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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 March 31, 1999
[ ] 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
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(Exact name of registrant as specified in its charter)
Virginia 54-1317776
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Virginia Center Parkway, Glen Allen, Virginia 23058-4229
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(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 May 7, 1999, 40,861,415 shares of $1 par value Pittston Brink's Group
Common Stock, 20,824,910 shares of $1 par value Pittston BAX Group Common Stock
and 9,186,434 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>
March 31 December 31
1999 1998
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(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 78,796 83,894
Short-term investments 1,842 1,767
Accounts receivable (net of estimated amounts uncollectible:
1999 - $31,607; 1998 - $32,122) 588,427 606,344
Inventories 45,097 42,770
Prepaid expenses and other current assets 51,805 33,374
Deferred income taxes 51,034 52,494
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Total current assets 817,001 820,643
Property, plant and equipment, at cost (net of accumulated
depreciation, depletion and amortization:
1999 - $581,792; 1998 - $573,250) 856,385 849,883
Intangibles, net of accumulated amortization 343,125 345,600
Deferred pension assets 120,450 119,500
Deferred income taxes 63,168 63,489
Other assets 126,275 132,022
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Total assets $ 2,326,404 2,331,137
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 104,043 88,283
Current maturities of long-term debt 49,262 36,509
Accounts payable 276,527 284,341
Accrued liabilities 376,255 388,300
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Total current liabilities 806,087 797,433
Long-term debt, less current maturities 318,632 323,308
Postretirement benefits other than pensions 241,217 239,550
Workers' compensation and other claims 92,658 93,324
Deferred income taxes 20,577 20,615
Other liabilities 125,768 120,879
Commitments and contingent liabilities
Shareholders' equity:
Preferred stock, par value $10 per share:
Authorized: 2,000 shares $31.25
Series C Cumulative Convertible Preferred Stock;
Issued and outstanding: 1999 - 30 shares; 1998 - 113 shares 296 1,134
Pittston Brink's Group Common Stock, par value $1 per share:
Authorized: 100,000 shares;
Issued and outstanding: 1999 - 40,861 shares; 1998 - 40,961 shares 40,861 40,961
Pittston BAX Group Common Stock, par value $1 per share:
Authorized: 50,000 shares;
Issued and outstanding: 1999 - 20,825 shares; 1998 - 20,825 shares 20,825 20,825
Pittston Minerals Group Common Stock, par value $1 per share:
Authorized: 20,000 shares;
Issued and outstanding: 1999 - 9,186 shares; 1998 - 9,186 shares 9,186 9,186
Capital in excess of par value 338,380 403,148
Retained earnings 428,353 401,186
Accumulated other comprehensive income (58,269) (51,865)
Employee benefits trust, at market value (58,167) (88,547)
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Total shareholders' equity 721,465 736,028
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Total liabilities and shareholders' equity $ 2,326,404 2,331,137
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See accompanying notes to consolidated financial statements.
</TABLE>
2
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THE PITTSTON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31
1999 1998
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<S> <C> <C>
Net sales $ 108,753 149,898
Operating revenues 846,133 712,766
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Net sales and operating revenues 954,886 862,664
Costs and expenses:
Cost of sales 115,443 144,164
Operating expenses 712,884 595,771
Selling, general and administrative expenses 107,104 99,256
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Total costs and expenses 935,431 839,191
Other operating income, net 6,073 3,027
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Operating profit 25,528 26,500
Interest income 1,205 1,181
Interest expense (10,197) (7,384)
Other expense, net (370) (1,435)
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Income before income taxes 16,166 18,862
Provision for income taxes 3,506 6,034
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Net income 12,660 12,828
Preferred stock dividends, net (Note 7) 18,314 (864)
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Net income attributed to common shares $ 30,974 11,964
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Pittston Brink's Group:
Net income attributed to common shares $ 16,798 17,037
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Net income per common share:
Basic $ .43 .44
Diluted .43 .44
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Cash dividend per common share $ .025 .025
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Pittston BAX Group:
Net income (loss) attributed to
common shares $ 421 (2,966)
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Net income (loss) per common share:
Basic $ .02 (.15)
Diluted .02 (.15)
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Cash dividends per common share $ .06 .06
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Pittston Minerals Group:
Net income (loss) attributed to
common shares (Note 7) $ 13,755 (2,107)
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Net income (loss) per common share:
Basic $ 1.61 (.26)
Diluted (.45) (.26)
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Cash dividends per common share $ .025 .1625
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Comprehensive income $ 24,570 10,918
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See accompanying notes to consolidated financial statements.
</TABLE>
3
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THE PITTSTON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 12,660 12,828
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion and amortization 42,820 33,878
Provision for aircraft heavy maintenance 11,719 8,733
Provision for deferred income taxes 1,608 2,115
Provision (credit) for pensions, noncurrent 2,962 (441)
Provision for uncollectible accounts receivable 2,944 2,647
Minority interest expense 284 1,821
Equity in earnings of unconsolidated affiliates,
net of dividends received (1,708) (747)
Other operating, net 4,571 4,239
Change in operating assets and liabilities, net of effects of acquisitions
and dispositions:
Decrease (increase) in accounts receivable 27,807 (20,467)
(Increase) decrease in inventories (2,170) 2,564
Increase in prepaid expenses and other current assets (15,526) (5,362)
Increase in other assets (2,731) (1,008)
Decrease in accounts payable and accrued liabilities (28,396) (17,399)
Increase (decrease) in other liabilities 4,103 (4,604)
Decrease in workers' compensation and other claims, noncurrent (1,069) (1,718)
Other, net 755 (3,459)
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Net cash provided by operating activities 60,633 13,620
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Cash flows from investing activities:
Additions to property, plant and equipment (58,365) (60,705)
Aircraft heavy maintenance expenditures (14,908) (9,659)
Proceeds from disposal of property, plant and equipment 1,065 421
Other, net 1,614 (3,958)
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Net cash used by investing activities (70,594) (73,901)
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Cash flows from financing activities:
Increase in short-term borrowings 9,438 13,000
Additions to long-term debt 47,225 65,991
Reductions of long-term debt (25,555) (9,640)
Repurchase of stock of the Company (23,494) (4,499)
Proceeds from exercise of stock options 337 2,288
Dividends paid (3,088) (4,122)
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Net cash provided by financing activities 4,863 63,018
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Net (decrease) increase in cash and cash equivalents (5,098) 2,737
Cash and cash equivalents at beginning of period 83,894 69,878
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Cash and cash equivalents at end of period $ 78,796 72,615
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</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 ("Pittston Coal") 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. The Company prepares separate financial
information including separate financial statements for the Brink's,
BAX and Minerals Groups in addition to the consolidated financial
information of the Company. Holders of Brink's Stock, BAX Stock and
Minerals Stock are shareholders of the Company, which is responsible
for all its 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.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial reporting and with applicable quarterly reporting
regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and notes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair
presentation have been included. Certain prior period amounts have been
reclassified to conform to the current period's financial statement
presentation. Operating results for the interim periods of 1999 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the
consolidated financial statements and related notes included in the
Company's annual report on Form 10-K for the year ended December 31,
1998.
(2) The following are reconciliations between the calculations of basic and
diluted net income (loss) per share by Group:
<TABLE>
<CAPTION>
Quarter Ended March 31
BRINK'S GROUP 1999 1998
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<S> <C> <C>
Numerator:
Net income - Basic and
diluted net income per share numerator $ 16,798 17,037
Denominator:
Basic weighted average common shares
outstanding 38,904 38,477
Effect of dilutive securities:
Stock options 202 604
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Diluted weighted average
common shares outstanding 39,106 39,081
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</TABLE>
5
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Options to purchase 774 shares of Brink's Stock, at prices between
$27.25 and $39.56 per share were outstanding during the three months
ended March 31, 1999, 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>
Quarter Ended March 31
BAX GROUP 1999 1998
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<S> <C> <C>
Numerator:
Net income (loss) - Basic and diluted
net income (loss) per share numerator $ 421 (2,966)
Denominator:
Basic weighted average
common shares outstanding 19,036 19,477
Effect of dilutive securities:
Stock options 15 --
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Diluted weighted average
common shares outstanding 19,051 19,477
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</TABLE>
Options to purchase 2,047 shares of BAX Stock, at prices between $9.13
and $27.91 per share, were outstanding during the three months ended
March 31, 1999, 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 2,366 shares of BAX Stock at prices between $5.78
and $27.91 per share were outstanding during the three months ended
March 31, 1998, but were not included in the computation of diluted net
loss per share because the effect of all options would be antidilutive.
<TABLE>
<CAPTION>
Quarter Ended March 31
MINERALS GROUP 1999 1998
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<S> <C> <C>
Numerator:
Net loss $ (4,559) (1,243)
Convertible Preferred Stock dividends, net 18,314 (864)
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Basic net income (loss) per share numerator 13,755 (2,107)
Effect of dilutive securities:
Convertible Preferred Stock dividends, net (18,314) --
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Diluted net loss per share numerator $ (4,559) (2,107)
Denominator:
Basic weighted average common
shares outstanding 8,570 8,225
Effect of dilutive securities:
Assumed conversion of Convertible
Preferred Stock 1,532 --
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Diluted weighted average common
shares outstanding 10,102 8,225
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</TABLE>
Options to purchase 692 shares of Minerals Stock, at prices between
$1.91 and $25.74 per share, were outstanding during the three months
ended March 31, 1999 but were not included in the computation of
diluted net loss 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 677 shares of Minerals Stock, at prices between
$9.50 and $25.74 per share, were outstanding during the three months
ended March 31, 1998 but were not included in the computation of
diluted net loss per share because the effect of all options would be
antidilutive.
6
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The conversion of the Convertible Preferred Stock to 1,765 shares of
Minerals Stock has been excluded in the computation of diluted net loss
per share for the three months ended March 31, 1998 because the effect
of the assumed conversion would be antidilutive.
(3) Depreciation, depletion and amortization of property, plant and
equipment totaled $36,937 in the first quarter of 1999 compared to
$28,686 in the first quarter of 1998, respectively.
(4) Cash payments made for interest and income taxes, net of refunds
received, were as follows:
<TABLE>
<CAPTION>
Quarter Ended March 31
1999 1998
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<S> <C> <C>
Interest $ 10,260 7,528
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Income taxes $ 4,649 5,003
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</TABLE>
During the first quarter of 1998, Brink's recorded the following
noncash investing and financing activities 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.
(5) 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 months ended March 31, 1998 by $1,061.
The effect of this change increased diluted net income per common share
of the Brink's Group by $0.02 in the three month period ended March 31,
1998.
(6) The cumulative impact of foreign currency translation deducted from
shareholders' equity was $57,549 and $48,887 at March 31, 1999 and
December 31, 1998, respectively.
The cumulative impact of cash flow hedges deducted from shareholders'
equity were $1,128 and $3,309 at March 31, 1999 and December 31, 1998,
respectively.
(7) Under the share repurchase programs authorized by the Board of
Directors, the Company purchased shares in the periods presented as
follows:
<TABLE>
<CAPTION>
Quarter Ended March 31
(In thousands) 1999 1998
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<S> <C> <C>
Brink's Stock:
Shares 100.0 --
Cost $ 2,514 --
BAX Stock:
Shares -- 177.5
Cost $ -- 3,505
Convertible Preferred Stock:
Shares 83.9 0.4
Cost $ 20,980 146
Excess carrying amount (a) $ 19,201 23
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</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.
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On March 12, 1999, the Board increased the remaining authority to
purchase its Convertible Preferred Stock by $4,300. On March 15, 1999,
the Company purchased 83.9 shares (or 839 depositary shares) of its
Convertible Preferred Stock for $20,980. The Convertible Preferred
Stock is convertible into Minerals Stock and has an annual dividend
rate of $31.25 per share. Preferred dividends included on the Company's
Statement of Operations for the quarter ended March 31, 1999 are net of
the $19,201, which is the excess of the carrying amount over the cash
paid to the holders of the Convertible Preferred Stock.
At March 31, 1999, the Company had the remaining authority to purchase
over time 900 shares of Brink's Stock; 1,465 shares of BAX Stock; 1,000
shares of Minerals Stock and an additional $7,556 of its Convertible
Preferred Stock. The remaining aggregate purchase cost limitation for
all common stock was $22,184 at March 31, 1999.
(8) As of January 1, 1999, the Company adopted AICPA Statement of Position
("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. The Company has determined that the capitalized mine
development costs for its gold and coal mining operations relate to
acquiring and constructing long-lived assets and preparing them for
their intended use. Accordingly, the adoption of SOP No. 98-5 had no
material impact on the results of operations of the Company.
8
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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 ("Pittston Coal") 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>
Quarter Ended March 31
(In thousands) 1999 1998
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<S> <C> <C>
Net sales and operating revenues:
Brink's $ 330,763 261,923
BHS 55,121 48,410
BAX Global 460,249 402,433
Pittston Coal 105,548 145,920
Mineral Ventures 3,205 3,978
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Net sales and operating revenues $ 954,886 862,664
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Operating profit (loss):
Brink's $ 19,983 21,919
BHS 14,004 13,502
BAX Global 4,441 430
Pittston Coal (6,984) 2,502
Mineral Ventures (790) (47)
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Segment operating profit 30,654 38,306
General corporate expense (5,126) (11,806)
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Total operating profit $ 25,528 26,500
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</TABLE>
In the first quarter of 1999, the Company reported net income of $12.7 million
compared with $12.8 million in the first quarter of 1998. Operating profit
totaled $25.5 million in the 1999 first quarter compared with $26.5 million in
the prior year first quarter. Lower operating results at Pittston Coal ($9.5
million), Brink's ($1.9 million) and Mineral Ventures ($0.7 million) were
partially offset by increases in operating results at BAX Global ($4.0 million)
and BHS ($0.5 million). In addition, corporate expenses in the first quarter of
1999 declined $6.7 million from the prior year, which included $5.8 million of
additional expenses related to a retirement agreement between the Company and
its former Chairman and CEO.
Preferred dividends included on the Company's Statement of Operations for the
quarter ended March 31, 1999 are net of $19.2 million, which is the excess of
the carrying amount of the Convertible Preferred Stock over the cash paid to the
holders of the Convertible Preferred Stock.
BRINK'S
Brink's consolidated revenues totaled $330.8 million in the first quarter of
1999, a 26% increase over first quarter 1998 revenues of $261.9 million. Brink's
operating profit of $20.0 million in the first quarter of 1999 represented a 9%
decrease over the $21.9 million of operating profit reported in the prior year
quarter.
9
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The increase in Brink's revenues was primarily attributable to operations in
Europe, as a result of the acquisition, in the first quarter of 1998, of nearly
all the remaining shares of Brink's affiliate in France as well as the
acquisition of the remaining 50% interest of Brink's affiliate in Germany in the
second quarter of 1998. North America revenues also increased over the prior
year quarter due to growth in armored car operations, which include ATM
services.
Decreases in operating profit in the first quarter of 1999 over the comparable
1998 quarter in Asia/Pacific, North America and Latin America were partially
offset by an increase in operating profit in Europe, primarily due to the
improved results from operations in France as well as the increased ownership
position. There were also improvements in several other European countries,
including Belgium which was negatively impacted during the first quarter of 1998
by industry-wide labor unrest. The decline in Asia/Pacific operating results was
primarily due to additional expenses associated with the expansion of operations
in Australia. Lower North American operating profits were largely the result of
increased information technology expenditures to enhance Brink's capabilities in
transportation of valuables, ATM servicing, money processing and air courier
operations as well as to implement communication improvements. The decrease in
Latin American operating profits was largely due to weaker business conditions,
particularly in Venezuela, Colombia and Chile, partially offset by increased
equity earnings from the 20% owned Mexico affiliate as well as a slight
improvement in Brazil. Latin American business operations have strengthened over
the soft fourth quarter 1998 results with improvements in a number of countries
as measures were implemented in response to the weak business conditions in that
region.
BHS
Revenues for BHS increased by 14% in the first quarter of 1999 compared to the
1998 quarter. This increase in revenues was due to higher ongoing monitoring and
service revenues, reflecting a 14% increase in the subscriber base as well as
slightly higher average monitoring fees. As a result of such growth, monthly
recurring revenues at March 31, 1999 grew 16% versus those as measured at March
31, 1998.
Operating profit in the first quarter of 1999 increased $0.5 million (4%)
compared to the 1998 first quarter. Operating profit was favorably impacted by
increases generated from monitoring and service activities of $1.8 million (11%)
for the first quarter 1999. This improvement over the prior year quarter was due
to the growth in the subscriber base combined with higher average monitoring
fees, offset in part, by an increase in disconnect expense. Growth in overall
operating profit was negatively affected by the up-front net cost of marketing,
sales and installation related to gaining new subscribers, which increased $1.3
million during the first quarter of 1999, as compared to the first quarter of
1998. This increase in up-front net cost in the quarter was due to higher levels
of sales and marketing costs incurred and expensed.
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 month period ended March 31, 1998 by $1.1 million.
The effect of this change increased diluted net income per common share of the
Brink's Group by $0.02 in the three month period ended March 31, 1998.
BAX GLOBAL
Worldwide revenues for the 1999 first quarter increased 14% over the 1998 first
quarter to $460.2 million. Operating profit in the first quarter of 1999 was
$4.4 million, compared to $0.4 million in the first quarter of 1998. Operating
profit in the first quarter of 1999 included the benefit of $1.6 million of
incentive accruals related to 1998 which will not be paid as a result of a
management decision made during the first quarter of 1999.
Operating revenues in the first quarter of 1999 increased reflecting higher
expedited freight services revenues, the result of a 9% increase in pounds
shipped, as well as a 1% increase in revenue per pound (yield). Additionally,
non-expedited freight services revenues increased over the prior year quarter
primarily as a result of revenues from Air Transport International LLC (ATI),
which was acquired in the second quarter of 1998 and higher revenues from supply
chain management services in the Pacific region. The 9% increase in pounds
10
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shipped over the prior year quarter primarily reflected the acquisition of an
affiliate in Taiwan in the first quarter of 1999 as well as the formation of a
joint venture in South Korea in mid-1998, partially offset by lower US volumes.
The 1% increase in yield resulted primarily from the introduction of the higher
yielding "Emergency Response" product in the US in the third quarter of 1998.
Operating profit in the first quarter of 1999 included the aforementioned
benefit of $1.6 million of incentive accruals. The improvement in operating
profit across all geographic regions over the prior year quarter reflected the
aforementioned higher yields in the US, growth in supply chain management
services in the Pacific region and the favorable impact of both the Taiwan
acquisition and a joint venture in South Korea. These operating profit
improvements in the current year quarter were partially offset by seasonal
losses from ATI, as well as higher aircraft crew and maintenance costs.
PITTSTON COAL
Net sales for the first quarter of 1999 were $105.5 million, a decrease of 28%
from the 1998 first quarter. Operating loss was $7.0 million in the current year
quarter compared to operating profit of $2.5 million in 1998.
The decrease in net sales for the first quarter of 1999 over the prior year
quarter primarily reflected a decline in both steam and metallurgical sales
volume resulting from a 29% reduction in total tons sold. The steam sales
reduction was primarily due to the sale of certain assets at the Elkay mining
operation ("Elkay Assets") in the second quarter of 1998 and the closing of a
surface mine in Kentucky in the third quarter of 1998. The decline in
metallurgical sales volume was due to continued softness in market conditions
resulting from lower worldwide steel production and a strong US dollar relative
to the currencies of other coal exporting nations. While metallurgical coal
realizations per ton declined from the prior year quarter, overall realization
per ton increased slightly as a greater proportion of coal sales came from
metallurgical coal, which generally has a higher realization per ton than steam
coal.
The operating loss in the current year quarter reflected a $6.6 million decline
in total coal margin and higher idle and closed mine costs and inactive employee
costs, up $1.1 million and $2.9 million, respectively, over the prior year. The
current year operating loss also includes a benefit of $2.4 million from the
settlement of litigation.
The decline in total coal margin reflects the previously mentioned decline in
sales volume combined with a $0.98 per ton decrease in coal margin per ton, the
result of a decrease in metallurgical coal margins. Metallurgical margins were
negatively impacted in the first quarter of 1999 by the decline in realization
per ton, resulting from the previously mentioned soft market conditions. Current
production cost per ton of coal sold increased primarily due to a
correspondingly higher proportion of deep mine production which is generally
more costly than surface mine production. In addition, coal margin per ton in
the first quarter of 1998 included a $0.27 per ton benefit, related to a
favorable ruling issued by the US Supreme Court on the unconstitutionality of
the Harbor Maintenance Tax while the first quarter of 1999 included the $0.17
per ton benefit of the judgment rendered by the US District Court for the
Eastern District of Virginia, regarding the constitutionality of the federal
black lung excise tax, since Pittston Coal no longer had to accrue the tax (as
more fully discussed below).
Metallurgical sales in 1999 are expected to continue to be lower than 1998
levels, due to market conditions, as well as the disadvantage caused by the
relative strength of the US dollar versus currencies of other metallurgical coal
producing countries. In addition, this currency disadvantage has negatively
impacted 1999 contract negotiations for the contract year that commenced April
1, 1999.
Operating profit from the gas and timber businesses amounted to $1.4 million and
$1.8 million in the first quarters of 1999 and 1998, respectively. The decline
was mainly due to depressed natural gas prices and related royalties.
