full extent permitted by law, all legal fees and expenses which the Executive
may reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any pro vision of this Agreement or any
guarantee of performance thereof.
(b) It is expressly agreed by the parties that the benefits provided for
under this Agreement are substantial, and would not be provided without a prior
release (without subsequent revocation) by the Executive of other claims against
the Company and its affiliates. To record that release, upon any termination of
employment pursuant to Section 4(a) of this Agreement, the Executive and the
Company agree to deliver to each other a written release in the form attached to
this Agreement as Exhibit A (the "Release").
SECTION 9. Certain Additional Payments by the Company. Anything in this
Agreement to the contrary notwithstanding, in the event that it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Executive (whether paid or payable or distributed or distributable)
pursuant to the terms of this Agreement or otherwise (collectively, the
"Payments") but determined without regard to any additional payments required
under this Section 9, would be subject to the excise tax imposed by Section 4999
of the Internal Revenue Code of 1986, as amended, the Executive shall be
entitled to receive an additional payment (the "Gross-Up Payment") in an amount
equal to (i) the amount of the excise tax imposed on the Executive in respect of
the Payments (the "Excise Tax") plus (ii) all federal, state and local income,
employment and excise taxes (including any interest or penalties imposed with
respect to such taxes) imposed on the Executive in respect of the Gross-Up
Payment, such that after payments of all such taxes (including any applicable
interest or penalties) on the Gross-Up Payment, the Executive retains a portion
of the Gross-Up Payment equal to the Excise Tax.
SECTION 10. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of the Company, by agreement, in form and substance
satisfactory to the Executive, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. Failure of the
Company to obtain such assumption and agreement prior to the effectiveness of
any such succession will be a breach of this Agreement and entitle the Executive
to compensation from the Company in the same amount and on the same terms as the
Executive would be entitled to hereunder had the Company terminated the
Executive for reason other than Cause or Incapacity on the succession date. As
used in this Agreement, "the Company" means the Company as defined in the
preamble to this Agreement and any successor to its business or assets which
executes and delivers the agreement provided for in this Section 10 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law or otherwise.
(b) This Agreement shall be enforceable by the Executive's personal or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.
SECTION 11. Non-assignability. This Agreement is personal in nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder, except as
provided in Section 10 hereof. Without limiting the foregoing, the Executive's
right to receive payments hereunder shall not be assignable or transferable,
whether by pledge, creation of
<PAGE>
a security interest or otherwise, other than a transfer by his or her will or by
the laws of descent or distribution, and, in the event of any attempted
assignment or transfer by the Executive contrary to this Section, the Company
shall have no liability to pay any amount so attempted to be assigned or
transferred.
SECTION 12. Notices. For the purpose of this Agreement, notices and all
other communications provided for herein shall be in writing and shall be deemed
to have been duly given when delivered or mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
If to the Company: The Pittston Company
1000 Virginia Center Parkway
P.O. Box 4229
Glen Allen, VA 23058-4229
Attention of Corporate
Secretary
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
SECTION 13. Operation of Agreement; Survival of Obligations. This Agreement
shall be effective immediately upon its execution and continue to be effective
so long as the Executive is employed by the Company or any of its affiliates;
provided, however, that the parties' respective obligations hereunder shall
survive the termination of the Executive's employment for any reason.
SECTION 14. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the Commonwealth
of Virginia without reference to principles of conflict of laws.
SECTION 15. Miscellaneous. (a) This Agreement contains the entire
understanding with the Executive with respect to the subject matter hereof and
supersedes any and all prior agreements or under standings, written or oral,
relating to such subject matter. No provisions of this Agreement may be
modified, waived or discharged unless such modification, waiver or discharge is
agreed to in writing signed by the Executive and the Company.
(b) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(c) Except as provided herein, this Agreement shall not be construed to
affect in any way any rights or obligations in relation to the Executive's
employment by the Company or any of its affiliates prior to the date hereof or
subsequent to the end of the Employment Period. It is expressly understood that
subject to the terms of the Executive Agreement referred to in Section 2 hereof,
the Executive remains an employee at the will of the Company.
(d) This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same Agreement.
(e) The Company may withhold from any benefits payable under this Agreement
all Federal, state, city or other taxes as shall be required pursuant to any law
or governmental regulation or ruling.
(f) The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year first above set forth.
THE PITTSTON COMPANY,
by----------------------
Joseph C. Farrell
Chairman of the Board,
President and Chief
Executive Officer
<PAGE>
EXHIBIT A
MUTUAL RELEASE dated as of _____________, between _______________, residing in
the Commonwealth of Virginia (the "Executive") and THE PITTSTON COMPANY, a
Virginia corporation (the "Company").
For and in consideration of the promises set forth in the Severance
Agreement dated as of ________, 1997, between the Executive and the Company (the
"Agreement"), the Company hereby releases and forever discharges the Executive
from any claims, acts, damages, demands, benefits, accounts, liabilities,
obligations, liens, costs, rights of action, claims for relief, and causes of
action, in law and in equity, both known and unknown, which the Company ever
had, now has, or might in the future have against the Executive, except such as
may arise from any malfeasance on the part of the Executive.
