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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 September 30, 2002
[ ] 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.)
1801 Bayberry Court, Richmond, Virginia 23226-8100
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (804) 289-9600
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
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As of November 1, 2002, 54,253,413 shares of $1 par value common stock were
outstanding.
Part I - Financial Information
The Pittston Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
September 30 December 31
2002 2001
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 122.9 86.7
Accounts receivable, net 528.3 493.3
Prepaid expenses and other 65.7 57.5
Deferred income taxes 90.9 103.1
Discontinued operations 35.1 19.9
- -----------------------------------------------------------------------------------------------------
Total current assets 842.9 760.5
Property and equipment, net 828.9 818.1
Goodwill, net 224.3 224.8
Prepaid pension costs 140.6 109.0
Deferred income taxes 234.9 233.2
Other assets 159.8 155.7
Discontinued operations 101.2 92.7
- -----------------------------------------------------------------------------------------------------
Total assets $2,532.6 2,394.0
- -----------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 37.4 27.8
Current maturities of long-term debt 13.8 17.2
Accounts payable 264.5 256.6
Accrued liabilities 537.1 540.0
Discontinued operations 13.3 3.3
- -----------------------------------------------------------------------------------------------------
Total current liabilities 866.1 844.9
Long-term debt 313.9 252.9
Postretirement benefits other than pensions 402.4 399.6
Workers' compensation and other claims 91.1 84.1
Deferred revenue 128.6 126.1
Deferred income taxes 21.3 20.7
Other liabilities 152.1 160.0
Discontinued operations 31.3 29.6
- -----------------------------------------------------------------------------------------------------
Total liabilities 2,006.8 1,917.9
Commitments and contingent liabilities (Notes 5, 6 and 9)
Shareholders' equity:
Preferred stock, par value $10 per share:
$31.25 Series C Cumulative Convertible Preferred Stock;
Authorized: 0.161 shares;
Issued and outstanding: 2001 - 0.021 shares - 0.2
Common stock, par value $1 per share:
Authorized: 100.0 shares; Issued and outstanding:
54.3 shares 54.3 54.3
Capital in excess of par value 390.3 400.1
Retained earnings 237.5 193.3
Accumulated other comprehensive loss (113.1) (112.9)
Employee benefits trust, at market value (43.2) (58.9)
- -----------------------------------------------------------------------------------------------------
Total shareholders' equity 525.8 476.1
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Total liabilities and shareholders' equity $2,532.6 2,394.0
- -----------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
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2
The Pittston Company and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(Unaudited)
Three Months Nine Months
Ended September 30 Ended September 30
2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Revenues $953.7 884.3 2,772.3 2,677.1
- -----------------------------------------------------------------------------------------------------------------------------
Expenses:
Operating expenses 804.1 761.8 2,334.3 2,304.1
Selling, general and administrative expenses 117.6 109.4 338.6 326.9
- -----------------------------------------------------------------------------------------------------------------------------
Total expenses 921.7 871.2 2,672.9 2,631.0
Other operating income, net 4.2 7.4 10.3 16.3
- -----------------------------------------------------------------------------------------------------------------------------
Operating profit 36.2 20.5 109.7 62.4
Interest expense, net (4.8) (7.8) (14.8) (23.2)
Minority interest (0.6) (0.9) (1.8) (3.9)
Stabilization Act compensation 5.9 - 5.9 -
Other income (expense), net (1.0) 2.9 (4.0) (0.6)
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
income taxes 35.7 14.7 95.0 34.7
Provision for income taxes 13.6 5.5 34.7 13.0
- -----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 22.1 9.2 60.3 21.7
Loss from discontinued operations, net of tax - - (11.0) -
- -----------------------------------------------------------------------------------------------------------------------------
Net income 22.1 9.2 49.3 21.7
Preferred stock dividends (0.8) (0.2) (1.1) (0.5)
- -----------------------------------------------------------------------------------------------------------------------------
Net income attributed to common shares $ 21.3 9.0 48.2 21.2
- -----------------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per common share:
Continuing operations $ 0.41 0.17 1.14 0.41
Discontinued operations - - (0.21) -
- -----------------------------------------------------------------------------------------------------------------------------
$ 0.41 0.17 0.93 0.41
- -----------------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per common share:
Continuing operations $ 0.41 0.17 1.13 0.41
Discontinued operations - - (0.21) -
- -----------------------------------------------------------------------------------------------------------------------------
$ 0.41 0.17 0.92 0.41
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
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3
The Pittston Company and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
Nine Months
Ended September 30
2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 49.3 21.7
Adjustments to reconcile net income to net cash provided
by continuing operations:
Loss from discontinued operations, net of tax 11.0 -
Depreciation and amortization 138.2 144.6
Aircraft heavy maintenance expense 22.8 22.9
Deferred income taxes 10.3 -
Pensions, net (19.7) 6.8
Provision for uncollectible accounts receivable 5.5 10.2
Other operating, net 17.0 6.5
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable (42.0) 35.1
Prepaid expenses and other current assets (5.7) (2.1)
Accounts payable and accrued liabilities 55.6 (25.6)
Other assets (14.0) (8.5)
Other liabilities (2.5) (1.9)
Other, net (3.2) 0.1
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 222.6 209.8
Net cash used by discontinued operations (61.8) (23.6)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 160.8 186.2
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (142.4) (145.3)
Aircraft heavy maintenance expenditures (24.0) (10.9)
Proceeds from disposal of:
Property and equipment 3.4 1.7
Marketable securities and investments in affiliates - 7.3
Acquisitions - (5.9)
Discontinued operations, net (12.2) (6.7)
Other, net 0.4 (4.9)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (174.8) (164.7)
- -----------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Long term debt:
Additions 293.0 103.3
Repayments (237.1) (122.7)
Deferred financing cost (1.5) -
Short-term borrowings, net 9.6 10.6
Dividends (4.1) (4.0)
Proceeds from exercise of stock options 1.4 4.7
Redemption of preferred shares (10.8) -
Repurchase of common shares (0.3) -
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 50.2 (8.1)
- -----------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 36.2 13.4
Cash and cash equivalents at beginning of period 86.7 97.8
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 122.9 111.2
- -----------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
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4
The Pittston Company and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of presentation and accounting changes
The Pittston Company ("Pittston") has three operating segments within
its "Business and Security Services" businesses: Brink's, Incorporated
("Brink's"), Brink's Home Security, Inc. ("BHS") and BAX Global Inc.
("BAX Global"). The fourth operating segment is Other Operations, which
consists of Pittston's gold, timber and natural gas operations.
Pittston also has a discontinued operating segment, Pittston Coal
Operations ("Coal Operations"). See Note 5. The Consolidated Financial
Statements include the accounts of Pittston and the subsidiaries it
controls, including all subsidiaries that are majority owned. The
Pittston Company and its subsidiaries are referred to herein as the
"Company".
The Company's unaudited Consolidated Financial Statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America ("GAAP") for interim financial reporting
and applicable quarterly reporting regulations of the Securities and
Exchange Commission. Accordingly, they do not include all of the
information and notes required by GAAP 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. For further information, refer to the Company's Annual
Report on Form 10-K for the year ended December 31, 2001.
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets," in the first
quarter of 2002 and, in accordance with the new standard, goodwill and
intangible assets with indefinite useful lives are no longer amortized,
but are tested for impairment at least annually. The Company completed
the transitional goodwill impairment test during the second quarter of
2002 with no impairment charges resulting.
A reconciliation of net income and net income per share for the three
and nine months ended September 30, 2001, as reported in the Company's
Consolidated Statements of Operations, to net income and net income per
share for the same periods, as adjusted to exclude goodwill
amortization expense (net of tax effects), is presented below.