Idle equipment and closed mine costs increased $1.1 million in the 1999 first
quarter from the comparable 1998 quarter due to a deep mine producing
metallurgical coal that was idled in the first quarter of 1999, in response to
the previously mentioned weak market conditions as well as additional costs at
other idle mines. Such costs are expected to continue at these higher levels
into the next quarter. Barring significant improvements in these market
conditions, rising inventory levels could result in further review of capacity
11
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requirements. Inactive employee costs, which represent long-term employee
liabilities for pension and retiree medical costs, increased 42% over the prior
year quarter as a result of reductions in the amortization of actuarial gains, a
decrease in the discount rates used to calculate the present value of the
liabilities and higher premiums for the Coal Industry Retiree Benefit Act of
1992. Pittston Coal anticipates that costs related to these long-term benefit
obligations will continue at these higher levels during 1999.
On February 10, 1999, the US District Court for the Eastern District of Virginia
entered a final judgment in favor of certain of the Company's subsidiaries,
ruling that the federal black lung excise tax ("FBLET") imposed under Section
4121 of the Internal Revenue Code is unconstitutional as applied to export coal
sales and ordering a refund to the subsidiaries of approximately $0.7 million
(plus interest) for the FBLET that those companies paid for the quarter ended
March 31, 1997. The government did not appeal the judgment before the April 12,
1999 deadline for noting an appeal. The Company will seek refunds of the FBLET
it paid on export coal sales for all open statutory periods. The ultimate
amounts and timing of such refunds, if any, cannot be determined at the present
time. The benefit of this judgment as applied to export coal sales for the first
quarter of 1999 is reflected in the production costs of coal sold ($0.6 million)
since Coal Operations no longer had to accrue the tax.
A controversy involving an unrelated party with respect to a method of mining
called "mountaintop removal" that began in mid-1998 in West Virginia has
resulted in a suspension in the issuance of several mining permits including
those unrelated to mountaintop removal. Due to the broadness of the suspension,
there has been a delay in Vandalia Resources, Inc., a wholly-owned subsidiary of
Pittston Coal, being issued, in a timely fashion, mining permits necessary for
its uninterrupted mining. For the immediate future Vandalia will require the
issuance of two permits to ensure uninterrupted production in 1999. Vandalia
obtained the first permit on April 15, 1999. It is essential that the second
permit be issued by the end of the second quarter of 1999 in order to avoid
production interruptions. Management believes that the regulatory agencies are
in the process of establishing a functional review process to expedite permit
approvals. Affected employees have been notified of potential production
interruptions. During the year ended December 31, 1998, the mining operation
which is pursuing these permits produced approximately 2.7 million tons of coal
resulting in revenues of approximately $81.8 million and contributed
significantly to coal margin.
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 three months of 1999 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, 1998 $ 8,906 16,307 25,213
Payments 575 319 894
- ----------------------------------------------------------------------------------
Balance as of March 31, 1999 $ 8,331 15,988 24,319
- ----------------------------------------------------------------------------------
</TABLE>
MINERAL VENTURES
Mineral Ventures generated net sales during the first quarter of 1999 of $3.2
million, a 19% decline from the $4.0 million reported in the first quarter of
1998. The decrease in net sales was the result of the continued deterioration of
gold prices in the market. Operating loss for the first quarter of 1999 was $0.8
million compared to break-even results in the same period last year. The
operating loss during the first quarter of 1999 was not only negatively impacted
by lower realization, but also by increased production costs due to a high
percentage of low grade ore milled, partially offset by increased equity income
from an Australian affiliate. This Australian affiliate has sold additional
shares to a new investor, reducing Mineral Ventures' ownership in this
Australian affiliate to a 45% interest (40% on a fully diluted basis).
12
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FOREIGN OPERATIONS
A portion of the Company's financial results is derived from activities in a
number of foreign countries located in Europe, Asia and Latin America each with
a local currency other than the US dollar. Because the financial results of the
Company are reported in US dollars, they are affected by changes in the value of
the various foreign currencies in relation to the US dollar. Changes in exchange
rates may also adversely affect transactions which are denominated in currencies
other than the functional currency. The Company periodically enters into such
transactions in the course of its business. The diversity of foreign operations
helps to mitigate a portion of the impact that foreign currency fluctuations may
have in any one country on the translated results. The Company, from time to
time, uses foreign currency forward contracts to hedge transactional risks
associated with foreign currencies. Translation adjustments of net monetary
assets and liabilities denominated in the local currency 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 operates in such a highly inflationary economy.
The Company is also subject to other risks customarily associated with doing
business in foreign countries, including labor and economic conditions,
political instability, controls on repatriation of earnings and capital,
nationalization, expropriation and other forms of restrictive action by local
governments. The future effects, if any, of such risks on the Company cannot be
predicted.
CORPORATE EXPENSES
In the first quarters of 1999 and 1998, corporate expenses totaled $5.1 million
and $11.8 million, respectively. Corporate expenses in the prior year quarter
included $5.8 million of expenses related to a retirement agreement between the
Company and its former Chairman and CEO.
OTHER OPERATING INCOME, NET
Other operating income, net, generally includes the Company's share of net
earnings or losses of unconsolidated affiliates, primarily Brink's equity
affiliates, royalty income, gains and losses from foreign currency exchange and
from sales of coal assets. Other operating income, net for the three months
ended March 31, 1999 was $6.1 million compared to $3.0 million in the three
months ended March 31, 1998. The higher level of income in the quarter primarily
relates to a $2.4 million gain from the settlement of litigation at Pittston
Coal coupled with higher equity earnings at affiliates of Brink's and Mineral
Ventures.
NET INTEREST EXPENSE
Net interest expense in the first quarter of 1999 increased $2.8 million (45%)
over the same period in 1998. This increase was predominantly due to higher
average interest rates primarily associated with local currency borrowings in
Venezuela, and to a lesser extent was due to borrowings resulting from capital
expenditures and from acquisitions during 1998 by both Brink's and BAX Global to
expand their operations.
OTHER EXPENSE, NET
Other expense, net for the three months ended March 31, 1999 decreased $1.1
million from the prior year period. The decrease was due to lower minority
interest expense for Brink's consolidated affiliates partially offset by lower
foreign currency translation gains.
INCOME TAXES
In both the 1999 and 1998 periods presented, the provision for income taxes was
less than the statutory federal income tax rate of 35% primarily due to the tax
benefits of percentage depletion from Pittston Coal and lower taxes on foreign
income, partially offset by provisions for goodwill amortization and state
income taxes. The effective tax rate for the Company was lower in the first
quarter of 1999 than in the same period of 1998 due to the magnitude of the loss
before income taxes for Pittston Coal in the first quarter of 1999.
FINANCIAL CONDITION
CASH FLOW REQUIREMENTS
Cash provided by operating activities during the first three months of 1999
totaled $60.6 million compared with $13.6 million in the first three months of
1998. This increase resulted from higher cash earnings combined with a decrease
in the cash required to fund working capital. The decrease in working capital
requirements primarily resulted from reduced sales at the Company's Coal
Operations and, to a lesser extent, improved collections.
13
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INVESTING ACTIVITIES
Cash capital expenditures for the first three months of 1999 approximated $58
million, down from approximately $61 million in the comparable period in 1998.
Of the 1999 amount of cash capital expenditures, $18.6 million was spent by
Brink's, $19.3 million was spent by BHS, $14.0 million was spent by BAX Global,
$5.1 million was spent by Pittston Coal and $1.2 million was spent by Mineral
Ventures. For the remainder of 1999, company-wide cash capital expenditures are
projected to range between $190 and $195 million. The foregoing amounts exclude
expenditures that have been or are expected to be financed through capital
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.
Cash flows received from financing activities were $4.9 million for the first
quarter of 1999, compared with $63.0 million for the same period in 1998. The
1998 levels reflect additional borrowings of $69.4 million primarily resulting
from higher working capital requirements.
The 1999 period includes $31.1 million of additional borrowings, primarily used
to finance the purchase of the Company's Preferred Stock (discussed in more
detail 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 March 31, 1999 and December 31, 1998 borrowings of $100.0
million were outstanding under the term loan portion of the Facility and $130.5
million and $91.6 million, respectively, of additional borrowings were
outstanding under the remainder of the Facility.
MARKET RISKS AND HEDGING AND DERIVATIVE ACTIVITIES
The Company has activities in a number of foreign countries throughout the
world. Operations within these countries expose the Company to a variety of
market risks, including the effects of changes in foreign currency exchange
rates and interest rates. In addition, the Company consumes and sells certain
commodities in its businesses, exposing it to the effects of changes in the
prices of such commodities. These financial and commodity exposures are
monitored and managed by the Company as an integral part of its overall risk
management program. The diversity of foreign operations helps to mitigate a
portion of the impact that foreign currency rate fluctuations may have in any
one country on the translated results. The Company's risk management program
considers this favorable diversification effect as it measures the Company's
exposure to financial markets and as appropriate, seeks to reduce the
potentially adverse effects that the volatility of certain markets may have on
its operating results. The Company has not had any material change in its market
risk exposures since December 31, 1998.
READINESS FOR YEAR 2000: SUMMARY
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. If not corrected, many
date-sensitive applications could fail or create erroneous results by or in the
year 2000. The Company understands the importance of having systems and
equipment operational through the year 2000 and beyond and is committed to
addressing these challenges while continuing to fulfill its business obligations
to its customers and business partners. Year 2000 project teams have been
established which are intended to make information technology assets, including
embedded microprocessors ("IT assets"), non-IT assets, products, services and
infrastructure Year 2000 ready.
READINESS FOR YEAR 2000: STATE OF READINESS
The following is a description of the Company's state of readiness for each of
its operating units.
Brink's
The Brink's Year 2000 Project Team has divided its Year 2000 readiness program
into six phases: (i) inventory, (ii) assessment, (iii) renovation, (iv)
validation/testing, (v) implementation and (vi) integration. Worldwide, Brink's
is largely in the renovation, validation/testing and implementation phases of
its Year 2000 readiness program.
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Brink's North America
With respect to Brink's North American operations, all core IT systems have been
identified, renovation has taken place and the Year 2000 project is currently in
both the implementation and integration phases. The implementation phase of the
core operational systems is expected to be substantially completed by the second
quarter of 1999. Non-IT systems, including armored vehicles, closed circuit
televisions, videocassette recorders and certain currency processing equipment,
are in the assessment phase and certain renovation/replacement has been done.
The renovation and validation phases for non-IT systems are expected to continue
through the second quarter of 1999. As of March 31, 1999, most of Brink's North
America IT systems have been tested and validated as Year 2000 ready. Brink's
believes that all its IT and non-IT systems will be Year 2000 compliant or that
there will be no material adverse effect on operations or financial results due
to non-compliance.
Brink's International
All international affiliates have been provided with an implementation plan,
prepared by the Global Year 2000 Project Team. In addition, there is senior
management sponsorship in all international countries. The implementation plan
requires semi-monthly reports as to the status of each category in each country.
The categories include core systems, non-core systems, hardware, facilities,
special equipment, voice/data systems, etc. Countries in Europe, Latin America
and Asia/Pacific are in varying phases of the Year 2000 readiness program. In
Europe, core systems have been identified, some are in the remediation and
validation/testing phase, with others currently in the implementation and
integration phases. In both Latin America and Asia/Pacific, most countries are
currently in active renovation with several completing testing and
implementation on core systems. Brink's plans to have completed all phases of
its Year 2000 readiness program on a timely basis prior to Year 2000.
BHS
The BHS Year 2000 Project Team has divided its Year 2000 readiness program into
four phases: (i) assessment, (ii) remediation/replacement, (iii) testing and
(iv) integration. As of March 31, 1999, BHS has completed the assessment and
remediation/replacement phases. BHS is currently in both the testing and
integration phases. BHS plans to have completed all phases of its Year 2000
readiness program on a timely basis prior to Year 2000. As of March 31, 1999, at
least 90% of BHS' IT and non-IT assets systems have been tested and verified as
Year 2000 ready.
BAX Global
The BAX Global Year 2000 Project Team has divided its Year 2000 readiness
program into five phases: (i) inventory, (ii) assess and test, (iii) renovate,
(iv) test and verify and (v) implement. During the first quarter of 1999, the
inventory phase was completed on a global basis. Assessment of major systems in
the Americas and Europe has been completed, with readiness testing now underway.
Assessment is currently underway in Asia. Renovation activities for major
systems are in process as are replacement activities for non-compliant
components and systems that are not scheduled for renovation. Testing has also
begun for systems that have been renovated. BAX Global plans to have completed
all phases of its Year 2000 readiness program on a timely basis prior to Year
2000. As of March 31, 1999, more than 50% of BAX Global's IT and non-IT assets
systems have been tested and verified as Year 2000 ready.
Pittston Coal and Mineral Ventures
The Pittston Coal and Mineral Ventures Year 2000 Project Teams have divided
their Year 2000 readiness programs into four phases: (i) assessment, (ii)
remediation/replacement, (iii) testing, and (iv) integration. At March 31, 1999,
the majority of the core IT assets are either already Year 2000 ready or in the
testing or integration phases. Those assets that are not yet Year 2000 ready are
scheduled to be remediated or replaced by year-end 1999, with testing and
integration to begin concurrently. Pittston Coal and Mineral Ventures plan to
have completed all phases of their Year 2000 readiness programs on a timely
basis prior to Year 2000. As of March 31, 1999, approximately 90% of hardware
systems and embedded systems have been tested and verified as Year 2000 ready.
15
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The Company
As part of its Year 2000 projects, the Company has sent comprehensive
questionnaires to significant suppliers, and others with which it does business,
regarding their Year 2000 compliance and is in the process of identifying
significant problem areas with respect to these business partners. The Company
is relying on such third parties' representations regarding their own readiness
for Year 2000. This process will be ongoing and efforts with respect to specific
problems identified will depend in part upon its assessment of the risk that any
such problems may have a material adverse impact on its operations.
Further, the Company relies upon US and foreign government agencies
(particularly the Federal Aviation Administration and customs agencies
worldwide), utility companies, telecommunication service companies and other
service providers outside of its control. According to a recent General
Accounting Office report to Congress, some airports will not be prepared for the
Year 2000 and the problems these airports experience could impede traffic flow
throughout the nation. As with most companies, the Company is vulnerable to
significant suppliers', customers', and other third parties' inability to remedy
their own Year 2000 issues. As the Company cannot control the conduct of its
customers, suppliers or other third parties, there can be no guarantee that Year
2000 problems originating with a supplier or other third party will not occur.
READINESS FOR YEAR 2000: COSTS TO ADDRESS
The Company anticipates incurring remediation and acceleration costs for its
Year 2000 readiness programs. Remediation includes the identification,
assessment, remediation and testing phases of its Year 2000 readiness programs.
Remediation costs include both the costs of modifying existing software and
hardware as well as purchases that replace existing hardware and software that
is not Year 2000 ready. Most of these costs will be incurred by Brink's and BAX
Global. Acceleration costs include costs to purchase and/or develop and
implement certain information technology systems whose implementation have been
accelerated as a result of the Year 2000 readiness issue. Again most of these
costs will be incurred by Brink's and BAX Global.
Total anticipated remediation and acceleration costs are detailed in the table
below:
<TABLE>
<CAPTION>
(Dollars in millions)
ACCELERATION Capital Expense Total
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Total anticipated Year 2000 costs $ 23.5 4.7 28.2
Incurred through March 31, 1999 17.5 2.2 19.7
- -----------------------------------------------------------------------------------
Remainder $ 6.0 2.5 8.5
- -----------------------------------------------------------------------------------
<CAPTION>
REMEDIATION Capital Expense Total
- -----------------------------------------------------------------------------------
Total anticipated Year 2000 costs $ 12.7 17.8 30.5
Incurred through March 31, 1999 7.5 12.5 20.0
- -----------------------------------------------------------------------------------
Remainder $ 5.2 5.3 10.5
- -----------------------------------------------------------------------------------
<CAPTION>
TOTAL Capital Expense Total
- -----------------------------------------------------------------------------------
Total anticipated Year 2000 costs $ 36.2 22.5 58.7
Incurred through March 31, 1999 25.0 14.7 39.7
- -----------------------------------------------------------------------------------
Remainder $ 11.2 7.8 19.0
- -----------------------------------------------------------------------------------
</TABLE>
READINESS FOR YEAR 2000: THE RISKS OF THE YEAR 2000 ISSUE
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect results of
operations, liquidity and financial condition of the Company.
The following is a description of the Company's risks of the Year 2000 issue for
each of its operating units:
Brink's
Brink's believes its most reasonably likely worst case scenario is that it will
experience a number of minor system malfunctions and errors in the early days
and weeks of the Year 2000 that were not detected during
16
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its renovation and testing efforts. Brink's currently believes that these
problems will not be overwhelming and are not likely to have a material effect
on the Company's operations or financial results. Brink's may experience some
additional personnel expenses related to Year 2000 failures, but such expenses
are not expected to be material. As noted above, Brink's is vulnerable to
significant suppliers', customers' and other third parties' inability to remedy
their own Year 2000 issues. As Brink's cannot control the conduct of its
suppliers or other third parties, there can be no guarantee that Year 2000
problems originating with a supplier, customer or other third party will not
occur. However, Brink's program of communication with major third parties with
whom they do business is intended to minimize any potential risks related to
third party failures.
BHS
BHS has begun an analysis of the operational problems and costs that would be
reasonably likely to result from the failure by BHS and certain third parties to
complete efforts necessary to achieve Year 2000 readiness on a timely basis. BHS
believes its most reasonably likely worst case scenario is that its ability to
receive alarm signals from some or all of its customers may be disrupted due to
temporary regional service outages sustained by third party electric utilities,
local telephone companies, and/or long distance telephone service providers.
Such outages could occur regionally, affecting clusters of customers, or could
occur at BHS's principal monitoring facility, possibly affecting the ability to
provide service to all customers. BHS currently believes that the consequences
of these problems will not be overwhelming and are not likely to have a material
effect on the Company's operations or financial condition.
BAX Global
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect results of
operations, liquidity and financial condition of BAX Global. The extent to which
such a failure may adversely affect operations is being assessed. BAX Global
believes its most reasonably likely worst case scenario is that it will
experience a number of minor system malfunctions and errors in the early days
and weeks of the Year 2000 that were not detected during its renovation and
testing efforts. BAX Global currently believes that these problems will not be
overwhelming and are not likely to have a material effect on the company's
operations or financial results. As noted above, BAX Global is vulnerable to
significant suppliers', customers' and other third parties' (particularly
government agencies such as the Federal Aviation Administration and customs
agencies worldwide) inability to remedy their own Year 2000 issues. As BAX
Global cannot control the conduct of third parties, there can be no guarantee
that Year 2000 problems originating with a supplier, customer or other third
party will not occur. However, BAX Global's program of communication and
assessments of major third parties with whom they do business is intended to
minimize any potential risks related to third party failures.
Pittston Coal and Mineral Ventures
Pittston Coal and Mineral Ventures believe that their internal information
technology systems will be renovated successfully prior to year 2000. All
mission critical systems have been identified that would cause the greatest
disruption to the organizations. The failure to correct a material Year 2000
problem could result in an interruption in, or a failure of, certain normal
business activities or operations. Such failures should have no material or
significant adverse effect on the results of operations or financial condition
of the Company. Pittston Coal and Mineral Ventures believe they have identified
their likely worst case scenarios. The likely worst case scenarios, assuming no
external failures such as power outages or delays in railroad transportation
services, could be delays in invoicing customers and payment of vendors. These
likely worst case scenarios, should they occur, are not expected to result in a
material impact on the Company's financial statements. The production of coal
and gold is not heavily dependent on computer technology and would continue with
limited impact.
READINESS FOR YEAR 2000: CONTINGENCY PLAN
The following is a description of the Company's contingency plans for each of
its operating units:
Brink's
A contingency planning document, which was developed with the assistance of an
external facilitator, has been finalized for Brink's North American operations.
Brink's provides a number of different services to its customers and each type
of service line was reviewed during the contingency planning sessions. This
contingency planning document addresses the issue of what Brink's response would
be should a
17
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system/device fail, as well as what preparations and actions are required
beforehand to ensure continuity of services if those identified systems failed.
This includes, in some cases, reverting to paper processes to track and handle
packages, additional staff if required and increased supervisory presence.
Brink's may experience some additional personnel expenses related to any Year
2000 failures, but they are not expected to be material. This contingency
planning document was made available to Brink's International operations to use
as a guidance in developing appropriate contingency plans at each of their
locations and for the specific services they provide to their customers.
BHS
BHS has begun to develop a contingency plan for dealing with the most reasonably
likely worst case scenario. This contingency planning document will address the
issue of what BHS's response would be should it sustain a service outage
encountered by the third party electric utility, local telephone company, and/or
primary long distance telephone service provider at its principal monitoring
facility. This includes, among other things, the testing of redundant system
connectivity routed through multiple switching stations of the local telephone
company, and testing of backup electric generators at both BHS's principal and
backup monitoring facilities.
BAX Global
During the first quarter of 1999, BAX Global initiated contingency planning for
dealing with its most reasonably likely worst case scenario. That planning is on
schedule. The foundation for BAX Global's Year 2000 readiness program is to
ensure that all mission-critical systems are renovated/replaced and tested prior
to when a Year 2000 failure might occur if the program were not undertaken.