Subject to the provisions of the penultimate paragraph of this Mutual
Release, for good and valuable consideration, receipt of which is hereby
acknowledged, the Executive hereby releases and forever discharges the Company
and its affiliates, absolutely and forever, of and from any and all claims,
acts, damages, demands, benefits, accounts, liabilities, obligations, liens,
costs, rights of action, claims for relief and causes of action of every nature
and kind whatsoever, in law and in equity, both known and unknown, which the
Executive ever had, now has or might in the future have against the Company
and/or its affiliates, including, but not limited to any and all claims, acts,
damages, demands, benefits, accounts, liabilities, obligations, liens, costs,
rights of actions, claims for relief and causes of action in any way connected
with, related to and/or resulting from the Executive's employment with the
Company and its affiliates, the termination of such employment, possible rights
or claims arising under the Age Discrimination in Employment Act of 1967, and
the compensation, calculation, determination and payment under any and all stock
and benefit plans and termination agreements operative between the Executive and
the Company, including but not limited to claims for bonus or other incentive
compensation, salary, severance, "fringe" benefits, vacation, stock benefits,
retirement benefits, worker's compensation benefits, and unemployment benefits.
In addition, the Executive agrees not to support or participate in the
commencement of any suit or proceeding of any kind against the Company and its
affiliates or against their directors, officers, agents or employees with
respect to any act, event or occurrence or any alleged failure to act, occurring
up to and including the date of the execution of this Mutual Release.
As used herein, the Executive refers to and includes [name of Executive]
and his heirs, executors, administrators, representatives, legatees, devisees,
agents, family predecessors, attorneys, and the successors and assigns of each
of them. As used herein, references to the Company and to the Company and its
affiliates refer to and include The Pittston Company, a Virginia corporation,
and all past and present subsidiaries, divisions, parent companies, affiliated
and/or commonly controlled corporations, companies, and enterprises, ventures,
and projects, and all past and present officers, directors, trustees, employees,
representatives, agents and attorneys thereof, and the successors and assigns of
each of them.
The Company and the Executive hereby warrant and represent to each other
that there has been no assignment, conveyance, encumbrance, hypothecation,
pledge or other transfer of any interest in any matter covered by this Mutual
Release, and hereby agree to indemnify, defend, and hold each other harmless of
and from any and all claims, liabilities, damages, costs, expenses, and
attorneys' fees incurred as a result of anyone asserting any such assignment,
conveyance, encumbrance, hypothecation, pledge or transfer.
There is expressly reserved from the effect of this Mutual Release any
claim which the Executive may now or hereafter have regarding (a) the Severance
Agreement to which this Mutual Release was an Exhibit and the benefits provided
for thereunder including, without limitation, those benefits contemplated by
Section 5 of such Agreement and (b) the provisions of Article VIII of the
Restated Certificate of Incorporation of the Company, as in effect on the date
hereof, which indemnification obligation will continue in full force and effect
for the Executive's actions prior to the date hereof. Without limiting the
generality of the foregoing, also reserved from this Release are the Executive's
entitlement to pension, retirement and other benefits under the terms of the
Company's Pension-Retirement Plan, Pension Equalization Plan, Savings-
Investment Plan, Employee Stock Purchase Plan, Key Employees Deferred
Compensation Program and 1988 Stock Option Plan, as amended. In addition, there
is reserved from this Release the Executive's entitlement to such medical and
life insurance coverage as may be provided from time to time under employee
benefit plans available to retired employees of the Company.
The Executive acknowledges that he has had at least twenty-one (21) days to
consider the meaning of this Mutual Release and that he should seek advice from
an attorney. Furthermore, once the Executive has signed this Mutual Release, he
may revoke this Mutual Release during the period of seven (7) business days
immediately following his signing hereof (the "Revocation Period"). This Mutual
Release will not be effective or enforceable until the Revocation Period has
expired without revocation by the Executive. Any revocation within this period
must be submitted in writing to the Company and signed by the Executive.
The Executive agrees that he has entered into this Mutual Release after having
had the opportunity to consult the advisor of his choice, including an attorney,
with such consultation as he deemed appropriate and has a full understanding of
his rights and of the effect of executing this Mutual Release, namely, that he
waives any and all non-excluded claims or causes of action against the Company
regarding his employment or termination of employment, including the waiver of
claims set forth above. The Executive further acknowledges that his execution of
this Mutual Release is made voluntarily and with full understanding of its
consequences and has not been coerced in any way. This Mutual Release may not be
changed orally.
Capitalized terms not defined herein shall be as defined in the Agreement.
THE PITTSTON COMPANY
By:____________________________________
------------------------------------
(the Executive)
<PAGE>
COMMONWEALTH OF VIRGINIA,)
) ss.:
COUNTY OF HENRICO, )
On this ____ day of _____________, 19__ before me personally
came ______________, to me known and known to me to be the individual described
in and who executed the foregoing Mutual Release, and duly acknowledged to me
that he executed the same.