Three Months Ended Nine Months Ended
(In millions, except per share amounts) September 30 2001 September 30 2001
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Reported net income $ 9.2 21.7
Goodwill amortization, net of tax effects 1.8 5.3
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Net income as adjusted $11.0 27.0
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Reported basic and diluted net income per share $0.17 0.41
Goodwill amortization, net of tax effects 0.04 0.11
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Basic and diluted net income per share as adjusted $0.21 0.52
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SFAS No. 143, "Accounting for Asset Retirement Obligations," was issued
in June 2001 and addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No. 143 requires
that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it becomes an obligation, if a
reasonable estimate of fair value can be made. The Company will adopt
SFAS No. 143
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5
in 2003. The Company is currently evaluating the effect that
implementation of the new standard may have on its results of
operations and financial position.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," was issued in August 2001. This statement supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of," and will provide a single
accounting model for long-lived assets held for sale. SFAS No. 144 also
supersedes the provisions of Accounting Principles Board Opinion
("APB") No. 30, "Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions," with regard to reporting the effects of a disposal
of a segment of a business and will require expected future operating
losses from discontinued operations to be reported in the periods in
which the losses are incurred (rather than as of the measurement date
as required by APB No. 30). In addition, SFAS No. 144 expands the
definition of asset dispositions that may qualify for discontinued
operations treatment in the future. The Company adopted SFAS No. 144
beginning January 1, 2002 with no current effect on the Company's
Consolidated Financial Statements.
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," was issued in June 2002 and applies to costs associated
with an exit activity (including restructuring) or with a disposal of
long-lived assets. This statement nullifies Emerging Issues Task Force
Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs
Incurred in a Restructuring)." Under SFAS No. 146, a commitment to a
plan to exit an activity or dispose of long-lived assets will no longer
be sufficient to record a charge for most anticipated costs. Instead, a
liability for costs associated with an exit or disposal activity will
be recorded when that liability is incurred and can be measured at fair
value. SFAS No. 146 also revises accounting for specified employee and
contract terminations that are part of restructuring activities. SFAS
No. 146 will be effective for exit or disposal activities initiated
after December 31, 2002.
2. Earnings per share
Three Months Ended Nine Months Ended
September 30 September 30
(In millions) 2002 2001 2002 2001
------------------------------------------------------------------------------------------------------------------
Numerator:
Income from continuing operations $22.1 9.2 60.3 21.7
Preferred stock dividends (0.2) (0.2) (0.5) (0.5)
Premium on redemption of
preferred stock (a) (0.6) - (0.6) -
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Basic and diluted income from continuing
operations per share numerator $21.3 9.0 59.2 21.2
------------------------------------------------------------------------------------------------------------------
Denominator:
Basic weighted average
common shares outstanding 52.2 51.4 52.0 51.1
Effect of dilutive securities - stock options 0.3 0.2 0.3 0.2
------------------------------------------------------------------------------------------------------------------
Diluted weighted average
common shares outstanding 52.5 51.6 52.3 51.3
------------------------------------------------------------------------------------------------------------------
(a) Represents the excess of cash paid to holders over the carrying
value of the shares redeemed and is included within preferred
dividends in the Company's Consolidated Statements of Operations.
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6
Unallocated shares of common stock held by the Pittston Company
Employee Benefits Trust (the "Trust"), a grantor trust, are treated as
treasury shares for earnings per share purposes. Accordingly, such
shares are excluded from the computation of earnings per common share.
As of September 30, 2002 and 2001, 1.9 million shares and 2.8 million
shares, respectively, of common stock were held by the Trust. The
Company also excludes the effect of antidilutive securities from the
computation of earnings per common share. The equivalent weighted
average shares of common stock that were excluded from the computation
of diluted earnings per common share in the three months ended
September 30, 2002 and 2001 were 1.1 million and 2.3 million,
respectively, and in the nine months ended September 30, 2002 and 2001
were 1.1 million and 1.9 million, respectively.