Pittston Coal and Mineral Ventures
Pittston Coal and Mineral Ventures have not yet developed contingency plans for
dealing with their most likely worst case scenarios. The foundation for their
Year 2000 Programs is to ensure that all mission-critical systems are
renovated/replaced and tested prior to when a Year 2000 failure might occur if
the programs were not undertaken. As of March 31, 1999, all mission-critical
systems, with the exception of human resources-related systems, have been tested
and verified as Year 2000 ready. These human resources-related systems are not
yet Year 2000 ready and as a safeguard are scheduled to be remediated by
mid-1999. These systems will subsequently be replaced by year-end 1999. In
addition, as a normal course of business, Pittston Coal and Mineral Ventures
maintain and deploy contingency plans designed to address various other
potential business interruptions. These plans may be applicable to address the
interruption of support provided by third parties resulting from their failure
to be Year 2000 ready.
READINESS FOR YEAR 2000: FORWARD LOOKING INFORMATION
This discussion of the Company's readiness for Year 2000, including statements
regarding anticipated completion dates for various phases of the Company's Year
2000 project, estimated costs for Year 2000 readiness, the determination of
likely worst case scenarios, actions to be taken in the event of such worst case
scenarios and the impact on the Company of any delays or problems in the
implementation of Year 2000 initiatives by the Company and/or any public or
private sector suppliers and service providers and customers 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, government regulations and/or legislative initiatives,
variations in costs or expenses relating to the implementation of Year 2000
initiatives, changes in the scope of improvements to Year 2000 initiatives and
delays or problems in the implementation of Year 2000 initiatives by the Company
and/or any public or private sector suppliers and service providers and
customers.
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 Pittston
Coal and Mineral Ventures operations of the Company. The Company
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prepares separate financial statements for the Brink's, BAX and Minerals Groups
in addition to consolidated financial information of the Company.
Under the share repurchase programs authorized by the Board of Directors (the
"Board"), the Company purchased shares in the periods presented:
<TABLE>
<CAPTION>
Quarter Ended March 31
(Dollars in millions, shares in thousands) 1999 1998
- ----------------------------------------------------------------------------
<S> <C> <C>
Brink's Stock:
Shares 100.0 --
Cost $ 2.5 --
BAX Stock:
Shares $ -- 177.5
Cost -- 3.5
Convertible Preferred Stock:
Shares 83.9 0.4
Cost $ 21.0 0.1
Excess carrying amount (a) $ 19.2 --
- ----------------------------------------------------------------------------
</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.
On March 12, 1999, the Board increased the remaining authority to purchase its
Convertible Preferred Stock by $4.3 million. On March 15, 1999, the Company
purchased .08 million shares (or .8 million depositary shares) of its
Convertible Preferred Stock for $21.0 million. The Convertible Preferred Stock
is convertible into Minerals Stock and has an annual dividend rate of $31.25 per
share. Preferred dividends included on the Company's Statement of Operations for
the quarter ended March 31, 1999 are net of $19.2 million, which is the excess
of the carrying amount of the Convertible Preferred Stock over the cash paid to
the holders of the Convertible Preferred Stock.
As of March 31, 1999, the Company had the remaining authority to purchase over
time 0.9 million shares of Brink's Stock; 1.5 million shares of BAX Stock; 1.0
million shares of Minerals Stock and an additional $7.6 million of its
Convertible Preferred Stock. The remaining aggregate purchase cost limitation
for all common stock was $22.2 million as of March 31, 1999.
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. As a result of
recent financial performance of the Minerals Group and coal industry conditions,
as well as consideration of financial condition, cash flow and business
requirements, including the Available Minerals Dividend Amount, the Board
declined to declare a quarterly dividend on Minerals Stock at its May 1999
meeting. Dividends on the remaining Convertible Preferred Stock were declared.
During the first three months of 1999 and 1998, the Board declared and the
Company paid cash dividends of 2.50 cents per share of Brink's Stock and 6.00
cents per share of BAX Stock, as well as 2.50 and 16.25 cents, respectively, per
share of Minerals Stock. Dividends paid on the Convertible Preferred Stock in
each of the first three months of 1999 and 1998 were $0.9 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.
19
<PAGE>
<PAGE>
ACCOUNTING CHANGES
As of January 1, 1999, the Company adopted AICPA Statement of Position ("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. The Company has determined
that capitalized mine development costs for its gold and coal mining operations
relate to acquiring and constructing long-lived assets and preparing them for
their intended use. Accordingly, the adoption of SOP No. 98-5 had no material
impact on the results of operations of the Company.
FORWARD LOOKING INFORMATION
Certain of the matters discussed herein, including statements regarding
metallurgical coal market conditions, idle equipment and closed mine costs,
review of capacity requirements, cost of long-term employee liabilities,
expedition of mining permit approvals, projected capital spending, coal 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, the
ability of counterparties 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 any public or
private sector suppliers and service providers and customers, and delays or
problems in the design and implementation of improvements to information
systems.
20
<PAGE>
<PAGE>
PITTSTON BRINK'S GROUP
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
- ---------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 43,169 52,276
Short-term investments 1,842 1,767
Accounts receivable (net of estimated uncollectible amounts:
1999 - $13,782; 1998 - $14,222) 234,025 230,548
Receivable - Pittston Minerals Group -- 10,321
Inventories 11,396 9,466
Prepaid expenses and other current assets 32,943 19,011
Deferred income taxes 22,609 23,541
- ---------------------------------------------------------------------------------------------
Total current assets 345,984 346,930
- ---------------------------------------------------------------------------------------------
Property, plant and equipment, at cost (net of accumulated
depreciation and amortization: 1999 - $316,075;
1998 - $318,382) 492,985 490,727
Intangibles, net of accumulated amortization 61,735 62,706
Deferred pension assets 26,986 28,818
Deferred income taxes 8,227 7,912
Other assets 37,669 39,911
- ---------------------------------------------------------------------------------------------
Total assets $ 973,586 977,004
- ---------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings $ 41,906 19,800
Current maturities of long-term debt 45,029 32,062
Accounts payable 50,743 59,608
Payable - Pittston Minerals Group 11 --
Accrued liabilities 192,725 195,082
- ----------------------------------------------------------------------------------------------
Total current liabilities 330,414 306,552
Long-term debt, less current maturities 52,565 93,345
Postretirement benefits other than pensions 4,438 4,354
Workers' compensation and other claims 11,229 11,229
Deferred income taxes 53,366 53,876
Payable - Pittston Minerals Group 5,310 2,943
Other liabilities 19,020 18,071
Minority interests 27,169 25,224
Commitments and contingent liabilities
Shareholder's equity 470,075 461,410
- ----------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 973,586 977,004
- ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
<PAGE>
PITTSTON BRINK'S GROUP
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31
1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues $ 385,884 310,333
Costs and expenses:
Operating expenses 298,463 233,432
Selling, general and administrative expenses 56,633 46,555
- ---------------------------------------------------------------------------------------
Total costs and expenses 355,096 279,987
Other operating income, net 1,416 986
- ---------------------------------------------------------------------------------------
Operating profit 32,204 31,332
Interest income 558 864
Interest expense (5,882) (3,815)
Other expense, net (213) (1,337)
- ---------------------------------------------------------------------------------------
Income before income taxes 26,667 27,044
Provision for income taxes 9,869 10,007
- ---------------------------------------------------------------------------------------
Net income $ 16,798 17,037
- ---------------------------------------------------------------------------------------
Net income per common share:
Basic $ .43 .44
Diluted .43 .44
- ---------------------------------------------------------------------------------------
Cash dividends per common share $ .025 .025
- ---------------------------------------------------------------------------------------
Weighted average common shares outstanding:
Basic 38,904 38,477
Diluted 39,106 39,081
- ---------------------------------------------------------------------------------------
Comprehensive income $ 8,533 15,262
- ---------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
<PAGE>
PITTSTON BRINK'S GROUP
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31
1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 16,798 17,037
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 24,342 17,278
Provision for deferred income taxes 1,453 966
Provision for pensions, noncurrent 1,791 385
Provision for uncollectible accounts receivable 1,555 1,525
Minority interest expense 259 1,777
Equity in earnings of unconsolidated affiliates,
net of dividends received (1,368) (902)
Other operating, net 2,584 2,345
Change in operating assets and liabilities, net of effects of acquisitions
and dispositions:
Increase in accounts receivable (871) (11,792)
Increase in inventories (1,815) (3,058)
Increase in prepaid expenses and other current assets (13,931) (982)
Increase in other assets (350) (1,369)
(Decrease) increase in accounts payable and accrued liabilities (12,283) 3,333
Increase (decrease) in other liabilities 4,278 (2,281)
Other, net (99) (1,383)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 22,343 22,879
- ---------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (37,953) (31,866)
Proceeds from disposal of property, plant and equipment 1,008 77
Other, net 702 387
- ---------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (36,243) (31,402)
- ---------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in short-term borrowings 16,503 417
Additions to long-term debt 1,463 4,803
Reductions of long-term debt (18,355) (2,518)
Payments from Minerals Group 8,331 11,238
Proceeds from exercise of stock options 296 1,383
Dividends paid (931) (916)
Repurchase of common stock (2,514) (716)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,793 13,691
- ---------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (9,107) 5,168
Cash and cash equivalents at beginning of period 52,276 37,694
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 43,169 42,862
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
23
<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 specifically identified with operations of a particular
segment. The Brink's Group's financial statements are prepared using the
amounts included in the Company's consolidated financial statements.
Corporate allocations reflected in these financial statements are
determined based upon methods which management believes to provide a
reasonable and equitable allocation of such items.
The Company provides to holders of Pittston Brink's Group Common Stock
("Brink's Stock") separate financial statements, financial review,
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 common shareholders of the Company, which
continues to be responsible for all its liabilities. Financial impacts
arising from the Brink's Group, the Pittston BAX Group (the "BAX Group") or
the Pittston Minerals Group (the "Minerals Group") that affect the
Company's financial condition could therefore affect the results of
operations and financial condition of each of the Groups. Since financial
developments within one Group could affect other Groups, all shareholders
of the Company could be adversely affected by an event directly impacting
only one Group. Accordingly, the Company's consolidated financial
statements must be read in connection with the Brink's Group's financial
statements.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial reporting and with applicable quarterly reporting
regulations of the Securities and Exchange Commission. Accordingly, they do
not include all of the information and notes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Certain
prior period amounts have been reclassified to conform to the current
period's financial statement presentation. Operating results for the
interim periods of 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999. For further
information, refer to the consolidated financial statements and related
notes included in the Company's annual report on Form 10-K for the year
ended December 31, 1998.
(2) The following is a reconciliation between the calculation of basic and
diluted net income per share:
<TABLE>
<CAPTION>
Quarter Ended March 31
Brink's Group 1999 1998
--------------------------------------------------------------------
<S> <C> <C>
Numerator:
Net income - Basic and diluted net
income per share numerator $ 16,798 17,037
Denominator:
Basic weighted average common
shares outstanding 38,904 38,477
Effect of dilutive securities:
Employee stock options 202 604
--------------------------------------------------------------------
Diluted weighted average
common shares outstanding 39,106 39,081
--------------------------------------------------------------------
</TABLE>
24
<PAGE>
<PAGE>
Options to purchase 774 shares of Brink's Stock, at prices between $27.25
and $39.56 per share were outstanding during the three months ended March
31, 1999, 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
$23,723 in the first quarter of 1999 compared to $16,941 in the first
quarter of 1998.
(4) 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 by $1,061 for the first quarter of
1998. The effect of this change increased diluted net income per common
share of the Brink's Group by $0.02 in the first quarter 1998.
(5) Cash payments made for interest and income taxes, net of refunds received,
were as follows:
<TABLE>
<CAPTION>
Quarter Ended March 31
1999 1998
<S> <C> <C>
- -------------------------------------------------------------------
Interest $ 6,788 3,478
- -------------------------------------------------------------------
Income taxes $ 2,690 1,279
- -------------------------------------------------------------------
</TABLE>
During the first quarter of 1998, Brink's recorded the following noncash
investing and financing activities 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.
(6) The cumulative impact of foreign currency translation deducted from
shareholder's equity was $45,183 and $36,892 at March 31, 1999 and
December 31, 1998, respectively.
(7) Under the share repurchase programs authorized by the Board of Directors,
the Company purchased shares in the periods presented as follows:
<TABLE>
<CAPTION>
Quarter Ended March 31
(In thousands) 1999 1998
- --------------------------------------------------------------------------
<S> <C> <C>
Brink's Stock:
Shares 100.0 --
Cost $ 2,514 --
Convertible Preferred Stock:
Shares 83.9 0.4
Cost $ 20,980 146
- --------------------------------------------------------------------------
Excess carrying amount (a) $ 19,201 23
- --------------------------------------------------------------------------
</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.
On March 12, 1999, the Board increased the remaining authority to purchase
its Convertible Preferred Stock by $4,300. On March 15, 1999, the Company
purchased 83.9 shares (or 839 depositary shares) of its Convertible
Preferred Stock for $20,980. The Convertible Preferred Stock is convertible
into Minerals Stock and has an annual dividend rate of $31.25 per share.
Preferred dividends included on the Company's Statement of Operations for
the quarter ended March 31, 1999 are net of the $19,201, which is the
excess of the carrying amount of the Convertible Preferred Stock over the
cash paid to the holders of the Convertible Preferred Stock. The cash flow
requirements and proceeds and the costs of the Convertible Preferred Stock
have been attributed to the Minerals Group.
25
<PAGE>
<PAGE>
At March 31, 1999, the Company had the remaining authority to purchase over
time 900 shares of Brink's Stock and an additional $7,556 of its
Convertible Preferred Stock. The remaining aggregate purchase cost
limitation for all common stock was $22,184 at March 31, 1999.
(8) As of January 1, 1999, the Brink's Group adopted AICPA Statement of
Position ("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.
The adoption of SOP No. 98-5 had no material impact on the results of
operations of the Brink's Group.
26
<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 flow 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 specifically
identified with operations of a particular 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
provide a reasonable and equitable estimate of costs, assets and liabilities
attributable to the Brink's Group.
The Company provides holders of the Pittston Brink's Group Common Stock
("Brink's Stock") separate financial statements, financial reviews, descriptions
of business and other relevant information for the Brink's Group, in addition to
consolidated financial information of the Company. Holders of Brink's Stock are
shareholders of the Company, which is responsible for all its liabilities.
Therefore, financial developments affecting the Brink's Group, the Pittston BAX
Group (the "BAX Group") or the Pittston Minerals Group (the "Minerals Group")
that affect the Company's financial condition could therefore 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>
Quarter Ended March 31
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Brink's:
North America $ 137,438 129,367
Europe 110,587 49,813
Latin America 76,451 76,492
Asia/Pacific 6,287 6,251
- ----------------------------------------------------------------------------------------------------------
Total Brink's 330,763 261,923
BHS 55,121 48,410
- ----------------------------------------------------------------------------------------------------------
Total operating revenues $ 385,884 310,333
- ----------------------------------------------------------------------------------------------------------
Operating profit:
Brink's:
North America $ 7,943 10,067
Europe 6,309 825
Latin America 8,568 10,677
Asia/Pacific (2,837) 350
- ----------------------------------------------------------------------------------------------------------
Total Brink's 19,983 21,919
BHS 14,004 13,502
- ----------------------------------------------------------------------------------------------------------
Total segment operating profit 33,987 35,421
General corporate expense (1,783) (4,089)
- ----------------------------------------------------------------------------------------------------------
Total operating profit $ 32,204 31,332
- ----------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Quarter Ended March 31
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Depreciation and amortization:
Brink's $ 12,321 8,419
BHS 11,959 8,802
General corporate 62 57
- ----------------------------------------------------------------------------------------------------------
Total depreciation and amortization $ 24,342 17,278
- ----------------------------------------------------------------------------------------------------------
Cash capital expenditures:
Brink's $ 18,640 13,303
BHS 19,311 18,459
General corporate 2 104
- ----------------------------------------------------------------------------------------------------------
Total cash capital expenditures $ 37,953 31,866
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The Brink's Group's net income totaled $16.8 million ($0.43 per share) in the
first quarter of 1999 compared with $17.0 million ($0.44 per share) in the first
quarter of 1998. Operating profit for the 1999 first quarter increased to $32.2
million from $31.3 million in the first quarter of 1998. Revenues for the 1999
first quarter increased $75.6 million compared with the 1998 first quarter. Net
interest expense during the first quarter of 1999 increased $2.4 million due
largely to higher average interest rates attributable to foreign borrowings
(principally in Venezuela) as well as higher average borrowings related to the
acquisition of nearly all the remaining shares of Brink's affiliate in France.
BRINK'S
Brink's consolidated revenues totaled $330.8 million in the first quarter of
1999 compared with $261.9 million in the first quarter of 1998. The 26% revenue
increase was more than offset by increases in total costs and expenses of $71.2
million (30%). Brink's operating profit of $20.0 million in the first quarter of
1999 represented a $1.9 million (9%) decrease versus the $21.9 million operating
profit reported in the prior year quarter. The increase in revenue was
attributable to operations in Europe and North America. Operating profit
decreases in North America, Latin America and Asia/Pacific were partially offset
by an increase in operating profit in Europe.
Revenues from North American operations (United States and Canada) increased
$8.1 million (6%), to $137.4 million in the 1999 first quarter from $129.4
million in the prior year quarter. North American operating profit decreased
$2.1 million to $7.9 million in the current year quarter. The decline in
operating profit was primarily attributable to the increased information
technology expenditures in North America to enhance Brink's capabilities in
transportation of valuables, ATM servicing, money processing and air courier
operations as well as to implement communication improvements. The revenue
increase was from growth in armored car operations, which include ATM services.
Revenues and operating profit from European operations amounted to $110.6
million and $6.3 million, respectively, in the first quarter of 1999. These
amounts represented increases of $60.8 million and $5.5 million from the
comparable quarter of 1998. The increase in revenue was primarily due to the
acquisition of nearly all the remaining shares of Brink's affiliate in France in
the first quarter of 1998 as well as the acquisition of the remaining 50%
interest of Brink's affiliate in Germany in the second quarter of 1998. The
operating profit increase was primarily due to the improved results from
operations in France as well as the increased ownership position. There were
also improvements in several other countries, including Belgium which was
negatively impacted during the first quarter of 1998 by industry-wide labor
unrest.
In Latin America, revenues were flat on a US dollar basis as increased local
currency revenues were largely offset by the effects of a stronger US dollar.
Operating profits of $8.6 million for the first quarter of 1999 were $2.1
million lower than the $10.7 million operating profits achieved in the
comparable 1998 quarter largely due to weaker business conditions in Latin
America, particularly Venezuela, Colombia and Chile. Operating profits improved
slightly in Brazil and the 20% owned Mexican affiliate posted solid equity
earnings versus an equity loss in the same quarter last year. Latin American
business operations have strengthened over the soft fourth
28
<PAGE>
<PAGE>
quarter 1998 results with improvements in a number of countries as measures were
implemented in response to the weak business conditions in that region.
Revenues from Asia/Pacific operations of $6.3 million were relatively unchanged
from the first quarter of 1998. Operating loss from Asia/Pacific subsidiaries
and affiliates in the first quarter of 1999 was $2.8 million, compared to
operating profit of $0.4 million in the prior year quarter. The operating loss
was primarily due to expenses associated with the expansion of operations in
Australia and, to a lesser extent, general economic weakness in the Asia/Pacific
region.
BHS
Selected financial data for BHS on a comparative basis:
<TABLE>
<CAPTION>
Quarter Ended March 31
(Dollars in thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Monitoring and service $ 19,013 17,182
Net marketing, sales and installation (5,009) (3,680)
- ----------------------------------------------------------------------------------------------------------
Operating profit $ 14,004 13,502
- ----------------------------------------------------------------------------------------------------------
Monthly recurring revenues (a) $ 15,555 13,369
- ----------------------------------------------------------------------------------------------------------
Number of subscribers:
Beginning of period 585,565 511,532
Installations 26,851 26,750
Disconnects (11,773) (9,675)
- ---------------------------------------------------------------------------------------------------------
End of period 600,643 528,607
- ---------------------------------------------------------------------------------------------------------
</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.
Revenues for BHS increased by 14% in the first quarter of 1999 compared to the
1998 quarter. This increase in revenues was due to higher ongoing monitoring and
service revenues, reflecting a 14% increase in the subscriber base as well as
slightly higher average monitoring fees. As a result of such growth, monthly
recurring revenues at March 31, 1999 grew 16% versus those as measured at March
31, 1998.
Operating profit in the first quarter of 1999 increased $0.5 million (4%)
compared to the 1998 first quarter. Operating profit was favorably impacted by
increases generated from monitoring and service activities of $1.8 million (11%)
for the first quarter 1999. This improvement over the prior year quarter was due
to the growth in the subscriber base combined with the higher average monitoring
fees, offset in part by an increase in disconnect expense. Growth in overall
operating profit was negatively affected by the up-front net cost of marketing,
sales and installation related to gaining new subscribers which increased $1.3
million during the first quarter of 1999, as compared to the first quarter of
1998. This increase in up-front net cost in the quarter was due to higher levels
of sales and marketing costs incurred and expensed.
