<PAGE>
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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 June 30, 1998
[ ] 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.)
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 August 7, 1998, 40,961,415 shares of $1 par value Pittston Brink's Group
Common Stock, 19,827,610 shares of $1 par value Pittston BAX Group Common Stock
and 8,386,434 shares of $1 par value Pittston Minerals Group Common Stock were
outstanding.
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PART I - FINANCIAL INFORMATION
THE PITTSTON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 70,290 69,878
Short-term investments, at lower of cost or market 2,086 2,227
Accounts receivable (net of estimated amount
uncollectible: 1998 - $26,008; 1997 - $21,985) 594,773 531,317
Inventories, at lower of cost or market 42,190 40,174
Prepaid expenses 42,363 32,767
Deferred income taxes 48,619 50,442
- -------------------------------------------------------------------------------------------------------------------
Total current assets 800,321 726,805
Property, plant and equipment, at cost (net of accumulated depreciation,
depletion and amortization:
1998 - $531,914; 1997 - $519,658) 798,953 647,642
Intangibles, net of accumulated amortization 344,469 301,395
Deferred pension assets 122,410 123,138
Deferred income taxes 44,825 47,826
Other assets 131,667 149,138
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 2,242,645 1,995,944
===================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 63,059 40,144
Current maturities of long-term debt 34,146 11,299
Accounts payable 271,549 281,411
Accrued liabilities 374,070 310,819
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 742,824 643,673
Long-term debt, less current maturities 328,984 191,812
Postretirement benefits other than pensions 235,385 231,451
Workers' compensation and other claims 99,480 106,378
Deferred income taxes 20,602 17,157
Other liabilities 106,694 119,855
Shareholders' equity:
Preferred stock, par value $10 per share:
Authorized: 2,000 shares $31.25
Series C Cumulative Convertible Preferred Stock;
Issued and outstanding: 1998 - 113 shares; 1997 - 114 shares 1,134 1,138
Pittston Brink's Group Common Stock,
par value $1 per share:
Authorized: 100,000 shares;
Issued and outstanding: 1998 - 40,997 shares; 1997 - 41,130 shares 40,997 41,130
Pittston BAX Group Common Stock,
par value $1 per share:
Authorized: 50,000 shares;
Issued and outstanding: 1998 - 19,967 shares; 1997 - 20,378 shares 19,967 20,378
Pittston Minerals Group Common Stock,
par value $1 per share:
Authorized: 20,000 shares;
Issued and outstanding: 1998 - 8,387 shares; 1997 - 8,406 shares 8,387 8,406
Capital in excess of par value 398,280 430,970
Retained earnings 378,796 359,940
Accumulated other comprehensive income - foreign
currency translation (46,416) (41,762)
- -------------------------------------------------------------------------------------------------------------------
Employee benefits trust, at market value (92,469) (134,582)
- -------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 708,676 685,618
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 2,242,645 1,995,944
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
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2
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THE PITTSTON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 134,408 157,812 284,306 316,695
Operating revenues 792,696 668,342 1,505,462 1,291,135
- -------------------------------------------------------------------------------------------------------------------
Net sales and operating revenues 927,104 826,154 1,789,768 1,607,830
Costs and expenses:
Cost of sales 133,278 153,836 277,442 307,248
Operating expenses 658,680 553,434 1,254,451 1,072,253
Selling, general and administrative expenses 102,732 94,455 201,988 170,098
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 894,690 801,725 1,733,881 1,549,599
Other operating income, net 3,089 2,875 6,116 6,451
- -------------------------------------------------------------------------------------------------------------------
Operating profit 35,503 27,304 62,003 64,682
Interest income 1,067 991 2,248 2,010
Interest expense (9,527) (6,422) (16,911) (11,986)
Other income (expense), net 1,017 (1,899) (418) (4,288)
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 28,060 19,974 46,922 50,418
Provision for income taxes 7,298 5,311 13,332 14,414
- -------------------------------------------------------------------------------------------------------------------
Net income 20,762 14,663 33,590 36,004
Preferred stock dividends, net (887) (902) (1,751) (1,803)
- -------------------------------------------------------------------------------------------------------------------
Net income attributed to
common shares $ 19,875 13,761 31,839 34,201
===================================================================================================================
Pittston Brink's Group:
Net income attributed to common shares $ 20,570 17,739 37,607 33,045
- -------------------------------------------------------------------------------------------------------------------
Net income per common share:
Basic $ .53 .46 .97 .86
Diluted .52 .46 .96 .85
- -------------------------------------------------------------------------------------------------------------------
Cash dividend per common share $ .025 .025 .05 .05
- -------------------------------------------------------------------------------------------------------------------
Pittston BAX Group:
Net income (loss) attributed to
common shares $ 989 (1,913) (1,977) 3,175
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share:
Basic $ .05 (.10) (.10) .16
Diluted .05 (.10) (.10) .16
- -------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .06 .06 .12 .12
- -------------------------------------------------------------------------------------------------------------------
Pittston Minerals Group:
Net loss attributed to
common shares $ (1,684) (2,065) (3,791) (2,019)
- -------------------------------------------------------------------------------------------------------------------
Net loss per common share:
Basic $ (.20) (.26) (.46) (.25)
Diluted (.20) (.26) (.46) (.25)
- -------------------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .025 .1625 .1875 .3250
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
---
3
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THE PITTSTON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 33,590 36,004
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization 73,318 60,824
Provision for aircraft heavy maintenance 18,580 16,382
Provision for deferred income taxes 6,201 5,117
Provision for uncollectible accounts receivable 5,500 3,849
Other operating, net 7,694 6,621
Change in operating assets and liabilities, net of effects of acquisitions
and dispositions:
Decrease (increase) in accounts receivable 701 (15,870)
Increase in inventories (411) (11,677)
Increase in prepaid expenses (5,939) (12,390)
(Decrease) increase in accounts payable and accrued liabilities (40,735) 490
Increase in other assets (3,885) (2,202)
(Decrease) increase in other liabilities (2,794) 2,210
Decrease in workers' compensation and other claims, noncurrent (4,218) (4,145)
Other, net (5,434) 329
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 82,168 85,542
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (122,660) (82,236)
Aircraft heavy maintenance expenditures (20,524) (19,350)
Proceeds from disposal of property, plant and equipment 14,711 3,698
Acquisitions, net of cash acquired, and related contingency payments (34,361) (54,094)
Dispositions of other assets and investments 8,482 --
Other, net (4,539) 6,996
- -------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (158,891) (144,986)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 132,033 109,082
Reductions of debt (41,221) (18,263)
Repurchase of stock of the Company (12,694) (6,897)
Proceeds from exercise of stock options 6,308 2,691
Dividends paid (7,291) (8,389)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 77,135 78,224
- -------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 412 18,780
Cash and cash equivalents at beginning of period 69,878 41,217
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 70,290 59,997
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
---
4
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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 BAX Group (the "BAX
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 BAX 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's capital structure includes three issues of common stock:
Pittston Brink's Group Common Stock ("Brink's Stock"), Pittston BAX Group
Common Stock ("BAX 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, BAX
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, BAX Stock
and Minerals Stock are shareholders of the Company, which is responsible
for all liabilities. Financial developments affecting the Brink's Group,
the BAX 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.
Effective May 4, 1998, the designation of Pittston Burlington Group Common
Stock and the name of the Pittston Burlington Group were changed to
Pittston BAX Group Common Stock and Pittston BAX Group, respectively. All
rights and privileges of the holders of such Stock are otherwise unaffected
by such changes. The stock continues to trade on the New York Stock
Exchange under the symbol "PZX".
(2) The following are reconciliations between the calculation of basic and
diluted net income (loss) per share by Group:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
Brink's Group 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income - Basic and
diluted net income
per share numerator $ 20,570 17,739 37,607 33,045
Denominator:
Basic weighted average
common shares
outstanding 38,713 38,230 38,596 38,209
Effect of dilutive securities:
Employee stock options 493 473 547 450
- -----------------------------------------------------------------------------------------
Diluted weighted average
common shares outstanding 39,206 38,703 39,143 38,659
=========================================================================================
</TABLE>
Options to purchase 25 shares of Brink's Stock at prices between $39.42 and
$39.56 per share were outstanding for both the three and six months ended
June 30, 1998, but were not included in the computation of diluted net
income per share because the options' exercise price was greater than the
average market price of the common shares and, therefore, the effect would
be antidilutive.
---
5
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<PAGE>
Options to purchase 391 shares of Brink's Stock at $31.56 per share and
options to purchase 400 shares of Brink's Stock at prices between $29.50
and $31.56 were outstanding for the three and six months ended June 30,
1997, respectively, but were not included in the computation of diluted net
income per share because the options' exercise price was greater than the
average market price of the common shares and, therefore, the effect would
be antidilutive.
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
BAX Group 1998 1997 1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) - Basic
and diluted net income (loss)
per share numerator $ 989 (1,913) (1,977) 3,175
Denominator:
Basic weighted average
common shares
outstanding 19,524 19,471 19,501 19,439
Effect of dilutive securities:
Employee stock options 169 -- -- 503
- ------------------------------------------------------------------------------------------
Diluted weighted average
common shares
outstanding 19,693 19,471 19,501 19,942
==========================================================================================
</TABLE>
Options to purchase 1,018 shares of BAX Stock, at prices between $17.94 and
$27.91 were outstanding for the three months ended June 30, 1998, but were
not included in the computation of diluted net income per share because the
options' exercise price was greater than the average market price of the
common shares and, therefore, the effect would be antidilutive. Options to
purchase 2,381 shares of BAX Stock, at prices between $5.78 and $27.91 per
share, were outstanding for the six months ended June 30, 1998, but were
not included in the computation of diluted net loss per share because the
effect of all options would be antidilutive.
Options to purchase 2,498 shares of BAX Stock, at prices between $5.00 and
$24.19 per share, were outstanding for the three months ended June 30,
1997, but were not included in the computation of diluted net loss per
share because the effect of all options would be antidilutive. Options to
purchase 499 shares of BAX Stock, at $24.19 per share, were outstanding for
the six months ended June 30, 1997 but were not included in the computation
of diluted net income per share because the options' exercise price was
greater than the average market price of the common shares and, therefore,
the effect would be antidilutive.
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
Minerals Group 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $ (797) (1,163) (2,040) (216)
Convertible Preferred
Stock dividends, net (887) (902) (1,751) (1,803)
- ----------------------------------------------------------------------------------------
Net loss - Basic
and diluted net loss
per share numerator (1,684) (2,065) (3,791) (2,019)
Denominator:
Basic and diluted weighted
average common shares
outstanding 8,309 8,068 8,267 8,035
========================================================================================
</TABLE>
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6
<PAGE>
<PAGE>
Options to purchase 677 and 679 shares of Minerals Stock, at prices between
$6.53 and $25.74 per share, were outstanding for the three and six months
ended June 30, 1998, respectively. Options to purchase 713 and 714 shares
of Minerals Stock, at prices between $8.64 and $25.74 per share, were
outstanding for the three and six months ended June 30, 1997, respectively.
None of these options were included in the computation of diluted net loss
per share because the effect of all options would be antidilutive.
The conversion of the Convertible Preferred Stock to 1,764 and 1,793 shares
of Minerals Stock has been excluded in the computation of diluted net loss
per share in 1998 and 1997, respectively, because the effect of the assumed
conversion would be antidilutive.
(3) Depreciation, depletion and amortization of property, plant and equipment
totaled $33,474 and $62,160 in the second quarter and six month periods of
1998, respectively, compared to $24,837 and $48,498 in the second quarter
and six month periods of 1997, respectively.
(4) Cash payments made for interest and income taxes, net of refunds received,
were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest $ 8,787 6,839 16,315 12,278
========================================================================================
Income taxes $ 14,081 13,034 19,084 17,564
========================================================================================
</TABLE>
During the first quarter of 1998, Brink's recorded the following noncash
items in connection with the acquisition of substantially all of the
remaining shares of its affiliate in France: seller financing of the
equivalent of US $27,500 and the assumption of borrowings of approximately
US $19,000 and capital leases of approximately US $30,000. See further
discussion below.
(5) In the first quarter of 1998, the Company purchased 62% (representing
nearly all the remaining shares) of its Brink's affiliate in France
("Brink's S.A.") for payments aggregating US $39,000 over three years. The
acquisition was funded through an initial payment made at closing of
$8,789, a note to the seller for a principal amount of approximately the
equivalent of US $27,500 payable in annual installments plus interest
through 2001. The acquisition has been accounted for as a purchase and
accordingly, the purchase price is being allocated to the underlying assets
and liabilities based on their estimated fair value at date of acquisition.
Based on a preliminary evaluation which is subject to additional review,
the estimated fair value of the additional assets recorded, including
goodwill, approximated US $161,800 and included $9,200 in cash. Estimated
liabilities assumed of US $125,700 included previously existing debt of
approximately US $49,000, which includes borrowings of US $19,000 and
capital leases of US $30,000. The excess of the purchase price over the
fair value of assets acquired and liabilities assumed is being amortized
over 40 years. Brink's S.A. had annual 1997 revenues approximating the
equivalent of US $220,000.
(6) During the second quarter of 1998, the Company's Coal Operations disposed
of certain assets of its Elkay mining operation in West Virginia. The
assets were sold for cash of approximately $18,000, resulting in a pre-tax
loss of approximately $2,200. In addition, in July 1998, the Company's Coal
Operations completed the sale of two idle properties in West Virginia and a
loading dock in Kentucky for an expected pre-tax gain of approximately
$5,000.
(7) On April 30, 1998, the Company acquired the privately held Air Transport
International LLC ("ATI") for a purchase price of approximately $29,000.
The acquisition was funded through the revolving credit portion of the
Company's bank credit agreement and was accounted for as a purchase. Based
on a preliminary evaluation which is subject to additional review, the
estimated fair value of the assets acquired and liabilities assumed
approximated $33,000 and $4,000, respectively. The pro forma impact on
the Company's total revenues, net income and earnings per share had the
ATI acquisition occurred as of the beginning of 1998 and 1997 was not
material.
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7
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(8) 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 three and six months ended
June 30, 1998 by $1,495 and $2,911, respectively, and by $1,190 and $2,368,
respectively, for the same periods of 1997. The effect of this change
increased diluted net income per common share of the Brink's Group by $.02
and $.05 in the three and six month periods ended June 30, 1998,
respectively, and by $.02 and $.04, respectively, in the comparable periods
of 1997.
(9) Under the share repurchase programs authorized by the Board of Directors,
the Company purchased shares in the periods presented as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
(Dollars in millions) 1998 1997 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brink's Stock:
Shares 114,100 13,000 114,100 166,000
Cost $ 4.4 0.3 4.4 4.3
BAX Stock:
Shares 227,400 -- 404,932 132,100
Cost $ 3.7 -- 7.2 2.6
Convertible Preferred Stock:
Shares -- -- 355 --
Cost $ -- -- 0.1 --
Excess carrying amount (a) $ -- -- 0.02 --
==========================================================================================================
</TABLE>
(a) The excess of the carrying amount of the Series C Cumulative
Convertible Preferred Stock (the "Convertible Preferred Stock") over the
cash paid to holders for repurchases made during the periods. This amount
is deducted from preferred dividends in the Company's Statement of
Operations.
At June 30, 1998, the Company had the remaining authority to purchase over
time 1,000 shares of Minerals Stock; 942 shares of Brink's Stock; 688
shares of BAX Stock and an additional $24,236 of its Convertible Preferred
Stock. The remaining aggregate purchase cost limitation for all common
stock was $13,351 at June 30, 1998.
(10) The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income," in the first quarter of 1998.
SFAS No. 130 established 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. Total comprehensive income, which is composed of net income
attributable to common shares and foreign currency translation adjustments,
for the three months ended June 30, 1998 and 1997 was $16,267 and $12,878,
respectively, and for the first six months ended June 30, 1998 and 1997 was
$27,185 and $27,561, respectively.
Effective January 1, 1998, the Company implemented AICPA Statement of
Position ("SOP") No. 98-1 "Accounting for the Costs of Computer Software
Developed for Internal Use". SOP No. 98-1 requires that certain costs
related to the development or purchase of internal-use software be
capitalized and amortized over the estimated useful life of the software.
---
8
<PAGE>
<PAGE>
(11) The Company will adopt a new accounting standard, SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," 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. SFAS No. 131 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.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This
statement is effective for The Pittston Company for the year beginning
January 1, 2000, with early adoption allowed. The Company is currently
evaluating the timing of adoption and the effect that implementation of the
new standard will have on its results of operations and financial position.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5, which provides guidance on the
reporting of start-up costs and organization costs, requires that such
costs be expensed as incurred. This SOP is effective for The Pittston
Company for the year beginning January 1, 1999, with early application
encouraged. Initial application of the SOP is required to be reported as a
cumulative effect of a change in accounting principle as of the beginning
of the year of adoption. The Company is currently evaluating the effect
that implementation of the new statement will have on its results of
operations and financial position.
(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 and financial
condition for the periods reported herein. All such adjustments are of a
normal recurring nature.
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9
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<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"), 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 Ended June 30 Six Months Ended June 30
(In thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and operating revenues:
Brink's $ 309,751 224,550 571,674 433,749
BHS 50,061 44,225 98,471 86,410
BAX Global 432,884 399,567 835,317 770,976
Coal Operations 130,176 154,073 276,096 308,666
Mineral Ventures 4,232 3,739 8,210 8,029
- -------------------------------------------------------------------------------------------------------------------
Net sales and operating revenues $ 927,104 826,154 1,789,768 1,607,830
===================================================================================================================
Operating profit (loss):
Brink's $ 24,047 19,143 45,966 34,944
BHS 13,895 13,273 27,397 26,052
BAX Global 6,279 (565) 6,709 10,191
Coal Operations (1,714) 1,232 788 4,855
Mineral Ventures (278) (1,310) (325) (1,765)
- -------------------------------------------------------------------------------------------------------------------
Segment operating profit 42,229 31,773 80,535 74,277
General corporate expense (6,726) (4,469) (18,532) (9,595)
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 35,503 27,304 62,003 64,682
===================================================================================================================
</TABLE>
In the second quarter of 1998, the Company reported net income of $20.8 million
compared with $14.7 million in the second quarter of 1997. Operating profit
totaled $35.5 million in the 1998 second quarter compared with $27.3 million in
the prior year second quarter. Increased operating results at Brink's ($4.9
million), BHS ($0.6 million), BAX Global ($6.8 million) and Mineral Ventures
($1.0 million) were offset by a decrease in operating results at Coal Operations
($2.9 million) combined with higher general corporate expenses ($2.3 million).
In the first six months of 1998, the Company reported net income of $33.6
million compared with $36.0 million in the first six months of 1997. Operating
profit totaled $62.0 million in the first six months of 1998 compared with $64.7
million in the prior year period. Increased operating results in the first six
months of 1998 at Brink's ($11.0 million), BHS ($1.3 million) and Mineral
Ventures ($1.4 million) were offset by lower operating profits at BAX Global
($3.5 million), and Coal Operations ($4.1 million), combined with higher general
corporate expenses ($8.9 million).
---
10
<PAGE>
<PAGE>
BRINK'S
The following is a table of selected financial data for Brink's on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
(In thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues:
North America (United States & Canada) $ 135,687 117,616 265,054 228,388
Latin America 76,348 66,163 152,840 125,859
Europe 90,909 33,727 140,722 66,355
Asia/Pacific 6,807 7,044 13,058 13,147
- -------------------------------------------------------------------------------------------------------------------
Total operating revenues 309,751 224,550 571,674 433,749
Operating expenses 247,899 175,441 457,285 342,497
Selling, general and administrative expenses 37,809 30,083 69,413 55,804
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 285,708 205,524 526,698 398,301
Other operating income (expense), net 4 117 990 (504)
- -------------------------------------------------------------------------------------------------------------------
Operating profit:
North America (United States & Canada) 11,865 9,657 21,932 17,411
Latin America 5,354 7,445 16,031 14,882
Europe 6,388 1,291 7,213 1,667
Asia/Pacific 440 750 790 984
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 24,047 19,143 45,966 34,944
===================================================================================================================
Depreciation and amortization $ 12,255 6,811 20,674 14,358
===================================================================================================================
Cash capital expenditures $ 14,407 10,291 27,710 20,105
===================================================================================================================
</TABLE>
Brink's consolidated revenues totaled $309.8 million in the second quarter of
1998 compared with $224.6 million in the second quarter of 1997. The revenue
increase of $85.2 million (38%) was offset, in part, by increases in total costs
and expenses of $80.2 million. Brink's operating profit of $24.0 million in the
second quarter of 1998 represented a $4.9 million (26%) increase over the $19.1
million operating profit reported in the prior year quarter. The increases in
revenue and operating profit were largely attributable to operations in both
North America and Europe.
Revenues from North American operations (United States and Canada) increased
$18.1 million (15%) to $135.7 million in the 1998 second quarter from $117.6
million in the prior year quarter. North American operating profit increased
$2.2 million (23%) to $11.9 million in the current year quarter. The revenue and
operating profit increases for 1998 primarily resulted from improved results
across most product lines, particularly armored car operations, which include
ATM services.
In Latin America, revenues increased 15% to $76.3 million, while operating
profits decreased from $7.4 million in the second quarter of 1997 to $5.4
million in the second quarter of 1998. While both revenues and operating profits
reflected strong results in Venezuela, these improved results were more than
offset by expenses associated with start-up operations in Argentina and by
equity losses from Brink's 20% owned affiliate in Mexico.
---
11
<PAGE>
<PAGE>
Revenues and operating profit from European operations amounted to $90.9 million
and $6.4 million, respectively, in the second quarter of 1998. These amounts
represented increases of $57.2 million and $5.1 million from the comparable
quarter of 1997. The increase in revenues was due to the acquisition of nearly
all of the remaining shares of Brink's affiliate in France in the first quarter
of 1998 (discussed in more detail below). The increase in operating profits
reflects improved results from operations in France, as well as the increased
ownership.
Revenues and operating profit from Asia/Pacific operations in the second quarter
of 1998 were $6.8 million and $0.4 million, respectively. Revenues were
essentially unchanged over the comparable 1997 period and operating profit
decreased $0.3 million.
Brink's consolidated revenues totaled $571.7 million in the first six months of
1998 compared with $433.7 million in the first six months of 1997. The revenue
increase of $137.9 million (32%) in the first half of 1998 was offset, in part,
by an increase in total costs and expenses of $128.4 million. Brink's operating
profit of $46.0 million in the first six months of 1998 represented a 32%
increase over the $34.9 million operating profit reported in the prior year
period.