3. Supplemental cash flow information
Nine Months
Ended September 30
(In millions) 2002 2001
-------------------------------------------------------------------------------------
Cash paid for:
Interest $ 17.6 27.1
Income taxes, net of refunds received $ 7.6 15.9
-------------------------------------------------------------------------------------
Depreciation of property and equipment $128.8 129.6
Amortization of goodwill - 7.2
Other amortization 9.4 7.8
-------------------------------------------------------------------------------------
Total depreciation and amortization $138.2 144.6
-------------------------------------------------------------------------------------
4. Comprehensive income
Three Months Nine Months
Ended September 30 Ended September 30
(In millions) 2002 2001 2002 2001
---------------------------------------------------------------------------------------------------------------------
Net income $ 22.1 9.2 49.3 21.7
Other comprehensive income (loss),
net of reclasses and taxes:
Foreign currency translation (9.2) (1.1) 0.8 (14.2)
Deferred cash flow hedges (0.2) (2.2) (0.8) 3.3
Unrealized losses on securities (0.1) (2.7) (0.2) (0.3)
---------------------------------------------------------------------------------------------------------------------
Comprehensive income $ 12.6 3.2 49.1 10.5
---------------------------------------------------------------------------------------------------------------------
5. Discontinued operations
The Company is exiting the coal business through the sale or shutdown
of its coal mining operations and assets (including reserves) and the
transfer of certain liabilities. The Company's Coal Operations have
been accounted for under APB No. 30 "Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions," and the Company has reported its
revenue and expenses related to Coal Operations in the Consolidated
Statements of Operations within discontinued operations. The Company
has estimated projected operating losses through the date of disposal
and has accrued the losses in advance of the realization of these
losses as required by APB No. 30. Significant accounting policies
relating to the Company's Coal Operations are as follows:
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7
Revenue Recognition
Coal sales are generally recognized when coal is loaded onto
transportation vehicles for shipment to customers. For domestic sales,
this generally occurs when coal is loaded onto railcars at mine
locations. For export sales, this generally occurs when coal is loaded
onto marine vessels at terminal facilities. Coal sales are included as
a component of the Company's loss from discontinued operations in the
Company's Consolidated Statements of Operations.
Property, Plant and Equipment
Depletion of bituminous coal lands is provided on the basis of tonnage
mined in relation to the estimated total of recoverable tonnage in the
ground and is included as a component of the Company's loss from
discontinued operations in the Company's Consolidated Statements of
Operations.
Mine development costs, primarily included in bituminous coal lands,
are capitalized and amortized over the estimated useful life of the
mine. These costs include expenses incurred for site preparation and
development at the mines during the development stage. A mine is
considered under development until management determines that all
planned production units are in place and the mine is available for
commercial operation and the mining of coal. Capitalized mine
development costs are included within current and noncurrent assets of
discontinued operations on the Company's Consolidated Balance Sheets.
The associated amortization is included as a component of the Company's
loss from discontinued operations in the Company's Consolidated
Statements of Operations.
Reclamation Costs
Expenditures relating to environmental regulatory requirements and
reclamation costs undertaken during mine operations are expensed as
incurred. Estimated site restoration and post closure reclamation costs
are expensed using the units of production method over the expected
economic life of each mine. In each case, such charges are included as
a component of the Company's loss from discontinued operations in the
Company's Consolidated Statements of Operations. Accrued reclamation
costs are subject to review by management on a regular basis and are
revised when appropriate for changes in future estimated costs and/or
regulatory requirements. Accrued reclamation costs for mines are
included in either current or noncurrent liabilities of discontinued
operations in the Company's Consolidated Balance Sheets, unless such
amounts are expected to be retained by the Company. Reclamation
liabilities expected to be retained are included in either accrued
liabilities or other noncurrent liabilities.
Inventories
Inventories are stated at cost (determined under the first-in,
first-out or average cost method) or market, whichever is lower.
Inventory is recorded within current assets of discontinued operations
in the Company's Consolidated Balance Sheets.
The Company's plan of disposal includes the sale or shutdown of its
active and idle coal mining operations (including 24 Company or
contractor operated mines and 5 active plants) and reserves, as well as
other assets which support those operations. The assets to be disposed
of primarily include property, plant and equipment, some inventory and
the Company's partnership interest in Dominion Terminal Associates
("DTA"), a coal port facility in Newport News, Virginia. It is expected
that certain liabilities will be assumed by the purchasers. Total
proceeds from the sale of Coal Operations, which could include cash,
notes receivable, the present value of minimum future royalties to be
received and liabilities to be transferred, are expected to exceed $100
million.
The Company sold certain properties in West Virginia in January 2002.
In July 2002, the Company sold substantially all of its operations and
assets in Kentucky. Although the Company had announced in July 2002
that it had agreed to sell substantially all of its remaining coal
mining assets (including reserves) in West Virginia, due to closing
conditions not being satisfied, the Company and the purchaser have
preliminarily agreed to restructure the West Virginia sale transaction.
Under the restructured transaction, the purchaser is expected to
purchase all of the active mining operations in West Virginia and a
one-year option to acquire other West Virginia coal reserves, which are
currently not being mined by the Company. In October 2002, the Company
agreed to sell substantially all of its
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8
remaining coal assets in Virginia. The Company currently expects to
complete the disposal of its coal operations before the end of 2002.