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 month period ended March 31, 1998 by $1.1 million.
The effect of this change increased diluted net income per common share of the
Brink's Group by $0.02 in the first quarter of 1998.
FOREIGN OPERATIONS
A portion of the Brink's Group financial results is derived from activities in a
number of foreign countries located in Europe, Asia and Latin America, each with
a local currency other than the US dollar. Because the financial results of the
Brink's Group are reported in US dollars, they are affected by changes in the
value of the various foreign currencies in relation to the US dollar. Changes in
exchange rates may also adversely affect transactions which are denominated in
currencies other than the functional currency. Brink's periodically
29
<PAGE>
<PAGE>
enters into such transactions in the course of its business. The diversity of
foreign operations helps to mitigate a portion of the impact that foreign
currency fluctuations may have in any one country on the translated results.
Brink's, from time to time, uses foreign currency forward contracts to hedge
transactional risks associated with foreign currencies. Translation adjustments
of net monetary assets and liabilities denominated in the local currency
relating to operations in countries with highly inflationary economies are
included in net income, along with all transaction gains or losses for the
period. The economy in Venezuela, where the Brink's Group has a subsidiary, is
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,
political instability, controls on repatriation of earnings and capital,
nationalization, expropriation and other forms of restrictive action by local
governments. The future effects, if any, of such risks on the Brink's Group
cannot be predicted.
CORPORATE EXPENSES
A portion of the Company's corporate general and administrative expenses and
other shared services has been allocated to the Brink's Group based upon
utilization and other methods and criteria which management believes result in
an equitable and reasonable estimate of the cost attributable to the Brink's
Group. These attributions were $1.8 million in the first quarter of 1999 and
$4.1 million in the first quarter of 1998. Corporate expenses in the first
quarter of 1998 include 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 were
attributed to the Brink's Group.
OTHER OPERATING INCOME, NET
Other operating income, net consists primarily of net equity earnings of Brink's
foreign affiliates. These net equity earnings amounted to income of $1.4 million
and $0.9 million for the first quarters of 1999 and 1998, respectively. The
improvement in net equity earnings in the first quarter of 1999 is primarily due
to the level of equity earnings of Brink's 20% owned affiliate in Mexico, as
compared to equity losses of this affiliate in the 1998 quarter. Due to the
acquisition of the remaining shares of Brink's affiliate in France in the first
quarter of 1998, equity earnings in the 1998 first quarter only included two
months of the results of this now consolidated subsidiary.
INTEREST EXPENSE, NET
Interest expense, net increased $2.4 million to $5.3 million during the quarter
ended March 31, 1999 over the prior year. This increase is predominantly due to
unusually high interest rates in Venezuela associated with local currency
borrowings in that country, and to a lesser extent, higher average borrowings
related to acquisitions in 1998 in France and Germany.
OTHER EXPENSE, NET
Other expense, net which principally included foreign translation gains and
losses and minority interest expense or income, improved $1.1 million versus the
first quarter of 1998. The 1999 period reflected lower minority ownership
expense partially offset by lower translation gains.
INCOME TAXES
In both the 1999 and 1998 periods presented, the provision for income taxes
exceeded the statutory federal income tax rate of 35% due to provisions for
state income taxes, 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 Brink's Group based upon utilization of the shared services from which
assets and liabilities are generated. Management believes this attribution to
provide a reasonable and equitable estimate of the assets and liabilities
attributable to the Brink's Group.
30
<PAGE>
<PAGE>
CASH FLOW REQUIREMENTS
Cash provided by operating activities for the first quarter of 1999 totaled
$22.3 million compared to the first quarter of 1998, which provided cash from
operating activities of $22.9 million. The increase in cash earnings was largely
offset by higher working capital requirements.
INVESTING ACTIVITIES
Cash capital expenditures for the first quarter of 1999 totaled $37.9 million,
of which $19.3 million was spent by BHS and $18.6 million was spent by Brink's.
Expenditures incurred by BHS were primarily for customer installations,
representing the expansion of the subscriber base, while expenditures incurred
by Brink's were primarily for expansion, replacement or maintenance of assets
used in ongoing business operations. Capital expenditures for Brink's were
primarily funded through cash provided by operating activities as well as cash
on hand. For the remainder of 1999, cash capital expenditures are expected to
range between $125 million and $130 million. The foregoing amounts exclude
expenditures that have been or are expected to be financed through capital
leases or acquisition expenditures.
FINANCING
The Brink's Group intends to fund cash capital expenditures through cash flow
from operating activities. Shortfalls, if any, will be financed through the
Company's revolving credit agreements, other borrowing arrangements or
repayments from the Minerals Group (as described under "Related Party
Transactions").
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 March 31, 1999 and December 31, 1998, borrowings of $100.0
million were outstanding under the term loan and $130.5 million and $91.6
million, respectively, of additional borrowings were outstanding under the
revolving portion of the Facility. No portion of the total amount outstanding
under the Facility at March 31, 1999 or at December 31, 1998 was attributed to
the Brink's Group.
RELATED PARTY TRANSACTIONS
At March 31, 1999, under an interest bearing borrowing arrangement, the Minerals
Group owed the Brink's Group $12.0 million, a decrease of $8.3 million from the
$20.3 million owed at December 31, 1998. At March 31, 1999, the Brink's Group
owed the Minerals Group $17.3 million compared to the $12.9 million owed at
December 31, 1998 for tax payments representing Minerals Group tax benefits
utilized by the Brink's Group in accordance with the Company's tax sharing
policy, of which $12.0 million is expected to be paid within one year.
MARKET RISKS AND HEDGING AND DERIVATIVE ACTIVITIES
The Brink's Group has activities in a number of foreign countries throughout the
world. Operations within these countries expose the Brink's Group to a variety
of market risks, including the effects of changes in foreign currency exchange
rates and interest rates. These financial exposures are monitored and managed by
the company as an integral part of its overall risk management program. The
diversity of foreign operations helps to mitigate a portion of the impact that
foreign currency rate fluctuations may have in any one country on the translated
results. The Brink's Group risk management program considers this favorable
diversification effect as it measures the Brink's Group exposure to financial
markets and as appropriate, seeks to reduce the potentially adverse effects that
the volatility of certain markets may have on its operating results. The Brink's
Group has not had any material change in its market risk exposures since
December 31, 1998.
READINESS FOR YEAR 2000: SUMMARY
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. If not corrected, many
date-sensitive applications could fail or create erroneous results by or in the
year 2000. The Brink's Group understands the importance of having systems and
equipment operational through the year 2000 and beyond and is committed to
addressing these challenges while continuing to fulfill its business obligations
to its customers and business partners. Both BHS and Brink's have established
Year 2000 Project Teams intended to make their information technology assets,
including embedded microprocessors ("IT assets"), non-IT assets, products,
services and infrastructure Year 2000 compliant.
31
<PAGE>
<PAGE>
READINESS FOR YEAR 2000: STATE OF READINESS
Brink's
The Brink's Year 2000 Project Team has divided its Year 2000 readiness program
into six phases: (i) inventory, (ii) assessment, (iii) renovation, (iv)
validation/testing, (v) implementation and (vi) integration. Worldwide, Brink's
is largely in the renovation, validation/testing and implementation phases of
its Year 2000 readiness program.
Brink's North America
With respect to Brink's North America operations, all core IT systems have been
identified, renovation has taken place and the Year 2000 project is currently in
both the implementation and integration phases. The implementation phase of the
core operational systems is expected to be substantially completed by the second
quarter of 1999. Non-IT systems, including armored vehicles, closed circuit
televisions, videocassette recorders and certain currency processing equipment,
are in the assessment phase and certain renovation/replacement has been done.
The renovation and validation phases for non-IT systems are expected to continue
through the second quarter of 1999. As of March 31, 1999, most of Brink's North
America IT systems have been tested and validated as Year 2000 ready. Brink's
believes that all its IT and non-IT systems will be Year 2000 compliant or that
there will be no material adverse effect on operations or financial results due
to non-compliance.
Brink's International
All international affiliates have been provided with an implementation plan,
prepared by the Global Year 2000 Project Team. In addition, there is senior
management sponsorship in all international countries. The implementation plan
requires semi-monthly reports as to the status of each category in each country.
The categories include core systems, non-core systems, hardware, facilities,
special equipment, voice/data systems, etc. Countries in Europe, Latin America
and Asia/Pacific are in varying phases of the Year 2000 readiness program. In
Europe, core systems have been identified, some are in the remediation and
validation/testing phase, with others currently in the implementation and
integration phase. In both Latin America and Asia/Pacific, most countries are
currently in active renovation with several completing testing and
implementation on core systems. Brink's plans to have completed all phases of
its Year 2000 readiness program on a timely basis prior to Year 2000.
BHS
The BHS Year 2000 Project Team has divided its Year 2000 readiness program into
four phases: (i) assessment, (ii) remediation/replacement, (iii) testing and
(iv) integration. As of March 31, 1999, BHS has completed the assessment and
remediation/replacement phases. BHS is currently in both the testing and
integration phases. BHS plans to have completed all phases of its Year 2000
readiness program on a timely basis prior to Year 2000. As of March 31, 1999, at
least 90% of BHS' IT and non-IT assets systems had been tested and verified as
Year 2000 ready.
Brink's Group
As part of their Year 2000 projects, both BHS and Brink's North America have
sent comprehensive questionnaires to significant suppliers, and others with
which they do business, regarding their Year 2000 compliance and both are in the
process of identifying significant problem areas with respect to these business
partners. Brink's International operations also have programs in place. The
Brink's Group is relying on such third parties' representations regarding
their own readiness for Year 2000. This process will be ongoing and efforts
with respect to specific problems identified will depend in part upon the
assessment of the risk that any such problems may have a material adverse
impact on operations.
Further, the Brink's Group relies upon government agencies (US and foreign),
utility companies, telecommunication service companies and other service
providers outside of its control. As with most companies, the companies of the
Brink's Group are vulnerable to significant suppliers', customers' and other
third parties' inability to remedy their own Year 2000 issues. As the Brink's
Group cannot control the conduct of its suppliers or other third parties, there
can be no guarantee that Year 2000 problems originating with a supplier or other
third party will not occur.
32
<PAGE>
<PAGE>
READINESS FOR YEAR 2000: COSTS TO ADDRESS
The Brink's Group anticipates incurring remediation and acceleration costs for
its Year 2000 readiness program. Remediation includes identification,
assessment, remediation and testing phases of its Year 2000 readiness program.
Remediation costs include the costs of modifying existing software and hardware
as well as purchases that replace existing hardware and software that is not
Year 2000 ready. Most of these costs will be incurred by Brink's. Acceleration
costs include costs to purchase and/or develop and implement certain information
technology systems whose implementation have been accelerated as a result of the
Year 2000 readiness issue. Again, most of these costs will be incurred by
Brink's but were included in the normal budget cycle. Brink's does not
separately track the internal costs incurred for Year 2000, but these costs are
principally the related payroll for the information systems group and are also
included in the normal budget cycle. Additional IT initiatives, unrelated to
Year 2000, are continuing.
Total anticipated remediation and acceleration costs are detailed in the table
below:
<TABLE>
<CAPTION>
(Dollars in millions)
ACCELERATION Capital Expense Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total anticipated Year 2000 costs $ 4.0 0.8 4.8
Incurred through March 31, 1999 2.1 0.4 2.5
- ----------------------------------------------------------------------------------------------------
Remainder $ 1.9 0.4 2.3
- ----------------------------------------------------------------------------------------------------
<CAPTION>
REMEDIATION Capital Expense Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total anticipated Year 2000 costs $ 10.0 3.6 13.6
Incurred through March 31, 1999 6.1 1.5 7.6
- ----------------------------------------------------------------------------------------------------
Remainder $ 3.9 2.1 6.0
- ----------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL Capital Expense Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total anticipated Year 2000 costs $ 14.0 4.4 18.4
Incurred through March 31, 1999 8.2 1.9 10.1
- ----------------------------------------------------------------------------------------------------
Remainder $ 5.8 2.5 8.3
- ----------------------------------------------------------------------------------------------------
</TABLE>
READINESS FOR YEAR 2000: THE RISKS OF THE YEAR 2000 ISSUE
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect results of
operations, liquidity and financial condition of the Brink's Group.
Brink's believes its most reasonably likely worst case scenario is that it will
experience a number of minor system malfunctions and errors in the early days
and weeks of the Year 2000 that were not detected during its renovation and
testing efforts. Brink's currently believes that these problems will not be
overwhelming and are not likely to have a material effect on the company's
operations or financial results. Brink's may experience some additional
personnel expenses related to Year 2000 failures, but such expenses are not
expected to be material. As noted above, the Brink's Group is vulnerable to
significant suppliers', customers' and other third parties inability to remedy
their own Year 2000 issues. As the Brink's Group cannot control the conduct of
its suppliers or other third parties, there can be no guarantee that Year 2000
problems originating with a supplier, customer or other third party will not
occur. However, Brink's program of communication with major third parties with
whom they do business is intended to minimize any potential risks related to
third party failures.
BHS has begun an analysis of the operational problems and costs that would be
reasonably likely to result from the failure by BHS and certain third parties to
complete efforts necessary to achieve Year 2000 readiness on a timely basis. BHS
believes its most reasonably likely worst case scenario is that its ability to
receive alarm signals from some or all of its customers may be disrupted due to
temporary regional service outages sustained by third party electric utilities,
local telephone companies, and/or long distance telephone service providers.
Such outages could occur regionally, affecting clusters of customers, or could
occur at BHS's principal monitoring facility, possibly affecting the ability to
provide service to all customers. BHS currently
33
<PAGE>
<PAGE>
believes that the consequences of these problems will not be overwhelming and
are not likely to have a material effect on the company's operations or
financial results.
READINESS FOR YEAR 2000: CONTINGENCY PLAN
A contingency planning document, which was developed with the assistance of an
external facilitator, has been finalized for Brink's North American operations.
Brink's provides a number of different services to its customers and each type
of service line was reviewed during the contingency planning sessions. This
contingency planning document addresses the issue of what Brink's response would
be should a system/device fail, as well as what preparations and actions are
required beforehand to ensure continuity of services if those identified systems
failed. This includes, in some cases, reverting to paper processes to track and
handle packages, additional staff if required and increased supervisory
presence. Brink's may experience some additional personnel expenses related to
any Year 2000 failures, but they are not expected to be material. This
contingency planning document was made available to Brink's International
operations to use as a guidance in developing appropriate contingency plans at
each of their locations and for the specific services they provide to their
customers.
BHS has begun to develop a contingency plan for dealing with the most reasonably
likely worst case scenario. This contingency planning document will address the
issue of what BHS's response would be should it sustain a service outage
encountered by the third party electric utility, local telephone company,
and/or primary long distance telephone service provider at its principal
monitoring facility. This includes, among other things, the testing of redundant
system connectivity routed through multiple switching stations of the local
telephone company, and testing of backup electric generators at both BHS's
principal and backup monitoring facilities.
READINESS FOR YEAR 2000: FORWARD LOOKING INFORMATION
This discussion of the Brink's Group companies' readiness for Year 2000,
including statements regarding anticipated completion dates for various phases
of the Brink's Group's Year 2000 project, estimated costs for Year 2000
readiness, the determination of likely worst case scenarios, actions to be taken
in the event of such worst case scenarios and the impact on the Brink's Group of
any delays or problems in the implementation of Year 2000 initiatives by the
Brink's Group and/or any public or private sector suppliers and service
providers and customers 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 for those
which are anticipated. Such risks, uncertainties and contingencies, many of
which are beyond the control of the Brink's Group, include, but are not limited
to, government regulations and/or legislative initiatives, variations in costs
or expenses relating to the implementation of Year 2000 initiatives, changes in
the scope of improvements to Year 2000 initiatives and delays or problems in the
implementation of Year 2000 initiatives by the Brink's Group and/or any public
or private sector suppliers and service providers and customers.
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 ("Pittston Coal") 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.
34
<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>
Quarter Ended March 31
(Dollars in millions, shares in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Brink's Stock:
Shares 100.0 --
Cost $ 2.5 --
Convertible Preferred Stock:
Shares 83.9 0.4
Cost $ 21.0 0.1
Excess carrying amount (a) $ 19.2 0.0
- --------------------------------------------------------------------------------------------------
</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.
On March 12, 1999, the Board increased the remaining authority to purchase its
Convertible Preferred Stock by $4.3 million. On March 15, 1999, the Company
purchased .08 million shares (or .8 million depositary shares) of its
Convertible Preferred Stock for $21.0 million. The Convertible Preferred Stock
is convertible into Minerals Stock and has an annual dividend rate of $31.25 per
share. Preferred dividends included on the Company's Statement of Operations for
the quarter ended March 31, 1999 are net of the $19.2 million, which is the
excess of the carrying amount over the cash paid to the holders of the
Convertible Preferred Stock. The cash flow requirements and proceeds and the
costs of the Convertible Preferred Stock have been attributed to the Minerals
Group.
As of March 31, 1999, the Company had the remaining authority to purchase over
time 0.9 million shares of Brink's Stock and an additional $7.6 million of its
Convertible Preferred Stock. The remaining aggregate purchase cost limitation
for all common stock was $22.2 million as of March 31, 1999.
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 three months of 1999 and 1998, the Board declared and the
Company paid cash dividends of 2.50 cents per share of Brink's Stock. Dividends
paid on the Convertible Preferred Stock in each of the first quarters of 1999
and 1998 were $0.9 million.
ACCOUNTING CHANGES
As of January 1, 1999, the Brink's Group adopted AICPA Statement of Position
("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. The adoption of SOP No.
98-5 had no material impact on the results of operations of the Brink's Group.
FORWARD LOOKING INFORMATION
Certain of the matters discussed herein, including statements regarding the
readiness for Year 2000, repayment of borrowings from the Minerals Group 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,
variations in costs or expenses, cash flow of the Minerals Group, changes in the
scope of Year 2000 initiatives, and delays or problems in the implementation of
Year 2000 by the Brink's Group and/or any public or private sector suppliers,
service providers and customers.
35
<PAGE>
<PAGE>
PITTSTON BAX GROUP
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,455 30,676
Accounts receivable (net of estimated uncollectible amounts:
1999 - $15,515; 1998 - $15,625) 275,571 285,485
Inventories 4,156 4,560
Prepaid expenses and other current assets 10,682 7,789
Deferred income taxes 8,659 9,090
- -------------------------------------------------------------------------------------------------------------------
Total current assets 332,523 337,600
Property, plant and equipment, at cost (net of accumulated depreciation and
amortization:
1999 - $101,271; 1998 - $95,409) 208,634 205,371
Intangibles, net of accumulated amortization 177,216 177,969
Deferred pension assets 6,137 3,785
Deferred income taxes 33,216 33,377
Other assets 16,228 17,196
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 773,954 775,298
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings $ 44,547 38,749
Current maturities of long-term debt 3,727 3,965
Accounts payable 189,742 190,746
Payable - Pittston Minerals Group 9,000 7,000
Accrued liabilities 95,498 105,481
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 342,514 345,941
Long-term debt, less current maturities 94,067 98,191
Postretirement benefits other than pensions 4,086 3,954
Deferred income taxes 1,977 1,624
Payable - Pittston Minerals Group 13,833 13,355
Other liabilities 16,032 11,963
Commitments and contingent liabilities
Shareholder's equity 301,445 300,270
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 773,954 775,298
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
<PAGE>
PITTSTON BAX GROUP
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31
1999 1998
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenues $ 460,249 402,433
Costs and expenses:
Operating expenses 414,421 362,339
Selling, general and administrative expenses 43,547 43,614
- -------------------------------------------------------------------------------------------------------
Total costs and expenses 457,968 405,953
Other operating income (expense), net 377 (133)
- -------------------------------------------------------------------------------------------------------
Operating profit (loss) 2,658 (3,653)
Interest income 318 259
Interest expense (2,152) (1,218)
Other expense, net (157) (98)
- -------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 667 (4,710)
Provision (credit) for income taxes 246 (1,744)
- -------------------------------------------------------------------------------------------------------
Net income (loss) $ 421 (2,966)
- -------------------------------------------------------------------------------------------------------
Net income (loss) per common share:
Basic $ .02 (.15)
Diluted .02 (.15)
- -------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .06 .06
- -------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding:
Basic 19,036 19,477
Diluted 19,051 19,477
- -------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ 631 (2,566)
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
37
<PAGE>
<PAGE>
PITTSTON BAX GROUP
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31
1999 1998
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 421 (2,966)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 9,653 7,667
Provision for aircraft heavy maintenance 11,719 8,733
Credit for deferred income taxes (82) (463)
Provision (credit) for pensions, noncurrent 1,588 (24)
Provision for uncollectible accounts receivable 1,214 1,110
Other operating, net 1,338 1,317
Change in operating assets and liabilities, net of effects of acquisitions
and dispositions:
Decrease in accounts receivable 17,344 15,903
Decrease (increase) in inventories 404 (142)
Increase in prepaid expenses and other current assets (1,858) (1,928)
(Increase) decrease in other assets (1,699) 583
Decrease in accounts payable and accrued liabilities (12,648) (9,795)
Increase (decrease) in other liabilities 970 (1,108)
Other, net 891 (1,444)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 29,255 17,443
- ------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (14,044) (24,379)
Proceeds from disposal of property, plant and equipment 46 115
Aircraft heavy maintenance expenditures (14,908) (9,659)
Other, net 21 (2,406)
- ------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (28,885) (36,329)
- ------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Increase in short-term borrowings 5,079 4,497
Additions to long-term debt 4,381 20,844
Reductions of long-term debt (6,016) (3,960)
Proceeds from exercise of stock options 41 905
Dividends paid (1,076) (1,106)
Repurchase of common stock -- (3,514)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,409 17,666
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 2,779 (1,220)
Cash and cash equivalents at beginning of period 30,676 28,790
- ------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 33,455 27,570
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
38
<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 specifically
identified with operations of a particular segment. The BAX Group's
financial statements are prepared using the amounts included in the
Company's consolidated financial statements. Corporate allocations
reflected in these financial statements are determined based upon
methods which management believes to provide a reasonable and equitable
allocation of such items.