Revenues from North American operations increased $36.7 million (16%) to $265.1
million in the first six months of 1998 from $228.4 million in the same period
of 1997. North American operating profit increased $4.5 million (26%) to $21.9
million in the current year period from $17.4 million in the same period of
1997. The revenues and operating profit improvement for the six months of 1998
primarily resulted from improved armored car operations, which include ATM
services.
In Latin America, revenues and operating profits increased 21% to $152.8 million
and 8% to $16.0 million, respectively, from the first six months of 1997 to the
comparable 1998 period. The increase in revenues and operating profits includes
the impact of a full six months of consolidated results from the acquired
operation in Venezuela, while the 1997 period included only five months of
consolidated results. In addition, strong results in Venezuela and in Colombia
were offset, in part, by costs associated with start-up operations in Argentina
and equity losses from Brink's affiliate in Mexico.
Revenues and operating profit from European operations amounted to $140.7
million and $7.2 million, respectively, in the first six months of 1998. These
amounts represented increases of $74.4 million and $5.5 million from the
comparable period of 1997. The increase in revenue was due to the acquisition of
nearly all the remaining shares of the Brink's affiliate in France in the first
quarter of 1998. The increase in operating profits reflects improved results
from operations in France, as well as the increased ownership. This improvement
was partially offset by lower results in Belgium caused by industry-wide labor
unrest in the armored car industry in that country which was resolved in the
first quarter of 1998.
Revenues and operating profit from Asia/Pacific operations in the first six
months of 1998 were $13.1 million and $0.8 million, respectively, compared to
$13.1 million and $1.0 million, respectively, in the first six months of 1997.
Brink's continued its international strategy of gaining control of affiliated
operations or exiting certain markets. During the second quarter, Brink's
increased its ownership to 100% from 50% in its German affiliate, increased its
majority ownership in its Colombian affiliate by 7.5% to 58% and divested its
24.5% interest in its Italian affiliate.
---
12
<PAGE>
<PAGE>
BHS
The following is a table of selected financial data for BHS on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
(Dollars in thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 50,061 44,225 98,471 86,410
Operating expenses 25,624 22,300 49,670 43,152
Selling, general and administrative expenses 10,542 8,652 21,404 17,206
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 36,166 30,952 71,074 60,358
Operating profit:
Monitoring and service 18,152 15,944 35,334 30,534
Net marketing, sales and installation (4,257) (2,671) (7,937) (4,482)
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 13,895 13,273 27,397 26,052
===================================================================================================================
Depreciation and amortization $ 9,103 7,116 17,905 13,782
===================================================================================================================
Cash capital expenditures $ 19,043 17,559 37,502 34,079
===================================================================================================================
Monthly recurring revenues (a) $ 13,976 11,834
===================================================================================================================
Number of subscribers:
Beginning of period 528,607 464,007 511,532 446,505
Installations 28,557 26,798 55,307 52,388
Disconnects (9,506) (8,740) (19,181) (16,828)
- -------------------------------------------------------------------------------------------------------------------
End of period 547,658 482,065 547,658 482,065
===================================================================================================================
</TABLE>
(a) Monthly 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. Annualized
recurring revenues as of June 30, 1998 and 1997 were $167,715 and $142,005,
respectively.
Revenues for BHS increased by 13% to $50.1 million in the second quarter of 1998
from $44.2 million in the 1997 quarter. In the first six months of 1998,
revenues for BHS increased by $12.1 million (14%) to $98.5 million from $86.4
million in the first six months of 1997. The increase in revenues was due to
higher ongoing monitoring and service revenues, reflecting a 14% increase in the
subscriber base as well as higher average monitoring fees. As a result of such
growth, monthly recurring revenues at June 30, 1998 grew 18% over the amount in
effect at the end of June 30, 1997. Installation revenue for the second quarter
and first six months of 1998 decreased 4% and 5%, respectively, over the same
1997 periods. While the number of new security system installations increased,
the revenue per installation decreased in both the three and six month periods
ended June 30, 1998, as compared to the 1997 periods, in response to continuing
aggressive installation marketing and pricing by competitors.
---
13
<PAGE>
<PAGE>
Operating profit of $13.9 million in the second quarter of 1998 represented an
increase of $0.6 million (5%) compared to the $13.3 million earned in the 1997
second quarter. In the first six months of 1998, operating profit increased $1.3
million (5%) to $27.4 million from $26.1 million earned in the first six months
of 1997. Operating profit generated from monitoring and service activities
increased $2.2 million (14%) and $4.8 million (16%) for the quarter and six
months ended June 30, 1998, respectively. Operating profit during both of those
periods was favorably impacted by the growth in the subscriber base combined
with the higher average monitoring fees. Cash margins per subscriber resulting
from this portion of the business increased from the same respective periods of
1997. Operating losses from marketing, sales and installation activities
increased $1.6 million and $3.5 million during the second quarter and first six
months of 1998, respectively, as compared to the same periods of 1997. This
increase in both the quarter and year-to-date periods is due to higher levels of
sales and marketing costs incurred and expensed combined with lower levels of
installation revenue. Both of these factors are a consequence of the continuing
competitive environment in the residential security market.
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 three and six months ended June 30, 1998 by $1.5 million and
$2.9 million, respectively, and by $1.2 million and $2.4 million, respectively,
for the same periods of 1997. The effect of this change increased diluted net
income per common share of the Brink's Group by $.02 and $.05 in the three and
six month periods ended June 30, 1998, respectively, and by $.02 and $.04 in the
comparable periods of 1997, respectively.
---
14
<PAGE>
<PAGE>
BAX GLOBAL
The following is a table of selected financial data for BAX Global on a
comparative basis:
<TABLE>
<CAPTION>
(In thousands - except per Three Months Ended June 30 Six Months Ended June 30
pound/shipment amounts) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues:
Intra-U.S.:
Expedited freight services $ 151,642 144,668 299,040 281,340
Other 1,294 1,890 2,239 3,612
- -------------------------------------------------------------------------------------------------------------------
Total Intra-U.S. 152,936 146,558 301,279 284,952
International:
Expedited freight services (a) 219,436 213,321 425,888 411,450
Other (a) 60,512 39,688 108,150 74,574
- -------------------------------------------------------------------------------------------------------------------
Total International 279,948 253,009 534,038 486,024
- -------------------------------------------------------------------------------------------------------------------
Total operating revenues 432,884 399,567 835,317 770,976
Operating expenses 385,157 355,693 747,496 686,604
Selling, general and administrative expenses 41,922 45,298 81,453 75,689
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 427,079 400,991 828,949 762,293
Other operating income, net 474 859 341 1,508
- -------------------------------------------------------------------------------------------------------------------
Operating profit (loss):
Intra-U.S. (b) 2,082 (1,252) (2,895) 2,865
International (b) 4,197 687 9,604 7,326
- -------------------------------------------------------------------------------------------------------------------
Total operating profit (loss) $ 6,279 (565) 6,709 10,191
===================================================================================================================
Depreciation and amortization $ 8,785 7,091 16,394 13,999
===================================================================================================================
Cash capital expenditures $ 20,135 4,748 44,410 10,923
===================================================================================================================
Expedited freight services
shipment growth rate (c) 1.1% 0.6% 1.2% (0.6%)
Expedited freight services
weight growth rate (c):
Intra-U.S. 8.0% 3.1% 8.5% 2.0%
International 8.0% 7.9% 8.4% 5.2%
Worldwide 8.0% 5.7% 8.4% 3.7%
===================================================================================================================
Expedited freight services
weight (millions of pounds) 402.5 372.6 784.0 723.1
Expedited freight services
shipments (thousands) 1,345 1,330 2,635 2,605
===================================================================================================================
Worldwide expedited freight services:
Yield (revenue per pound) (a) $ .922 .961 .925 .958
Revenue per shipment (a) $ 276 269 275 266
Weight per shipment (pounds) 299 280 298 278
===================================================================================================================
</TABLE>
(a) Prior period's international expedited freight revenues have been
reclassified to conform to the current period classification.
(b)The three and six month periods ended June 30, 1997 include $12.5 million of
consulting expenses related to the redesign of BAX Global's business processes
and new information system architecture of which $4.75 million and $7.75 million
was attributed to Intra-U.S.and International, respectively.
(c) Compared to the same period in the prior year.
---
15
<PAGE>
<PAGE>
BAX Global's second quarter 1998 operating profit amounted to $6.3 million, an
increase of $6.9 million from the operating loss of $0.6 million reported in the
second quarter of 1997, which included the $12.5 million charge for special
consulting expenses. Worldwide revenues increased 8% to $432.9 million from
$399.6 million in the 1997 quarter. The $33.3 million growth in revenues
reflects an 8% increase in worldwide expedited freight services pounds shipped,
which reached 402.5 million pounds in the second quarter of 1998, partially
offset by a 4% decrease in average yield on this volume. In addition,
non-expedited freight services revenues, increased $20.2 million (49%) during
the second quarter of 1998 as compared to the same quarter in 1997 reflecting
increases in ocean freight services, logistics revenues and revenues from the
recently acquired Air Transport International LLC ("ATI") discussed in further
detail below. Worldwide expenses amounted to $427.1 million, $26.1 million (7%)
higher than in the second quarter of 1997.
In the second quarter of 1998, BAX Global's intra-U.S. revenues increased from
$146.6 million to $152.9 million. This $6.3 million (4%) increase was primarily
due to an increase of $7.0 million (5%) in intra-U.S. expedited freight services
revenues. The higher level of intra-U.S. expedited freight services revenues in
1998 was due to an 8% increase in weight shipped offset, in part, by a 3%
decrease in average yield. The decrease in the average yield was due to the
combination of a shift in product mix to lower yielding second day freight along
with lower average pricing on both overnight and second day traffic. Intra-U.S.
operating results during the second quarter of 1998 increased $3.3 million from
the $1.3 million operating loss recorded in the second quarter of 1997. However,
intra-U.S. operating results in the 1998 quarter included $1.0 million of
expenses related to Year 2000 and information technology initiatives, while
operating results in the 1997 quarter included $4.8 million relating to the
special consulting charge. Adjusted for these items, intra-U.S. profits
decreased $0.5 million from $3.5 million to $3.0 million. While expedited
freight gross margin as a percentage of revenue remained consistent between the
quarters, other operating expenses increased relative to increases in station
operating costs associated with efforts to enhance service levels.
International revenues in the second quarter of 1998 increased $26.9 million
(11%) to $279.9 million from the $253.0 million recorded in the second quarter
of 1997. International expedited freight services revenues increased $6.1
million (3%) due to an 8% increase in weight shipped, partially offset by a 5%
decrease in average yield. The decrease in yield reflects a change in mix with
less export traffic to higher yielding Asian markets, combined with the absence
of third party carrier surcharges which existed in the second quarter of 1997.
In addition, international non-expedited freight services revenue increased
$20.8 million (52%) in the second quarter of 1998 as compared to the same period
in 1997 due to growth in ocean freight services, logistics revenues and revenues
from the recently acquired ATI business. International operating profit in the
second quarter of 1998 increased $3.5 million from the $0.7 million recorded in
the second quarter of 1997. However, international operating results in the
second quarter of 1998 included $1.8 million of expenses relating to Year 2000
and information technology initiatives, while operating results in the second
quarter of 1997 included $7.8 million relating to the special consulting charge.
After adjusting for these items, international operating profits decreased $2.5
million from $8.5 million to $6.0 million primarily due to the inclusion of ATI
results along with increased provisions for bad debt expense in Asia.
BAX Global's operating profit for the first six months of 1998 amounted to $6.7
million, a decrease of $3.5 million from the $10.2 million reported in the first
six months of 1997, which included the $12.5 million charge. Worldwide revenues
in the 1998 period increased 8% to $835.3 million from $771.0 million in the
1997 period. The $64.3 million growth in revenues reflects an 8% increase in
worldwide expedited freight services pounds shipped, which reached 784.0 million
pounds in the first half of 1998, offset by a 3% decrease in yield on this
volume. In addition, non-expedited freight services revenues increased $32.2
million (41%) during the first six months of 1998 as compared to 1997. Worldwide
expenses in the 1998 period amounted to $828.9 million, $66.7 million (9%)
higher than the 1997 period.
---
16
<PAGE>
<PAGE>
In the first six months of 1998, BAX Global's intra-U.S. revenues increased from
$285.0 million to $301.3 million. This $16.3 million (6%) increase was primarily
due to an increase of $17.7 million (6%) in intra-U.S. expedited freight
services revenues. The higher level of expedited freight services revenues in
1998 was due to a 9% increase in weight shipped, offset by a 2% decrease in the
average yield. Intra-U.S. operating loss during the first six months of 1998 was
$2.9 million compared to a $2.9 operating profit in the first six months of
1997. However, intra-U.S. operating results in the first half of 1998 included
$2.6 million of expenses related to Year 2000 and information technology
initiatives partially offset by several non-recurring items, while the first
half of 1997 included $4.8 million relating to the $12.5 million special
consulting expenses. After adjusting for these items, intra-U.S. operating
profit decreased $8.0 million from the first half of 1997 to the first half of
1998. The decrease is due to lower than expected volume combined with higher
fixed operating and transportation costs. Transportation costs as a percentage
of expedited freight services revenues increased during late 1997 and early 1998
due, in part, to efforts to enhance service levels. In addition, transportation
costs during the first quarter of 1998 were also unfavorably impacted by service
disruptions mainly caused by equipment problems which were resolved during the
first quarter.
International revenues in the first six months of 1998 increased $48.0 million
(10%) to $534.0 million from the $486.0 million recorded in the comparable
period of 1997. International expedited freight services revenue increased $14.4
million (4%) due to an 8% increase in weight shipped offset by a 5% decrease in
the average yield. The decrease in yield reflects a change in mix with less
export traffic to higher yielding Asian markets, combined with the absence of
third party carrier surcharges which existed in the 1997 period. International
non-expedited freight services revenue increased $33.6 million (45%) in the
first six months of 1998 as compared to the same period in 1997. The increase
primarily relates to growth in ocean freight services, logistics revenues and
revenues from the recently acquired ATI. International operating profit in the
first six months of 1998 increased $2.3 million (31%) from the $7.3 million
recorded in the comparable period of 1997. However, international operating
results in the first half of 1998 included $3.7 million related to Year 2000 and
information technology initiatives, while the first half of 1997 included $7.8
million relating to the special consulting charge. After adjusting for these
items, international operating profits decreased $1.8 million from $15.1 million
in the first half of 1997 to $13.3 million in the first half of 1998. The
decrease is primarily due to the inclusion of ATI results along with increased
provisions for bad debt expense in Asia.
During June 1998, C. Robert Campbell joined BAX Global as President and Chief
Executive Officer. New management's priorities for the remainder of the year
will include reviewing the current organizational structure, the adequacy and
utilization of resources, the initiatives relating to margin improvement and
service enhancements, as well as the continuation of certain information
technology initiatives. Although the outcome of these reviews has not been
determined, future earnings may be impacted.
---
17
<PAGE>
<PAGE>
COAL OPERATIONS
The following are tables of selected financial data for Coal Operations on a
comparative basis:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
(In thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 130,176 154,073 276,096 308,666
- -------------------------------------------------------------------------------------------------------------------
Cost of sales 130,209 150,144 271,702 299,883
Selling, general and
administrative expenses 4,423 4,775 8,677 9,711
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 134,632 154,919 280,379 309,594
Other operating income, net 2,742 2,078 5,071 5,783
- -------------------------------------------------------------------------------------------------------------------
Operating (loss) profit $ (1,714) 1,232 788 4,855
===================================================================================================================
Coal sales (tons):
Metallurgical 1,995 1,823 3,926 3,714
Steam 2,312 3,294 5,235 6,523
- -------------------------------------------------------------------------------------------------------------------
Total coal sales 4,307 5,117 9,161 10,237
===================================================================================================================
Production/purchased (tons):
Deep 1,368 1,324 2,757 2,426
Surface 1,841 2,739 3,810 5,398
Contract 200 373 442 736
- -------------------------------------------------------------------------------------------------------------------
3,409 4,436 7,009 8,560
Purchased 1,046 963 2,011 2,303
- -------------------------------------------------------------------------------------------------------------------
Total 4,455 5,399 9,020 10,863
===================================================================================================================
(In thousands, Three Months Ended June 30 Six Months Ended June 30
except per ton amounts) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Net coal sales (a) $ 128,053 151,303 272,029 304,001
Current production costs
of coal sold (a) 119,387 140,554 251,894 282,126
- -------------------------------------------------------------------------------------------------------------------
Coal margin 8,666 10,749 20,135 21,875
Non-coal margin 623 527 1,239 1,245
Other operating income, net 2,742 2,078 5,071 5,783
- -------------------------------------------------------------------------------------------------------------------
Margin and other income 12,031 13,354 26,445 28,903
- -------------------------------------------------------------------------------------------------------------------
Other costs and expenses:
Idle equipment and closed mines 2,582 250 3,285 557
Inactive employee cost 6,740 7,097 13,695 13,780
Selling, general and
administrative expenses 4,423 4,775 8,677 9,711
- -------------------------------------------------------------------------------------------------------------------
Total other costs and expenses 13,745 12,122 25,657 24,048
- -------------------------------------------------------------------------------------------------------------------
Operating (loss) profit $ (1,714) 1,232 788 4,855
===================================================================================================================
Coal margin per ton:
Realization $ 29.73 29.57 29.69 29.70
Current production costs 27.72 27.47 27.49 27.56
- -------------------------------------------------------------------------------------------------------------------
Coal margin $ 2.01 2.10 2.20 2.14
===================================================================================================================
</TABLE>
(a) Excludes non-coal components.
---
18
<PAGE>
<PAGE>
Coal Operations generated an operating loss of $1.7 million (including a $2.2
million loss on the sale of certain coal assets at its Elkay mining operation in
West Virginia ("Elkay Assets")) in the second quarter of 1998, compared to an
operating profit of $1.2 million recorded in the 1997 second quarter. Sales
volume of 4.3 million tons in the second quarter of 1998 was 16% less than the
5.1 million tons sold in the prior year quarter. Compared to the second quarter
of 1997, steam coal sales in 1998 decreased by 1.0 million tons (30%), to 2.3
million tons, while metallurgical coal sales increased 0.2 million tons (9%), to
2.0 million tons. The steam sales volume reduction was primarily due to the
reduced production by and subsequent sale of certain Elkay Assets (discussed
below) along with reduced sales in the spot market. Steam coal sales represented
54% of total volume in 1998 and 64% in 1997.
Total coal margin of $8.7 million for the second quarter of 1998 represented a
decrease of $2.1 million from the comparable 1997 period. The decrease in total
coal margin reflects lower sales volume combined with a 4% decrease ($0.09 per
ton) in coal margin per ton. The overall change in coal margin per ton during
the 1998 quarter was impacted by decreases in metallurgical coal margins,
partially offset by increases in steam coal margins. Metallurgical margins were
negatively impacted in the three months ended June 30, 1998 by lower
realizations per ton resulting from lower negotiated pricing with metallurgical
customers for the new contract year which began April 1, 1998. Steam coal
margins improved in the 1998 second quarter due to higher realizations.
In addition to these factors, total coal margin per ton was impacted by a change
in both the production and sales mix. Despite the decreases in metallurgical
coal realization per ton, overall realization per ton of coal sold increased
$0.16 per ton as a greater proportion of coal sales came from the higher priced
metallurgical coal. In addition, the current production cost of coal sold
increased $0.25 per ton to $27.72 in the second quarter of 1998 from the second
quarter of 1997 due to a higher proportion of deep mine production which is more
costly.
Production in the 1998 second quarter decreased 1.0 million tons over the 1997
second quarter to 3.4 million tons due to the reduced production by and
subsequent sale of certain Elkay Assets (discussed below). Purchased coal
remained constant at 1.0 million tons. Surface production accounted for 55% and
63% of the total production in the 1998 and 1997 second quarters, respectively.
Productivity of 35.3 tons per man day in the 1998 second quarter decreased from
the 37.7 tons per man day in the 1997 second quarter primarily attributable to
an increased percentage of deep mine production.
Non-coal margin, which reflects earnings from the oil, gas and timber
businesses, amounted to $0.6 million in the second quarter of 1998, which was
$0.1 million higher than in the second quarter of 1997. Other operating income,
which primarily includes gains and losses on sales of property and equipment and
third party royalties, amounted to $2.7 million in the second quarter of 1998 as
compared to $2.1 million in the comparable period of 1997. This increase was due
to higher levels of dividend and royalty income. Net gains on sales of property
and equipment during the quarter included $0.2 million of the total $2.2 million
loss associated with the sale of certain Elkay Assets (discussed below).
Idle equipment and closed mine costs increased $2.3 million to $2.6 million in
the 1998 second quarter from the comparable 1997 quarter largely due to
inventory writedowns of $2.0 million associated with the sale of certain Elkay
Assets (discussed below). Inactive employee costs, which represent long-term
employee liabilities for pension and retiree medical costs, decreased from $7.1
million to $6.7 million for the second quarter of 1998 resulting from lower
premiums from the Coal Industry Retiree Health Benefit Act of 1992, partially
offset by the use of a lower long-term discount rate to calculate the present
value of the liabilities. Selling, general and administrative expenses decreased
$0.4 million (7%) in the second quarter of 1998 from the 1997 second quarter due
to continued Coal Operations cost control efforts.
---
19
<PAGE>
<PAGE>
During the second quarter of 1998, Coal Operations disposed of certain assets,
including a surface mine, coal supply contracts and limited coal reserves, of
its Elkay mining operation in West Virginia. The referenced surface mine
produced approximately 1 million tons of steam coal from January 1, 1998 through
the end of April 1998, at which point coal production ceased. Total cash
proceeds from the sale amounted to approximately $18 million, resulting in a
pre-tax loss of approximately $2.2 million. This pre-tax book loss includes
approximately $2.0 million of inventory writedowns related to coal which can no
longer be blended with other coals produced from these disposed assets. This
writedown has been included in Coal Operations cost of sales.
During the first six months of 1998, Coal Operations generated an operating
profit of $0.8 million compared to $4.9 million in the corresponding 1997
period. Sales volume of 9.2 million tons in the first half of 1998 was 1.1
million tons less than the 1997 period. Metallurgical coal sales increased by
0.2 million tons (6%) to 3.9 million tons and steam coal sales decreased by 1.3
million tons (20%) to 5.2 million tons compared to the prior year primarily due
to the reduced production by and subsequent sale of certain Elkay Assets. Steam
coal sales represented 57% of the total 1998 sales volume, as compared to 64% in
1997.