In 1999 and 2000, prior to beginning to report the Coal Operations as
discontinued operations (as of December 31, 2000, the measurement
date), the Company recorded $122.0 million and $32.4 million,
respectively, in pretax losses from the operations of the discontinued
segment. Of the $122.0 million loss in 1999, $82.3 million related to
the impairment of long-lived assets and a joint venture interest as
well as other mine closure costs. The $82.3 million charge included
$73.7 million related to a study of the Company's assets and $8.6
million related to the closure of a specific operation.
Using a comprehensive study of the Company's coal resources completed
by a mining consulting firm in the fourth quarter of 1999, management
estimated the future cash flows and residual values of its operations
and assets. For certain long-lived assets, the sum of such expected
future cash flows was estimated to be less than the carrying value. As
a result, the Company determined that these assets met the criteria for
impairment under SFAS No. 121. This impairment resulted in a
$73.7 million pretax charge, primarily impacting goodwill ($42.1
million), coal lands and assets ($16.0 million) and DTA
($15.6 million).
The balance of $8.6 million resulted from the decision to close the
Meadow River mine in late December 1999. This closing resulted in an
impairment of the mine's carrying value of $5.3 million and an accrual
of $3.3 million in closure costs.
Through the end of 2001, the Company recorded an estimated pretax loss
on the disposal of the discontinued segment of $348.5 million including
$110.0 million of losses on the disposal, $67.2 million of estimated
operating losses to be incurred from the December 2000 measurement date
to the estimated dates of disposal for the various operations and
assets, including reserves, and $171.3 million to accrue certain
"legacy" liabilities, as more fully described in the Company's 2001
Annual Report on Form 10-K. During the first quarter of 2002 the
Company increased its estimate of the pretax loss from discontinued
operations by $15.0 million ($11.0 million after-tax) in response to
adverse coal market conditions.
The Company continues to assess, among other things, expected operating
performance of assets through dates of anticipated disposal, contingent
gains and losses and its estimates of the timing of expected sales of
the Coal Operations, and such estimates may affect results from
discontinued operations in future periods. The Company has evaluated
the factors which entered into the calculation of the estimated loss
and has determined that no adjustment to the estimated loss is
appropriate for the third quarter of 2002.
Estimates regarding losses on the disposal of Coal Operations and
losses during the disposal period are subject to known and unknown
risks, uncertainties and contingencies which could cause actual results
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, demand and competitive factors in the coal
industry, the impact of delays in the issuance or the nonissuance of
mining permits, the timing of and consideration received for the sale
of the remaining coal assets, costs associated with shutting down those
operations that are not sold, funding and benefit levels of the
multi-employer pension plans, geological conditions and variations in
the spot prices of coal.
Certain assets and liabilities are expected to be retained by the
Company, including most net working capital, other assets, certain
parcels of land, income and non-income tax assets and liabilities,
certain employee liabilities primarily for postretirement medical
benefits, workers' compensation and black lung obligations, and
reclamation related liabilities associated with certain closed coal
mining sites in Virginia, West Virginia and Kentucky. In addition, the
Company expects to continue to be liable for other contingencies,
including its unconditional guarantee of the payment of the principal,
interest and premium, if any, on coal terminal revenue refunding bonds
(principal amount of $43.2 million).