The Company provides to 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 its liabilities. Financial impacts arising from the
Pittston Brink's Group (the "Brink's Group") the BAX Group or the
Pittston Minerals Group (the "Minerals Group") that affect the
Company's financial condition could therefore affect the results of
operations and financial condition of each of the Groups. Since
financial developments within one Group could affect other Groups, all
shareholders of the company could be adversely affected by an event
directly impacting only one Group. Accordingly, the Company's
consolidated financial statements must be read in connection with the
BAX Group's financial statements.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial reporting and with applicable quarterly reporting
regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and notes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair
presentation have been included. Certain prior period amounts have been
reclassified to conform to the current period's financial statement
presentation. Operating results for the interim periods of 1999 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the
consolidated financial statements and related notes included in the
Company's annual report on Form 10-K for the year ended December 31,
1998.
(2) The following is a reconciliation between the calculation of basic and
diluted net income (loss) per share:
<TABLE>
<CAPTION>
Quarter Ended March 31
BAX Group 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Numerator:
Net income (loss) - Basic
and diluted net income (loss)
per share numerator $ 421 (2,966)
Denominator:
Basic weighted average common
shares outstanding 19,036 19,477
Effect of dilutive securities:
Employee stock options 15 --
- ----------------------------------------------------------------------------------------------------------
Diluted weighted average common
shares outstanding $ 19,051 19,477
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Options to purchase 2,047 shares of BAX Stock, at prices between $9.13
and $27.91 per share, were outstanding during the three months ended
March 31, 1999, but were not included in the computation
39
<PAGE>
<PAGE>
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 2,366 shares of BAX Stock at prices between $5.78
and $27.91 per share were outstanding during the three months ended
March 31, 1998, but were not included in the computation of diluted net
loss per share because the effect of all options would be antidilutive.
(3) Depreciation and amortization of property, plant and equipment totaled
$7,766 in the first quarter of 1999 compared to $6,006 in the first
quarter of 1998.
(4) Cash payments made for interest and income taxes, net of refunds
received, were as follows:
<TABLE>
<CAPTION>
Quarter Ended March 31
1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest $ 2,038 826
- --------------------------------------------------------------------------------------------------------------
Income taxes $ 1,848 3,746
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(5) The cumulative impact of foreign currency translation deducted from
shareholder's equity was $9,056 and $8,076 at March 31, 1999 and
December 31, 1998, respectively.
The cumulative impact of cash flow hedges deducted from shareholder's
equity were $127 and $1,289 at March 31, 1999 and December 31, 1998,
respectively.
(6) Under the share repurchase programs authorized by the Board of
Directors, the Company purchased shares in the periods presented as
follows:
<TABLE>
<CAPTION>
Quarter Ended March 31
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
BAX Stock:
Shares -- 177.5
Cost $ -- 3,505
Convertible Preferred Stock:
Shares 83.9 0.4
Cost $ 20,980 146
Excess carrying amount (a) $ 19,201 23
- ----------------------------------------------------------------------------------------------------------
</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.
On March 12, 1999, the Board increased the remaining authority to
purchase its Convertible Preferred Stock by $4,300. On March 15, 1999,
the Company purchased 83.9 shares (or 839 depositary shares) of its
Convertible Preferred Stock for $20,980. The Convertible Preferred
Stock is convertible into Minerals Stock and has an annual dividend
rate of $31.25 per share. Preferred dividends included on the Company's
Statement of Operations for the quarter ended March 31, 1999 are net of
the $19,201, which is the excess of the carrying amount over the cash
paid to the holders of the Convertible Preferred Stock. The cash flow
requirements and proceeds and the costs of the Convertible Preferred
Stock have been attributed to the Minerals Group.
At March 31, 1999, the Company had the remaining authority to purchase
over time 1,465 shares of BAX Stock and an additional $7,556 of its
Convertible Preferred Stock. The remaining aggregate purchase cost
limitation for all common stock was $22,184 at March 31, 1999.
(7) As of January 1, 1999, the BAX Group adopted AICPA Statement of
Position ("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. The adoption of SOP No. 98-5 had no material
impact on the results of operations of the BAX Group.
40
<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 provide a reasonable and equitable estimate of the costs 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 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 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>
Quarter Ended March 31
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
BAX Global:
Operating revenues:
Americas 278,252 273,515
Atlantic 85,412 76,829
Pacific 110,250 58,688
Eliminations/Other (13,665) (6,599)
- ----------------------------------------------------------------------------------------
Total operating revenues $ 460,249 402,433
- ----------------------------------------------------------------------------------------
BAX Global:
Operating profit (loss):
Americas (a) 11,196 8,785
Atlantic 1,522 1,133
Pacific 5,272 3,388
Other (a) (13,549) (12,876)
- ----------------------------------------------------------------------------------------
Segment operating profit (loss) 4,441 430
General corporate expense (1,783) (4,083)
- ----------------------------------------------------------------------------------------
Total operating profit (loss) $ 2,658 (3,653)
- ----------------------------------------------------------------------------------------
</TABLE>
(a) Global overhead costs have been reallocated between the Americas and Other
in 1999 to more accurately reflect the global services provided and to be
consistent with new performance measurements. Prior years' operating profit
(loss) for the Americas region and Other have been reclassified to conform to
the current year's classification.
41
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Quarter Ended March 31
(In thousands) 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Depreciation and amortization:
BAX Global $ 9,591 7,609
General corporate 62 58
- -----------------------------------------------------------------------------------------------
Total depreciation and amortization 9,653 7,667
- -----------------------------------------------------------------------------------------------
Cash capital expenditures:
BAX Global 14,042 24,275
General corporate 2 104
- -----------------------------------------------------------------------------------------------
Total cash capital expenditures $ 14,044 24,379
- -----------------------------------------------------------------------------------------------
</TABLE>
BAX Global operates in three geographic regions: the Americas, which includes
the domestic and export business of the United States ("US"), Latin America and
Canada; the Atlantic which includes Europe and Africa; and the Pacific which
includes Asia and Australia. Each region provides both expedited and
non-expedited freight services. Revenues and profits on expedited freight
services are shared among the origin and destination countries on all export
volumes. Accordingly, the US, as the largest exporter, significantly impacts the
trend of results in worldwide expedited freight services. Non-expedited freight
services primarily includes supply chain management and ocean freight services.
In addition, BAX Global operates a federally certificated airline, Air Transport
International ("ATI"). ATI's results, net of intercompany eliminations, are
included in the Americas region. Eliminations/other revenues primarily include
intercompany revenue eliminations on shared services. Other operating loss
primarily consists of global support costs including global IT costs and
goodwill amortization.
In the first quarter of 1999, the BAX Group reported net income of $0.4 million
($0.02 per share) as compared to net loss of $3.0 million ($0.15 per share) in
the first quarter of 1998. Revenues increased by 14% compared with the 1998
first quarter, to $460.2 million. Operating expenses and selling, general and
administrative expenses for the 1999 first quarter increased $52.0 million (13%)
compared with the same quarter last year.
BAX GLOBAL
Selected financial data for BAX Global on a comparative basis:
<TABLE>
<CAPTION>
Quarter Ended March 31
1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues by line of business:
Expedited freight services $ 387,754 353,850
Non-expedited freight services 72,495 48,583
- ----------------------------------------------------------------------------------------------
Total revenues 460,249 402,433
- ----------------------------------------------------------------------------------------------
Worldwide expedited freight services:
Weight (millions of pounds) 414.3 381.5
Shipments (thousands) 1,199 1,290
- ----------------------------------------------------------------------------------------------
Expedited freight services average:
Yield (revenue per pound) $ 0.936 0.928
Revenue per shipment $ 323 274
Weight per shipment (pounds) 346 296
- ----------------------------------------------------------------------------------------------
</TABLE>
BAX Global's worldwide operating revenues increased 14% to $460.2 million in the
first quarter of 1999 as compared to $402.4 million in the first quarter of
1998, with increases in all geographic regions. In the current quarter BAX
Global reported an operating profit of $4.4 million as compared to $0.4 million
reported in the first quarter of 1998. The operating profit in the first quarter
of 1999 included the benefit of $1.6 million of incentive accruals related to
1998 which will not be paid as a result of a management decision made during the
first quarter of 1999.
42
<PAGE>
<PAGE>
Revenues and operating profit in the Americas increased $4.7 million (2%) and
$2.4 million (27%) in the three months ended March 31, 1999 as compared to the
same period in 1998. Operating profit in the Americas region included the
benefit of approximately $0.3 million related to the aforementioned excess
incentive compensation accruals. The increase in revenue was primarily due to
the inclusion of revenues from ATI which was acquired in April 1998, offset by
decreases in expedited freight services revenues in the US as well as decreases
in US export revenues resulting from lower traffic to higher-yielding Asian
markets. Expedited freight service revenues within the US decreased as
lower volumes were partially offset by higher average yields. Higher average
pricing in 1999 benefited from the introduction of the higher yielding
"Emergency Response" product in the US in the third quarter of 1998. These
increases were partially offset by a loss from ATI reflecting lower volumes
due to seasonality as well as higher aircraft crew and maintenance costs. In
addition, US transportation costs in the first quarter of 1998 were negatively
impacted by service disruptions due to weather delays and equipment problems.
Revenues and operating profit in the Atlantic region increased $8.6 million
(11%) and $0.4 million (34%), respectively, in the three months ended March 31,
1999 as compared to the same 1998 period. The increase in revenue was primarily
due to an increase in volumes in the first quarter of 1999 as a result of a
stronger US economy and higher import revenues, which benefited from the award
of new contracts in the Pacific. Operating profit reflected the benefit of the
aforementioned excess incentive accrual in the amount of $0.5 million, which
was more than offset by increased infrastructure costs in anticipation of new
contracts.
Revenues and operating profit in the Pacific increased $51.6 million (88%) and
$1.9 million (56%), respectively, in the first quarter of 1999 as compared to a
year earlier. The increase in revenue was favorably impacted by the acquisition
of the remaining 67% interest in a freight agent in Taiwan in the first quarter
of 1999 and of a 51% interest in an agent in South Korea in the second quarter
of 1998. In addition, revenues and operating profit were favorably impacted by
higher revenues in Singapore resulting from the award of several new supply
chain management services contracts during late 1998 and early 1999. Operating
profit in the Pacific region was also favorably impacted by $0.8 million
relating to the benefit of the aforementioned excess incentive compensation
accruals.
Increases in eliminations/other revenue is consistent with increased revenues.
Other operating loss increased $0.7 million primarily due to higher global
administrative expenses, which were partially offset by lower global information
technology costs including spending on Year 2000 initiatives.
FOREIGN OPERATIONS
A portion of the BAX Group financial results is derived from activities in a
number of foreign countries located in Europe, Asia and Latin America, each with
a local currency other than the US dollar. Because the financial results of the
BAX Group are reported in US dollars, they are affected by changes in the value
of the various foreign currencies in relation to the US dollar. Changes in
exchange rates may also adversely affect transactions which are denominated in
currencies other than the functional currency. BAX Global periodically enters
into such transactions in the course of its business. The diversity of foreign
operations helps to mitigate a portion of the impact that foreign currency
fluctuations may have in any one country on the translated results. BAX Global,
from time to time, uses foreign currency forward contracts to hedge
transactional risks associated with foreign currencies. Translation adjustments
of net monetary assets and liabilities denominated in the local currency
relating to operations in countries with highly inflationary economies are
included in net income, along with all transaction gains or losses for the
period.
The BAX Group is also subject to other risks customarily associated with doing
business in foreign countries, including labor and economic conditions,
political instability, controls on repatriation of earnings and capital,
nationalization, expropriation and other forms of restrictive action by local
governments. The future effects, if any, of such risks on the 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 provide a reasonable
and equitable estimate of the costs attributable to the BAX Group. These
attributions were $1.8 million and $4.1 million for the first quarter of 1999
and 1998, respectively. Corporate expenses in the first quarter of 1998 include
additional expenses of approximately $5.8 million related to a
43
<PAGE>
<PAGE>
retirement agreement between the Company and its former Chairman and CEO.
Approximately $2.0 million of this $5.8 million of expenses were attributed to
the BAX Group.
OTHER OPERATING INCOME/EXPENSE, NET
Other operating income, net was $0.4 million in the first quarter of 1999,
compared with other operating expense, net of $0.1 million in the first quarter
of 1998. Other operating income/expense, 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
Interest expense, net increased $0.9 million for the three month period ended
March 31, 1999 as compared to the same period in 1998. The increase is primarily
due to higher levels of debt associated with acquisitions and increased IT
expenditures, including Year 2000 compliance efforts.
INCOME TAXES
In both the 1999 and 1998 periods presented, the provision for income taxes
exceeded the statutory federal income tax rate of 35% due to goodwill
amortization and state income taxes, 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 provide a
reasonable and equitable estimate of the costs attributable to the BAX Group.
CASH FLOW REQUIREMENTS
Cash provided by operating activities during the first three months of 1999
totaled $29.3 million as compared to the $17.4 million generated in the first
three months of 1998. The higher level of cash generated from operating
activities was primarily due to higher cash earnings.
INVESTING ACTIVITIES
Cash capital expenditures for the first three months of 1999 and 1998 totaled
$14.0 million and $24.4 million, respectively, reflecting lower levels of
expenditure on information technology systems. For the remainder of 1999, cash
capital expenditures are expected to be approximately $40 million. The foregoing
amounts exclude expenditures that have been or are expected to be financed
through capital leases and any acquisition expenditures. The increase in
aircraft heavy maintenance expenditures of $5.2 million was primarily due to
the acquisition of ATI in 1998.
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.
Cash flows received from financing activities were $2.4 million for the first
quarter of 1999, compared with $17.7 million for the same period in 1998. The
1998 levels reflect additional borrowings primarily 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 March 31, 1999 and December 31, 1998, borrowings of $100.0
million were outstanding under the term loan portion of the Facility and $130.5
million and $91.6 million, respectively, of additional borrowings were
outstanding under the remainder of the Facility. Of the total outstanding amount
under the Facility at March 31, 1999 and December 31, 1998, $59.5 million and
$60.9 million, respectively, were attributed to the BAX Group.
44
<PAGE>
<PAGE>
RELATED PARTY TRANSACTIONS
At March 31, 1999 and December 31, 1998, the Minerals Group had no borrowings
from the BAX Group. At March 31, 1999, the BAX Group owed the Minerals Group
$22.8 million versus $20.4 million at December 31, 1998 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 March 31, 1999, $9.0 million is expected to be paid
within one year.
MARKET RISKS AND HEDGING AND DERIVATIVE ACTIVITIES
The BAX Group has activities in a number of foreign countries throughout the
world. Operations in these countries expose the BAX Group to a variety of market
risks, including the effects of changes in foreign currency exchange rates and
interest rates. In addition, the BAX Group consumes certain commodities in its
business, exposing it to the effects of changes in the prices of such
commodities. These financial and commodity exposures are monitored and managed
by the company as an integral part of its overall risk management program. The
diversity of foreign operations helps to mitigate a portion of the impact that
foreign currency rate fluctuations may have in any one country on the translated
results. The BAX Group's risk management program considers this favorable
diversification effect as it measures the BAX Group's exposure to financial
markets and as appropriate, seeks to reduce the potentially adverse effects that
the volatility of certain markets may have on its operating results. The BAX
Group has not had any material change in its market risk exposures since
December 31, 1998.
READINESS FOR YEAR 2000: SUMMARY
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. If not corrected, many
date-sensitive applications could fail or create erroneous results by or in the
year 2000. The BAX Group understands the importance of having systems and
equipment operational through the year 2000 and beyond and is committed to
addressing these challenges while continuing to fulfill its business obligations
to its customers and business partners. BAX has established a year 2000 Project
Team intended to make its information technology assets, including embedded
microprocessors ("IT assets"), non-IT assets, products, services and
infrastructure Year 2000 compliant.
READINESS FOR YEAR 2000: STATE OF READINESS
The BAX Global Year 2000 Project Team has divided its Year 2000 readiness
program into five phases: (i) inventory (ii) assess and test, (iii) renovate,
(iv) test and verify and (v) implement. During the first quarter of 1999, the
inventory phase was completed on a global basis. Assessment of major systems in
the Americas and Europe has been completed, with readiness testing now underway.
Assessment is currently underway in Asia. Renovation activities for major
systems are in process as are replacement activities for non-compliant
components and systems that are not scheduled for renovation. Testing has also
begun for systems that have been renovated. The BAX Group plans to have
completed all phases of its Year 2000 readiness program on a timely basis prior
to Year 2000. As of March 31, 1999, more than 50% of BAX Group's IT and non-IT
assets systems have been tested and verified as Year 2000 ready.
As part of its Year 2000 project, the BAX Group has sent comprehensive
questionnaires to significant suppliers and others with whom it does business,
regarding their Year 2000 readiness and is in the process of identifying any
problem areas with respect to these business partners. The BAX Group is relying
on such third parties representations regarding their own readiness for Year
2000. The extent to which any of these potential problems may have a material
adverse impact on the BAX Group's operations is being assessed and will continue
to be assessed throughout 1999.
Further, the BAX Group relies upon US and foreign government agencies
(particularly the Federal Aviation Administration and customs agencies
worldwide), utility companies, telecommunication service companies and other
service providers outside of its control. According to a recent General
Accounting Office report to Congress, some airports will not be prepared for the
Year 2000 and the problems these airports experience could impede traffic flow
throughout the nation. As with most companies, the BAX Group is vulnerable to
significant suppliers' and other third parties inability to remedy their own
Year 2000 issues. As the BAX Group cannot control the conduct of its customers,
suppliers and other third parties, there can be no guarantee that Year 2000
problems originating with a supplier or another third party will not occur.
45
<PAGE>
<PAGE>
READINESS FOR YEAR 2000: COSTS TO ADDRESS
The BAX Group anticipates incurring remediation and acceleration costs for its
Year 2000 readiness program. Remediation includes the identification,
assessment, remediation and testing phases of the Year 2000 readiness program.
Remediation costs include both the costs of modifying existing software and
hardware as well as purchases that replace existing hardware and software that
is not Year 2000 ready. Acceleration costs include costs to purchase and/or
develop and implement certain information technology systems whose
implementation have been accelerated as a result of the Year 2000 readiness
issue.
Total anticipated remediation and acceleration costs are detailed in the table
below:
<TABLE>
<CAPTION>
(Dollars in millions)
ACCELERATION Capital Expense Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total anticipated Year 2000 costs $ 17.9 3.7 21.6
Incurred through March 31, 1999 14.3 1.6 15.9
- ------------------------------------------------------------------------------------------------------------------
Remainder $ 3.6 2.1 5.7
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
REMEDIATION Capital Expense Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total anticipated Year 2000 costs $ 2.7 14.0 16.7
Incurred through March 31, 1999 1.4 11.0 12.4
- ------------------------------------------------------------------------------------------------------------------
Remainder $ 1.3 3.0 4.3
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL Capital Expense Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total anticipated Year 2000 costs $ 20.6 17.7 38.3
Incurred through March 31, 1999 15.7 12.6 28.3
- ------------------------------------------------------------------------------------------------------------------
Remainder $ 4.9 5.1 10.0
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
READINESS FOR YEAR 2000: THE RISKS OF THE YEAR 2000 ISSUE
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect results of
operations, liquidity and financial condition of the BAX Group. The extent to
which such a failure may adversely affect operations is being assessed. The BAX
Group believes its most reasonably likely worst case scenario is that it will
experience a number of minor system malfunctions and errors in the early days
and weeks of the Year 2000 that were not detected during its renovation and
testing efforts. The BAX Group currently believes that these problems will not
be overwhelming and are not likely to have a material effect on the company's
operations or financial results. As noted above, the BAX Group is vulnerable to
significant suppliers', customers' and other third parties' (particularly
government agencies such as the Federal Aviation Administration and customs
agencies worldwide) inability to remedy their own Year 2000 issues. As the BAX
Group cannot control the conduct of its suppliers or other third parties, there
can be no guarantee that Year 2000 problems originating with a supplier,
customer or other third party will not occur. However, the BAX Group's program
of communication with and assessments of major third parties with whom they do
business is intended to minimize any potential risks related to third party
failures.