For the first six months of 1998, coal margin was $20.1 million, a decrease of
$1.7 million over the 1997 period. Coal margin per ton increased to $2.20 per
ton in the first six months of 1998 from $2.14 per ton for the same period of
1997. This overall change in coal margin per ton during the first six months of
1998 was due to the change in sales and production mix which occurred in the
second quarter and an increase in steam coal margins partially offset by a
decrease in metallurgical coal margins. Steam coal margins increased for the
first six months of 1998 due to higher realizations during the period. During
the same period, metallurgical margins decreased due to the negative impact of
lower realization amounts which began with the new contract year in the second
quarter of 1998. This was partially offset by lower production costs, which
included the Harbor Maintenance Tax benefit discussed below.
The current production cost of coal sold for the first half of 1998 was $27.49
per ton as compared to $27.56 per ton for the first half of 1997. While
production cost per ton increased due to a larger proportion of the higher cost
deep mine production, these increases were more than offset by a $1.3 million
benefit ($0.14 per ton) related to a favorable ruling issued by the U.S. Supreme
Court on the unconstitutionality of the Harbor Maintenance Tax. Production for
the year-to-date 1998 period totaled 7.0 million tons, a decrease from the 1997
period production of 8.6 million tons, due in large part to the reduced
production by and subsequent sale of certain Elkay Assets. Surface production
accounted for 55% and 64% of the total production in the 1998 and 1997 periods,
respectively. Productivity of 35.1 tons per man day in period decreased from the
37.1 tons per man day in 1997 due to the increased percentage of deep mine
production.
The non-coal margin was $1.2 million for the first half of both 1998 and 1997.
Other operating income decreased $0.7 million for the 1998 period due to the
inclusion in 1997 of a favorable insurance settlement.
Idle equipment and closed mine costs increased $2.7 million in the first half of
1998 as compared to 1997, primarily due to inventory writedowns of $2.0 million
associated with the sale of certain Elkay Assets along with costs relating to
mines which went idle in the third quarter of 1997. Inactive employee costs,
which primarily represent long-term employee liabilities for pension and retiree
medical costs, decreased slightly by $0.1 million to $13.7 million in the 1998
six months. This favorable change reflects lower premiums from the Coal Industry
Retiree Health Benefit Act of 1992, offset by the use of a lower long-term
interest rate to calculate the present value of the long-term liabilities during
1998 compared to the rate used in 1997. Selling, general and administrative
expenses declined by $1.0 million (11%) in the six months of 1998 as compared to
the 1997 period, as a result of Coal Operations cost control efforts.
---
20
<PAGE>
<PAGE>
In July 1998, Coal Operations completed the sale of two idle properties in West
Virginia and a loading dock in Sandlick, Kentucky for an expected pre-tax gain
of approximately $5 million. These asset disposals continue the Coal Operations'
strategy of disposing of idle and under-performing assets, while focusing on its
core metallurgical and steam coal operations. Later this year Coal Operations
plans to begin to develop a major underground metallurgical coal mine on
reserves owned by the company in Virginia. At full production, scheduled for
sometime in 2001, this mine is expected to produce average annual production of
approximately 1.3 million tons from a proven and probable reserve of
approximately 15.0 million tons.
Coal Operations continues cash funding for charges recorded in prior years for
facility closure costs recorded as restructuring and other charges in the
Statement of Operations. The following table analyzes the changes in liabilities
during the first six months of 1998 for such costs:
<TABLE>
<CAPTION>
Employee
Mine Termination,
and Medical
Plant and
Closure Severance
(In thousands) Costs Costs Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance as of December 31, 1997 $ 11,143 19,703 30,846
Payments 521 1,013 1,534
Other reductions 16 -- 16
- -------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1998 $ 10,606 18,690 29,296
===================================================================================================================
</TABLE>
MINERAL VENTURES
The following is a table of selected financial data for Mineral Ventures on a
comparative basis:
<TABLE>
<CAPTION>
(Dollars in thousands, except Three Months Ended June 30 Six Months Ended June 30
per ounce data) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stawell Gold Mine:
Gold sales $ 4,217 3,719 8,173 8,000
Other revenue 15 20 37 29
- -------------------------------------------------------------------------------------------------------------------
Net sales 4,232 3,739 8,210 8,029
Cost of sales (a) 3,071 3,666 5,742 7,297
Selling, general and
administrative expenses (a) 248 381 539 679
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 3,319 4,047 6,281 7,976
- -------------------------------------------------------------------------------------------------------------------
Operating profit - Stawell
Gold Mine 913 (308) 1,929 53
Other operating expense, net (1,191) (1,002) (2,254) (1,818)
- -------------------------------------------------------------------------------------------------------------------
Operating loss $ (278) (1,310) (325) (1,765)
===================================================================================================================
Stawell Gold Mine:
Mineral Ventures' 50% direct share:
Ounces sold 11,809 9,665 22,955 20,241
Ounces produced 11,743 9,315 22,899 20,266
Average per ounce sold (US$):
Realization $ 357 385 356 395
Cash cost 219 370 213 348
===================================================================================================================
</TABLE>
(a) Excludes $1,062 and $1,970 of non-Stawell related selling, general and
administrative expenses for the three months and six months ended June 30, 1998.
Excludes $26 and $797, and $68 and $1,414 of non-Stawell related cost of sales
and selling, general and administrative expenses, respectively, for the three
months and six months ended June 30, 1997. Such costs are reclassified to cost
of sales and selling, general and administrative expenses in the Minerals Group
Statement of Operations.
---
21
<PAGE>
<PAGE>
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 second quarter of 1998, an
improvement of $1.0 million as compared to the loss of $1.3 million in the
second quarter of 1997. Mineral Ventures' 50% direct interest in Stawell's
operations generated net sales of $4.2 million in the second quarter of 1998
compared to $3.7 million in the 1997 period due to an increase in ounces of gold
sold from 9.7 thousand ounces to 11.8 thousand ounces, partially offset by lower
gold realizations due to declining market prices. The second quarter operating
profit at Stawell of $0.9 million increased $1.2 million over the prior year
quarter reflecting a $151.0 per ounce decrease (41%) in the cash cost of gold
sold partially offset by a $28.0 per ounce decrease (7%) in average realization.
Production costs were lower in the 1998 quarter due to a weaker Australian
dollar as well as lower operating costs than the 1997 quarter which was
adversely impacted by the collapse of a ventilation shaft during its
construction which caused production delays.
During the first six months of 1998, Mineral Ventures generated an operating
loss of $0.3 million as compared to an operating loss of $1.8 million in the
1997 period. Mineral Ventures' 50% direct interest in Stawell's operations
generated net sales of $8.2 million in the first half of 1998 compared to $8.0
million in the 1997 period as the ounces of gold sold increased from 20.2
thousand ounces to 23.0 thousand ounces (13%). The operating profit at Stawell
of $1.9 million was $1.9 million higher than operating profit in the first half
of 1997 and was affected by a $135 per ounce decrease (39%) in the cash cost of
gold sold offset by a $39 per ounce decrease (10%) in the selling price of gold.
Production costs were lower in 1998 due to a weaker Australian dollar. In
addition, Stawell's costs in the first half of 1997 were negatively impacted by
temporary unfavorable ground conditions and the collapse of a new ventilation
shaft during its construction resulting in lower production and higher costs.
As of June 30, 1998, approximately 17% of Mineral Ventures' share of the total
proven and probable reserves had been sold forward under forward sales contracts
that mature periodically through mid-1999. Based on contracts in place and
current market conditions, full year 1998 average realizations are expected to
be between $325 and $330 per ounce of gold sold. At June 30, 1998, remaining
proven and probable gold reserves at the Stawell mine were estimated at 392.2
thousand ounces.
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 excluding Stawell.
In addition to its interest in Stawell, Mineral Ventures has a 17% indirect
interest in the Silver Swan base metals property in Western Australia. Operating
results at Silver Swan have been below expectations due to the impact of
depressed nickel prices, though production volumes and costs at the mine are in
line with expectations.
FOREIGN OPERATIONS
A portion of the Company's financial results is derived from activities in
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 mitigates 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 currency 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. A subsidiary in Venezuela and affiliates in
Mexico operate in such highly inflationary economies. Prior to January 1, 1998,
the economy in Brazil, in which the Company has subsidiaries, was considered
highly inflationary.
---
22
<PAGE>
<PAGE>
The Company is also 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.
CORPORATE EXPENSES
In the second quarter of 1998, corporate expenses totaled $6.7 million compared
with $4.5 million in the 1997 second quarter. The increase in corporate expenses
over the second quarter of 1997 was primarily due to costs associated with a
severance agreement with a former member of the Company's senior management. In
the first six months of 1998, corporate expenses increased $8.9 million from
$9.6 million to $18.5 million. Corporate expenses in the first six months of
1998 also included $5.8 million of additional expenses relating to a retirement
agreement between the Company and its former Chairman and CEO.
OTHER OPERATING INCOME, NET
Other operating income, net, includes the Company's share of net earnings or
losses of unconsolidated affiliates, primarily Brink's equity affiliates,
royalty income from Coal Operations, foreign currency exchange gains and gains
and losses from sales of coal assets. Other operating income, net, increased
$0.2 million and decreased $0.3 million in the three and six month periods ended
June 30, 1998, respectively, as compared to the same periods in 1997. The
increase in the quarter is due primarily to higher levels of royalty and
dividend income from Coal Operations. The year-to-date decrease is the result of
lower net gains on asset sales and foreign currency exchange gains, partially
offset by improvements from Brink's equity affiliates.
NET INTEREST EXPENSE
Net interest expense increased $3.0 million and $4.7 million in the three and
six month periods ended June 30, 1998, respectively, as compared to the same
periods in 1997. This increase is predominantly due to higher average borrowings
related to capital expenditures and acquisitions, as well as higher average
interest rates largely attributed to foreign borrowings.
OTHER INCOME/EXPENSE, NET
Other income/expense, net for the second quarter of 1998 was income of $1.0
million versus expense of $1.9 million in the second quarter of 1997. Other
expense, net was $0.4 million in the first six months of 1998 as compared to
$4.3 million in the 1997 corresponding period. The lower level of other expense,
net in both the three and six month periods was due to higher foreign
translation gains, lower minority interest expense for Brink's consolidated
affiliates and higher gains on sales of assets.
INCOME TAXES
In both the 1998 and 1997 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 on Coal Operations and lower taxes on foreign income,
partially offset by provisions for goodwill amortization and state income taxes.
FINANCIAL CONDITION
CASH FLOW REQUIREMENTS
Cash provided by operating activities during the first six months of 1998
totaled $82.2 million compared with $85.5 million in the first six months of
1997. This decrease resulted from lower net income and increased funding for
working capital, partially offset by higher noncash charges in the first six
months of 1998. Cash generated from operations was not sufficient to fund
investing activities, which primarily include capital expenditures, aircraft
heavy maintenance and acquisitions. As a result of these items and funds used
for share activities, the Company required net borrowings of $90.8 million,
resulting in an increase in cash and cash equivalents of $0.4 million compared
to December 31, 1997.
---
23
<PAGE>
<PAGE>
In the first quarter of 1998, Brink's purchased 62% (representing nearly all the
remaining shares) of its French affiliate ("Brink's S.A.") for payments
aggregating US $39 million over three years. The acquisition was funded through
an initial payment made at closing of $8.8 million and a note to the seller for
a principal amount of US $27.5 million payable in annual installments plus
interest through 2001. In addition, borrowings of approximately US $19,000 and
capital leases of approximately US $30,000 were assumed.
On April 30, 1998, the Company acquired the privately held ATI for a purchase
price of approximately $29 million. The acquisition was funded through the
revolving credit portion of the Company's bank credit agreement and was
accounted for as a purchase.
During the second quarter of 1998, the Company's Coal Operations disposed of
certain assets of its Elkay mining operation in West Virginia. The assets were
sold for cash of approximately $18 million, resulting in a pre-tax loss of $2.2
million.
CAPITAL EXPENDITURES
Cash capital expenditures for the first six months of 1998 totaled $122.7
million, $40.4 million higher than in the comparable period in 1997. Of the 1998
amount of cash capital expenditures, $27.7 million was spent by Brink's, $37.5
million was spent by BHS, $44.4 million was spent by BAX Global, $11.2 million
was spent by Coal Operations and $1.4 million was spent by Mineral Ventures. For
the remainder of 1998, company-wide cash capital expenditures are projected to
range between $120.0 and $130.0 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 cash capital expenditures through cash flow from
operating activities or 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 $426.2 million at June 30, 1998, up from the
$243.3 million at year-end 1997. The $182.9 million increase reflects debt
associated with both the Brink's France and BAX Global's ATI acquisitions (as
previously discussed), as well as additional cash required to fund capital
expenditures.
The Company has a $350.0 million 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 June 30, 1998 and December 31, 1997 borrowings of $100.0
million were outstanding under the term loan portion of the Facility and $101.8
million and $25.9 million, respectively, of additional borrowings were
outstanding under the remainder of the Facility.
OFF-BALANCE SHEET INSTRUMENTS
Fuel Contracts - The Company, on behalf of the BAX Group, enters into commodity
option transactions that are intended to protect against significant changes in
jet fuel prices. As of June 30, 1998, these transactions aggregated 53.6 million
gallons and mature periodically throughout the remainder of 1998 and mid-1999.
The fair value of these fuel hedge transactions may fluctuate over the course of
the contract period due to changes in the supply and demand for oil and refined
products. Thus, the economic gain or loss, if any, upon settlement of the
contracts may differ from the fair value of the contracts at an interim date. At
June 30, 1998, the fair value adjustment of all outstanding contracts to hedge
jet fuel requirements was ($2.0) million.
Interest rate contracts - In the second quarter of 1998, the Company entered
into three interest rate swap agreements. These three agreements effectively
convert a portion of the interest on its $100.0 million variable rate term loan
to fixed rates. The first fixes the interest rate at 5.84% on $20.0 million in
face amount of debt, the second fixes the interest rate at 5.86% on $20.0
million in face amount of debt, and the third fixes the interest rate at 5.80%
on $20.0 million in face amount of debt. The first two agreements mature in May
2001, while the third agreement matures in May 2000. As of June 30, 1998 the
fair value adjustment of all of these agreements was not significant.
---
24
<PAGE>
<PAGE>
Foreign currency forward contracts - The Company, on behalf of the Minerals
Group, enters into foreign currency forward contracts, from time to time, with a
duration of up to two years as a hedge against liabilities denominated in the
Australian dollar. These contracts minimize the Minerals Group's exposure to
exchange rate movements related to cash requirements of Australian operations
denominated in Australian dollars. At June 30, 1998, the notional value of
foreign currency forward contracts outstanding was $17.6 million and the fair
value adjustment approximated ($1.7) million.
Gold contracts - In order to protect itself against downward movements in gold
prices, the Company, on behalf of the Minerals Group, hedges a portion of its
share of gold sales from the Stawell gold mine primarily through forward sales
contracts. At June 30, 1998, 32,973 ounces of gold, representing approximately
17% of the Minerals Group's share of Stawell's proven and probable reserves,
were sold forward under forward sales contracts that mature periodically through
mid-1999. Because only a portion of its future production is currently sold
forward, the Minerals Group can take advantage of increases and is exposed to
decreases in the spot price of gold. At June 30, 1998, the fair value adjustment
of the Minerals Group's forward sales contracts was ($.2) million.
READINESS FOR YEAR 2000
The Company has taken actions to understand the nature and extent of work
required to make its systems, products, services and infrastructure Year 2000
compliant. The Company is currently preparing its financial, information and
other computer-based systems for the Year 2000, including replacing and/or
updating existing systems. The Company continues to evaluate the total
estimated costs associated with these efforts, which it currently estimates to
be between $40-$45 million. Based on actual experience and available
information, the Company believes that it will be able to manage
its Year 2000 transition without any material adverse effect on its business
operations, services or financial condition. However, if the applicable
modifications and conversions are not made, or are not completed on a timely
basis, the Year 2000 issue could have a material adverse impact on the
operations of the Company. Further, management is currently evaluating the
extent to which the Company's interface systems are vulnerable to its suppliers'
and customers' failure to remediate their own Year 2000 issues as there is no
guarantee that the systems of other companies on which the Company's systems
rely will be timely and adequately converted.
CAPITALIZATION
The Company has three classes of common stock: Pittston Brink's Group Common
Stock ("Brink's Stock"), Pittston BAX Group Common Stock ("BAX 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 BAX Group ("BAX 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 BAX 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 and Minerals Groups in
addition to consolidated financial information of the Company.
Effective May 4, 1998, the designation of Pittston Burlington Group Common Stock
and the name of the Pittston Burlington Group were changed to Pittston BAX Group
Common Stock and Pittston BAX Group, respectively. All rights and privileges of
the holders of such Stock are otherwise unaffected by such changes. The stock
continues to trade on the New York Stock Exchange under the symbol "PZX".
---
25
<PAGE>
<PAGE>
Under the share repurchase programs authorized by the Board of Directors (the
"Board"), the Company purchased shares in the periods presented:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
(Dollars in millions) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brink's Stock:
Shares 114,100 13,000 114,100 166,000
Cost $ 4.4 0.3 4.4 4.3
BAX Stock:
Shares 227,400 -- 404,932 132,100
Cost $ 3.7 -- 7.2 2.6
Convertible Preferred Stock:
Shares -- -- 355 --
Cost $ -- -- 0.1 --
Excess carrying amount (a) $ -- -- 0.02 --
===================================================================================================================
</TABLE>
(a) The excess of the carrying amount of the Series C Cumulative Convertible
Preferred Stock (the "Convertible Preferred Stock") over the cash paid to
holders for repurchases made during the periods. This amount is deducted from
preferred dividends in the Company's Statement of Operations.
The Company's remaining repurchase authority with respect to the Convertible
Preferred Stock as of June 30, 1998 was $24.2 million. As of June 30, 1998, the
Company had remaining authority to purchase over time 0.9 million shares of
Brink's Stock; 0.7 million shares of BAX Stock; and 1.0 million shares of
Minerals Stock. The remaining aggregate purchase cost limitation for all common
stock was $13.4 million as of June 30, 1998.
DIVIDENDS
The Board intends to declare and pay dividends, if any, on Brink's Stock, BAX
Stock and Minerals Stock based on the earnings, financial condition, cash flow
and business requirements of the Brink's Group, BAX Group and the Minerals
Group, respectively. Since the Company remains subject to Virginia law
limitations on dividends, 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. The Available Minerals
Dividend Amount may be reduced by activity that reduces shareholder's equity or
the fair value of net assets of the Minerals Group. Such activity includes net
losses by the Minerals Group, dividends paid on the Minerals Stock and the
Convertible Preferred Stock, repurchases of Minerals Stock and the Convertible
Preferred Stock, and foreign currency translation losses. At June 30, 1998, the
Available Minerals Dividend Amount was at least $10.1 million.
During the first six months of 1998 and 1997, the Board declared and the Company
paid cash dividends of 5.00 cents per share of Brink's Stock and 12.00 cents per
share of BAX Stock, as well as 18.75 cents and 32.50 cents per share,
respectively, of Minerals Stock. Dividends paid on the Convertible Preferred
Stock in each of the first six months of 1998 and 1997 were $1.8 million. In May
1998, the Company reduced the dividend rate on Minerals Stock to 10.00 cents per
year per share for shareholders as of the May 15, 1998 record date. Cash made
available, if any, from this lower dividend rate will be used to either
reinvest, as suitable opportunities arise, in the Minerals Group companies or to
pay down debt, with a view towards maximizing long-term shareholder value.
---
26
<PAGE>
<PAGE>
ACCOUNTING CHANGES
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income", 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. Total comprehensive income,
which is composed of net income attributable to common shares and foreign
currency translation adjustments, for the quarters ended June 30, 1998 and 1997
was $16.3 million and $12.9 million, respectively, and for the six months ended
June 30, 1998 and 1997 was $27.2 million and $27.6 million, respectively.
Effective January 1, 1998, the Company implemented AICPA Statement of Position
("SOP") No. 98-1 "Accounting for the Costs of Computer Software Developed for
Internal Use". SOP No. 98-1 requires that certain costs related to the
development or purchase of internal-use software be capitalized and amortized
over the estimated useful life of the software.
PENDING ACCOUNTING CHANGES
The Company will implement SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", 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.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement is effective for The Pittston
Company for the year beginning January 1, 2000, with early adoption allowed. The
Company is currently evaluating the timing of adoption and the effect that
implementation of the new standard will have on its results of operations and
financial position.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5, which provides guidance on the reporting of
start-up costs and organization costs, requires that such costs be expensed as
incurred. This SOP is effective for The Pittston Company for the year beginning
January 1, 1999, with early application encouraged. Initial application of the
SOP is required to be reported as a cumulative effect of a change in accounting
principle as of the beginning of the year of adoption. The Company is currently
evaluating the effect that implementation of the new statement will have on its
results of operations and financial position.
FORWARD LOOKING INFORMATION
Certain of the matters discussed herein, including statements regarding
information technology and related outlay projections, projected capital
spending, the impact of management's review of certain BAX Global initiatives on
future operating results, expectations with regard to future realizations from
metallurgical coal mine development, coal and gold sales and the readiness for
Year 2000, involve forward looking information which is subject to known and
unknown risks, uncertainties, and contingencies which could cause actual
results, performance or achievements, to differ materially from those which are
anticipated. Such risks, uncertainties and contingencies, many of which are
beyond the control of the Company, include, but are not limited to, overall
economic and business conditions, the demand for the Company's products and
services, pricing and other competitive factors in the industry, geological
conditions, new government regulations and/or legislative initiatives,
variations in costs or expenses, variations in the spot prices of coal and gold,
the successful integration of the ATI acquisition, the ability of counter
parties to perform, changes in the scope of improvements to information systems
and Year 2000 initiatives, delays or problems in the implementation of Year 2000
initiatives by the Company and/or its suppliers and customers, and delays or
problems in the design and implementation of improvements to information
systems.
---
27
<PAGE>
<PAGE>
PITTSTON BRINK'S GROUP
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 42,293 37,694
Short-term investments, at lower of cost or market 2,086 2,227
Accounts receivable (net of estimated amount uncollectible:
1998 - $12,793; 1997 - $9,660) 225,582 160,912
Receivable - Pittston Minerals Group -- 8,003
Inventories, at lower of cost or market 9,185 3,469
Prepaid expenses 26,460 16,672
Deferred income taxes 18,121 18,147
- -------------------------------------------------------------------------------------------------------------------
Total current assets 323,727 247,124
Property, plant and equipment, at cost (net of accumulated
depreciation and amortization: 1998 - $290,158;
1997 - $276,457) 442,743 346,672
Intangibles, net of accumulated amortization 59,884 18,510
Investment in and advances to unconsolidated affiliates 19,074 28,169
Deferred pension assets 30,870 31,713
Deferred income taxes 4,141 3,612
Other assets 19,548 16,530
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 899,987 692,330
===================================================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings $ 19,507 9,073
Current maturities of long-term debt 30,645 7,576
Accounts payable 49,005 36,337
Accrued liabilities 186,950 125,362
Payable - Pittston Minerals Group 1,696 -
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 287,803 178,348
Long-term debt, less current maturities 94,564 38,682
Postretirement benefits other than pensions 4,226 4,097
Workers' compensation and other claims 11,228 11,277
Deferred income taxes 53,039 45,324
Payable - Pittston Minerals Group 79 391
Other liabilities 7,126 8,929
Minority interests 25,832 24,802
Shareholder's equity 416,090 380,480
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 899,987 692,330
===================================================================================================================
</TABLE>
See accompanying notes to financial statements.