------------------------------
Notary Public
COMMONWEALTH OF VIRGINIA,)
) ss.:
COUNTY OF HENRICO, )
On this _____________ day of ____, 19__ before me personally
came ______________, to me known and known to me to be the officer who executed
the foregoing Mutual Release on behalf of THE PITTSTON COMPANY, and he duly
acknowledged to me that he executed the same.
------------------------------
Notary Public
Exhibit 10(b)
As of October 1, 1997
Mr. David L. Marshall
16 Governors Harbour
Hilton Head Island
South Carolina 29926
Dear David:
Reference is made to your employment agreement dated as of
June 1, 1997 (the "Agreement"). This will set forth amendments to that
Agreement, as we have mutually agreed:
1. Section 3 of the Agreement is hereby amended by adding the
following sentence at the end of subsection (a):
Beginning as of October 1, 1997, your salary rate shall
increase to $75,000 per year.
2. Section 3 of the Agreement is hereby amended by adding the
phrase, "Key Employees Incentive Plan," after the word "Company's" in the first
sentence of subsection (b).
3. Section 8 of the Agreement is hereby amended by deleting
the phrase, "within the Pittston Services Group" in clauses (i) and (ii)
thereof.
These amendments are effective from and after October 1, 1997.
Except as otherwise provided herein, the terms and conditions of the Agreement
shall remain in full force and effect.
Please acknowledge your agreement with the terms hereof by
your signature in the space provided below.
Very truly yours,
THE PITTSTON COMPANY
By /s/ J. Farrell 10/1/97
Chairman of the Board Date
I hereby acknowledge and agree that the foregoing is in
accordance with our agreement.
/s/ D. L. Marshall 10/7/97
David L. Marshall Date
Dated as of October 1, 1997
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:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Pittston Brink's Group:
<S> <C> <C> <C> <C>
Net income attributed to common shares $ 19,372 15,841 52,417 41,714
- -------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 38,309 38,264 38,243 38,158
Incremental shares of stock options 660 586 661 590
- -------------------------------------------------------------------------------------------------------------------
Pro forma common shares outstanding 38,969 38,850 38,904 38,748
- -------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per common share: $ 0.50 0.41 1.35 1.08
- -------------------------------------------------------------------------------------------------------------------
Pittston Burlington Group:
Net income attributed to common shares $ 15,993 10,705 19,168 23,214
- -------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 19,470 19,283 19,449 19,161
Incremental shares of stock options 670 435 676 471
- -------------------------------------------------------------------------------------------------------------------
Pro forma common shares outstanding 20,140 19,718 20,125 19,632
- -------------------------------------------------------------------------------------------------------------------
Fully diluted earnings per common share $ 0.79 0.54 0.95 1.18
- -------------------------------------------------------------------------------------------------------------------
Pittston Minerals Group:
Net income (loss) attributed to common
shares $ 183 2,644 (1,836) 7,389
Preferred stock dividends, net 789 (146) 2,592 773
- -------------------------------------------------------------------------------------------------------------------
Fully diluted net income $ 972 2,498 756 8,162
- -------------------------------------------------------------------------------------------------------------------
Average common shares outstanding 8,096 7,926 8,055 7,872
Incremental shares of stock options 14 52 38 52
Conversion preferred stock 1,789 1,841 1,792 1,996
- -------------------------------------------------------------------------------------------------------------------
Pro forma common shares outstanding 9,899 9,819 9,885 9,920
- -------------------------------------------------------------------------------------------------------------------
Fully diluted earnings (loss) per common
share $ 0.02 0.25 (0.23)(a) 0.82
- -------------------------------------------------------------------------------------------------------------------
(a) Antidilutive, therefore the same as primary.
</TABLE>
Primary Earnings Per Share:
Primary earnings per share can be computed from the information on the face of
the Consolidated Statements of Operations.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from The Pittston Company
Form 10Q for the quarter ended September 30, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 59,992
<SECURITIES> 1,662
<RECEIVABLES> 536,602
<ALLOWANCES> 18,734
<INVENTORY> 52,743
<CURRENT-ASSETS> 754,922
<PP&E> 1,150,117
<DEPRECIATION> 513,828
<TOTAL-ASSETS> 2,016,047
<CURRENT-LIABILITIES> 622,285
<BONDS> 269,146
0
1,138
<COMMON> 69,914
<OTHER-SE> 582,296
<TOTAL-LIABILITY-AND-EQUITY> 2,016,047
<SALES> 467,693
<TOTAL-REVENUES> 2,478,331
<CGS> 451,586
<TOTAL-COSTS> 2,362,442
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,838
<INTEREST-EXPENSE> 19,268
<INCOME-PRETAX> 103,949
<INCOME-TAX> 31,608
<INCOME-CONTINUING> 72,341
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,341
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Pittston Brink's Group - Primary - 1.37
Pittston BAX Global Group - Primary - 0.99
Pittston Minerals Group - Primary - (0.23)
<F2>Pittston Brink's Group - Diluted - 1.37
Pittston BAX Global Group - Diluted - 0.95
Pittston Minerals Group - Diluted - (0.23)
</FN>
</TABLE>