READINESS FOR YEAR 2000: CONTINGENCY PLAN
During the first quarter of 1999, the BAX Group initiated contingency planning
for dealing with its most reasonably likely worst case scenario. That planning
is on schedule. The foundation for the BAX Group's Year 2000 readiness program
is to ensure that all mission-critical systems are renovated/replaced and tested
prior to when a Year 2000 failure might occur if the program were not
undertaken. Year 2000 is the number one priority within the BAX Group's IT
organization with full support of the Group's Chief Executive Officer.
READINESS FOR YEAR 2000: FORWARD LOOKING INFORMATION
This discussion of the BAX Group's readiness for Year 2000, including statements
regarding anticipated completion dates for various phases of the BAX Group's
Year 2000 project, estimated costs for Year 2000 readiness, the determination of
likely worst case
46
<PAGE>
<PAGE>
scenarios, actions to be taken in the event of such worst case scenarios and the
impact on the BAX Group's of any delays or problems in the implementation of
Year 2000 initiatives by the BAX Group and/or any public or private sector
suppliers and service providers and customers 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,
include, but are not limited to, government regulations and/or legislative
initiatives, variation in costs or expenses relating to the implementation of
Year 2000 initiatives, changes in the scope of improvements to Year 2000
initiatives and delays or problems in the implementation of Year 2000
initiatives by the BAX Group and/or any public or private sector suppliers and
service providers and customers.
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 ("Pittston Coal") 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.
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>
Quarter Ended March 31
(Dollars in millions) 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
BAX Stock:
Shares $ -- 177.5
Cost -- 3.5
Convertible Preferred Stock:
Shares 83.9 0.4
Cost $ 21.0 0.1
Excess carrying amount (a) $ 19.2 0.0
- --------------------------------------------------------------------------------------------
</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.
On March 12, 1999, the Board increased the remaining authority to purchase its
Convertible Preferred Stock by $4.3 million. On March 15, 1999, the Company
purchased .08 million shares (or .8 depositary shares) of its Convertible
Preferred Stock for $21.0 million. The Convertible Preferred Stock is
convertible into Minerals Stock and has an annual dividend rate of $31.25 per
share. Preferred dividends included on the Company's Statement of Operations for
the quarter ended March 31, 1999 are net of the $19.2 million, which is the
excess of the carrying amount of the Convertible Preferred Stock over the cash
paid to the holders of the Convertible Preferred Stock. The cash flow
requirements and proceeds and the costs of the Convertible Preferred Stock have
been attributed to the Minerals Group.
As of March 31, 1999, the Company had remaining authority to purchase over time
1.5 million shares of BAX Stock and an additional $7.6 million of its
Convertible Preferred Stock. The remaining aggregate purchase cost limitation
for all common stock was $22.2 million as of March 31, 1999.
ACCOUNTING CHANGES
As of January 1, 1999, the BAX Group adopted AICPA Statement of Position ("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. The adoption of SOP No.
98-5 had no material impact on the results of operations of the BAX Group.
47
<PAGE>
<PAGE>
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 first three months of 1999 and 1998, the Board declared and the
Company paid cash dividends of 6.00 cents per share of BAX Stock. Dividends paid
on the Convertible Preferred Stock in each of the first three month periods of
1999 and 1998 were $0.9 million.
FORWARD LOOKING INFORMATION
Certain of the matters discussed herein, including statements regarding the
readiness for Year 2000, projected capital spending, and the repayment of
borrowings from the Minerals Group, 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,
variations in costs or expenses, cash flow of the Minerals Group, 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 any public or private sector suppliers, service providers and customers,
and delays or problems in the design and implementation of improvements to
information systems.
48
<PAGE>
<PAGE>
PITTSTON MINERALS GROUP
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,172 942
Accounts receivable (net of estimated uncollectible amounts:
1999 - $2,310; 1998 - $2,275) 78,831 90,311
Receivable - Pittston Brink's Group/BAX Group, net 9,011 --
Inventories:
Coal inventory 25,564 24,567
Other inventory 3,981 4,177
- -------------------------------------------------------------------------------------------------------------------
29,545 28,744
Prepaid expenses and other current assets 8,180 6,574
Deferred income taxes 19,766 19,863
- -------------------------------------------------------------------------------------------------------------------
Total current assets 147,505 146,434
Property, plant and equipment, at cost (net of accumulated depreciation,
depletion and amortization:
1999 - $164,446; 1998 - $159,459) 154,766 153,785
Deferred pension assets 87,327 86,897
Deferred income taxes 57,744 58,210
Intangibles, net of accumulated amortization 104,174 104,925
Coal supply contracts 19,395 21,965
Receivable - Pittston Brink's Group/BAX Group, net 19,143 16,298
Other assets 52,983 52,950
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 643,037 641,464
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDER'S EQUITY Current liabilities:
Short-term borrowings $ 17,590 29,734
Current maturities of long-term debt 506 482
Accounts payable 36,042 33,987
Payable - Pittston Brink's Group/BAX Group, net -- 3,321
Accrued liabilities 88,032 87,737
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 142,170 155,261
Long-term debt, less current maturities 172,000 131,772
Postretirement benefits other than pensions 232,693 231,242
Workers' compensation and other claims 78,611 79,717
Mine closing and reclamation liabilities 31,911 33,147
Other liabilities 35,707 35,977
Commitments and contingent liabilities
Shareholder's equity (50,055) (25,652)
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholder's equity $ 643,037 641,464
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
49
<PAGE>
<PAGE>
PITTSTON MINERALS GROUP
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31
1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 108,753 149,898
Cost and expenses:
Cost of sales 115,443 144,164
Selling, general and administrative expenses 6,924 9,087
- -----------------------------------------------------------------------------------------------------------
Total costs and expenses 122,367 153,251
Other operating income, net 4,280 2,174
- -----------------------------------------------------------------------------------------------------------
Operating loss (9,334) (1,179)
Interest income 472 301
Interest expense (2,306) (2,594)
- -----------------------------------------------------------------------------------------------------------
Loss before income taxes (11,168) (3,472)
Credit for income taxes (6,609) (2,229)
- -----------------------------------------------------------------------------------------------------------
Net loss (4,559) (1,243)
Preferred stock dividends, net (Note 6) 18,314 (864)
- -----------------------------------------------------------------------------------------------------------
Net income (loss) attributed to common shares (Note 6) $ 13,755 (2,107)
- -----------------------------------------------------------------------------------------------------------
Net income (loss) per common share (Note 6):
Basic $ 1.61 (.26)
Diluted (.45) (.26)
- -----------------------------------------------------------------------------------------------------------
Cash dividends per common share $ .025 .1625
- -----------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding:
Basic 8,570 8,225
Diluted 10,102 8,225
- ----------------------------------------------------------------------------------------------------------
Comprehensive income (loss) $ 15,406 (1,778)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
50
<PAGE>
<PAGE>
PITTSTON MINERALS GROUP
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended March 31
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,559) (1,243)
Adjustments to reconcile net loss to net cash provided (used)
by operating activities:
Depreciation, depletion and amortization 8,825 8,933
Provision for deferred income taxes 237 1,612
Credit for pensions, noncurrent (417) (802)
Other operating, net 509 788
Change in operating assets and liabilities, net of effects of acquisitions
and dispositions:
Decrease (increase) in accounts receivable 11,334 (24,578)
(Increase) decrease in inventories (759) 5,764
Decrease (increase) in prepaid expenses and other current assets 263 (2,452)
Increase in other assets (682) (222)
Decrease in accounts payable and accrued liabilities (3,465) (10,937)
Decrease in other liabilities (1,145) (1,215)
Decrease in workers' compensation and
other claims, noncurrent (1,106) (2,394)
Other, net -- 44
- --------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities 9,035 (26,702)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property, plant and equipment (6,368) (4,460)
Proceeds from disposal of property, plant and equipment 11 229
Other, net 891 (1,939)
- --------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (5,466) (6,170)
- --------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
(Decrease) increase in short-term borrowings (12,144) 8,086
Additions to long-term debt 41,381 40,344
Reductions of long-term debt (1,184) (3,162)
Payments to Brink's Group (8,331) (11,238)
Repurchase of stock (20,980) (269)
Dividends paid (1,081) (2,100)
- --------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by financing activities (2,339) 31,661
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,230 (1,211)
Cash and cash equivalents at beginning of period 942 3,394
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,172 2,183
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
51
<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
specifically identified with operations of a particular segment. The
Minerals Group's financial statements are prepared using the amounts
included in the Company's consolidated financial statements. Corporate
allocations reflected in these financial statements are determined
based upon methods which management believes to provide a reasonable
and equitable allocation of such items.
The Company provides to holders of Pittston Minerals Group Common Stock
("Minerals Stock") separate financial statements, financial review,
descriptions of business and other relevant information for the
Minerals Group, in addition to consolidated financial information of
the Company. Holders of Minerals Stock are shareholders of the Company,
which continues to be responsible for all its liabilities. Financial
impacts arising from the Pittston Brink's Group (the "Brink's Group"),
the Pittston BAX Group (the "BAX Group") or the Minerals Group that
affect the Company's financial condition could therefore affect the
results of operations and financial condition of each of the Groups.
Since financial developments within one Group could affect other
Groups, all shareholders of the Company could be adversely affected by
an event directly impacting only one Group. Accordingly, the Company's
consolidated financial statements must be read in connection with the
Minerals Group's financial statements.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial reporting and with applicable quarterly reporting
regulations of the Securities and Exchange Commission. Accordingly,
they do not include all of the information and notes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair
presentation have been included. Certain prior period amounts have been
reclassified to conform to the current period's financial statement
presentation. Operating results for the interim periods of 1999 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1999. For further information, refer to the
consolidated financial statements and related notes included in the
Company's annual report on Form 10-K for the year ended December 31,
1998.
(2) The following is a reconciliation of the calculation of basic and
diluted net income (loss) per share:
<TABLE>
<CAPTION>
Quarter Ended March 31
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Minerals Group
Numerator:
Net loss $ (4,559) (1,243)
Convertible Preferred Stock dividends, net 18,314 (864)
- --------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per share numerator 13,755 (2,107)
Effect of dilutive securities:
Convertible Preferred Stock dividends, net (18,314) --
- --------------------------------------------------------------------------------------------------------------------
Diluted net loss per share numerator (4,559) (2,107)
Denominator:
Basic weighted average common
shares outstanding 8,570 8,225
Effect of dilutive securities:
Assumed conversion of Convertible
Preferred Stock 1,532 --
- -------------------------------------------------------------------------------------------------------------------
Diluted weighted average common shares outstanding 10,102 8,225
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
<PAGE>
Options to purchase 692 shares of Minerals Stock, at prices between
$1.91 and $25.74 per share, were outstanding during the three months
ended March 31, 1999 but were not included in the computation of
diluted net loss 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 677 shares of Minerals Stock, at prices between
$9.50 and $25.74 per share, were outstanding during the three months
ended March 31, 1998 but were not 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 1,765 shares of
Minerals Stock has been excluded in the computation of diluted net loss
per share for the three months ended March 31, 1998 because the effect
of the assumed conversion would be antidilutive.
(3) Depreciation, depletion and amortization of property, plant and
equipment totaled $5,448 in the first quarter of 1999 compared to
$5,739 in the first quarter of 1998.
(4) Cash payments made for interest and income taxes, net of refunds
received, were as follows:
<TABLE>
<CAPTION>
Quarter Ended March 31
1999 1998
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest $ 1,577 3,466
-----------------------------------------------------------------------------------------------------------
Income taxes $ 111 (22)
-----------------------------------------------------------------------------------------------------------
</TABLE>
(5) The cumulative impact of foreign currency translation deducted from
shareholder's equity was $3,310 and $3,919 at March 31, 1999 and
December 31, 1998, respectively.
The cumulative impact of cash flow hedges deducted from shareholder's
equity were $1,001 and $2,020 at March 31, 1999 and December 31, 1998,
respectively.
(6) Under the share repurchase programs authorized by the Board of
Directors, the Company purchased shares in the periods presented as
follows:
<TABLE>
<CAPTION>
Quarter Ended March 31
(In thousands) 1999 1998
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Convertible Preferred Stock:
Shares 83.9 0.4
Cost $ 20,980 146
Excess carrying amount (a) $ 19,201 23
----------------------------------------------------------------------------------------------------------
</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.
On March 12, 1999, the Board increased the authority to purchase its
Convertible Preferred Stock by $4,300. On March 15, 1999, the Company
purchased 83.9 shares (or 839 depositary shares) of its Convertible
Preferred Stock for $20,980. The Convertible Preferred Stock is
convertible into Minerals Stock and has an annual dividend rate of
$31.25 per share. Preferred dividends included on the Company's
Statement of Operations for the quarter ended March 31, 1999 are net of
the $19,201, which is the excess of the carrying amount of the
Convertible Preferred Stock over the cash paid to the holders of the
Convertible Preferred Stock. The cash flow requirements and proceeds
and the costs of the Convertible Preferred Stock have been attributed
to the Minerals Group.
At March 31, 1999, the Company had the remaining authority to purchase
over time 1,000 shares of Minerals Stock and an additional $7,556 of
its Convertible Preferred Stock. The remaining aggregate purchase cost
limitation for all common stock was $22,184 at March 31, 1999.
53
<PAGE>
<PAGE>
(7) As of January 1, 1999, the Minerals Group adopted AICPA Statement of
Position ("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. The Minerals Group has determined that
capitalized mine development costs for its gold and coal mining
operations relate to acquiring and constructing long-lived assets and
preparing them for their intended use. Accordingly, the adoption of SOP
No. 98-5 had no material impact on the results of operations for the
Minerals Group.
54
<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 (the "Minerals Group")
include the balance sheets, results of operations and cash flows of the Pittston
Coal Company ("Pittston Coal") 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 specifically identified with operations of a particular 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 provide a reasonable and equitable estimate of the costs, assets and
liabilities 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 its
liabilities. Therefore, financial developments affecting the Minerals Group, the
Pittston Brink's Group (the "Brink's Group") or the Pittston BAX Group that
affect the Company's financial condition could therefore 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>
Quarter Ended March 31
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales:
Pittston Coal:
Coal Operations $ 103,511 143,976
Allied Operations (a) 2,037 1,944
- ----------------------------------------------------------------------------------------------------------
Total Pittston Coal 105,548 145,920
Mineral Ventures 3,205 3,978
- ----------------------------------------------------------------------------------------------------------
Net sales $ 108,753 149,898
- ----------------------------------------------------------------------------------------------------------
Operating profit (loss):
Pittston Coal:
Coal Operations $ (8,342) 670
Allied Operations (a) 1,358 1,832
- ----------------------------------------------------------------------------------------------------------
Total Pittston Coal (6,984) 2,502
Mineral Ventures (790) (47)
- ----------------------------------------------------------------------------------------------------------
Segment operating profit (loss) (7,774) 2,455
General corporate expense (1,560) (3,634)
- ----------------------------------------------------------------------------------------------------------
Operating loss $ (9,334) (1,179)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(a) Primarily consists of timber and natural gas operations.
55
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Quarter Ended March 31
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Depreciation, depletion and amortization:
Pittston Coal $ 8,057 8,218
Mineral Ventures 715 666
General corporate 53 49
- ----------------------------------------------------------------------------------------------------------
Total depreciation, depletion and amortization $ 8,825 8,933
- ----------------------------------------------------------------------------------------------------------
Cash capital expenditures:
Pittston Coal $ 5,148 3,671
Mineral Ventures 1,218 700
General corporate 2 89
- ----------------------------------------------------------------------------------------------------------
Total cash capital expenditures $ 6,368 4,460
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The Minerals Group is primarily engaged in the mining, preparation and marketing
of coal, the purchase of coal for resale, the sale or leasing of coal lands to
others ("Coal Operations") and has interests in the timber and natural gas
businesses ("Allied Operations") through Pittston Coal. The Minerals Group also
explores for and acquires mineral assets, primarily gold, through its Mineral
Ventures operations.
In the first quarter of 1999, the Minerals Group reported a net loss of $4.6
million compared to a net loss of $1.2 million in the first quarter of 1998. In
the first quarter of 1999 the operating loss totaled $9.3 million as compared to
an operating loss of $1.2 million in the 1998 quarter. Net sales during the
first quarter of 1999 decreased $41.1 million (27%) compared to the
corresponding 1998 quarter.
PITTSTON COAL
Net sales for Pittston Coal totaled $105.5 million in the first quarter of 1999
compared to $145.9 million in the prior year quarter. This decrease was
primarily due to lower Coal Operations sales volume. Pittston Coal reported an
operating loss of $7.0 million in the first quarter of 1999 compared to an
operating profit of $2.5 million in 1998. This decline in operating results was
primarily in Coal Operations, due to a reduction in coal margin and increases in
idle and closed mine cost and inactive employee cost, offset by a gain on the
settlement of litigation.
Selected financial data for Coal Operations on a comparative basis:
<TABLE>
<CAPTION>
Quarter Ended March 31
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Coal margin $ 4,824 11,469
Other operating income 2,779 1,054
- ----------------------------------------------------------------------------------------------------------
Margin and other income 7,603 12,523
- ----------------------------------------------------------------------------------------------------------
Idle equipment and closed mines 1,821 703
Inactive employee cost 9,843 6,955
Selling, general and administrative 4,281 4,195
- ----------------------------------------------------------------------------------------------------------
Total other costs and expenses 15,945 11,853
- ----------------------------------------------------------------------------------------------------------
Total Coal Operations operating profit (loss) $ (8,342) 670
- ----------------------------------------------------------------------------------------------------------
Coal sales (tons):
Metallurgical 1,536 1,931
Steam 1,926 2,923
- ----------------------------------------------------------------------------------------------------------
Total coal sales 3,462 4,854
- ----------------------------------------------------------------------------------------------------------
</TABLE>
56
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended March 31
(In thousands) 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Production/purchased (tons):
Deep 1,324 1,389
Surface 1,116 1,969
Contract 269 242
- ----------------------------------------------------------------------------------------------------------
2,709 3,600
Purchased 779 965
- ----------------------------------------------------------------------------------------------------------
Total 3,488 4,565
- ----------------------------------------------------------------------------------------------------------
Coal margin per ton:
Realization $ 29.90 29.66
Current production costs 28.51 27.29
- ----------------------------------------------------------------------------------------------------------
Coal margin $ 1.39 2.37
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Coal Operations sales decreased $40.5 million in the first quarter of 1999
compared to the same period in 1998 largely as the result of reduced sales
volume, which declined 1.4 million tons from the 4.9 million tons sold in the
1998 first quarter. Compared to the 1998 first quarter, steam coal sales in the
first quarter of 1999 decreased by 1.0 million tons (34%), to 1.9 million tons
and metallurgical coal sales declined by 0.4 million tons (20%), to 1.5 million
tons. The steam sales reduction was due primarily to the sale of certain assets
at the Elkay mining operation ("Elkay Assets") during 1998 and the closing of a
surface mine in Kentucky in the third quarter 1998. The decline in metallurgical
sales was primarily due to continued softness in market conditions resulting
from lower worldwide steel production and a strong US dollar relative to the
currencies of other coal exporting nations. Steam coal sales represented 56% and
60% of total volume in the first quarter of 1999 and 1998, respectively.
For the first quarter of 1999, Coal Operations generated an operating loss of
$8.3 million as compared to an operating profit of $0.7 million for the same
period in 1998. The lower results were primarily due to a $6.6 million decrease
in total coal margin, offset by the net gain from the settlement of litigation
($2.4 million). In addition, idle and closed mine cost and inactive employee
cost increased $1.1 million and $2.9 million, respectively, in the first quarter
of 1999, compared to the same period in 1998, as discussed below.
Total coal margin for the first quarter of 1999 decreased compared to the 1998
first quarter due to lower sales volume combined with a decrease in coal margin
per ton. Coal margin per ton decreased to $1.39 per ton in the first quarter of
1999 from $2.37 per ton for the 1998 first quarter. This overall change was due
to a decrease in the metallurgical coal margins. Metallurgical coal margins were
negatively impacted in the first quarter of 1999 by lower realizations per ton
primarily resulting from the previously mentioned soft market conditions.
Despite the decreases in metallurgical coal realization per ton over the prior
year, overall realization per ton increased slightly as a greater proportion of
coal sales came from metallurgical coal, which generally has a higher
realization per ton than steam coal. Overall, current production cost per ton of
coal sold increased primarily due to a correspondingly higher proportion of deep
mine production which is generally more costly than surface mine production. In
addition, coal margin per ton in the 1998 first quarter included a $0.27 per ton
benefit related to a favorable ruling issued by the US Supreme Court on the
unconstitutionality of the Harbor Maintenance Tax while the first quarter of
1999 included the $0.17 per ton benefit of the judgment rendered by the US
District Court for the Eastern District of Virginia, regarding the
constitutionality of the federal black lung excise tax, since Coal Operations no
longer had to accrue the tax (as more fully discussed below).
Metallurgical sales in 1999 are expected to continue to be lower than 1998
levels, due to market conditions, as well as the disadvantage caused by the
relative strength of the US dollar versus currencies of other metallurgical coal
producing countries. In addition, this currency disadvantage has negatively
impacted 1999 contract negotiations for the contract year that commenced April
1, 1999.
Production in the first quarter of 1999 decreased 0.9 million tons over the
comparable period in 1998, while purchased coal declined from 1.0 million tons
to 0.8 million tons for the first quarter of 1998 and 1999, respectively.