---
28
<PAGE>
<PAGE>
PITTSTON BRINK'S GROUP
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 359,812 268,775 670,145 520,159
Costs and expenses:
Operating expenses 273,523 197,741 506,955 385,649
Selling, general and administrative
expenses 50,705 40,296 97,260 76,359
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 324,228 238,037 604,215 462,008
Other operating income (expense), net 4 117 990 (504)
- -------------------------------------------------------------------------------------------------------------------
Operating profit 35,588 30,855 66,920 57,647
Interest income 624 553 1,488 1,206
Interest expense (5,050) (2,664) (8,865) (4,903)
Other income (expense), net 1,484 (1,447) 147 (3,105)
- -------------------------------------------------------------------------------------------------------------------
Income before income taxes 32,646 27,297 59,690 50,845
Provision for income taxes 12,076 9,558 22,083 17,800
- -------------------------------------------------------------------------------------------------------------------
Net income $ 20,570 17,739 37,607 33,045
===================================================================================================================
Net income per common share:
Basic $ .53 .46 .97 .86
Diluted .52 .46 .96 .85
===================================================================================================================
Cash dividends per common share $ .025 .025 .05 .05
===================================================================================================================
Weighted average common shares outstanding:
Basic 38,713 38,230 38,596 38,209
Diluted 39,206 38,703 39,143 38,659
===================================================================================================================
</TABLE>
See accompanying notes to financial statements.
---
29
<PAGE>
<PAGE>
PITTSTON BRINK'S GROUP
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 37,607 33,045
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 38,693 28,218
Provision for deferred income taxes 5,683 1,184
Provision for pensions, noncurrent 1,563 790
Provision for uncollectible accounts receivable 3,133 2,124
Other operating, net 2,696 5,491
Change in operating assets and liabilities, net of effects of acquisitions
and dispositions:
Increase in accounts receivable (8,754) (5,852)
(Increase) decrease in inventories (3,207) 391
Increase in prepaid expenses (5,734) (5,429)
Decrease in accounts payable and accrued liabilities (6,290) (3,745)
Increase in other assets (2,656) (2,008)
(Decrease) increase in other liabilities (2,544) 672
Other, net (4,071) (453)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 56,119 54,428
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (65,373) (54,234)
Proceeds from disposal of property, plant and equipment 1,368 1,209
Acquisitions, net of cash acquired, and related
contingent payments (5,526) (53,303)
Other, net (993) 6,834
- -------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (70,524) (99,494)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 8,915 52,380
Reductions of debt (4,288) (11,878)
Payments from Minerals Group 16,700 15,083
Proceeds from exercise of stock options 4,566 1,613
Dividends paid (1,807) (1,828)
Repurchase of common stock (5,082) (4,347)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 19,004 51,023
- -------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 4,599 5,957
Cash and cash equivalents at beginning of period 37,694 20,012
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 42,293 25,969
===================================================================================================================
</TABLE>
See accompanying notes to financial statements.
---
30
<PAGE>
<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 BAX Group (the "BAX Group"
formerly the Pittston 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) The following is a reconciliation between the calculation of basic and
diluted net income per share:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
Brink's Group 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income - Basic and
diluted net income
per share numerator $ 20,570 17,739 37,607 33,045
Denominator:
Basic weighted average
common shares
outstanding 38,713 38,230 38,596 38,209
Effect of dilutive securities:
Employee stock options 493 473 547 450
- -----------------------------------------------------------------------------------------
Diluted weighted average
common shares outstanding 39,206 38,703 39,143 38,659
=========================================================================================
</TABLE>
Options to purchase 25 shares of Brink's Stock at prices between $39.42 and
$39.56 per share were outstanding for both the three and six months ended
June 30, 1998, but were not included in the computation of diluted net
income per share because the options' exercise price was greater than the
average market price of the common shares and, therefore, the effect would
be antidilutive.
Options to purchase 391 shares of Brink's Stock at $31.56 per share and
options to purchase 400 shares of Brink's Stock at prices between $29.50
and $31.56 were outstanding for the three and six months ended June 30,
1997, respectively, but were not included in the computation of diluted net
income per share because the options' exercise price was greater than the
average market price of the common shares and, therefore, the effect would
be antidilutive.
(3) 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
---
31
<PAGE>
<PAGE>
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 three and six months ended June 30, 1998
by $1,495 and $2,911, respectively, and by $1,190 and $2,368, respectively,
for the same periods of 1997. The effect of this change increased diluted
net income per common share of the Brink's Group by $.02 and $.05 in the
three and six month periods ended June 30, 1998, respectively, and by $.02
and $.04, respectively, in the comparable periods of 1997.
(4) Depreciation and amortization of property, plant and equipment totaled
$20,850 and $37,791 in the second quarter and six month periods of 1998,
respectively, compared to $13,411 and $26,308 in the second quarter and six
month periods of 1997, respectively.
(5) Cash payments made for interest and income taxes, net of refunds received,
were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest $ 4,985 2,715 8,463 4,931
=========================================================================================
Income taxes $ 23,756 16,935 25,035 20,585
=========================================================================================
</TABLE>
During the first quarter of 1998, Brink's recorded the following noncash
items in connection with the acquisition of substantially all of the
remaining shares of its affiliate in France: the seller financing of the
equivalent of US $27,500 and the assumption of borrowings of approximately
US $19,000 and capital leases of approximately US $30,000. See further
discussion below.
(6) In the first quarter of 1998, the Brink's Group purchased 62% (representing
nearly all the remaining shares) of its Brink's affiliate in France
("Brink's S.A.") for payments aggregating US $39,000 over three years. The
acquisition was funded through an initial payment made at closing of $8,789
and a note to the seller for a principal amount of approximately the
equivalent of US $27,500 payable in annual installments plus interest
through 2001. The acquisition has been accounted for as a purchase and
accordingly, the purchase price is being allocated to the underlying assets
and liabilities based on their estimated fair value at date of acquisition.
Based on a preliminary evaluation which is subject to additional review,
the estimated fair value of the additional assets recorded, including
goodwill, approximated US $161,800 and included $9,200 in cash. Estimated
liabilities assumed of US $125,700 included previously existing debt of
approximately US $49,000, which includes borrowings of US $19,000 and
capital leases of US $30,000. The excess of the purchase price over the
fair value of assets acquired and liabilities assumed is being amortized
over 40 years. Brink's S.A. had annual 1997 revenues approximating the
equivalent of US $220,000.
(7) Under the share repurchase programs authorized by the Board of Directors,
the Company purchased shares in the periods presented as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
(Dollars in millions) 1998 1997 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brink's Stock:
Shares 114,100 13,000 114,100 166,000
Cost $ 4.4 0.3 4.4 4.3
Convertible Preferred Stock:
Shares -- -- 355 --
Cost $ -- -- 0.1 --
Excess carrying amount (a) $ -- -- 0.02 --
----------------------------------------------------------------------------------------------------------
</TABLE>
(a) The excess of the carrying amount of the Series C Cumulative
Convertible Preferred Stock (the "Convertible Preferred Stock") over the
cash paid to holders for repurchases made during the periods. This amount
is deducted from preferred dividends in the Company's Statement of
Operations.
---
32
<PAGE>
<PAGE>
At June 30, 1998, the Company had the remaining authority to purchase over
time 942 shares of Brink's Stock and an additional $24,236 of its
Convertible Preferred Stock. The remaining aggregate purchase cost
limitation for all common stock was $13,351 at June 30, 1998.
(8) The Brink's Group adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," in the first quarter of
1998. SFAS No. 130 established 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. Total comprehensive income, which is composed of net income
and foreign currency translation adjustments, for the three months ended
June 30, 1998 and 1997 was $18,539 and $17,854, respectively. Total
comprehensive income for the six months ended June 30, 1998 and 1997 was
$33,801 and $29,056, respectively.
Effective January 1, 1998, the Brink's Group implemented AICPA Statement of
Position ("SOP") No. 98-1 "Accounting for the Costs of Computer Software
Developed for Internal Use". SOP No. 98-1 requires that certain costs
related to the development or purchase of internal-use software be
capitalized and amortized over the estimated useful life of the software.
(9) The Brink's Group will adopt a new accounting standard, SFAS No. 131,
"Disclosures and Segments of an Enterprise and Related Information," 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. SFAS No. 131 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.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This
statement is effective for the Brink's Group for the year beginning January
1, 2000, with early adoption allowed. The Brink's Group is currently
evaluating the timing of adoption and the effect that implementation of the
new standard will have on its results of operations and financial position.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5, which provides guidance on the
reporting of start-up costs and organization costs, requires that such
costs be expensed as incurred. This SOP is effective for the Brink's Group
for the year beginning January 1, 1999, with early application encouraged.
Initial application of the SOP is required to be reported as a cumulative
effect of a change in accounting principle as of the beginning of the year
of adoption. The Brink's Group is currently evaluating the effect that
implementation of the new statement will have on its results of operations
and financial position.
(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 and financial
condition for the periods reported herein. All such adjustments are of a
normal recurring nature.
---
33
<PAGE>
<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 BAX
Group (the "BAX Group", formerly the Pittston 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.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
(In thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues:
Brink's $ 309,751 224,550 571,674 433,749
BHS 50,061 44,225 98,471 86,410
- -------------------------------------------------------------------------------------------------------------------
Total operating revenues $ 359,812 268,775 670,145 520,159
===================================================================================================================
Operating profit:
Brink's $ 24,047 19,143 45,966 34,944
BHS 13,895 13,273 27,397 26,052
- -------------------------------------------------------------------------------------------------------------------
Segment operating profit 37,942 32,416 73,363 60,996
General corporate expense (2,354) (1,561) (6,443) (3,349)
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 35,588 30,855 66,920 57,647
===================================================================================================================
</TABLE>
---
34
<PAGE>
<PAGE>
The Brink's Group net income totaled $20.6 million ($0.52 per share) in the
second quarter of 1998 compared with $17.7 million ($0.46 per share) in the
second quarter of 1997. Operating profit for the 1998 second quarter increased
to $35.6 million from $30.9 million in the second quarter of 1997. Both Brink's
and BHS contributed to the increases in net income and operating profit for the
1998 second quarter compared with the same period of 1997. Revenues for the 1998
second quarter increased $91.0 million or 34% compared with the 1997 second
quarter, of which $85.2 million was from Brink's and $5.8 million was from BHS.
Total costs and expenses for the 1998 second quarter increased $86.2 million or
36% compared with the same period last year, of which $80.2 million was from
Brink's and $5.2 million was from BHS. Net interest expense during the second
quarter of 1998 increased $2.3 million due largely to higher average borrowings
related to the acquisition of nearly all the remaining shares of Brink's
affiliate in France (discussed in more detail below), as well as higher average
interest rates largely attributable to foreign borrowings.
In the first six months of 1998, net income totaled $37.6 million ($0.96 per
share) compared with $33.0 million ($0.85 per share) in the first six months of
1997. Operating profit for the first six months of 1998 increased to $66.9
million from $57.6 million in the same period of 1997. Both Brink's and BHS
contributed to the increases in net income and operating profit for the first
six months of 1998 compared with the same period of 1997. Revenues for the first
six months of 1998 increased $150.0 million or 29% compared with the first six
months of 1997, of which $137.9 million was from Brink's and $12.1 million was
from BHS. Total costs and expenses for the first six months of 1998 increased
$142.2 million or 31% compared with the same period last year, of which $128.4
million was from Brink's and $10.7 million was from BHS. Net interest expense
increased $3.7 million during the first six months of 1998 as compared to 1997
due largely to higher average borrowings related to the acquisitions of Brink's
affiliates in Venezuela and France in early 1997 and 1998, respectively, as well
as higher average interest rates attributable to these borrowings.
BRINK'S
The following is a table of selected financial data for Brink's on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
(In thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues:
North America (United States & Canada) $ 135,687 117,616 265,054 228,388
Latin America 76,348 66,163 152,840 125,859
Europe 90,909 33,727 140,722 66,355
Asia/Pacific 6,807 7,044 13,058 13,147
- -------------------------------------------------------------------------------------------------------------------
Total operating revenues 309,751 224,550 571,674 433,749
Operating expenses 247,899 175,441 457,285 342,497
Selling, general and administrative expenses 37,809 30,083 69,413 55,804
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 285,708 205,524 526,698 398,301
Other operating income (expense), net 4 117 990 (504)
- -------------------------------------------------------------------------------------------------------------------
Operating profit:
North America (United States & Canada) 11,865 9,657 21,932 17,411
Latin America 5,354 7,445 16,031 14,882
Europe 6,388 1,291 7,213 1,667
Asia/Pacific 440 750 790 984
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 24,047 19,143 45,966 34,944
===================================================================================================================
Depreciation and amortization $ 12,255 6,811 20,674 14,358
===================================================================================================================
Cash capital expenditures $ 14,407 10,291 27,710 20,105
===================================================================================================================
</TABLE>
---
35
<PAGE>
<PAGE>
Brink's consolidated revenues totaled $309.8 million in the second quarter of
1998 compared with $224.6 million in the second quarter of 1997. The revenue
increase of $85.2 million (38%) was offset, in part, by increases in total costs
and expenses of $80.2 million. Brink's operating profit of $24.0 million in the
second quarter of 1998 represented a $4.9 million (26%) increase over the $19.1
million operating profit reported in the prior year quarter. The increases in
revenue and operating profit were largely attributable to operations in both
North America and Europe.
Revenues from North American operations (United States and Canada) increased
$18.1 million (15%) to $135.7 million in the 1998 second quarter from $117.6
million in the prior year quarter. North American operating profit increased
$2.2 million (23%) to $11.9 million in the current year quarter. The revenue and
operating profit increases for 1998 primarily resulted from improved results
across most product lines, particularly armored car operations, which include
ATM services.
In Latin America, revenues increased 15% to $76.3 million, while operating
profits decreased from $7.4 million in the second quarter of 1997 to $5.4
million in the second quarter of 1998. While both revenues and operating profits
reflected strong results in Venezuela, these improved results were more than
offset by expenses associated with start-up operations in Argentina and by
equity losses from Brink's 20% owned affiliate in Mexico.
Revenues and operating profit from European operations amounted to $90.9 million
and $6.4 million, respectively, in the second quarter of 1998. These amounts
represented increases of $57.2 million and $5.1 million from the comparable
quarter of 1997. The increase in revenues was due to the acquisition of nearly
all of the remaining shares of Brink's affiliate in France in the first quarter
of 1998 (discussed in more detail below). The increase in operating profits
reflects improved results from operations in France, as well as the increased
ownership.
Revenues and operating profit from Asia/Pacific operations in the second quarter
of 1998 were $6.8 million and $0.4 million, respectively. Revenues were
essentially unchanged over the comparable 1997 period and operating profit
decreased $0.3 million.
Brink's consolidated revenues totaled $571.7 million in the first six months of
1998 compared with $433.7 million in the first six months of 1997. The revenue
increase of $137.9 million (32%) in the first half of 1998 was offset, in part,
by an increase in total costs and expenses of $128.4 million. Brink's operating
profit of $46.0 million in the first six months of 1998 represented a 32%
increase over the $34.9 million operating profit reported in the prior year
period.
Revenues from North American operations increased $36.7 million (16%) to $265.1
million in the first six months of 1998 from $228.4 million in the same period
of 1997. North American operating profit increased $4.5 million (26%) to $21.9
million in the current year period from $17.4 million in the same period of
1997. The revenues and operating profit improvement for the six months of 1998
primarily resulted from improved armored car operations, which include ATM
services.
In Latin America, revenues and operating profits increased 21% to $152.8 million
and 8% to $16.0 million, respectively, from the first six months of 1997 to the
comparable 1998 period. The increase in revenues and operating profits includes
the impact of a full six months of consolidated results from the acquired
operation in Venezuela, while the 1997 period included only five months of
consolidated results. In addition, strong results in Venezuela and in Colombia
were offset, in part, by costs associated with start-up operations in Argentina
and equity losses from Brink's affiliate in Mexico.
Revenues and operating profit from European operations amounted to $140.7
million and $7.2 million, respectively, in the first six months of 1998. These
amounts represented increases of $74.4 million and $5.5 million from the
comparable period of 1997. The increase in revenue was due to the acquisition of
nearly all the remaining shares of the Brink's affiliate in France in the first
quarter of 1998. The increase in operating profits reflects improved results
from operations in France, as well as the increased ownership. This improvement
was partially offset by lower results in Belgium caused by industry-wide labor
unrest in the armored car industry in that country which was resolved in the
first quarter of 1998.
---
36
<PAGE>
<PAGE>
Revenues and operating profit from Asia/Pacific operations in the first six
months of 1998 were $13.1 million and $0.8 million, respectively, compared to
$13.1 million and $1.0 million, respectively, in the first six months of 1997.
Brink's continued its international strategy of gaining control of affiliated
operations or exiting certain markets. During the second quarter, Brink's
increased its ownership to 100% from 50% in its German affiliate, increased its
majority ownership in its Colombian affiliate by 7.5% to 58% and divested its
24.5% interest in its Italian affiliate.
BHS
The following is a table of selected financial data for BHS on a comparative
basis:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
(Dollars in thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 50,061 44,225 98,471 86,410
Operating expenses 25,624 22,300 49,670 43,152
Selling, general and administrative expenses 10,542 8,652 21,404 17,206
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 36,166 30,952 71,074 60,358
Operating profit:
Monitoring and service 18,152 15,944 35,334 30,534
Net marketing, sales and installation (4,257) (2,671) (7,937) (4,482)
- -------------------------------------------------------------------------------------------------------------------
Total operating profit $ 13,895 13,273 27,397 26,052
===================================================================================================================
Depreciation and amortization $ 9,103 7,116 17,905 13,782
===================================================================================================================
Cash capital expenditures $ 19,043 17,559 37,502 34,079
===================================================================================================================
Monthly recurring revenues (a) $ 13,976 11,834
===================================================================================================================
Number of subscribers:
Beginning of period 528,607 464,007 511,532 446,505
Installations 28,557 26,798 55,307 52,388
Disconnects (9,506) (8,740) (19,181) (16,828)
- -------------------------------------------------------------------------------------------------------------------
End of period 547,658 482,065 547,658 482,065
===================================================================================================================
</TABLE>
(a) Monthly 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. Annualized
recurring revenues as of June 30, 1998 and 1997 were $167,715 and $142,005,
respectively.
Revenues for BHS increased by 13% to $50.1 million in the second quarter of 1998
from $44.2 million in the 1997 quarter. In the first six months of 1998,
revenues for BHS increased by $12.1 million (14%) to $98.5 million from $86.4
million in the first six months of 1997. The increase in revenues was due to
higher ongoing monitoring and service revenues, reflecting a 14% increase in the
subscriber base as well as higher average monitoring fees. As a result of such
growth, monthly recurring revenues at June 30, 1998 grew 18% over the amount in
effect at the end of June 30, 1997. Installation revenue for the second quarter
and first six months of 1998 decreased 4% and 5%, respectively, over the same
1997 periods. While the number of new security system installations increased,
the revenue per installation decreased in both the three and six month periods
ended June 30, 1998, as compared to the 1997 periods, in response to continuing
aggressive installation marketing and pricing by competitors.
---
37
<PAGE>
<PAGE>
Operating profit of $13.9 million in the second quarter of 1998 represented an
increase of $0.6 million (5%) compared to the $13.3 million earned in the 1997
second quarter. In the first six months of 1998, operating profit increased $1.3
million (5%) to $27.4 million from $26.1 million earned in the first six months
of 1997. Operating profit generated from monitoring and service activities
increased $2.2 million (14%) and $4.8 million (16%) for the quarter and six
months ended June 30, 1998, respectively. Operating profit during both of those
periods was favorably impacted by the growth in the subscriber base combined
with the higher average monitoring fees. Cash margins per subscriber resulting
from this portion of the business increased from the same respective periods of
1997. Operating losses from marketing, sales and installation activities
increased $1.6 million and $3.5 million during the second quarter and first six
months of 1998, respectively, as compared to the same periods of 1997. This
increase in both the quarter and year-to-date periods is due to higher levels of
sales and marketing costs incurred and expensed combined with lower levels of
installation revenue. Both of these factors are a consequence of the continuing
competitive environment in the residential security market.
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 three and six months ended June 30, 1998 by $1.5 million and
$2.9 million, respectively, and by $1.2 million and $2.4 million, respectively,
for the same periods of 1997. The effect of this change increased diluted net
income per common share of the Brink's Group by $.02 and $.05 in the three and
six month periods ended June 30, 1998, respectively, and by $.02 and $.04 in the
comparable periods of 1997, respectively.
FOREIGN OPERATIONS
A portion of the Brink's Group's financial results is derived from activities in
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 mitigates 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. A subsidiary in Venezuela and an affiliate in Mexico operate in such
highly inflationary economies. Prior to January 1, 1998, the economy in Brazil,
in which the Brink's Group has a subsidiary, was considered highly inflationary.
The Brink's Group is also 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 an
equitable and a reasonable estimate of the costs attributable to the Brink's
Group. These attributions were $2.4 million and $1.6 million for the second
quarter of 1998 and 1997, respectively and $6.4 million and $3.3 million for the
first six months of 1998 and 1997, respectively. The increase in the second
quarter of 1998 is primarily due to costs associated with a severance agreement
with a former member of the Company's senior management. The first six months of
1998 also includes additional expenses of approximately $5.8 million related to
a retirement agreement between the Company and its former Chairman and CEO.
Approximately $2.0 million of this $5.8 million of expenses have been attributed
to the Brink's Group.
---
38
<PAGE>
<PAGE>
OTHER OPERATING INCOME AND EXPENSE, NET
Other operating income and expense, net consists primarily of net equity
earnings of Brink's foreign affiliates. These net equity earnings amounted to
expense of $0.1 million and $0 for the second quarters of 1998 and 1997,
respectively, and income of $0.8 million and expense of $0.7 million in the
first six months of 1998 and 1997, respectively. Due to the acquisition of the
remaining shares of Brink's affiliate in France (discussed in more detail
below), second quarter 1998 equity earnings do not include the results of this
now consolidated subsidiary, which contributed a substantial portion of equity
losses in the comparable 1997 quarter. The favorable impact of this change was
mostly offset by equity losses of Brink's 20% owned affiliate in Mexico (versus
equity earnings in the prior year). The increase in equity earnings for the
first six months of 1998 as compared to the corresponding 1997 period was also
impacted by the acquisition in France, along with improvements in that
affiliates' operating results. Again, this favorable impact was largely offset
by equity losses of Brink's affiliate in Mexico (versus equity earnings in the
prior year).
NET INTEREST EXPENSE
Net interest expense increased $2.3 million and $3.7 million during the three
and six month periods ended June 30, 1998, respectively. These increases are
predominantly due to higher average borrowings related to acquisitions, as well
as higher average interest rates largely attributed to foreign borrowings.
OTHER INCOME/EXPENSE, NET
Other income/expense, net which generally includes foreign translation gains and
losses and minority interest earnings or losses of Brink's subsidiaries,
increased for the second quarter and six month periods of 1998 by $2.9 million
and $3.3 million, respectively. The 1998 periods reflect higher foreign
translation gains, lower minority ownership expense and higher gains on sale of
assets.
INCOME TAXES
The effective tax rate in the second quarter and first six months of 1998 was
37%. This is an increase from the comparable periods in 1997 which had an
effective tax rate of 35%. The 1997 rate was lower due to lower taxes on foreign
income.
FINANCIAL CONDITION
A portion of the Company's corporate assets and liabilities has been attributed
to the Brink's Group based upon utilization of the shared services from which
assets and liabilities are generated. Management believes this attribution to be
an equitable and a reasonable estimate of the cost attributable to the Brink's
Group.
CASH FLOW REQUIREMENTS
Cash provided by operating activities amounted to $56.1 million in the first six
months of 1998, which is $1.7 million higher than the 1997 level of $54.4
million. Significant sources of cash flow primarily include net income and
noncash charges offset by funds used to finance working capital. Cash generated
from operating activities was not sufficient to fund investing activities,
primarily capital expenditures. However, additional borrowings and repayments
from the Minerals Group resulted in an increase of $4.6 million in cash and cash
equivalents in the first six months of 1998.
In the first quarter of 1998, Brink's purchased 62% (representing nearly all the
remaining shares) of its French affiliate ("Brink's S.A.") for payments
aggregating US $39 million over three years. The acquisition was funded through
an initial payment made at closing of $8.8 million and a note to the seller for
a principal amount of US $27.5 million payable in annual installments plus
interest through 2001. In addition, borrowings of approximately US $19,000 and
capital leases of approximately US $30,000 were assumed.
CAPITAL EXPENDITURES
Cash capital expenditures for the six months of 1998 totaled $65.4 million, of
which $37.5 million was spent by BHS and $27.7 million was spent by Brink's.
Cash capital expenditures totaled $54.2 million in the first six months of 1997.
Expenditures incurred by BHS in 1998 were primarily for customer installations,
representing the expansion in the subscriber base, while expenditures incurred
by Brink's were primarily for expansion, replacement or maintenance of ongoing
business operations. For the remainder of 1998, cash capital expenditures are
expected to range between $75 million and $80 million.
---
39
<PAGE>
<PAGE>
FINANCING
The Brink's Group intends to fund cash capital expenditures through cash flow
from operating activities or through operating leases if the latter are
financially attractive. Shortfalls, if any, will be financed through the
Company's revolving credit agreements or other borrowing arrangements or
repayments from the Minerals Group.
Total outstanding debt at June 30, 1998 was $144.7 million, $89.4 million higher
than the $55.3 million reported at December 31, 1997. The increase in debt is
primarily attributable to debt associated with the acquisition of Brink's
affiliate in France as previously discussed.
The Company has a $350.0 million credit agreement with a syndicate of banks (the
"Facility"). The Facility includes a $100.0 million term loan and permits
additional borrowings, repayments and reborrowings of up to an aggregate of
$250.0 million. As of June 30, 1998 and December 31, 1997, borrowings of $100.0
million were outstanding under the term loan portion of the Facility and $101.8
million and $25.9 million, respectively, of additional borrowings were
outstanding under the remainder of the Facility. No portion of the total amount
outstanding under the Facility at June 30, 1998 or December 31, 1997, was
attributable to the Brink's Group.
RELATED PARTY TRANSACTIONS
At June 30, 1998, under an interest bearing borrowing arrangement, the Minerals
Group owed the Brink's Group $10.3 million, a decrease of $16.7 million from the
$27.0 million owed at December 31, 1997.
At June 30, 1998, the Brink's Group owed the Minerals Group $12.1 million
compared to the $19.4 million owed at December 31, 1997 for tax payments
representing the Minerals Group's tax benefits utilized 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 June 30, 1998, $12.0 million is expected to be paid
within one year.
READINESS FOR YEAR 2000
The Brink's Group has taken actions to understand the nature and extent of work
required to make its systems, services and infrastructure Year 2000 compliant.
The Brink's Group is currently preparing its financial, information and other
computer-based systems for the Year 2000, including replacing and/or updating
existing systems. As these efforts progress, the Brink's Group continues to
evaluate the associated costs. Based upon its most recent estimates and its
anticipated capital spending, the Brink's Group does not anticipate that it will
incur any material costs in preparing for the Year 2000. The Brink's Group
believes, based on available information, that it will be able to manage its
Year 2000 transition without material adverse effect on its business operations,
services or financial condition. However, if the applicable modifications and
conversions are not made, or are not completed on a timely basis, the Year 2000
issue could have a material adverse impact on the operations of the Brink's
Group. Further, management is currently evaluating the extent to which the
Brink's Group's interface systems are vulnerable to its suppliers' and
customers' failure to remediate their own Year 2000 issues as there is no
guarantee that the systems of other companies on which the Brink's Group's
systems rely will be timely and adequately converted.
CAPITALIZATION
The Company has three classes of common stock: Brink's Stock, Pittston BAX Group
Common Stock ("BAX 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, BAX 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 BAX 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 and Minerals
Groups, in addition to consolidated financial information of the Company.
Effective May 4, 1998, the designation of Pittston Burlington Group Common Stock
and the name of the Pittston Burlington Group were changed to Pittston BAX Group
Common Stock and Pittston BAX Group, respectively. All rights and privileges of
the holders of such Stock are otherwise unaffected by such changes. The stock
continues to trade on the New York Stock Exchange under the symbol "PZX".
---
40
<PAGE>
<PAGE>
Under the share repurchase programs authorized by the Board of Directors (the
"Board"), the Company purchased the following shares in the periods presented:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
(Dollars in millions) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Brink's Stock:
Shares 114,100 13,000 114,100 166,000
Cost $ 4.4 0.3 4.4 4.3
Convertible Preferred Stock:
Shares -- -- 355 --
Cost $ -- -- 0.1 --
Excess carrying amount (a) $ -- -- 0.02 --
===================================================================================================================
</TABLE>
(a) The excess of the carrying amount of the Series C Cumulative Convertible
Preferred Stock (the "Convertible Preferred Stock") over the cash paid to
holders for repurchases made during the periods. This amount is deducted from
preferred dividends in the Company's Statement of Operations.
The Company's remaining repurchase authority with respect to the Convertible
Preferred Stock as of June 30, 1998 was $24.2 million. As of June 30, 1998, the
Company had remaining authority to purchase over time 0.9 million shares of
Brink's Stock. The remaining aggregate purchase cost limitation for all common
stock was $13.4 million as of June 30, 1998.
DIVIDENDS
The Board intends to declare and pay dividends, if any, on Brink's Stock based
on the earnings, financial condition, cash flow and business requirements of the
Brink's Group. Since the Company remains subject to Virginia law limitations on
dividends, losses by the Minerals Group or the BAX Group could affect the
Company's ability to pay dividends in respect of stock relating to the Brink's
Group.
During the first six months of 1998 and 1997, the Board declared and the Company
paid cash dividends of 5.00 cents per share of Brink's Stock. Dividends paid on
the Convertible Preferred Stock in each of the first six month periods of 1998
and 1997 were $1.8 million.
ACCOUNTING CHANGES
The Brink's Group adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income", 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. Total comprehensive
income, which is composed of net income and foreign currency translation
adjustments, for the three months ended June 30, 1998 and 1997 was $18.5 million
and $17.9 million, respectively, and for the six months ended June 30, 1998 and
1997 was $33.8 million and $29.1 million, respectively.
Effective January 1, 1998, the Brink's Group implemented AICPA Statement of
Position ("SOP") No. 98-1 "Accounting for the Costs of Computer Software
Developed for Internal Use". SOP No. 98-1 requires that certain costs related to
the development or purchase of internal-use software be capitalized and
amortized over the estimated useful life of the software.
PENDING ACCOUNTING CHANGES
The Brink's Group will implement SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", 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.
---
41
<PAGE>
<PAGE>
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement is effective for the Brink's
Group for the year beginning January 1, 2000, with early adoption allowed. The
Brink's Group is currently evaluating the timing of adoption and the effect that
implementation of the new standard will have on its results of operations and
financial position.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5, which provides guidance on the reporting of
start-up costs and organization costs, requires that such costs be expensed as
incurred. This SOP is effective for the Brink's Group for the year beginning
January 1, 1999, with early application encouraged. Initial application of the
SOP is required to be reported as a cumulative effect of a change in accounting
principle as of the beginning of the year of adoption. The Brink's Group is
currently evaluating the effect that implementation of the new statement will
have on its results of operations and financial position.
FORWARD LOOKING INFORMATION
Certain of the matters discussed herein, including statements regarding the
readiness for Year 2000, and projected capital spending, involve forward looking
information which is subject to known and unknown risks, uncertainties, and
contingencies which could cause actual results, performance or achievements to
differ materially from those which are anticipated. Such risks, uncertainties
and contingencies, many of which are beyond the control of the Brink's Group and
the Company, 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/or
legislative initiatives, variations in costs or expenses, changes in the scope
of Year 2000 initiatives, and delays or problems in the implementation of Year
2000 initiatives by the Brink's Group and/or its suppliers and customers.
---
42
<PAGE>
<PAGE>
PITTSTON BAX GROUP
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 24,406 28,790
Accounts receivable (net of estimated amount uncollectible:
1998 - $10,941; 1997 -$10,110) 294,430 306,806
Inventories, at lower of cost or market 3,080 1,359
Prepaid expenses 11,666 11,050
Deferred income taxes 6,982 7,159
- -------------------------------------------------------------------------------------------------------------------
Total current assets 340,564 355,164
Property, plant and equipment, at cost (net of accumulated depreciation and
amortization:
1998 - $87,405; 1997 - $78,815) 200,064 128,632
Intangibles, net of accumulated amortization 177,995 174,791
Deferred pension assets 6,162 7,600
Deferred income taxes 20,075 19,814
Other assets 15,269 15,442
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 760,129 701,443
===================================================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings $ 43,552 31,071
Current maturities of long-term debt 3,081 3,176
Accounts payable 180,475 194,489
Payable - Pittston Minerals Group 9,000 4,966
Accrued liabilities 83,877 78,363
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 319,985 312,065
Long-term debt, less current maturities 99,290 37,016
Postretirement benefits other than pensions 3,741 3,518
Deferred income taxes 2,027 1,447
Payable - Pittston Minerals Group 12,579 13,239
Other liabilities 6,234 10,448
Shareholder's equity 316,273 323,710
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 760,129 701,443
===================================================================================================================
</TABLE>
See accompanying notes to financial statements.
---
43
<PAGE>
<PAGE>
PITTSTON BAX GROUP
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $ 432,884 399,567 835,317 770,976
Costs and expenses:
Operating expenses 385,157 355,693 747,496 686,604
Selling, general and administrative expenses 44,263 46,852 87,877 79,023
- --------------------------------------------------------------------------------------------------------------------
Total costs and expenses 429,420 402,545 835,373 765,627
- --------------------------------------------------------------------------------------------------------------------
Other operating income, net 474 859 341 1,508
- --------------------------------------------------------------------------------------------------------------------
Operating profit (loss) 3,938 (2,119) 285 6,857
Interest income 224 145 483 475
Interest expense (2,122) (1,066) (3,340) (2,012)
Other expense, net (468) -- (566) (281)
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,572 (3,040) (3,138) 5,039
Provision (credit) for income taxes 583 (1,127) (1,161) 1,864
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 989 (1,913) (1,977) 3,175
====================================================================================================================
Net income (loss) per common share:
Basic $ .05 (.10) (.10) .16
Diluted .05 (.10) (.10) .16
====================================================================================================================
Cash dividends per common share $ .06 .06 .12 .12
====================================================================================================================
Weighted average common shares outstanding:
Basic 19,524 19,471 19,501 19,439
Diluted 19,693 19,471 19,501 19,942
====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
---
44
<PAGE>
<PAGE>
PITTSTON BAX GROUP
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (1,977) 3,175
Adjustments to reconcile net (loss) income to net cash provided
by operating activities:
Depreciation and amortization 16,511 14,122
Provision for aircraft heavy maintenance 18,580 16,382
Provision (credit) for deferred income taxes 80 (142)
(Credit) provision for pensions, noncurrent (42) 968
Provision for uncollectible accounts receivable 2,308 1,637
Other operating, net 2,186 1,242
Change in operating assets and liabilities, net of effects of acquisitions
and dispositions:
Decrease (increase) in accounts receivable 20,401 (13,493)
(Increase) decrease in inventories (587) 273
Increase in prepaid expenses (874) (3,836)
(Decrease) increase in accounts payable and accrued liabilities (25,581) 5,873
Decrease (increase) in other assets 1,039 (263)
(Decrease) increase in other liabilities (780) 816
Other, net (1,067) 827
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 30,197 27,581
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (44,536) (10,973)
Aircraft heavy maintenance expenditures (20,524) (19,350)
Acquisitions, net of cash acquired, and related contingency payments (28,835) --
Other, net (644) 973
- -------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (94,539) (29,350)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 73,769 15,996
Reductions of debt (5,855) (6,130)
Payments from Minerals Group -- 7,730
Proceeds from exercise of stock options 1,742 1,064
Dividends paid (2,393) (2,246)
Repurchase of common stock (7,305) (2,550)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 59,958 13,864
- -------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (4,384) 12,095
Cash and cash equivalents at beginning of period 28,790 17,818
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 24,406 29,913
===================================================================================================================
</TABLE>
See accompanying notes to financial statements.
---
45
<PAGE>
<PAGE>
PITTSTON BAX GROUP
NOTES TO FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
(1) The financial statements of the Pittston BAX Group (the "BAX Group")
include the balance sheets, results of operations and cash flows of the BAX
Global Inc. ("BAX Global") 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 BAX 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 BAX Group.
The Company provides holders of Pittston BAX Group Common Stock ("BAX
Stock") separate financial statements, financial reviews, descriptions of
business and other relevant information for the BAX Group, in addition to
consolidated financial information of the Company. Holders of BAX Stock are
shareholders of the Company, which is responsible for all liabilities.
Therefore, financial developments affecting the BAX 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 BAX Group's financial statements.
Effective May 4, 1998, the designation of Pittston Burlington Group Common
Stock and the name of the Pittston Burlington Group were changed to
Pittston BAX Group Common Stock and Pittston BAX Group, respectively. All
rights and privileges of the holders of such Stock are otherwise unaffected
by such changes. The stock continues to trade on the New York Stock
Exchange under the symbol "PZX".
(2) The following is a reconciliation between the calculation of basic and
diluted net income (loss) per share:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
BAX Group 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) - Basic
and diluted net income (loss)
per share numerator 989 (1,913) (1,977) 3,175
Denominator:
Basic weighted average common
shares outstanding 19,524 19,471 19,501 19,439
Effect of dilutive securities:
Employee stock options 169 -- -- 503
- ----------------------------------------------------------------------------------------
Diluted weighted average common
shares outstanding 19,693 19,471 19,501 19,942
========================================================================================
</TABLE>
Options to purchase 1,018 shares of BAX Stock, at prices between $17.94 and
$27.91 were outstanding for the three months ended June 30, 1998, but were
not included in the computation of diluted net income per share because the
options' exercise price was greater than the average market price of the
common shares and, therefore, the effect would be antidilutive. Options to
purchase 2,381 shares of BAX Stock, at prices between $5.78 and $27.91 per
share, were outstanding for the six months ended June 30, 1998, but were
not included in the computation of diluted net loss per share because the
effect of all options would be antidilutive.
---
46
<PAGE>
<PAGE>
Options to purchase 2,498 shares of BAX Stock, at prices between $5.00 and
$24.19 per share, were outstanding for the three months ended June 30,
1997, but were not included in the computation of diluted net loss per
share because the effect of all options would be antidilutive. Options to
purchase 499 shares of BAX Stock, at $24.19 per share, were outstanding for
the six months ended June 30, 1997 but were not included in the computation
of diluted net income per share because the options' exercise price was
greater than the average market price of the common shares and, therefore,
the effect would be antidilutive.
(3) Depreciation and amortization of property, plant and equipment totaled
$7,020 and $13,026 in the second quarter and six month periods of 1998,
respectively, compared to $5,517 and $10,832 in the second quarter and six
month periods of 1997, respectively.
(4) Cash payments made for interest and income taxes, net of refunds received,
were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest $ 2,052 1,423 2,878 2,252
========================================================================================
Income taxes $ 2,292 7,872 6,038 8,739
========================================================================================
</TABLE>
(5) On April 30, 1998, the Company acquired the privately held Air Transport
International LLC ("ATI") for a purchase price of approximately $29
million. The acquisition was funded through the revolving credit portion
of the Company's bank credit agreement and was accounted for as a purchase.
Based on a preliminary evaluation which is subject to additional review,
the estimated fair value of the assets acquired and liabilities assumed
approximated $33 million and $4 million, respectively. The pro forma impact
on the BAX Group's total revenues, net income and earnings per share had
the ATI acquisition occurred as of the beginning of 1998 and 1997 was not
material.
(6) Under the share repurchase programs authorized by the Board of Directors,
the Company purchased shares in the periods presented as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
(Dollars in millions) 1998 1997 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BAX Stock:
Shares 227,400 -- 404,932 132,100
Cost $ 3.7 -- 7.2 2.6
Convertible Preferred Stock:
Shares -- -- 355 --
Cost $ -- -- 0.1 --
Excess carrying amount (a) $ -- -- 0.02 --
----------------------------------------------------------------------------------------------------------
</TABLE>
(a) The excess of the carrying amount of the Series C Cumulative
Convertible Preferred Stock (the "Convertible Preferred Stock") over the
cash paid to holders for repurchases made during the periods. This amount
is deducted from preferred dividends in the Company's Statement of
Operations.
At June 30, 1998, the Company had the remaining authority to purchase over
time 688 shares of BAX Stock and an additional $24,236 of its Convertible
Preferred Stock. The remaining aggregate purchase cost limitation for all
common stock was $13,351 at June 30, 1998.
(7) The BAX Group adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income," in the first quarter of 1998.
SFAS No. 130 established 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
---
47
<PAGE>
<PAGE>
resulting from investments by or distributions to shareholders. Total
comprehensive income (loss), which is composed of net income (loss) and
foreign currency translation adjustments, for the three months ended June
30, 1998 and 1997 was $580 and ($2,111), respectively. Total comprehensive
(loss) income for the six months ended June 30, 1998 and 1997 was ($1,986)
and $1,542, respectively.
Effective January 1, 1998, the BAX Group implemented AICPA Statement of
Position ("SOP") No. 98-1 "Accounting for the Costs of Computer Software
Developed for Internal Use". SOP No. 98-1 requires that certain costs
related to the development or purchase of internal-use software be
capitalized and amortized over the estimated useful life of the software.
As a result of the implementation of SOP No. 98-1, net income for the three
months ended June 30, 1998, included a benefit of $648 or $.03 per share
and the net loss for the six months ended June 30, 1998, included a benefit
of approximately $1,440 or $.07 per share for costs capitalized during
those periods which would have been expensed prior to the implementation of
SOP No. 98-1.
(8) The BAX Group will adopt a new accounting standard, SFAS No. 131,
"Disclosures and Segments of an Enterprise and Related Information," 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. SFAS No. 131 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 BAX
Group.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This
statement is effective for the BAX Group for the year beginning January 1,
2000 with early adoption allowed. The BAX Group is currently evaluating the
timing of adoption and the effect that implementation of the new standard
will have on its results of operations and financial position.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5, which provides guidance on the
reporting of start-up costs and organization costs, requires that such
costs be expensed as incurred. This SOP is effective for the BAX Group for
the year beginning January 1, 1999, with early application encouraged.
Initial application of the SOP is required to be reported as a cumulative
effect of a change in accounting principle as of the beginning of the year
of adoption. The BAX Group is currently evaluating the effect that
implementation of the new statement will have on its results of operations
and financial position.
(9) Certain prior period amounts have been reclassified to conform to the
current period's financial statement presentation.
(10) In the opinion of management, all adjustments have been made which are
necessary for a fair presentation of results of operations and financial
condition for the periods reported herein. All such adjustments are of a
normal recurring nature.
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48
<PAGE>
<PAGE>
PITTSTON BAX GROUP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
The financial statements of the Pittston BAX Group (the "BAX Group") include the
balance sheets, results of operations and cash flows of BAX Global Inc. ("BAX
Global") 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 BAX 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 BAX
Group.
Effective May 4, 1998, the designation of Pittston Burlington Group Common Stock
and the name of the Pittston Burlington Group were changed to Pittston BAX Group
Common Stock and Pittston BAX Group, respectively. All rights and privileges of
the holders of such Stock are otherwise unaffected by such changes. The stock
continues to trade on the New York Stock Exchange under the symbol "PZX".
The Company provides holders of Pittston BAX Group Common Stock ("BAX Stock")
separate financial statements, financial reviews, descriptions of business and
other relevant information for the BAX Group in addition to consolidated
financial information of the Company. Holders of BAX Stock are shareholders of
the Company, which continues to be responsible for all liabilities. Therefore,
financial developments affecting the BAX 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 BAX
Group's financial statements.
The following discussion is a summary of the key factors management considers
necessary in reviewing the BAX 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 BAX Group and the Company.