Surface production accounted for 45% and 56% of total production in the first
quarter of 1999
57
<PAGE>
<PAGE>
and 1998, respectively, and reflected the sale of Elkay Assets as well as the
closing of a surface mine in Kentucky.
Other operating income, which primarily includes gains and losses on sales of
property and equipment and third party royalties, amounted to $2.8 million in
the first quarter of 1999 as compared to $1.1 million in the comparable period
of 1998. This increase was primarily due to a $2.4 million gain from the
settlement of litigation.
Idle and closed mine costs increased $1.1 million during the first quarter of
1999. The increase was due to the first quarter 1999 idlement of a deep mine
producing metallurgical coal, in response to the previously mentioned weak
market conditions, as well as additional costs at other idle mines. Such costs
are expected to continue at these higher levels into the next quarter. Barring
significant improvements in these market conditions, rising inventory levels
could result in further review of capacity requirements.
Inactive employee costs, which primarily represent long-term employee
liabilities for pension and retiree medical costs, increased 42% primarily due
to higher costs related to certain long-term benefit obligations as a result of
reductions in the amortization of actuarial gains, a decrease in discount rates
used to calculate the present value of the liabilities and higher premiums for
the Coal Industry Retiree Benefit Act of 1992. Coal Operations anticipates that
costs related to certain of these long-term benefit obligations will continue at
these higher levels during 1999. Also impacting inactive employee costs were
laidoff medical benefits accrued for the idlement of a metallurgical mine.
On February 10, 1999, the US District Court for the Eastern District of Virginia
entered a final judgment in favor of certain of the Company's subsidiaries,
ruling that the federal black lung excise tax ("FBLET") imposed under Section
4121 of the Internal Revenue Code is unconstitutional as applied to export coal
sales and ordering a refund to the subsidiaries of approximately $0.7 million
(plus interest) for the FBLET that those companies paid for the quarter ended
March 31, 1997. The government did not appeal the judgment before the April 12,
1999 deadline for noting an appeal. The Company will seek refunds of the FBLET
it paid on export coal sales for all open statutory periods. The ultimate
amounts and timing of such refunds, if any, cannot be determined at the present
time. The benefit of this judgment as applied to export coal sales for the first
quarter of 1999 is reflected in the production costs of coal sold ($0.6
million), since Coal Operations no longer had to accrue the tax.
Revenues and operating profit from the Allied Operations increased $0.1 million
and decreased $0.5 million, respectively, for the first quarter of 1999 as
compared to the same period in 1998. The revenue increase is due to increased
sales volume, although depressed natural gas prices and related royalties have
caused a decrease in operating profit.
A controversy involving an unrelated party with respect to a method of mining
called "mountaintop removal" that began in mid-1998 in West Virginia has
resulted in a suspension in the issuance of several mining permits, including
those unrelated to mountaintop removal. Due to the broadness of the suspension,
there has been a delay in Vandalia Resources, Inc., a wholly-owned subsidiary
of Pittston Coal, being issued, in a timely fashion, mining permits necessary
for its uninterrupted mining. For the immediate future Vandalia will require
the issuance of two permits to insure for uninterrupted production in 1999.
Vandalia obtained the first permit on April 15, 1999. It is essential that the
second permit be issued by the end of the second quarter in order to avoid
production interruptions. Management believes that the regulatory agencies are
in the process of establishing a functional review process to expedite permit
approvals. Affected employees have been notified of potential production
interruptions. During the year ended December 31, 1998, the mining operation
which is pursuing these permits produced approximately 2.7 million tons of coal
resulting in revenues of approximately $81.8 million and contributed
significantly to coal margin.
58
<PAGE>
<PAGE>
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 quarter of 1999 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, 1998 $ 8,906 16,307 25,213
Payments 575 319 894
- --------------------------------------------------------------------------------------
Balance as of March 31, 1999 $ 8,331 15,988 24,319
- --------------------------------------------------------------------------------------
</TABLE>
MINERAL VENTURES
<TABLE>
<CAPTION>
Quarter Ended March 31
1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
Stawell Gold Mine:
Mineral Ventures' 50% direct share:
Ounces sold 11,078 11,146
Ounces produced 10,653 11,156
Average per ounce sold (US$):
Realization $ 289 355
Cash cost 261 206
- --------------------------------------------------------------------------------------
</TABLE>
Mineral Ventures primarily consists of a 50% direct interest in the Stawell gold
mine ("Stawell") in Western Victoria, Australia. The remaining 50% interest in
Stawell is owned by Mining Project Investors ("MPI"). In addition, Mineral
Ventures had a 51.5% ownership interest in its joint venture partner MPI (45% on
a fully diluted basis). Recently, MPI has sold additional shares to a new
investor, reducing Mineral Ventures' ownership in MPI to a 45% interest (40% on
a fully diluted basis).
Mineral Ventures generated net sales during the first quarter of 1999 of $3.2
million, a 19% decrease from the $4.0 million reported in the first quarter of
1998. The decrease in net sales was the result of the continued deterioration of
gold prices in the market. Operating loss for the first quarter of 1999 was $0.8
million compared to break-even results in the same period last year. The
operating loss during the first quarter of 1999 was not only negatively impacted
by lower realization, but also by increased production costs due to a high
percentage of low grade ore milled, partially offset by increased equity income
from MPI. The cash cost per ounce of gold sold increased from $206 in the first
quarter of 1998 to $261 in the first quarter of 1999.
FOREIGN OPERATIONS
A portion of Mineral Ventures' financial results is derived from activities in
Australia, which has a local currency other than the US dollar. Because the
financial results of Mineral Ventures are reported in US dollars, they are
affected by changes in the value of the foreign currency in relation to the US
dollar. Rate fluctuations may affect transactions that are denominated in the
Australian dollar. Mineral Ventures, from time to time, uses foreign currency
forward contracts to hedge a portion of the currency risks associated with these
transactions. Mineral Ventures routinely enters into such transactions in the
normal course of its business.
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
59
<PAGE>
<PAGE>
believes to be a reasonable and equitable estimate of the costs attributable to
the Minerals Group. These attributions were $1.6 million for the first quarter
of 1999 and $3.6 million for the first quarter of 1998. Corporate expenses in
the first quarter of 1998 include 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
were attributed to the Minerals Group.
OTHER OPERATING INCOME, NET
Other operating income, net which primarily includes gains and losses on sales
of property and equipment and royalties, amounted to $4.3 million in the first
quarter of 1999 as compared to $2.2 million in the comparable period of 1998.
This increase was due to a $2.4 million gain from the settlement of litigation.
INTEREST EXPENSE, NET
Interest expense, net for the first three months of 1999 and 1998 was
approximately $1.8 million and $2.3 million, respectively, primarily the result
of lower interest rates.
INCOME TAXES
In both the 1999 and 1998 periods presented, a credit for income taxes was
recorded due primarily to pre-tax losses and the benefits of percentage
depletion.
FINANCIAL CONDITION
A portion of the Company's corporate assets and liabilities has been attributed
to the Minerals Group based upon utilization of the shared services from which
assets and liabilities are generated. Management believes this attribution to be
a reasonable and equitable estimate of the costs attributable to the Minerals
Group.
CASH FLOW REQUIREMENTS
Cash provided by operating activities approximated $9.0 million in the first
quarter of 1999 as compared to cash used of $26.7 million in the prior year.
Lower cash earnings were more than offset by a decrease in the amount required
to fund operating assets and liabilities, largely due to fluctuations in
accounts receivable. These fluctuations primarily relate to reduced coal sales
(due to the sale of Elkay Assets) and, to a lesser extent, improved collections.
Financing activities included the repurchase of 0.08 million shares (or 0.8
million depositary shares) of the Company's Series C Convertible Preferred Stock
for approximately $21.0 million. This repurchase was funded through the
Facility, as defined below.
INVESTING ACTIVITIES
Cash capital expenditures for the first three months of 1999 and 1998 totaled
$6.4 million and $4.5 million, respectively. During the 1999 period, Pittston
Coal and Mineral Ventures spent $5.1 million and $1.2 million, respectively. For
the remainder of 1999, the Minerals Group's cash capital expenditures are
expected to approximate $25 million. The foregoing amounts exclude expenditures
that have been or are expected to be financed through capital leases and any
acquisition expenditures.
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.
Cash used in financing activities was $2.3 million for the first quarter
of 1999, compared with cash provided by financing activities of $31.7 million
for the same period in 1998. The 1998 levels reflect additional borrowings
primarily required to fund operations.
The 1999 period includes additional borrowings under the Facility (as defined
below), primarily used to finance the purchase of the Company's Preferred Stock
(discussed in more detail 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
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up to an aggregate of $250.0 million. As of March 31, 1999 and December 31,
1998, borrowings of $100.0 million were outstanding under the term loan portion
of the Facility and $130.5 million and $91.6 million, respectively, of
additional borrowings were outstanding under the remainder of the Facility. Of
the outstanding amounts under the Facility at March 31, 1999, and December 31,
1998, $171.0 million and $130.7 million, respectively, were attributed to the
Minerals Group.
RELATED PARTY TRANSACTIONS
At March 31, 1999, under interest bearing borrowing arrangements, the Minerals
Group owed the Brink's Group $12.0 million, a decrease of $8.3 million from the
amount owed at December 31, 1998. The Minerals Group did not owe any amounts to
the BAX Group at March 31, 1999 or December 31, 1998.
At March 31, 1999, the Brink's Group owed the Minerals Group $17.3 million
versus $12.9 million at December 31, 1998 for tax benefits. Approximately $12
million is expected to be paid within one year. Also at March 31, 1999, the BAX
Group owed the Minerals Group $22.8 million versus $20.4 million at December 31,
1998 for tax benefits. Approximately $9 million is expected to be paid within
one year.
MARKET RISKS AND HEDGING AND DERIVATIVE ACTIVITIES
Mineral Ventures has activities in Australia, which has a local currency other
than the US dollar. These activities subject Mineral Ventures to certain market
risks, including the effects of changes in foreign currency exchange rates. In
addition, the Minerals Group consumes and sells certain commodities in its
businesses, exposing it to the effects of changes in the prices of such
commodities. These financial and commodity exposures are monitored and managed
by Mineral Ventures as an integral part of its overall risk management program,
which seeks to reduce the potentially adverse effects that the volatility of
these markets may have on its operating results. The Minerals Group has not had
any material changes in its market risk exposures since December 31, 1998.
READINESS FOR YEAR 2000: SUMMARY
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. If not corrected, many
date-sensitive applications could fail or create erroneous results by or in the
year 2000. The Minerals Group understands the importance of having systems and
equipment operational through the year 2000 and beyond and is committed to
addressing these challenges while continuing to fulfill its business obligations
to its customers and business partners. Both Pittston Coal and Mineral Ventures
have established Year 2000 Project Teams intended to make their information
technology assets, including embedded microprocessors ("IT assets"), non-IT
assets, products, services and infrastructure Year 2000 ready.
READINESS FOR YEAR 2000: STATE OF READINESS
The Minerals Group Year 2000 Project Team has divided its Year 2000 readiness
program into four phases: (i) assessment, (ii) remediation/replacement, (iii)
testing, (iv) integration. At March 31, 1999, the majority of the Group's core
IT assets are either already Year 2000 ready or in the testing or integration
phases. Those assets that are not yet Year 2000 ready are scheduled to be
remediated or replaced by year-end 1999, with testing and integration to begin
concurrently. The Minerals Group plans to have completed all phases of its Year
2000 readiness program on a timely basis prior to Year 2000. As of March 31,
1999, approximately 90% of hardware systems and embedded systems have been
tested and verified as Year 2000 ready.
As part of its Year 2000 project, Pittston Coal and Mineral Ventures have sent
comprehensive questionnaires to significant suppliers (particularly suppliers of
energy and transportation services), customers and others with which they do
business, regarding their Year 2000 readiness and is attempting to identify
significant problem areas with respect to these business partners. As of March
31, 1999, based on questionnaire responses to date, no potential problems have
been identified that would adversely affect Minerals Group operations. The
Minerals Group is relying on such third parties representations regarding their
own readiness for Year 2000. The extent to which any of these potential problems
may have a material adverse impact on the Minerals Group's operations is being
assessed and will continue to be assessed throughout 1999.
Further, the Minerals Group relies upon government agencies, utility companies,
rail carriers, telecommunication service companies and other service providers
outside of the Minerals Group's control. As with most companies, the companies
of the Minerals Group are vulnerable to significant suppliers' inability
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to remedy their own Year 2000 issues. As the Minerals Group cannot control the
conduct of its customers, suppliers and other third parties, there can be no
guarantee that Year 2000 problems originating with a supplier or another third
party will not occur.
READINESS FOR YEAR 2000: COSTS TO ADDRESS
The Minerals Group anticipates incurring remediation and acceleration costs for
its Year 2000 readiness programs. Remediation includes the identification,
assessment, remediation and testing phases of the Year 2000 readiness program.
Remediation costs include both the costs of modifying existing software and
hardware as well as purchases that replace existing hardware and software that
is not Year 2000 ready. Acceleration includes costs to purchase and/or develop
and implement certain information technology systems whose implementation have
been accelerated as a result of the Year 2000 readiness issue.
Total anticipated remediation and acceleration costs are detailed in the table
below:
<TABLE>
<CAPTION>
(Dollars in millions)
ACCELERATION Capital Expense Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total anticipated Year 2000 costs $ 1.6 0.2 1.8
Incurred through March 31, 1999 1.1 0.2 1.3
- ------------------------------------------------------------------------------------------------
Remainder $ 0.5 -- 0.5
- ------------------------------------------------------------------------------------------------
<CAPTION>
REMEDIATION Capital Expense Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total anticipated Year 2000 costs $ -- 0.2 0.2
Incurred through March 31, 1999 -- -- --
- ------------------------------------------------------------------------------------------------
Remainder $ -- 0.2 0.2
- ------------------------------------------------------------------------------------------------
<CAPTION>
TOTAL Capital Expense Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total anticipated Year 2000 costs $ 1.6 0.4 2.0
Incurred through March 31, 1999 1.1 0.2 1.3
- ------------------------------------------------------------------------------------------------
Remainder $ 0.5 0.2 0.7
- ------------------------------------------------------------------------------------------------
</TABLE>
READINESS FOR YEAR 2000: THE RISKS OF THE YEAR 2000 ISSUE
The Minerals Group believes that its internal information technology systems
will be renovated successfully prior to year 2000. All mission critical systems
have been identified that would cause the greatest disruption to the
organization. The failure to correct a material Year 2000 problem could result
in an interruption in, or a failure of, certain normal business activities or
operations. Such failures should have no material or significant adverse effect
on the results of operations, liquidity or financial condition of the Minerals
Group.
The Minerals Group believes it has identified its likely worst case scenario.
The Minerals Group's likely worst case scenario, assuming no external failures
such as power outages or delays in railroad transportation services, could be
delays in invoicing customers and payment of vendors. This likely worst case
scenario, should it occur, is not expected to result in a material impact on the
Minerals Group's financial statements. The Minerals Group production of coal and
gold is not heavily dependent on computer technology and would continue with
limited impact.
READINESS FOR YEAR 2000: CONTINGENCY PLAN
The Minerals Group has not yet developed a contingency plan for dealing with the
most likely worst case scenario. The foundation for the Minerals Group's Year
2000 Program is to ensure that all mission critical systems are renovated/
replaced and tested at least three months prior to when a Year 2000 failure
might occur if the program were not undertaken. As of March 31, 1999, all
mission critical systems, with the exception of human resources-related
systems, have been tested and verified as Year 2000 ready. These human
resources-related systems are not Year 2000 ready and as a safeguard are
scheduled to be remediated by mid-1999. These systems will subsequently be
replaced by year-end 1999. Year 2000 is the number one priority within the
Minerals Group's IT organization with full support of the Group's executive
management. In addition, as a normal course of business, the Minerals Group
maintains and deploys contingency plans designed to address various other
potential business interruptions. These plans
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may be applicable to address the interruption of support provided by third
parties resulting from their failure to be Year 2000 ready.
READINESS FOR YEAR 2000: FORWARD LOOKING INFORMATION
This discussion of the Minerals Group's readiness for Year 2000, including
statements regarding anticipated completion dates for various phases of the
Minerals Group's Year 2000 project, estimated costs for Year 2000 readiness, the
determination of likely worst case scenarios, actions to be taken in the event
of such worst case scenarios and the impact on the Minerals Group of any delays
or problems in the implementation of Year 2000 initiatives by the Minerals Group
and/or any public or private sector suppliers and service providers and
customers 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 Minerals Group, include, but are not limited to,
government regulations and/or legislative initiatives, variation in costs or
expenses relating to the implementation of Year 2000 initiatives, changes in the
scope of improvements to Year 2000 initiatives and delays or problems in the
implementation of Year 2000 initiatives by the Minerals Group and/or any public
or private sector suppliers and service providers and customers.
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.
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>
Quarter Ended March 31
(Dollars in millions, shares in thousands) 1999 1998
- --------------------------------------------------------------------------------
<S> <C> <C>
Convertible Preferred Stock:
Shares 83.9 0.4
Cost $ 21.0 0.1
Excess carrying amount (a) $ 19.2 0.0
- --------------------------------------------------------------------------------
</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.
On March 12, 1999, the Board increased the remaining authority to purchase its
Convertible Preferred Stock by $4.3 million. On March 15, 1999, the Company
purchased .08 million shares (or .8 depositary shares) of its Convertible
Preferred Stock for $21.0 million. The Convertible Preferred Stock is
convertible into Minerals Stock and has an annual dividend rate of $31.25 per
share. Preferred dividends included on the Company's Statement of Operations for
the quarter ended March 31, 1999 are net of the $19.2 million, which is the
excess of the carrying amount of the Convertible Preferred Stock over the cash
paid to the holders of the Convertible Preferred Stock. The cash flow
requirements and proceeds and the costs of the Convertible Preferred Stock have
been attributed to the Minerals Group.
As of March 31, 1999, the Company had remaining authority to purchase over time
1.0 million shares of Minerals Stock and an additional $7.6 million of its
Convertible Preferred Stock. The remaining aggregate purchase cost limitation
for all common stock was $22.2 million as of March 31, 1999.
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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. As a
result of recent performance of the Minerals Group and coal industry conditions.
as well as consideration of financial condition, cash flow and business
requirements, including the Available Minerals Dividend Amount, the Board
declined to declare a quarterly dividend on Minerals Stock at its May 1999
meeting. Dividends on the remaining Convertible Preferred Stock were declared.
During the first three months of 1999 and 1998, the Board declared and the
Company paid cash dividends of 2.50 cents and 16.25 cents, respectively, per
share of Minerals Stock. Dividends paid on the Convertible Preferred Stock in
each of the first three month periods of 1999 and 1998 were $0.9 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.
ACCOUNTING CHANGES
As of January 1, 1999, the Company adopted AICPA Statement of Position ("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. The Minerals Group has
determined that capitalized mine development costs for its gold and coal mining
operations relate to acquiring and constructing long-lived assets and preparing
them for their intended use. Accordingly, the adoption of SOP No. 98-5 had no
material impact on the results of operations.
FORWARD LOOKING INFORMATION
Certain of the matters discussed herein, including statements regarding coal
sales, metallurgical market conditions, idle equipment and closed mine costs,
review of capacity requirements, cost of long-term employee liabilities,
expedition of mining permit approvals, readiness for Year 2000 and repayment of
borrowings to the Minerals Group, 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, 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 any public or private sector suppliers, service providers
and customers.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number
------
3(b) The Registrant's Bylaws, as amended through May 7, 1999.
27 Financial Data Schedule.
(b) The following reports on Form 8-K were filed during the first quarter
of 1999:
(i) Report on Form 8-K filed on January 4, 1999, with respect
to the election of Thomas W. Garges, Jr. as President and Chief
Executive Officer of Pittston Coal Company; and
(ii) Report on Form 8-K filed on March 16, 1999, with respect to
the Registrant's repurchase of 839,200 depositary shares of
its Series C Cumulative Convertible Preferred Stock.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE PITTSTON COMPANY
May 13, 1999 By /s/ Robert T. Ritter
-----------------------------
Robert T. Ritter
(Vice President -
Chief Financial Officer)
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Exhibit 3(b)
THE PITTSTON COMPANY
BYLAWS
(As amended through May 7, 1999)
ARTICLE I
NAME
The name of the corporation is The Pittston Company.
ARTICLE II
OFFICES
1. The corporation shall maintain a registered office and a registered
agent in the Commonwealth of Virginia as required by the laws of said
Commonwealth.
2. The corporation shall in addition to its registered office in the
Commonwealth of Virginia establish and maintain an office or offices at such
place or places as the Board of Directors may from time to time find necessary
or desirable.
ARTICLE III
CORPORATE SEAL
The corporate seal of the corporation shall have inscribed thereon the name
of the corporation, the fact of its establishment in the Commonwealth of
Virginia and the words "Corporate Seal". Such seal may be used by causing it or
a facsimile thereof to be impressed, affixed, printed or otherwise reproduced.
ARTICLE IV
MEETINGS OF SHAREHOLDERS
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1. Meetings of the shareholders shall be held at such place, within or
without the Commonwealth of Virginia, as the Board may determine.