BAX Global's freight business has tended to be seasonal, with a significantly
higher volume of shipments generally experienced during March, June and the
period August through November than during the other periods of the year. The
lowest volume of shipments has generally occurred in January and February.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
(In thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues:
BAX Global $ 432,884 399,567 835,317 770,976
===================================================================================================================
Operating profit (loss):
BAX Global $ 6,279 (565) 6,709 10,191
General corporate expense (2,341) (1,554) (6,424) (3,334)
- --------------------------------------------------------------------------------------------------------------------------------
Operating profit (loss) $ 3,938 (2,119) 285 6,857
===================================================================================================================
</TABLE>
In the second quarter of 1998, the BAX Group reported net income of $1.0 million
($0.05 per share) as compared to a net loss of $1.9 million ($0.10 per share) in
the second quarter of 1997, which included a pre-tax charge of $12.5 million
($7.9 after-tax, $0.40 per share) for special consulting expenses. Revenues
increased $33.3 million or 8% compared with the 1997 second quarter. Operating
expenses and selling, general and administrative expenses for the 1998 quarter
increased $26.9 million (7%) compared with the same quarter last year. Operating
profit in the second quarter 1998 totaled $3.9 million compared to operating
loss of $2.1 million in the prior year quarter, which included the $12.5 million
charge.
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49
<PAGE>
<PAGE>
In the first six months of 1998, the BAX Group reported a net loss of $2.0
million ($0.10 per share) compared to net income in the 1997 period of $3.2
million ($0.16 per share), which included the $12.5 million pre-tax charge.
Operating expenses and selling, general and administrative expenses for the six
months ended June 30, 1998 increased $69.7 million (9%) from the comparable 1997
period. Operating profit in the 1998 six month period totaled $0.3 million
compared to $6.9 million in 1997, including the $12.5 million charge.
BAX GLOBAL
The following is a table of selected financial data for BAX Global on a
comparative basis:
<TABLE>
<CAPTION>
(In thousands - except per Three Months Ended June 30 Six Months Ended June 30
pound/shipment amounts) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues:
Intra-U.S.:
Expedited freight services $ 151,642 144,668 299,040 281,340
Other 1,294 1,890 2,239 3,612
- -------------------------------------------------------------------------------------------------------------------
Total Intra-U.S. 152,936 146,558 301,279 284,952
International:
Expedited freight services (a) 219,436 213,321 425,888 411,450
Other (a) 60,512 39,688 108,150 74,574
- -------------------------------------------------------------------------------------------------------------------
Total International 279,948 253,009 534,038 486,024
- -------------------------------------------------------------------------------------------------------------------
Total operating revenues 432,884 399,567 835,317 770,976
Operating expenses 385,157 355,693 747,496 686,604
Selling, general and administrative expenses 41,922 45,298 81,453 75,689
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 427,079 400,991 828,949 762,293
Other operating income, net 474 859 341 1,508
- -------------------------------------------------------------------------------------------------------------------
Operating profit (loss):
Intra-U.S. (b) 2,082 (1,252) (2,895) 2,865
International (b) 4,197 687 9,604 7,326
- -------------------------------------------------------------------------------------------------------------------
Total operating profit (loss) $ 6,279 (565) 6,709 10,191
===================================================================================================================
Depreciation and amortization $ 8,785 7,091 16,394 13,999
===================================================================================================================
Cash capital expenditures $ 20,135 4,748 44,410 10,923
===================================================================================================================
Expedited freight services
shipment growth rate (c) 1.1% 0.6% 1.2% (0.6%)
Expedited freight services
weight growth rate (c):
Intra-U.S. 8.0% 3.1% 8.5% 2.0%
International 8.0% 7.9% 8.4% 5.2%
Worldwide 8.0% 5.7% 8.4% 3.7%
===================================================================================================================
Expedited freight services
weight (millions of pounds) 402.5 372.6 784.0 723.1
Expedited freight services
shipments (thousands) 1,345 1,330 2,635 2,605
===================================================================================================================
Worldwide expedited freight services:
Yield (revenue per pound) (a) $ .922 .961 .925 .958
Revenue per shipment (a) $ 276 269 275 266
Weight per shipment (pounds) 299 280 298 278
===================================================================================================================
</TABLE>
(a) Prior period's international expedited freight revenues have been
reclassified to conform to the current period classification.
(b)The three and six month periods ended June 30, 1997 include $12.5 million of
consulting expenses related to the redesign of BAX Global's business processes
and new information system architecture of which $4.75 million and $7.75 million
was attributed to Intra-U.S. and International, respectively.
(c) Compared to the same period in the prior year.
---
50
<PAGE>
<PAGE>
BAX Global's second quarter 1998 operating profit amounted to $6.3 million, an
increase of $6.9 million from the operating loss of $0.6 million reported in the
second quarter of 1997, which included the $12.5 million charge for special
consulting expenses. Worldwide revenues increased 8% to $432.9 million from
$399.6 million in the 1997 quarter. The $33.3 million growth in revenues
reflects an 8% increase in worldwide expedited freight services pounds shipped,
which reached 402.5 million pounds in the second quarter of 1998, partially
offset by a 4% decrease in average yield on this volume. In addition,
non-expedited freight services revenues, increased $20.2 million (49%) during
the second quarter of 1998 as compared to the same quarter in 1997 reflecting
increases in ocean freight services, logistics revenues and revenues from the
recently acquired Air Transport International LLC ("ATI") discussed in further
detail below. Worldwide expenses amounted to $427.1 million, $26.1 million (7%)
higher than in the second quarter of 1997.
In the second quarter of 1998, BAX Global's intra-U.S. revenues increased from
$146.6 million to $152.9 million. This $6.3 million (4%) increase was primarily
due to an increase of $7.0 million (5%) in intra-U.S. expedited freight services
revenues. The higher level of intra-U.S. expedited freight services revenues in
1998 was due to an 8% increase in weight shipped offset, in part, by a 3%
decrease in average yield. The decrease in the average yield was due to the
combination of a shift in product mix to lower yielding second day freight along
with lower average pricing on both overnight and second day traffic. Intra-U.S.
operating results during the second quarter of 1998 increased $3.3 million from
the $1.3 million operating loss recorded in the second quarter of 1997. However,
intra-U.S. operating results in the 1998 quarter included $1.0 million of
expenses related to Year 2000 and information technology initiatives, while
operating results in the 1997 quarter included $4.8 million relating to the
special consulting charge. Adjusted for these items, intra-U.S. profits
decreased $0.5 million from $3.5 million to $3.0 million. While expedited
freight gross margin as a percentage of revenue remained consistent between the
quarters, other operating expenses increased relative to increases in station
operating costs associated with efforts to enhance service levels.
International revenues in the second quarter of 1998 increased $26.9 million
(11%) to $279.9 million from the $253.0 million recorded in the second quarter
of 1997. International expedited freight services revenues increased $6.1
million (3%) due to an 8% increase in weight shipped, partially offset by a 5%
decrease in average yield. The decrease in yield reflects a change in mix with
less export traffic to higher yielding Asian markets, combined with the absence
of third party carrier surcharges which existed in the second quarter of 1997.
In addition, international non-expedited freight services revenue increased
$20.8 million (52%) in the second quarter of 1998 as compared to the same period
in 1997 due to growth in ocean freight services, logistics revenues and revenues
from the recently acquired ATI business. International operating profit in the
second quarter of 1998 increased $3.5 million from the $0.7 million recorded in
the second quarter of 1997. However, international operating results in the
second quarter of 1998 included $1.8 million of expenses relating to Year 2000
and information technology initiatives, while operating results in the second
quarter of 1997 included $7.8 million relating to the special consulting charge.
After adjusting for these items, international operating profits decreased $2.5
million from $8.5 million to $6.0 million primarily due to the inclusion of ATI
results along with increased provisions for bad debt expense in Asia.
BAX Global's operating profit for the first six months of 1998 amounted to $6.7
million, a decrease of $3.5 million from the $10.2 million reported in the first
six months of 1997, which included the $12.5 million charge. Worldwide revenues
in the 1998 period increased 8% to $835.3 million from $771.0 million in the
1997 period. The $64.3 million growth in revenues reflects an 8% increase in
worldwide expedited freight services pounds shipped, which reached 784.0 million
pounds in the first half of 1998, offset by a 3% decrease in yield on this
volume. In addition, non-expedited freight services revenues increased $32.2
million (41%) during the first six months of 1998 as compared to 1997. Worldwide
expenses in the 1998 period amounted to $828.9 million, $66.7 million (9%)
higher than the 1997 period.
In the first six months of 1998, BAX Global's intra-U.S. revenues increased from
$285.0 million to $301.3 million. This $16.3 million (6%) increase was primarily
due to an increase of $17.7 million (6%) in intra-U.S. expedited freight
services revenues. The higher level of expedited freight services revenues in
1998 was due to a 9% increase in weight shipped, offset by a 2% decrease in the
average yield. Intra-U.S. operating loss during the first six months of 1998 was
$2.9 million compared to a $2.9 operating profit in the first six months of
1997. However, intra-U.S. operating results in the first half of 1998 included
$2.6 million of expenses related to Year 2000 and information technology
initiatives partially offset by several non-recurring items, while the
---
51
<PAGE>
<PAGE>
first half of 1997 included $4.8 million relating to the $12.5 million special
consulting expenses. After adjusting for these items, intra-U.S. operating
profit decreased $8.0 million from the first half of 1997 to the first half of
1998. The decrease is due to lower than expected volume combined with higher
fixed operating and transportation costs. Transportation costs as a percentage
of expedited freight services revenues increased during late 1997 and early 1998
due, in part, to efforts to enhance service levels. In addition, transportation
costs during the first quarter of 1998 were also unfavorably impacted by service
disruptions mainly caused by equipment problems which were resolved during the
first quarter.
International revenues in the first six months of 1998 increased $48.0 million
(10%) to $534.0 million from the $486.0 million recorded in the comparable
period of 1997. International expedited freight services revenue increased $14.4
million (4%) due to an 8% increase in weight shipped offset by a 5% decrease in
the average yield. The decrease in yield reflects a change in mix with less
export traffic to higher yielding Asian markets, combined with the absence of
third party carrier surcharges which existed in the 1997 period. International
non-expedited freight services revenue increased $33.6 million (45%) in the
first six months of 1998 as compared to the same period in 1997. The increase
primarily relates to growth in ocean freight services, logistics revenues and
revenues from the recently acquired ATI. International operating profit in the
first six months of 1998 increased $2.3 million (31%) from the $7.3 million
recorded in the comparable period of 1997. However, international operating
results in the first half of 1998 included $3.7 million related to Year 2000 and
information technology initiatives, while the first half of 1997 included $7.8
million relating to the special consulting charge. After adjusting for these
items, international operating profits decreased $1.8 million from $15.1 million
in the first half of 1997 to $13.3 million in the first half of 1998. The
decrease is primarily due to the inclusion of ATI results along with increased
provisions for bad debt expense in Asia.
During June 1998, C. Robert Campbell joined BAX Global as President and Chief
Executive Officer. New management's priorities for the remainder of the year
will include reviewing the current organizational structure, the adequacy and
utilization of resources, the initiatives relating to margin improvement and
service enhancements, as well as the continuation of certain information
technology initiatives. Although the outcome of these reviews has not been
determined, future earnings may be impacted.
FOREIGN OPERATIONS
A portion of the BAX Group's financial results is derived from activities in
foreign countries, each with a local currency other than the U.S. dollar.
Because the financial results of the BAX 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 BAX Group's international activity is not
concentrated in any single currency, which mitigates 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 BAX 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 BAX 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, translation adjustments relating to operations
in countries with highly inflationary economies are included in net income,
along with all transaction gains or losses for the period. A subsidiary in
Mexico operates in such a highly inflationary economy. Prior to January 1, 1998,
the economy in Brazil, in which the BAX Group has a subsidiary, was considered
highly inflationary.
The BAX Group is also 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 BAX 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 BAX Group based on utilization
and other methods and criteria which management believes to be an equitable and
a reasonable estimate of the costs attributable to the BAX Group. These
attributions were $2.3 million and $1.6 million for the second quarter of 1998
and 1997, respectively and $6.4 million and $3.3 million for the first six
months of 1998 and 1997, respectively. The increase in the second quarter of
1998 is primarily due to costs associated with a severance agreement with a
former member of the
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52
<PAGE>
<PAGE>
Company's senior management. The first six months of 1998 also includes
additional expenses of approximately $5.8 million related to a retirement
agreement between the Company and its former Chairman and CEO. Approximately
$2.0 million of this $5.8 million of expenses have been attributed to the BAX
Group.
OTHER OPERATING INCOME, NET
Other operating income, net decreased $0.4 million and $1.2 million in the three
and six month periods ended June 30, 1998, respectively, as compared to the same
periods in 1997. Other operating income, net principally includes foreign
exchange transaction gains and losses, and the changes for the comparable
periods are due to normal fluctuations in such gains and losses.
INTEREST EXPENSE, NET
Net interest expense increased $1.0 million and $1.3 million in the three month
and six month periods ended June 30, 1998, respectively, as compared to the same
periods in 1997. The increase is due primarily to higher levels of debt
associated with recent acquisitions and information technology initiatives.
INCOME TAXES
In both the 1998 and 1997 periods presented, the provision (credit) 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 BAX 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 BAX Group.
CASH FLOW REQUIREMENTS
Cash provided by operating activities during the first six months of 1998
totaled $30.2 million as compared to the $27.6 million generated in the first
six months of 1997. The higher level of cash generated from operating activities
was due to a decrease in the funding requirements for net operating assets and
liabilities. Cash generated from operating activities was not sufficient to fund
investing activities, which primarily include capital expenditures, aircraft
heavy maintenance and payments for the ATI acquisition discussed above. Although
additional net borrowings of $67.9 million were incurred, cash and cash
equivalents decreased $4.4 million.
On April 30, 1998, the Company acquired the privately held ATI for a purchase
price of approximately $29 million. The acquisition was funded through the
revolving credit portion of the Company's bank credit agreement and was
accounted for as a purchase.
CAPITAL EXPENDITURES
Cash capital expenditures for the first six months of 1998 and 1997 totaled
$44.5 million and $11.0 million, respectively, reflecting higher levels of
investment in information technology systems. For the remainder of 1998, cash
capital expenditures are expected to range between $35.0 million and $40.0
million. These projected expenditures include those related to BAX Global's
information technology initiatives, as well as those related to planned
expansion for new facilities.
FINANCING
The BAX Group intends to fund its cash capital expenditure requirements through
anticipated cash flows from operating activities or 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 was $145.9 million at June 30, 1998, an increase of $74.6
million from the $71.3 million reported at December 31, 1997. The net increase
in debt primarily reflects borrowings to fund the acquisition of ATI, as well as
incremental information technology expenditures, including those relating to
Year 2000 compliance initiatives.
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53
<PAGE>
<PAGE>
The Company has a $350.0 million 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 June 30, 1998 and December 31, 1997, borrowings of $100.0
million were outstanding under the term loan portion of the Facility and $101.8
million and $25.9 million, respectively, of additional borrowings were
outstanding under the remainder of the Facility. Of the total outstanding amount
under the Facility at June 30, 1998 and December 31, 1997, $67.8 million and
$10.9 million, respectively, was attributed to the BAX Group.
RELATED PARTY TRANSACTIONS
At June 30, 1998 and December 31, 1997, the Minerals Group had no borrowings
from the BAX Group.
At June 30, 1998, the BAX Group owed the Minerals Group $21.6 million versus
$18.2 million at December 31, 1997 for tax payments representing Minerals
Group's tax benefits utilized by the BAX Group in accordance with the Company's
tax sharing policy. Of the total tax benefits owed to the Minerals Group at June
30, 1998, $9.0 million is expected to be paid within one year.
OFF-BALANCE SHEET INSTRUMENTS
Fuel contracts - The Company, on behalf of the BAX Group, has hedged a portion
of its jet fuel requirements through several commodity option transactions that
are intended to protect against significant changes in jet fuel prices. As of
June 30, 1998, these transactions aggregated 53.6 million gallons and mature
periodically throughout the remainder of 1998 and mid-1999. The fair value of
these fuel hedge transactions may fluctuate over the course of the contract
period due to changes in the supply and demand for oil and refined products.
Thus, the economic gain or loss, if any, upon settlement of the contracts may
differ from the fair value of the contracts at an interim date. At June 30,
1998, the fair value adjustment for all outstanding contracts to hedge jet fuel
requirements was ($2.0) million.
Interest rate contracts - In the second quarter of 1998, the Company entered
into three interest rate swap agreements. These three agreements effectively
convert a portion of the interest on its $100.0 million variable rate term loan
to fixed rates. The first fixes the interest rate at 5.84% on $20.0 million in
face amount of debt, the second fixes the interest rate at 5.86% on $20.0
million in face amount of debt, and the third fixes the interest rate at 5.80%
on $20.0 million in face amount of debt. The first two agreements mature in May
2001, while the third agreement matures in May 2000. As of June 30, 1998 the
fair value adjustment of all of these agreements was not significant.
Foreign currency forward contracts - The Company, on behalf of the BAX Group,
enters into foreign currency forward contracts with a duration of up to one year
as a hedge against liabilities denominated in various currencies. These
contracts minimize the BAX Group's exposure to exchange rate movements related
to cash requirements of foreign operations denominated in various currencies. At
June 30, 1998, the total notional value of foreign currency forward contracts
outstanding was $3.9 million. As of such date, the fair value of the foreign
currency forward contracts approximated notional value.
READINESS FOR YEAR 2000
The BAX Group has taken actions to understand the nature and extent of the work
required to make its systems, services and infrastructure Year 2000 compliant.
The BAX Group is currently preparing its financial, information and other
computer-based systems for the Year 2000, including replacing and/or updating
existing systems. The BAX Group continues to evaluate the total estimated
costs associated with these efforts, which it currently estimates to be between
$30-$35 million. Based on actual experience and available information, the BAX
Group believes that it will be able to manage its Year 2000 transition without
any material adverse effect on its business operations, services or financial
condition. However, if the applicable modifications and conversions are not
made, or are not completed on a timely basis, the Year 2000 issue could have
material adverse impact on the operations of the BAX Group. Further, management
is currently evaluating the extent to which the BAX Group's interface systems
are vulnerable to its suppliers' and customers' failure to remediate their own
Year 2000 issues as there is no guarantee that the systems of other companies
on which the BAX Group's systems rely will be timely and adequately converted.
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54
<PAGE>
<PAGE>
CAPITALIZATION
The Company has three classes of common stock: BAX 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 BAX 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 BAX 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, Brink's and Minerals Groups in addition to
consolidated financial information of the Company.
As previously mentioned, effective May 4, 1998, the designation of Pittston
Burlington Group Common Stock and the name of the Pittston Burlington Group were
changed to Pittston BAX Group Common Stock and Pittston BAX Group, respectively.
All rights and privileges of the holders of such Stock are otherwise unaffected
by such changes. The stock continues to trade on the New York Stock Exchange
under the symbol "PZX".
Under the share repurchase programs authorized by the Board of Directors (the
"Board"), the Company purchased the following shares in the periods presented:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
(Dollars in millions) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BAX Stock:
Shares 227,400 -- 404,932 132,100
Cost $ 3.7 -- 7.2 2.6
Convertible Preferred Stock:
Shares -- -- 355 --
Cost $ -- -- 0.1 --
Excess carrying amount (a) $ -- -- 0.02 --
===================================================================================================================
</TABLE>
(a) The excess of the carrying amount of the Series C Cumulative Convertible
Preferred Stock (the "Convertible Preferred Stock") over the cash paid to
holders for repurchases made during the periods. This amount is deducted from
preferred dividends in the Company's Statement of Operations.
The Company's remaining repurchase authority with respect to the Convertible
Preferred Stock as of June 30, 1998 was $24.2 million. As of June 30, 1998, the
Company had remaining authority to purchase over time 0.7 million shares of BAX
Stock. The remaining aggregate purchase cost limitation for all common stock was
$13.4 million as of June 30, 1998.
DIVIDENDS
The Board intends to declare and pay dividends, if any, on BAX Stock based on
earnings, financial condition, cash flow and business requirements of the BAX
Group. Since the Company remains subject to Virginia law limitations on
dividends, 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 BAX
Group.
During the six months of 1998 and 1997, the Board declared and the Company paid
cash dividends of 12.00 cents per share of BAX Stock. Dividends paid on the
Convertible Preferred Stock in the first six months of both 1998 and 1997 were
$1.8 million.
ACCOUNTING CHANGES
The BAX Group adopted Statement of Financial Accounting Standards ("SFAS") No.
130, "Reporting Comprehensive Income", 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. Total comprehensive income
(loss) which is composed of net income (loss) and
---
55
<PAGE>
<PAGE>
foreign currency translation adjustments, for the three months ended June 30,
1998 and 1997 was $0.6 million and ($2.2) million, respectively, and ($2.0)
million and $1.5 million for the six months ended June 30, 1998 and 1997,
respectively.
Effective January 1, 1998, the BAX Group implemented AICPA Statement of Position
("SOP") No. 98-1 "Accounting for the Costs of Computer Software Developed for
Internal Use." SOP No. 98-1 requires that certain costs related to the
development or purchase of internal-use software be capitalized and amortized
over the estimated useful life of the software. As a result of the
implementation of SOP No. 98-1, net income for the three months ended June 30,
1998, included a benefit of approximately $0.6 million ($.03 per share) and the
net loss for the six months ended June 30, 1998, included a benefit of
approximately $1.4 million ($.07 per share) for costs capitalized during those
periods which would have been expensed prior to the implementation of SOP
No. 98-1.
PENDING ACCOUNTING CHANGES
The Company will implement SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", 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.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement is effective for the BAX Group
for the year beginning January 1, 2000, with early adoption allowed. The BAX
Group is currently evaluating the timing of adoption and the effect that
implementation of the new standard will have on its results of operations and
financial position.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5, which provides guidance on the reporting of
start-up costs and organization costs, requires that such costs be expensed as
incurred. This SOP is effective for the BAX Group for the year beginning January
1, 1999, with early application encouraged. Initial application of the SOP is
required to be reported as a cumulative effect of a change in accounting
principle as of the beginning of the year of adoption. The BAX Group is
currently evaluating the effect that implementation of the new statement will
have on its results of operations and financial position.
FORWARD LOOKING INFORMATION
Certain of the matters discussed herein, including statements regarding
information technology and related outlay projections, the impact of
management's review of certain BAX Global initiatives on future operating
results, projected capital spending and the readiness for Year 2000, involve
forward looking information which is subject to known and unknown risks,
uncertainties and contingencies, which could cause actual results, performance
or achievements to differ materially from those which are anticipated. Such
risks, uncertainties and contingencies, many of which are beyond the control of
the BAX Group and the Company, 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 and/or
legislative initiatives, the successful integration of the ATI acquisition,
variations in costs or expenses, changes in the scope of improvements to
information systems and Year 2000 initiatives, delays or problems in the
implementation of Year 2000 initiatives by the BAX Group and/or its suppliers
and customers, and delays or problems in the design and implementation of
improvements to information systems.
---
56
<PAGE>
<PAGE>
PITTSTON MINERALS GROUP
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,591 3,394
Accounts receivable (net of estimated amount uncollectible:
1998 - $2,274; 1997 - $2,215) 74,761 63,599
Inventories, at lower of cost or market:
Coal inventory 26,229 31,644
Other inventory 3,696 3,702
- -------------------------------------------------------------------------------------------------------------------
29,925 35,346
Receivable - Pittston Brink's Group/BAX Group, net 10,696 --
Prepaid expenses 4,237 5,045
Deferred income taxes 23,516 25,136
- -------------------------------------------------------------------------------------------------------------------
Total current assets 146,726 132,520
Property, plant and equipment, at cost (net of accumulated depreciation,
depletion and amortization:
1998 - $154,351; 1997 - $164,386) 156,146 172,338
Deferred pension assets 85,378 83,825
Deferred income taxes 55,995 54,778
Coal supply contracts, net of accumulated amortization 27,749 41,703
Intangibles, net of accumulated amortization 106,590 108,094
Receivable - Pittston Brink's Group/BAX Group, net 12,658 13,630
Other assets 50,027 47,294
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 641,269 654,182
===================================================================================================================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 420 547
Accounts payable 42,069 50,585
Payable - Pittston Brink's Group/BAX Group, net -- 3,038
Accrued liabilities 103,243 107,094
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 145,732 161,264
Long-term debt, less current maturities 135,130 116,114
Postretirement benefits other than pensions 227,418 223,836
Workers' compensation and other claims 85,724 92,857
Mine closing and reclamation 40,797 47,546
Other liabilities 30,155 31,137
Shareholder's equity (23,687) (18,572)
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 641,269 654,182
===================================================================================================================
</TABLE>
See accompanying notes to financial statements.
---
57
<PAGE>
<PAGE>
PITTSTON MINERALS GROUP
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1998 1997 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 134,408 157,812 284,306 316,695
Cost and expenses:
Cost of sales 133,278 153,836 277,442 307,248
Selling, general and administrative expenses 7,764 7,307 16,851 14,716
- --------------------------------------------------------------------------------------------------------------------
Total costs and expenses 141,042 161,143 294,293 321,964
Other operating income, net 2,611 1,899 4,785 5,447
- --------------------------------------------------------------------------------------------------------------------
Operating (loss) profit (4,023) (1,432) (5,202) 178
Interest income 313 335 614 617
Interest expense (2,449) (2,734) (5,043) (5,359)
Other income (expense), net 1 (452) 1 (902)
- --------------------------------------------------------------------------------------------------------------------
Loss before income taxes (6,158) (4,283) (9,630) (5,466)
Credit for income taxes (5,361) (3,120) (7,590) (5,250)
- --------------------------------------------------------------------------------------------------------------------
Net loss (797) (1,163) (2,040) (216)
Preferred stock dividends, net (887) (902) (1,751) (1,803)
- --------------------------------------------------------------------------------------------------------------------
Net loss attributed to common
shares $ (1,684) (2,065) (3,791) (2,019)
====================================================================================================================
Net loss per common share:
Basic $ (.20) (.26) (.46) (.25)
Diluted (.20) (.26) (.46) (.25)
====================================================================================================================
Cash dividends per common share $ .025 .1625 .1875 .3250
====================================================================================================================
Weighted average common shares outstanding:
Basic 8,309 8,068 8,267 8,035
Diluted 8,309 8,068 8,267 8,035
====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
---
58
<PAGE>
<PAGE>
PITTSTON MINERALS GROUP
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,040) (216)
Adjustments to reconcile net loss to net cash (used) provided
by operating activities:
Depreciation, depletion and amortization 18,114 18,484
Provision for deferred income taxes 438 4,075
Credit for pensions, noncurrent (1,538) (1,686)
Loss (gain) on sale of property, plant and equipment and
other assets 1,388 (1,093)
Other operating, net 1,500 996
Change in operating assets and liabilities, net of effects of acquisitions
and dispositions:
(Increase) decrease in accounts receivable (10,946) 3,475
Decrease (increase) in inventories 3,383 (12,341)
Decrease (increase) in prepaid expenses 669 (3,125)
Decrease in accounts payable and accrued liabilities (8,864) (1,638)
(Increase) decrease in other assets (2,268) 69
Increase in other liabilities 530 722
Decrease in workers' compensation and
other claims, noncurrent (4,455) (4,487)
Other, net (59) 298
- -------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by operating activities (4,148) 3,533
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (12,751) (17,029)
Proceeds from disposal of property, plant and equipment 13,056 2,174
Proceeds from disposition of assets 6,772 --
Acquisitions, net of cash acquired, and related contingency payments -- (791)
Other, net (905) (496)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 6,172 (16,142)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Additions to debt 49,349 40,706
Reductions of debt (31,078) (255)
Payments to Brink's Group (16,700) (15,083)
Payments to BAX Group -- (7,730)
Repurchase of stock (307) --
Proceeds from exercise of stock options -- 14
Dividends paid (3,091) (4,315)
- -------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (1,827) 13,337
- -------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 197 728
Cash and cash equivalents at beginning of period 3,394 3,387
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 3,591 4,115
===================================================================================================================
</TABLE>
See accompanying notes to financial statements.
---
59
<PAGE>
<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 BAX Group (the "BAX Group" formerly the Pittston
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) The following is a reconciliation between the calculation of basic and
diluted net loss per share:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
Minerals Group 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Numerator:
Net loss $ (797) (1,163) (2,040) (216)
Convertible Preferred
Stock dividends (887) (902) (1,751) (1,803)
- ----------------------------------------------------------------------------------------
Net loss - Basic
and diluted net loss
per share numerator (1,684) (2,065) (3,791) (2,019)
Denominator:
Basic and diluted weighted
average common shares
outstanding 8,309 8,068 8,267 8,035
========================================================================================
</TABLE>
Options to purchase 677 and 679 shares of Minerals Stock, at prices between
$6.53 and $25.74 per share, were outstanding for the three and six months
ended June 30, 1998, respectively. Options to purchase 713 and 714 shares
of Minerals Stock, at prices between $8.64 and $25.74 per share, were
outstanding for the three and six months ended June 30, 1997, respectively.
None of these options were included in the computation of diluted net loss
per share because the effect of all options would be antidilutive.
The conversion of the Convertible Preferred Stock to 1,764 and 1,793 shares
of Minerals Stock has been excluded in the computation of diluted net loss
per share in 1998 and 1997, respectively, because the effect of the assumed
conversion would be antidilutive.
(3) Depreciation, depletion and amortization of property, plant and equipment
totaled $5,604 and $11,343 in the second quarter and six month period of
1998, respectively, compared to $5,909 and $11,358 in the second quarter
and six month period of 1997, respectively.
---
60
<PAGE>
<PAGE>
(4) Cash payments made for interest and income taxes, net of refunds received,
were as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
1998 1997 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest $ 1,845 2,742 5,311 5,383
========================================================================================
Income taxes $ (11,967) (11,773) (11,989) (11,760)
========================================================================================
</TABLE>
(5) During the second quarter of 1998, Coal Operations disposed of certain
assets of its Elkay mining operation in West Virginia. The assets were sold
for cash of approximately $18,000, resulting in a pre-tax loss of
approximately $2,200. In addition, in July 1998, Coal Operations completed
the sale of two idle properties in West Virginia and a loading dock in
Kentucky for an expected pre-tax gain of approximately $5,000.
(6) Under the share repurchase programs authorized by the Board of Directors,
the Company purchased shares in the periods presented as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
(Dollars in millions) 1998 1997 1998 1997
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convertible Preferred Stock:
Shares -- -- 355 --
Cost $ -- -- 0.1 --
Excess carrying amount (a) $ -- -- 0.02 --
==========================================================================================================
</TABLE>
(a) The excess of the carrying amount of the Series C Cumulative
Convertible Preferred Stock (the "Convertible Preferred Stock") over the
cash paid to holders for repurchases made during the periods. This amount
is deducted from preferred dividends in the Minerals Group and the
Company's Statement of Operations.
At June 30, 1998, the Company had the remaining authority to purchase over
time 1,000 shares of Minerals Stock and an additional $24,236 of its
Convertible Preferred Stock. The remaining aggregate purchase cost
limitation for all common stock was $13,351.
(7) The Minerals Group adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income," in the first quarter of
1998. SFAS No. 130 established 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. Total comprehensive loss, which is composed of net loss
attributable to common shares and foreign currency translation adjustments,
for the three months ended June 30, 1998 and 1997 was $2,852 and $2,865,
respectively. Total comprehensive loss for the six months ended June 30,
1998 and 1997 was $4,630 and $3,037, respectively.
Effective January 1, 1998, the Company implemented AICPA Statement of
Position ("SOP") No. 98-1 "Accounting for the Costs of Computer Software
Developed for Internal Use". SOP No. 98-1 requires that certain costs
related to the development or purchase of internal-use software be
capitalized and amortized over the estimated useful life of the software.
---
61
<PAGE>
<PAGE>
(8) The Minerals Group will adopt a new accounting standard, SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", 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. SFAS No. 131 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.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This
statement is effective for the Minerals Group for the year beginning
January 1, 2000, with early adoption allowed. The Minerals Group is
currently evaluating the timing of adoption and the effect that
implementation of the new standard will have on its results of operations
and financial position.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5, which provides guidance on the
reporting of start-up costs and organization costs, requires that such
costs be expensed as incurred. This SOP is effective for the Minerals Group
for the year beginning January 1, 1999, with early application encouraged.
Initial application of the SOP is required to be reported as a cumulative
effect of a change in accounting principle as of the beginning of the year
of adoption. The Minerals Group is currently evaluating the effect that
implementation of the new statement will have on its results of operations
and financial position.
(9) Certain prior period amounts have been reclassified to conform to the
current period's financial statement presentation.
(10) In the opinion of management, all adjustments have been made which are
necessary for a fair presentation of results of operations and financial
condition for the periods reported herein. All such adjustments are of a
normal recurring nature.
---
62
<PAGE>
<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 BAX Group (the "BAX
Group" formerly the Pittston 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 Ended June 30 Six Months Ended June 30
(In thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales:
Coal Operations $ 130,176 154,073 276,096 308,666
Mineral Ventures 4,232 3,739 8,210 8,029
- -------------------------------------------------------------------------------------------------------------------
Net sales $ 134,408 157,812 284,306 316,695
===================================================================================================================
Operating (loss) profit:
Coal Operations $ (1,714) 1,232 788 4,855
Mineral Ventures (278) (1,310) (325) (1,765)
- -------------------------------------------------------------------------------------------------------------------
Segment operating (loss) profit (1,992) (78) 463 3,090
General corporate expense (2,031) (1,354) (5,665) (2,912)
- -------------------------------------------------------------------------------------------------------------------
Operating (loss) profit $ (4,023) (1,432) (5,202) 178
===================================================================================================================
</TABLE>
---
63
<PAGE>
<PAGE>
In the second quarter of 1998, the Minerals Group reported a net loss of $0.8
million ($0.20 per share) compared to a net loss of $1.2 million ($0.26 per
share) in the second quarter of 1997. The operating loss in the second quarter
of 1998 totaled $4.0 million (including a $2.2 million loss on sale of certain
coal assets at its Elkay mining operation in West Virginia ("Elkay Assets")) as
compared to an operating loss of $1.4 million in the 1997 quarter. Net sales
during the second quarter of 1998 decreased $23.4 million (15%) compared to the
corresponding 1997 quarter.
In the first six months of 1998, the Minerals Group reported a net loss of $2.0
million ($0.46 per share) compared to a net loss of $0.2 million ($0.25 per
share) during 1997. The operating loss in the six months ended June 30, 1998 was
$5.2 million (including a $2.2 million loss on sale of certain Elkay Assets)
compared to an operating profit of $0.2 million in the corresponding 1997
period. Net sales during the six month period of 1998 decreased $32.4 million
(10%) compared to the 1997 period.
COAL OPERATIONS
The following are tables of selected financial data for Coal Operations on a
comparative basis:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
(In thousands) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 130,176 154,073 276,096 308,666
- -------------------------------------------------------------------------------------------------------------------
Cost of sales 130,209 150,144 271,702 299,883
Selling, general and
administrative expenses 4,423 4,775 8,677 9,711
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 134,632 154,919 280,379 309,594
Other operating income, net 2,742 2,078 5,071 5,783
- -------------------------------------------------------------------------------------------------------------------
Operating (loss) profit $ (1,714) 1,232 788 4,855
===================================================================================================================
Coal sales (tons):
Metallurgical 1,995 1,823 3,926 3,714
Steam 2,312 3,294 5,235 6,523
- -------------------------------------------------------------------------------------------------------------------
Total coal sales 4,307 5,117 9,161 10,237
===================================================================================================================
Production/purchased (tons):
Deep 1,368 1,324 2,757 2,426
Surface 1,841 2,739 3,810 5,398
Contract 200 373 442 736
- -------------------------------------------------------------------------------------------------------------------
3,409 4,436 7,009 8,560
Purchased 1,046 963 2,011 2,303
- -------------------------------------------------------------------------------------------------------------------
Total 4,455 5,399 9,020 10,863
===================================================================================================================
</TABLE>
---
64
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
(In thousands, Three Months Ended June 30 Six Months Ended June 30
except per ton amounts) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net coal sales (a) $ 128,053 151,303 272,029 304,001
Current production costs
of coal sold (a) 119,387 140,554 251,894 282,126
- -------------------------------------------------------------------------------------------------------------------
Coal margin 8,666 10,749 20,135 21,875
Non-coal margin 623 527 1,239 1,245
Other operating income, net 2,742 2,078 5,071 5,783
- -------------------------------------------------------------------------------------------------------------------
Margin and other income 12,031 13,354 26,445 28,903
- -------------------------------------------------------------------------------------------------------------------
Other costs and expenses:
Idle equipment and closed mines 2,582 250 3,285 557
Inactive employee cost 6,740 7,097 13,695 13,780
Selling, general and
administrative expenses 4,423 4,775 8,677 9,711
- -------------------------------------------------------------------------------------------------------------------
Total other costs and expenses 13,745 12,122 25,657 24,048
- -------------------------------------------------------------------------------------------------------------------
Operating (loss) profit $ (1,714) 1,232 788 4,855
===================================================================================================================
Coal margin per ton:
Realization $ 29.73 29.57 29.69 29.70
Current production costs 27.72 27.47 27.49 27.56
- -------------------------------------------------------------------------------------------------------------------
Coal margin $ 2.01 2.10 2.20 2.14
===================================================================================================================
</TABLE>
(a) Excludes non-coal components.
Coal Operations generated an operating loss of $1.7 million (including a $2.2
million loss on the sale of certain Elkay Assets) in the second quarter of 1998,
compared to an operating profit of $1.2 million recorded in the 1997 second
quarter. Sales volume of 4.3 million tons in the second quarter of 1998 was 16%
less than the 5.1 million tons sold in the prior year quarter. Compared to the
second quarter of 1997, steam coal sales in 1998 decreased by 1.0 million tons
(30%), to 2.3 million tons, while metallurgical coal sales increased 0.2 million
tons (9%), to 2.0 million tons. The steam sales volume reduction was primarily
due to the reduced production by and subsequent sale of certain Elkay Assets
(discussed below) along with reduced sales in the spot market. Steam coal sales
represented 54% of total volume in 1998 and 64% in 1997.
Total coal margin of $8.7 million for the second quarter of 1998 represented a
decrease of $2.1 million from the comparable 1997 period. The decrease in total
coal margin reflects lower sales volume combined with a 4% decrease ($0.09 per
ton) in coal margin per ton. The overall change in coal margin per ton during
the 1998 quarter was impacted by decreases in metallurgical coal margins,
partially offset by increases in steam coal margins. Metallurgical margins were
negatively impacted in the three months ended June 30, 1998 by lower
realizations per ton resulting from lower negotiated pricing with metallurgical
customers for the new contract year which began April 1, 1998. Steam coal
margins improved in the 1998 second quarter due to higher realizations.
In addition to these factors, total coal margin per ton was impacted by a change
in both the production and sales mix. Despite the decreases in metallurgical
coal realization per ton, overall realization per ton of coal sold increased
$0.16 per ton as a greater proportion of coal sales came from the higher priced
metallurgical coal. In addition, the current production cost of coal sold
increased $0.25 per ton to $27.72 in the second quarter of 1998 from the second
quarter of 1997 due to a higher proportion of deep mine production which is more
costly.
---
65
<PAGE>
<PAGE>
Production in the 1998 second quarter decreased 1.0 million tons over the 1997
second quarter to 3.4 million tons due to the reduced production by and
subsequent sale of certain Elkay Assets (discussed below). Purchased coal
remained constant at 1.0 million tons. Surface production accounted for 55% and
63% of the total production in the 1998 and 1997 second quarters, respectively.
Productivity of 35.3 tons per man day in the 1998 second quarter decreased from
the 37.7 tons per man day in the 1997 second quarter primarily attributable to
an increased percentage of deep mine production.
Non-coal margin, which reflects earnings from the oil, gas and timber
businesses, amounted to $0.6 million in the second quarter of 1998, which was
$0.1 million higher than in the second quarter of 1997. Other operating income,
which primarily includes gains and losses on sales of property and equipment and
third party royalties, amounted to $2.7 million in the second quarter of 1998 as
compared to $2.1 million in the comparable period of 1997. This increase was due
to higher levels of dividend and royalty income. Net gains on sales of property
and equipment during the quarter included $0.2 million of the total $2.2 million
loss associated with the sale of certain Elkay Assets (discussed below).
Idle equipment and closed mine costs increased $2.3 million to $2.6 million in
the 1998 second quarter from the comparable 1997 quarter largely due to
inventory writedowns of $2.0 million associated with the sale of certain Elkay
Assets (discussed below). Inactive employee costs, which represent long-term
employee liabilities for pension and retiree medical costs, decreased from $7.1
million to $6.7 million for the second quarter of 1998 resulting from lower
premiums from the Coal Industry Retiree Health Benefit Act of 1992, partially
offset by the use of a lower long-term discount rate to calculate the present
value of the liabilities. Selling, general and administrative expenses decreased
$0.4 million (7%) in the second quarter of 1998 from the 1997 second quarter due
to continued Coal Operations cost control efforts.
During the second quarter of 1998, Coal Operations disposed of certain assets,
including a surface mine, coal supply contracts and limited coal reserves, of
its Elkay mining operation in West Virginia. The referenced surface mine
produced approximately 1 million tons of steam coal from January 1, 1998 through
the end of April 1998, at which point coal production ceased. Total cash
proceeds from the sale amounted to approximately $18 million, resulting in a
pre-tax loss of approximately $2.2 million. This pre-tax book loss includes
approximately $2.0 million of inventory writedowns related to coal which can no
longer be blended with other coals produced from these disposed assets. This
writedown has been included in Coal Operations cost of sales.
During the first six months of 1998, Coal Operations generated an operating
profit of $0.8 million compared to $4.9 million in the corresponding 1997
period. Sales volume of 9.2 million tons in the first half of 1998 was 1.1
million tons less than the 1997 period. Metallurgical coal sales increased by
0.2 million tons (6%) to 3.9 million tons and steam coal sales decreased by 1.3
million tons (20%) to 5.2 million tons compared to the prior year primarily due
to the reduced production by and subsequent sale of certain Elkay Assets. Steam
coal sales represented 57% of the total 1998 sales volume, as compared to 64% in
1997.
For the first six months of 1998, coal margin was $20.1 million, a decrease of
$1.7 million over the 1997 period. Coal margin per ton increased to $2.20 per
ton in the first six months of 1998 from $2.14 per ton for the same period of
1997. This overall change in coal margin per ton during the first six months of
1998 was due to the change in sales and production mix which occurred in the
second quarter and an increase in steam coal margins partially offset by a
decrease in metallurgical coal margins. Steam coal margins increased for the
first six months of 1998 due to higher realizations during the period. During
the same period, metallurgical margins decreased due to the negative impact of
lower realization amounts which began with the new contract year in the second
quarter of 1998. This was partially offset by lower production costs, which
included the Harbor Maintenance Tax benefit discussed below.
---
66
<PAGE>
<PAGE>
The current production cost of coal sold for the first half of 1998 was $27.49
per ton as compared to $27.56 per ton for the first half of 1997. While
production cost per ton increased due to a larger proportion of the higher cost
deep mine production, these increases were more than offset by a $1.3 million
benefit ($0.14 per ton) related to a favorable ruling issued by the U.S. Supreme
Court on the unconstitutionality of the Harbor Maintenance Tax. Production for
the year-to-date 1998 period totaled 7.0 million tons, a decrease from the 1997
period production of 8.6 million tons, due in large part to the reduced
production by and subsequent sale of certain Elkay Assets. Surface production
accounted for 55% and 64% of the total production in the 1998 and 1997 periods,
respectively. Productivity of 35.1 tons per man day in period decreased from the
37.1 tons per man day in 1997 due to the increased percentage of deep mine
production.
The non-coal margin was $1.2 million for the first half of both 1998 and 1997.
Other operating income decreased $0.7 million for the 1998 period due to the
inclusion in 1997 of a favorable insurance settlement.
Idle equipment and closed mine costs increased $2.7 million in the first half of
1998 as compared to 1997, primarily due to inventory writedowns of $2.0 million
associated with the sale of certain Elkay Assets along with costs relating to
mines which went idle in the third quarter of 1997. Inactive employee costs,
which primarily represent long-term employee liabilities for pension and retiree
medical costs, decreased slightly by $0.1 million to $13.7 million in the 1998
six months. This favorable change reflects lower premiums from the Coal Industry
Retiree Health Benefit Act of 1992, offset by the use of a lower long-term
interest rate to calculate the present value of the long-term liabilities during
1998 compared to the rate used in 1997. Selling, general and administrative
expenses declined by $1.0 million (11%) in the six months of 1998 as compared to
the 1997 period, as a result of Coal Operations cost control efforts.
In July 1998, Coal Operations completed the sale of two idle properties in West
Virginia and a loading dock in Sandlick, Kentucky for an expected pre-tax gain
of approximately $5 million. These asset disposals continue the Coal Operations'
strategy of disposing of idle and under-performing assets, while focusing on its
core metallurgical and steam coal operations. Later this year Coal Operations
plans to begin to develop a major underground metallurgical coal mine on
reserves owned by the company in Virginia. At full production, scheduled for
sometime in 2001, this mine is expected to produce average annual production of
approximately 1.3 million tons from a proven and probable reserve of
approximately 15.0 million tons.