2. The annual meeting of the shareholders shall be held on the second
Wednesday in May at ten o'clock in the forenoon, local time, or on such other
day or at such other time as the Board may determine. At each annual meeting of
the shareholders they shall elect by plurality vote, in accordance with the
Articles of Incorporation and these bylaws, directors to hold office until the
third annual meeting of the shareholders held after their election and their
successors are respectively elected and qualified or as otherwise provided by
statute, the Articles of Incorporation or these bylaws. Any other proper
business may be transacted at the annual meeting. The chairman of the meeting
shall be authorized to declare whether any business is properly brought before
the meeting, and, if he shall declare that it is not so brought, such business
shall not be transacted. Without limiting the generality of the foregoing, the
chairman of the meeting may declare that matters relating to the conduct of the
ordinary business operations of the corporation are not properly brought before
the meeting.
3. A majority of the votes entitled to be cast on a matter shall constitute
a quorum for action on that matter at all meetings of the shareholders, except
as otherwise provided by statute, the Articles of Incorporation or these bylaws.
The shareholders entitled to vote thereat, present in person or by proxy, or the
chairman of the meeting shall have power to adjourn the meeting from time to
time, without notice other than announcement at the meeting before adjournment
(except as otherwise provided by statute). At such adjourned meeting any
business may be transacted which might have been transacted at the meeting as
originally notified.
4. At all meetings of the shareholders each shareholder having the right to
vote shall be entitled to vote in person, or by proxy appointed by an
appointment form signed by such shareholder and bearing a date not more than
eleven months prior to said meeting, unless such form provides for a longer
period. All proxies shall be effective
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when received by the Secretary or other officer or agent of the corporation
authorized to tabulate votes.
5. Except as otherwise provided in the Articles of Incorporation, at each
meeting of the shareholders each shareholder shall have one vote for each share
having voting power, registered in his name on the share transfer books of the
corporation at the record date fixed in accordance with these bylaws, or
otherwise determined, with respect to such meeting. Except as otherwise
expressly provided by statute, the Articles of Incorporation or these bylaws,
action on a matter, other than the election of directors, by a voting group is
approved if a quorum exists and the votes cast within the voting group favoring
the action exceed the votes cast opposing the action.
6. Except as otherwise prescribed by statute, notice of each meeting of the
shareholders shall be given to each shareholder entitled to vote thereat not
less than 10 nor more than 60 days before the meeting. Such notice shall state
the date, time and place of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.
7. Except as otherwise prescribed by statute, special meetings of the
shareholders for any purpose or purposes may be called by the Chairman of the
Board and shall be called by the Chairman of the Board or the Secretary by vote
of the Board of Directors.
8. Business transacted at each special meeting shall be confined to the
purpose or purposes stated in the notice of such meeting.
9. The order of business at each meeting of the shareholders and the voting
and other procedures to be observed at such meeting shall be determined by the
chairman of such meeting.
10. Subject to the rights of holders of shares of the Preferred Stock of
the corporation, nominations for the election of directors shall be made by the
Board of Directors or by any shareholder entitled to vote in elections of
directors. However, any shareholder entitled to vote in
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elections of directors may nominate one or more persons for election as
directors at an annual meeting only if written notice of such shareholder's
intent to make such nomination or nominations has been given, either by personal
delivery or by United States registered or certified mail, postage prepaid, to
the Secretary of the corporation not less than 120 and not more than 180
calendar days in advance of the date on which the corporation's proxy statement
was released to shareholders in connection with the immediately preceding annual
meeting. Each notice shall set forth (i) the name and address of the shareholder
who intends to make the nomination and of the person or persons to be nominated,
(ii) a representation that the shareholder is entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice, (iii) the class and number of shares
of the corporation that are owned by the shareholder, (iv) a description of all
arrangements, understandings or relationships between the shareholder and each
nominee and any other person or persons (naming such person or persons) pursuant
to which the nomination or nominations are to be made by the shareholder and (v)
such other information regarding each nominee proposed by such shareholder as
would be required to be included in a proxy statement filed pursuant to the
proxy rules of the Securities and Exchange Commission, had the nominee been
nominated, or intended to be nominated, by the Board of Directors, and shall
include a consent signed by each such nominee to serve as a director of the
corporation if so elected. The chairman of the meeting may refuse to acknowledge
the nomination of any person not made in compliance with the foregoing
procedure.
11. To be properly brought before an annual meeting of shareholders,
business must be (i) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (ii) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors or (iii) otherwise properly brought before the annual meeting by a
shareholder. In addition to any other applicable requirements, for business to
be properly brought before a meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the corporation. To
be timely, a shareholder's notice must be given, either by personal delivery
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or by United States registered or certified mail, postage prepaid, to the
Secretary of the corporation not less than 120 and not more than 180 calendar
days in advance of the date on which the corporation's proxy statement was
released to shareholders in connection with the immediately preceding annual
meeting. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting,
including the complete text of any resolutions to be presented at such meeting
with respect to such business, and the reasons for conducting such business at
the annual meeting, (ii) the name and address of record of the shareholder
proposing such business, (iii) a representation that the shareholder is entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting to propose the business specified in the notice, (iv) the class and
number of shares of the corporation that are owned by the shareholder, (v) any
material interest of the shareholder in such business and (vi) full particulars
as to the relationship, if any, of such shareholder to any other person that
such shareholder knows or has reason to believe intends to bring one or more
other items of business before the meeting. In the event that a shareholder
attempts to bring business before an annual meeting without complying with the
foregoing procedure, the chairman of the meeting may declare to the meeting that
the business was not properly brought before the meeting and, if he shall so
declare, such business shall not be transacted.
ARTICLE V
DIRECTORS
1. All corporate powers shall be exercised by or under the authority of,
and the business and affairs shall be managed under the direction of, the Board
of Directors, subject to any limitation set forth in the Articles of
Incorporation.
2. The Board shall consist of not less than nine or more than fifteen
members.
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3. The Board of Directors shall consist of ten members. The terms of office
of the directors shall be staggered and shall otherwise be determined, as
provided in these bylaws, subject to the Articles of Incorporation and
applicable laws. Such terms shall be divided into three groups, two of which
shall consist of three directors and the third of which shall consist of four
directors.
4. The number of directors may at any time be increased or decreased,
within the variable range established by the Articles of Incorporation and these
bylaws, by amendment of these bylaws. In case of any such increase the Board
shall have power to elect any additional director to hold office until the next
shareholders' meeting at which directors are elected. Any decrease in the number
of directors shall take effect at the time of such amendment only to the extent
that vacancies then exist; to the extent that such decrease exceeds the number
of such vacancies, the decrease shall not become effective, except as further
vacancies may thereafter occur by expiration of the term of directors at the
next shareholders' meeting at which directors are elected, or otherwise.
5. If the office of any director becomes vacant, by reason of death,
resignation, increase in the number of directors or otherwise, the directors
remaining in office, although less than a quorum, may fill the vacancy by the
affirmative vote of a majority of such directors.
6. The Board of Directors, at its first meeting after the annual meeting of
shareholders, shall choose a Chairman of the Board from among the directors.
7. Any director may resign at any time by delivering written notice of his
resignation to the Board of Directors or the Chairman of the Board. Any such
resignation shall take effect upon such delivery or at such later date as may be
specified therein. Any such notice to the Board may be addressed to it in care
of the Secretary.
8. The Chairman of the Board shall preside at meetings of the Board of
Directors, and shall have the powers and duties usually and customarily
associated with the position of a non-executive Chairman of the Board.
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9. In case of the absence of the Chairman of the Board, the Board member
with the longest tenure on the Board shall preside at meetings of the
shareholders and of the Board of Directors. He shall have such other powers and
duties as may be delegated to him by the Chairman of the Board.
ARTICLE VI
COMMITTEES OF DIRECTORS
There shall be an Executive Committee, an Audit and Ethics Committee, a
Compensation and Benefits Committee, a Finance Committee, a Nominating Committee
and a Pension Committee, and the Board of Directors may create one or more other
committees. Each committee of the Board of Directors shall consist of two or
more directors of the corporation who shall be appointed by, and shall serve at
the pleasure of, the Board. The Executive Committee, to the extent determined by
the Board but subject to limitations expressly prescribed by statute, shall have
and may exercise all the powers and authority of the Board in the management of
the business and affairs of the corporation. The Audit and Ethics Committee, the
Compensation and Benefits Committee, the Finance Committee, the Nominating
Committee and the Pension Committee and each such other committee shall have
such of the powers and authority of the Board as may be determined by the Board.
Each committee shall report its proceedings to the Board when required.
Provisions with respect to the Board of Directors which are applicable to
meetings, actions without meetings, notices and waivers of notice and quorum and
voting requirements shall also be applicable to each committee, except that a
quorum of the Executive Committee shall consist of one third of the number of
members of the Committee, three of whom are not employees of the Company or any
of its subsidiaries.
ARTICLE VII
COMPENSATION OF DIRECTORS
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The Board of Directors may fix the compensation of the directors for their
services, which compensation may include an annual fee, a fixed sum and expenses
for attendance at regular or special meetings of the Board or any committee
thereof, pension benefits and such other amounts as the Board may determine.
Nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor.
ARTICLE VIII
MEETINGS OF DIRECTORS;
ACTION WITHOUT A MEETING
1. Regular meetings of the Board of Directors may be held pursuant to
resolutions from time to time adopted by the Board, without further notice of
the date, time, place or purpose of the meeting.
2. Special meetings of the Board of Directors may be called by the Chairman
of the Board on at least 24 hours' notice to each director of the date, time and
place thereof, and shall be called by the Chairman of the Board or by the
Secretary on like notice on the request in writing of a majority of the total
number of directors in office at the time of such request. Except as may be
otherwise required by the Articles of Incorporation or these bylaws, the purpose
or purposes of any such special meeting need not be stated in such notice.
3. The Board of Directors may hold its meetings, have one or more offices
and, subject to the laws of the Commonwealth of Virginia, keep the share
transfer books and other books and records of the corporation, within or without
said Commonwealth, at such place or places as it may from time to time
determine.
4. At each meeting of the Board of Directors the presence of a majority of
the total number of directors in office immediately before the meeting begins
shall be necessary and sufficient to constitute a quorum for the transaction of
business, and, except as otherwise provided by the Articles of Incorporation or
these bylaws, if a
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quorum shall be present the affirmative vote of a majority of the directors
present shall be the act of the Board.
5. Any action required or permitted to be taken at any meeting of the Board
of Directors may be taken without a meeting if one or more written consents
stating the action taken, signed by each director either before or after the
action is taken, are included in the minutes or filed with the corporate
records. Any or all directors may participate in any regular or special meeting
of the Board, or conduct such meeting through the use of, any means of
communication by which all directors participating may simultaneously hear each
other, and a director participating in a meeting by this means shall be deemed
to be present in person at such meeting.
ARTICLE IX
OFFICERS
1. The officers of the corporation shall be chosen by the Board of
Directors and shall be a Chief Executive Officer, a President, one or more Vice
Presidents, a General Counsel, a Treasurer and a Secretary. The Board may also
appoint a Controller and one or more Executive Vice Presidents, Senior Vice
Presidents, Assistant Treasurers, Assistant Controllers and Assistant
Secretaries, and such other officers as it may deem necessary or advisable. Any
number of offices may be held by the same person. The Board may authorize an
officer to appoint one or more other officers or assistant officers. The
officers shall hold their offices for such terms and shall exercise such powers
and perform such duties as shall be prescribed from time to time by the Board or
by direction of an officer authorized by the Board to prescribe duties of other
officers.
2. The Board of Directors, at its first meeting after the annual meeting of
shareholders, shall choose the officers, who need not be members of the Board.
3. The salaries of all officers of the corporation shall be fixed by the
Board of Directors, or in such manner as the Board may prescribe.
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4. The officers of the corporation shall hold office until their successors
are chosen and qualified. Any officer may at any time be removed by the Board of
Directors or, in the case of an officer appointed by another officer as provided
in these bylaws, by such other officer. If the office of any officer becomes
vacant for any reason, the vacancy may be filled by the Board or, in the case of
an officer so appointed, by such other officer.
5. Any officer may resign at any time by delivering notice of his
resignation to the Board of Directors or the Chairman of the Board. Any such
resignation may be effective when the notice is delivered or at such later date
as may be specified therein if the corporation accepts such later date. Any such
notice to the Board shall be addressed to it in care of the Chairman of the
Board or the Secretary.
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ARTICLE X
CHIEF EXECUTIVE OFFICER
Subject to the supervision and direction of the Board of Directors, the
Chief Executive Officer shall be responsible for managing the affairs of the
corporation and shall preside at meetings of the shareholders. The Chief
Executive Officer shall have supervision and direction of all of the other
officers of the corporation.
ARTICLE XI
PRESIDENT
The President shall be the chief operating officer of the corporation and
shall perform such duties as may be prescribed by these bylaws, or by the Chief
Executive Officer. The President shall, in case of the absence or inability of
the Chief Executive Officer to act, have the powers and perform the duties of
the Chief Executive Officer.
ARTICLE XII
EXECUTIVE VICE PRESIDENTS,
SENIOR VICE PRESIDENTS
AND VICE PRESIDENTS
1. The Executive Vice Presidents, the Senior Vice Presidents and the Vice
Presidents shall have such powers and duties as may be delegated to them by the
Chief Executive Officer.
ARTICLE XIII
GENERAL COUNSEL
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The General Counsel shall be the chief legal officer of the corporation and
the head of its legal department. He shall, in general, perform the duties
incident to the office of General Counsel and shall have such other powers and
duties as may be delegated to him by the Chief Executive Officer.
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ARTICLE XIV
TREASURER
The Treasurer shall be responsible for the care and custody of all the
funds and securities of the corporation. The Treasurer shall render an account
of the financial condition and operations of the corporation to the Board of
Directors or the Chief Executive Officer as often as the Board or the Chief
Executive Officer shall require. He or she shall have such other powers and
duties as may be delegated to him or her by the Chief Executive Officer.
ARTICLE XV
CONTROLLER
The Controller shall maintain adequate records of all assets, liabilities
and transactions of the corporation, and shall see that adequate audits thereof
are currently and regularly made. The Controller shall disburse the funds of the
corporation in payment of the just obligations of the corporation, or as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements. The Controller shall have such other powers and duties as may be
delegated to the Controller by the Chief Executive Officer.
ARTICLE XVI
SECRETARY
The Secretary shall act as custodian of the minutes of all meetings of the
Board of Directors and of the shareholders and of the committees of the Board of
Directors. He or she shall attend to the giving and serving of all notices of
the corporation, and the Secretary or any Assistant Secretary shall attest the
seal of the corporation upon all contracts and instruments executed under such
seal. He or she shall also be custodian of such other books and records as the
Board or the Chief Executive Officer may direct. He or she shall have such other
powers and duties as may be delegated to him or her by the Chief Executive
Officer.
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ARTICLE XVII
TRANSFER AGENTS AND REGISTRARS;
CERTIFICATES OF STOCK
1. The Board of Directors may appoint one or more transfer agents and one
or more registrars for shares of capital stock of the corporation and may
require all certificates for such shares, or for options, warrants or other
rights in respect thereof, to be countersigned on behalf of the corporation by
any such transfer agent or by any such registrar.
2. The certificates for shares of the corporation shall be numbered and
shall be entered on the books of the corporation as they are issued. Each share
certificate shall state on its face the name of the corporation and the fact
that it is organized under the laws of the Commonwealth of Virginia, the name of
the person to whom such certificate is issued and the number and class of shares
and the designation of the series, if any, represented by such certificate and
shall be signed by the Chief Executive Officer, the President, an Executive or
Senior Vice President or a Vice President and by the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary. Any and all signatures on
such certificates, including signatures of officers, transfer agents and
registrars may be facsimile. In case any officer who has signed or whose
facsimile signature has been placed on any such certificate shall have ceased to
be such officer before such certificate is issued, then, unless the Board of
Directors shall otherwise determine and cause notification thereof to be given
to such transfer agent and registrar, such certificate shall nevertheless be
valid and may be issued by the corporation (and by its transfer agent) and
registered by its registrar with the same effect as if he were such officer at
the date of issue.
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ARTICLE XVIII
TRANSFERS OF STOCK
1. All transfers of shares of the corporation shall be made on the books of
the corporation by the registered holders of such shares in person or by their
attorneys lawfully constituted in writing, or by their legal representatives.
2. Certificates for shares of stock shall be surrendered and canceled at
the time of transfer.
3. To the extent that any provision of the Amended and Restated Rights
Agreement dated as of January 19, 1996, between the corporation and Chemical
Bank, as Rights Agent (the "Rights Agreement"), or the Amendment thereto, dated
as of July 31, 1997, between the corporation and BankBoston, N.A., as successor
rights agent, imposes a restriction on the transfer of any securities of the
corporation, including, without limitation, the Rights, as defined in the
Amended and Restated Rights Agreement, such restriction is hereby authorized.
4. Article 14.1 of Chapter 9 of Title 13.1 of the Code of Virginia, titled
"Control Share Acquisitions," shall not apply to acquisitions of shares of the
corporation.
ARTICLE XIX
FIXING RECORD DATE
In order to make a determination of shareholders for any purpose, including
those who are entitled to notice of and to vote at any meeting of shareholders
or any adjournment thereof, or entitled to express consent in writing to any
corporate action without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock,
the Board of Directors may fix in advance a record date which shall not be more
than 70 days before the meeting or other action requiring such determination.
Except as otherwise expressly prescribed by statute, only shareholders
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of record on the date so fixed shall be entitled to such notice of, and to vote
at, such meeting and any adjournment thereof, or entitled to express such
consent, or entitled to receive payment of such dividend or other distribution
or allotment of rights, or entitled to exercise such rights in respect of
change, conversion or exchange, or to take such other action, as the case may
be, notwithstanding any transfer of shares on the share transfer books of the
corporation after any such record date fixed as aforesaid.
ARTICLE XX
REGISTERED SHAREHOLDERS
The corporation shall be entitled to treat the holder of record of any
share or shares as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share on
the part of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by the laws of the Commonwealth of
Virginia.
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ARTICLE XXI
CHECKS
All checks, drafts and other orders for the payment of money and all
promissory notes and other evidences of indebtedness of the corporation shall be
signed in such manner as may be determined by the Board of Directors.
ARTICLE XXII
FISCAL YEAR
The fiscal year of the corporation shall end on December 31 of each year.
ARTICLE XXIII
NOTICES AND WAIVER
1. Whenever by statute, the Articles of Incorporation or these bylaws it is
provided that notice shall be given to any director or shareholder, such
provision shall not be construed to require personal notice, but such notice may
be given in writing, by mail, by depositing the same in the United States mail,
postage prepaid, directed to such shareholder or director at his address as it
appears on the records of the corporation, or, in default of other address, to
such director or shareholder at the registered office of the corporation in the
Commonwealth of Virginia, and, except for any meeting of directors to be held
within 48 hours after such notice, shall be deemed to be given at the time when
the same shall be thus deposited. Notice of special meetings of the Board of
Directors may also be given to any director by telephone, by telex or telecopy,
or by telegraph or cable, and in case of notice so given otherwise than by
telephone, the notice shall be deemed to be given at the time such notice,
addressed to such director at the address hereinabove provided, shall be
acknowledged by reply telex or telecopy or shall be transmitted or delivered to
and accepted by an authorized telegraph or cable office, as the case may be.
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2. Whenever by statute, the Articles of Incorporation or these bylaws a
notice is required to be given, a written waiver thereof, signed by the person
entitled to notice, whether before or after the time stated therein, and filed
with the corporate records or the minutes of the meeting, shall be equivalent to
notice. Attendance of any shareholder or director at any meeting thereof shall
constitute a waiver of notice of such meeting by such shareholder or director,
as the case may be, except as otherwise provided by statute.
ARTICLE XXIV
BYLAWS
The Board of Directors shall have the power to make, amend or repeal bylaws
of the corporation.
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from The Pittston Company
Form 10Q for the three months ended March 31, 1999, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 78,796
<SECURITIES> 1,842
<RECEIVABLES> 575,581
<ALLOWANCES> 31,607
<INVENTORY> 45,097
<CURRENT-ASSETS> 817,001
<PP&E> 1,438,177
<DEPRECIATION> 581,792
<TOTAL-ASSETS> 2,326,404
<CURRENT-LIABILITIES> 806,087
<BONDS> 318,632
<COMMON> 70,872
0
296
<OTHER-SE> 650,297
<TOTAL-LIABILITY-AND-EQUITY> 2,326,404
<SALES> 108,753
<TOTAL-REVENUES> 954,886
<CGS> 115,443
<TOTAL-COSTS> 935,431
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,944
<INTEREST-EXPENSE> 10,197
<INCOME-PRETAX> 16,166
<INCOME-TAX> 3,506
<INCOME-CONTINUING> 12,660
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,660
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0<F2>
<FN>
<F1>Pittston Brink's Group - Basic - 0.43
Pittston BAX Group - Basic - 0.02
Pittston Minerals Group - Basic - 1.61
<F2>Pittston Brink's Group - Diluted - 0.43
Pittston BAX Group - Diluted - 0.02
Pittston Minerals Group - Diluted - (0.45)
</FN>
</TABLE>