Coal Operations continues cash funding for charges recorded in prior years for
facility closure costs recorded as restructuring and other charges in the
Statement of Operations. The following table analyzes the changes in liabilities
during the first six months of 1998 for such costs:
<TABLE>
<CAPTION>
Employee
Mine Termination,
and Medical
Plant and
Closure Severance
(In thousands) Costs Costs Total
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance as of December 31, 1997 $ 11,143 19,703 30,846
Payments 521 1,013 1,534
Other reductions 16 -- 16
- -------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1998 $ 10,606 18,690 29,296
===================================================================================================================
</TABLE>
---
67
<PAGE>
<PAGE>
MINERAL VENTURES
The following is a table of selected financial data for Mineral Ventures on a
comparative basis:
<TABLE>
<CAPTION>
(Dollars in thousands, except Three Months Ended June 30 Six Months Ended June 30
per ounce data) 1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stawell Gold Mine:
Gold sales $ 4,217 3,719 8,173 8,000
Other revenue 15 20 37 29
- -------------------------------------------------------------------------------------------------------------------
Net sales 4,232 3,739 8,210 8,029
Cost of sales (a) 3,071 3,666 5,742 7,297
Selling, general and
administrative expenses (a) 248 381 539 679
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 3,319 4,047 6,281 7,976
- -------------------------------------------------------------------------------------------------------------------
Operating profit - Stawell
Gold Mine 913 (308) 1,929 53
Other operating expense, net (1,191) (1,002) (2,254) (1,818)
- -------------------------------------------------------------------------------------------------------------------
Operating loss $ (278) (1,310) (325) (1,765)
===================================================================================================================
Stawell Gold Mine:
Mineral Ventures' 50% direct share:
Ounces sold 11,809 9,665 22,955 20,241
Ounces produced 11,743 9,315 22,899 20,266
Average per ounce sold (US$):
Realization $ 357 385 356 395
Cash cost 219 370 213 348
===================================================================================================================
</TABLE>
(a) Excludes $1,062 and $1,970 of non-Stawell related selling, general and
administrative expenses for the three months and six months ended June 30, 1998.
Excludes $26 and $797, and $68 and $1,414 of non-Stawell related cost of sales
and selling, general and administrative expenses, respectively, for the three
months and six months ended June 30, 1997. Such costs are reclassified to cost
of sales and selling, general and administrative expenses in the Minerals Group
Statement of Operations.
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 second quarter of 1998, an
improvement of $1.0 million as compared to the loss of $1.3 million in the
second quarter of 1997. Mineral Ventures' 50% direct interest in Stawell's
operations generated net sales of $4.2 million in the second quarter of 1998
compared to $3.7 million in the 1997 period due to an increase in ounces of gold
sold from 9.7 thousand ounces to 11.8 thousand ounces, partially offset by lower
gold realizations due to declining market prices. The second quarter operating
profit at Stawell of $0.9 million increased $1.2 million over the prior year
quarter reflecting a $151.0 per ounce decrease (41%) in the cash cost of gold
sold partially offset by a $28.0 per ounce decrease (7%) in average realization.
Production costs were lower in the 1998 quarter due to a weaker Australian
dollar as well as lower operating costs than the 1997 quarter which was
adversely impacted by the collapse of a ventilation shaft during its
construction which caused production delays.
During the first six months of 1998, Mineral Ventures generated an operating
loss of $0.3 million as compared to an operating loss of $1.8 million in the
1997 period. Mineral Ventures' 50% direct interest in Stawell's operations
generated net sales of $8.2 million in the first half of 1998 compared to $8.0
million in the 1997 period as the ounces of gold sold increased from 20.2
thousand ounces to 23.0 thousand ounces (13%). The operating profit at Stawell
of $1.9 million was $1.9 million higher than operating profit in the first half
of 1997 and was affected by a $135 per ounce decrease (39%) in the cash cost of
gold sold offset by a $39 per ounce decrease (10%) in the selling price of gold.
Production costs were lower in 1998 due to a weaker Australian dollar. In
addition, Stawell's costs in the first half of 1997 were negatively impacted by
temporary unfavorable ground conditions and the collapse of a new ventilation
shaft during its construction resulting in lower production and higher costs.
---
68
<PAGE>
<PAGE>
As of June 30, 1998, approximately 17% of Mineral Ventures' share of the total
proven and probable reserves had been sold forward under forward sales contracts
that mature periodically through mid-1999. Based on contracts in place and
current market conditions, full year 1998 average realizations are expected to
be between $325 and $330 per ounce of gold sold. At June 30, 1998, remaining
proven and probable gold reserves at the Stawell mine were estimated at 392.2
thousand ounces.
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 excluding Stawell.
In addition to its interest in Stawell, Mineral Ventures has a 17% indirect
interest in the Silver Swan base metals property in Western Australia. Operating
results at Silver Swan have been below expectations due to the impact of
depressed nickel prices, though production volumes and costs at the mine are in
line with expectations.
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 forward
contracts to hedge the currency risks associated with certain transactions.
Similarly, a 34% owned affiliate of Mineral Ventures primarily utilizes forward
sales contracts to hedge certain currency and gold price exposures related to
its operations. Realized and unrealized gains and losses on these contracts
are deferred and recognized as part of the specific transaction hedged.
The Minerals Group is also subject to other risks customarily associated with
doing business in foreign countries, including labor and economic conditions.
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 an
equitable and a reasonable estimate of the cost attributable to the Minerals
Group. These attributions were $2.0 million and $1.4 million for the second
quarter of 1998 and 1997, respectively and $5.7 million and $2.9 million for the
first six months of 1998 and 1997, respectively. The increase in the second
quarter of 1998 is primarily due to costs associated with a severance agreement
with a former member of the Company's senior management. The first six months of
1998 also includes additional expenses of approximately $5.8 million related to
a retirement agreement between the Company and its former Chairman and CEO.
Approximately $1.8 million of this $5.8 million of expenses have been attributed
to the Minerals Group.
OTHER OPERATING INCOME, NET
Other operating income, net increased $0.7 million and decreased $0.7 million
for the three and six month periods ended June 30, 1998, respectively. Other
operating income, net principally includes equity in earnings of unconsolidated
affiliates, royalty income and gains and losses from sales of coal property and
equipment. The increase in the second quarter of 1998 relates to higher levels
of royalty and dividend income. The decrease in the six month period of 1998 is
due to the inclusion in 1997 of a favorable insurance settlement, along with
higher gains on asset sales during that period.
NET INTEREST EXPENSE
Net interest expense decreased $0.3 million in both the three and six month
periods ended June 30, 1998. The decrease is due to lower average borrowings
during the 1998 periods.
INCOME TAXES
In both the 1998 and 1997 periods presented, a credit for income taxes was
recorded, due to pre-tax losses as well as tax benefits of percentage depletion
which can be used by the Company.
---
69
<PAGE>
<PAGE>
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 six months of 1998 used cash of $4.1 million,
compared to $3.5 million of cash provided in 1997. In the 1998 period, cash flow
from operations declined due to lower earnings combined with an increase in the
amount required to fund operating assets and liabilities. Offsetting these
operating cost requirements was approximately $18 million in cash proceeds from
the sale of Elkay Assets discussed previously. Additional requirements for
capital expenditures and other investing activities, repayments to the Brink's
Group and net costs of share activity were offset with additional net
borrowings, resulting in an increase in cash and cash equivalents of $0.2
million.
During the second quarter of 1998, Coal Operations disposed of certain Elkay
Assets, including coal supply contracts and limited coal reserves. Total cash
proceeds from the sale amounted to approximately $18 million, resulting in a
pre-tax loss of $2.2 million.
CAPITAL EXPENDITURES
Cash capital expenditures for the first six months of 1998 and 1997 totaled
$12.8 million and $17.0 million, respectively. During the 1998 period, Coal
Operations and Mineral Ventures spent $11.2 million and $1.4 million,
respectively. For the remainder of 1998, the Minerals Group's cash capital
expenditures are expected to approximate $10 million, including expenditures
related to the new underground metallurgical coal mine previously discussed.
FINANCING
The Minerals Group intends to fund cash capital expenditures through anticipated
cash flow from operating activities or through operating leases if the latter
are financially attractive. Shortfalls, if any, will be financed through the
Company's revolving credit agreements, other borrowing arrangements or
borrowings from the Brink's Group.
Total debt outstanding at June 30, 1998 was $135.6 million, an increase of $18.9
million from the $116.7 million outstanding at December 31, 1997. These
increased borrowings, which funded cash flow requirements including repayment of
amounts owed to the Brink's Group, were made primarily under the credit
agreement discussed below.
The Company has a $350.0 million 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 June 30, 1998 and December 31, 1997, borrowings of $100.0
million were outstanding under the term loan portion of the Facility and $101.8
million and $25.9 million, respectively, of additional borrowings were
outstanding under the remainder of the Facility. Of the outstanding amounts
under the Facility at June 30, 1998, and December 31, 1997, $134.0 million and
$115.0 million, respectively, was attributed to the Minerals Group.
RELATED PARTY TRANSACTIONS
At June 30, 1998, under interest bearing borrowing arrangements, the Minerals
Group owed the Brink's Group $10.3 million, a decrease of $16.7 million from the
$27.0 million owed at December 31, 1997. The Minerals Group did not owe any
amounts to the BAX Group at June 30, 1998 or December 31, 1997.
At June 30, 1998, the Brink's Group owed the Minerals Group $12.1 million versus
$19.4 million at December 31, 1997 for tax benefits. Approximately $12.0 million
is expected to be paid within one year. Also at June 30, 1998, the BAX Group
owed the Minerals Group $21.6 million versus $18.2 million at December 31, 1997
for tax benefits, of which $9.0 million is expected to be paid within one year.
---
70
<PAGE>
<PAGE>
OFF-BALANCE SHEET INSTRUMENTS
Interest rate contracts - In the second quarter of 1998, the Company entered
into three interest swap agreements. These three agreements effectively convert
a portion of the interest on its $100.0 million variable rate term loan to fixed
rates. The first fixes the interest rate at 5.84% on $20.0 million in face
amount of debt, the second fixes the interest rate at 5.86% on $20.0 million in
face amount of debt, and the third fixes the interest rate at 5.80% on $20.0
million in face amount of debt. The first two agreements mature in May 2001,
while the third agreement matures in May 2000. As of June 30, 1998 the fair
value adjustment of all of these agreements was not significant.
Foreign currency forward contracts - The Company, on behalf of the Minerals
Group, enters into foreign currency forward contracts, from time to time, with a
duration of up to two years as a hedge against liabilities denominated in the
Australian dollar. These contracts minimize the Minerals Group's exposure to
exchange rate movements related to cash requirements of Australian operations
denominated in Australian dollars. At June 30, 1998, the notional value of
foreign currency forward contracts outstanding was $17.6 million and the fair
value adjustment approximated ($1.7) million.
Gold contracts - In order to protect itself against downward movements in gold
prices, the Company, on behalf of the Minerals Group, hedges a portion of its
share of gold sales from the Stawell gold mine primarily through forward sales
contracts. At June 30, 1998, 32,973 ounces of gold, representing approximately
17% of the Minerals Group's share of Stawell's proven and probable reserves,
were sold forward under forward sales contracts that mature periodically through
mid-1999. Because only a portion of its future production is currently sold
forward, the Minerals Group can take advantage of increases and is exposed to
decreases in the spot price of gold. At June 30, 1998, the fair value of the
Minerals Group's forward sales contracts was ($.2) million.
READINESS FOR YEAR 2000
The Minerals Group has taken actions to understand the nature and extent of the
work required to make its systems, products and infrastructures Year 2000
compliant. As these efforts progress, the Minerals Group continues to evaluate
the estimated costs associated with these efforts. Based upon its most recent
estimates and its anticipated capital spending, the Minerals Group does not
anticipate that it will incur any material costs in preparing for the Year 2000.
The Minerals Group believes, based on available information, that it will be
able to manage its Year 2000 transition without any material adverse effect on
its business operations, products or financial condition. However, if the
applicable modifications and conversions are not made, or are not completed on a
timely basis, the Year 2000 issue could have a material adverse impact on the
operations of the Minerals Group. Further, management is currently evaluating
the extent to which the Minerals Group's interface systems are vulnerable to its
suppliers' and customers' failure to remediate their own Year 2000 issues as
there is no guarantee that the systems of other companies on which the Minerals
Group's systems rely will be timely and adequately converted.
CAPITALIZATION
The Company has three classes of common stock: Minerals Stock; Pittston Brink's
Group Common Stock ("Brink's Stock") and Pittston BAX Group Common Stock ("BAX
Stock") which were designed to provide shareholders with separate securities
reflecting the performance of the Minerals Group, Brink's Group and BAX 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 BAX 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 BAX
Groups in addition to consolidated financial information of the Company.
As previously mentioned, effective May 4, 1998, the designation of Pittston
Burlington Group Common Stock and the name of the Pittston Burlington Group were
changed to Pittston BAX Group Common Stock and Pittston BAX Group, respectively.
All rights and privileges of the holders of such Stock are otherwise unaffected
by such changes. The stock continues to trade on the New York Stock Exchange
under the symbol "PZX".
---
71
<PAGE>
<PAGE>
Under the share repurchase programs authorized by the Board of Directors (the
"Board"), the Company purchased shares in the periods presented as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
(Dollars in millions) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Convertible Preferred Stock:
Shares -- -- 355 --
Cost $ -- -- 0.1 --
Excess carrying
amount (a) $ -- -- 0.02 --
</TABLE>
(a) The excess of the carrying amount of the Series C Convertible Preferred
Stock (the "Convertible Preferred Stock") over the cash paid to holders for
repurchases made during the periods. This amount is deducted from preferred
dividends in the Company's Statement of Operations.
The Company's remaining repurchase authority with respect to the Convertible
Preferred Stock as of June 30, 1998 was $24.2 million. As of June 30, 1998, the
Company had remaining authority to purchase over time 1.0 million shares of
Minerals Stock. The remaining aggregate purchase cost limitation for all common
stock was $13.4 million as of June 30, 1998.
DIVIDENDS
The Board intends to declare and pay dividends, if any, on Minerals Stock based
on the earnings, financial condition, cash flow and business requirements of the
Minerals Group. Since the Company remains subject to Virginia law limitations on
dividends, losses by the Brink's or the BAX 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. The Available
Minerals Dividend Amount may be reduced by activity that reduces shareholder's
equity or the fair value of net assets of the Minerals Group. Such activity
includes net losses by the Minerals Group, dividends paid on the Minerals Stock
and the Convertible Preferred Stock, repurchases of Minerals Stock and the
Convertible Preferred Stock, and foreign currency translation losses. At June
30, 1998, the Available Minerals Dividend Amount was at least $10.1 million.
During the first six months of 1998 and 1997, the Board declared and the Company
paid cash dividends of 18.75 cents and 32.50 cents, respectively, per share of
Minerals Stock. Dividends paid on the Convertible Preferred Stock in each of the
1998 and 1997 second quarters totaled $1.8 million.
In May 1998, the Company reduced the annual dividend rate on Minerals Stock to
10.00 cents per year per share for shareholders as of the May 15, 1998 record
date. Cash made available, if any, from this lower dividend rate will be used to
either reinvest, as suitable opportunities arise, in the Minerals Group
companies or to pay down debt, with a view towards maximizing long-term
shareholder value.
ACCOUNTING CHANGES
The Minerals Group adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income", 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. Total comprehensive loss,
which is composed of net loss attributable to common shares and foreign currency
translation adjustments, for both the quarter ended June 30, 1998 and 1997 was
$2.8 million and for the six months ended June 30, 1998 and 1997 was $4.6
million and $3.0 million, respectively.
Effective January 1, 1998, the Minerals Group implemented AICPA Statement of
Position ("SOP") No. 98-1 "Accounting for the Costs of Computer Software
Developed for Internal Use". SOP No. 98-1 requires that certain costs related to
the development or purchase of internal-use software be capitalized and
amortized over the estimated useful life of the software.
---
72
<PAGE>
<PAGE>
PENDING ACCOUNTING CHANGES
The Minerals Group will adopt a new accounting standard, SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information", 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. SFAS No. 131 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.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement is effective for the Minerals
Group for the year beginning January 1, 2000, with early adoption allowed. The
Minerals Group is currently evaluating the timing of adoption and the effect
that implementation of the new standard will have on its results of operations
and financial position.
In April 1998, the AICPA issued SOP No. 98-5, "Reporting on the Costs of
Start-Up Activities." SOP No. 98-5, which provides guidance on the reporting of
start-up costs and organization costs, requires that such costs be expensed as
incurred. This SOP is effective for the Minerals Group for the year beginning
January 1, 1999, with early application encouraged. Initial application of the
SOP is required to be reported as a cumulative effect of a change in accounting
principle as of the beginning of the year of adoption. The Minerals Group is
currently evaluating the effect that implementation of the new statement will
have on its results of operations and financial position.
FORWARD LOOKING INFORMATION
Certain of the matters discussed herein, including statements regarding
projected capital spending, readiness for Year 2000, repayment of borrowings to
the Minerals Group and expectations with regard to future realizations from
metallurgical coal mine development and coal and gold sales involve forward
looking information which is subject to known and unknown risks, uncertainties
and contingencies which could cause actual results, performance and
achievements, to differ materially from those which are anticipated. Such risks,
uncertainties and contingencies, many of which are beyond the control of the
Minerals Group and the Company, 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/or legislative initiatives, variations in the
spot prices of coal and gold, the ability of counter parties to perform, changes
in the scope of Year 2000 initiatives and delays or problems in the
implementation of Year 2000 initiatives by the Minerals Group and/or its
suppliers and customers.
---
73
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
- ------- -----------------
The Company's bylaws prescribe the procedures a shareholder must follow to
nominate a director or directors or to bring other business before annual
meetings. For a shareholder to nominate a director or directors at the 1999
annual meeting or bring any business (including any proposal intended for
inclusion in the Company's proxy materials) before the 1999 annual meeting,
notice must be given to the Secretary of the Company between September 28, 1998,
and November 27, 1998, for the Company's Annual Meeting of Shareholders
tentatively scheduled for May 7, 1999. The written notice to nominate a director
or directors must satisfy all conditions specified in the Company's bylaws,
including, without limitation, the qualifications of such nominee(s) for
consideration. The written notice to bring any other business before the meeting
must satisfy all conditions specified in the Company's bylaws, including,
without limitation, a description of the proposed business, the reason for it,
the complete text of any resolution and other specified matters.
Any shareholder desiring a copy of the Company's bylaws will be furnished one
without charge upon written request to the Secretary.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits:
Exhibit
Number
-------
27 Financial Data Schedules
(b) The following reports on Form 8-K were filed during the second quarter
of 1998:
(i) Report on Form 8-K filed on April 29, 1998, with respect to first
quarter 1998 earnings for each of Pittston Brink's Group Common
Stock, Pittston Burlington Group Common Stock and Pittston
Minerals Group Common Stock; and
(ii) Report on Form 8-K filed on May 14, 1998, with respect to BAX
Global's acquisition of Air Transport International LLC.
---
74
<PAGE>
<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
August 13, 1998 By /s/ Robert T. Ritter
----------------------------
Robert T. Ritter
(Vice President -
Chief Financial Officer)
---
75
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from The Pittston Company
Form 10Q for the six month ended June 30, 1998, 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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 70,290
<SECURITIES> 2,086
<RECEIVABLES> 578,007
<ALLOWANCES> 26,008
<INVENTORY> 42,190
<CURRENT-ASSETS> 800,321
<PP&E> 1,330,867
<DEPRECIATION> 531,914
<TOTAL-ASSETS> 2,242,645
<CURRENT-LIABILITIES> 742,824
<BONDS> 328,984
<COMMON> 69,351
0
1,134
<OTHER-SE> 638,191
<TOTAL-LIABILITY-AND-EQUITY> 2,242,645
<SALES> 284,306
<TOTAL-REVENUES> 1,789,768
<CGS> 277,442
<TOTAL-COSTS> 1,733,881
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,500
<INTEREST-EXPENSE> 16,911
<INCOME-PRETAX> 46,922
<INCOME-TAX> 13,332
<INCOME-CONTINUING> 33,590
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,590
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Pittston Brink's Group - Basic - .97
Pittston BAX Group - Basic - (.10)
Pittston Minerals Group - Basic - (.46)
<F2>Pittston Brink's Group - Diluted - .96
Pittston BAX Group - Diluted - (.10)
Pittston Minerals Group - Diluted - (.46)
</FN>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from The Pittston Company
Form 10Q for the six months ended June 30, 1997, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 59,997
<SECURITIES> 1,712
<RECEIVABLES> 488,061
<ALLOWANCES> 17,617
<INVENTORY> 48,888
<CURRENT-ASSETS> 710,354
<PP&E> 1,092,840
<DEPRECIATION> 488,833
<TOTAL-ASSETS> 1,957,146
<CURRENT-LIABILITIES> 581,343
<BONDS> 265,665
0
1,154
<COMMON> 70,113
<OTHER-SE> 559,348
<TOTAL-LIABILITY-AND-EQUITY> 1,957,146
<SALES> 316,695
<TOTAL-REVENUES> 1,607,830
<CGS> 307,248
<TOTAL-COSTS> 1,549,599
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,849
<INTEREST-EXPENSE> 11,986
<INCOME-PRETAX> 50,418
<INCOME-TAX> 14,414
<INCOME-CONTINUING> 36,004
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36,004
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Pittston Brink's Group - Basic - .86
Pittston BAX Group - Basic - .16
Pittston Minerals Group - Basic - (.25)
<F2>Pittston Brink's Group - Diluted - .85
Pittston BAX Group - Diluted - .16
Pittston Minerals Group - Diluted - (.25)
</FN>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from The Pittston Company
Form 10Q for the quarter ended March 31, 1997, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 50,827
<SECURITIES> 1,173
<RECEIVABLES> 456,205
<ALLOWANCES> 16,925
<INVENTORY> 44,442
<CURRENT-ASSETS> 674,494
<PP&E> 1,048,508
<DEPRECIATION> 473,011
<TOTAL-ASSETS> 1,899,080
<CURRENT-LIABILITIES> 568,903
<BONDS> 234,711
<COMMON> 70,126
0
1,154
<OTHER-SE> 546,688
<TOTAL-LIABILITY-AND-EQUITY> 1,899,080
<SALES> 158,883
<TOTAL-REVENUES> 781,676
<CGS> 153,412
<TOTAL-COSTS> 747,874
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,768
<INTEREST-EXPENSE> 5,564
<INCOME-PRETAX> 30,444
<INCOME-TAX> 9,103
<INCOME-CONTINUING> 21,341
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,341
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Pittston Brink's Group - Basic - .40
Pittston BAX Group - Basic - .26
Pittston Minerals Group - Basic - .01
<F2>Pittston Brink's Group - Diluted - .40
Pittston BAX Group - Diluted - .26
Pittston Minerals Group - Diluted - .01
</FN>
</TABLE>