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9
The liabilities that the Company expects to retain are recorded in its
balance sheet in accordance with GAAP. As described in the 2001 Annual
Report on Form 10-K, under GAAP some of these liabilities, primarily
related to actuarial losses for postretirement benefits, are not yet
fully recorded on the balance sheet or reflect the sum of undiscounted
expected cash payments which extend over a long period of time. The
following is a summary as of September 30, 2002 of the carrying values
of the assets and liabilities that the Company expects to retain:
September 30
(In millions) 2002
------------------------------------------------------------------------------------------------
Assets:
Working capital $ 6.4
Property and equipment, net 4.6
Net deferred tax assets 243.4
State non-income tax receivables 23.9
Other assets 8.3
Liabilities:
Company-sponsored retiree benefits other than pensions (a) $276.3
Health Benefit Act obligations (a) 152.3
Black lung obligations (a) 45.4
Workers' compensation (a) 35.9
Reclamation liabilities for inactive properties (a) 7.8
DTA guarantee 43.2
Pension plan withdrawal liability 8.2
Other liabilities 9.9
------------------------------------------------------------------------------------------------
(a) The Company expects to incur ongoing expenses associated with its
Coal Operations in future years including interest costs and
amortization expenses on its retiree medical and black lung
obligations, changes, if any, in valuations of liabilities for
workers' compensation benefits, Health Benefit Act obligations and
retained reclamation liabilities, and certain ongoing costs, if
any, for abandoned sites or operations. Such expenses, related to
2002 and 2001, have been included in the loss from discontinued
operations. Upon completion of the disposal of the Company's Coal
Operations, these expenses will continue to be charged annually
against the Company's earnings. Using assumptions in existence as
of December 31, 2001, the Company estimated that such expenses
over the following five years would approximate $45 million to $55
million per annum. Also using assumptions as of December 31, 2001,
estimated cash payments associated with these liabilities were
expected to be approximately $60 million to $70 million per annum
during the following five years. Such estimates will be revised
following the annual actuarial valuations which will be completed
over the next few months.
The Company has accrued $8.2 million (pretax) for its estimate of a
multi-employer pension plan withdrawal liability associated with its
planned exit from the coal business. The estimate is based on the most
recent actuarial estimate of liability for a withdrawal occurring in
the plan year ended June 30, 2002. The ultimate withdrawal liability,
if any, is subject to several factors, including investment
performance, as well as funding and benefit levels of the plans and the
ultimate timing and form of the sale transactions. Accordingly, the
actual amount of this liability could change materially.
On February 10, 1999, the U.S. District Court of the Eastern District
of Virginia entered a final judgment in favor of certain of the
Company's subsidiaries and ruled that the Federal Black Lung Excise Tax
("FBLET") is unconstitutional as applied to export coal sales. A total
of $0.8 million (including interest) was refunded in 1999 for the FBLET
that those companies paid for the first quarter of 1997. The Company
sought refunds of the FBLET it paid on export coal sales for all open
statutory periods and received refunds of $23.4 million (including
interest) during the fourth quarter of 2001. The Company continues to
pursue the refund of other FBLET payments. Due to uncertainty as to the
ultimate additional future amounts to be received, if any, which could
amount to as much as $20 million (before interest and applicable income
taxes), as well as the timing of any additional FBLET refunds, the
Company has not recorded the benefit of such additional FBLET refunds
in its estimate of operating
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10
losses to be incurred during the disposal period. Further, no amount
for such refunds has been included in the table of assets and
liabilities above.
6. Restructuring
During the fourth quarter of 2000, BAX Global finalized a restructuring
plan aimed at reducing the capacity and cost of its airlift
capabilities in the U.S. as well as reducing station operating expenses
and sales, general and administrative costs in the Americas and
Atlantic regions. This included the elimination of ten planes from the
fleet and approximately 300 full-time positions including aircraft crew
and station operating, sales and business unit overhead positions. The
following table analyzes the changes in liabilities during the first
nine months of 2002 for such costs:
Fleet Station and
(In millions) Charges Other Total
---------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $ 2.1 2.2 4.3
Adjustments - (0.1) (0.1)
Payments (1.6) (0.5) (2.1)
---------------------------------------------------------------------------------------------------------------------
Balance at September 30, 2002 $ 0.5 1.6 2.1
---------------------------------------------------------------------------------------------------------------------
The remaining accrual primarily includes contractual commitments for
aircraft and facilities. The majority of the remaining accrual for
fleet charges is expected to be paid by the end of 2002. The remaining
accrual for station and other costs is expected to be paid through the
end of 2007.
7. Redemption of Convertible Preferred Stock
On August 15, 2002, the Company redeemed all 21,433 outstanding shares
of the $31.25 Series C Cumulative Preferred Stock (the "Convertible
Preferred Stock") at an aggregate redemption price of $11.0 million, or
$512.67 per share, including accrued and unpaid dividends of $0.2
million up to the redemption date. The Company no longer has any
outstanding Convertible Preferred Stock and, therefore, dividends on
the Convertible Preferred Stock have ceased to accrue. As a result of
the premium paid in the redemption, basic and diluted earnings per
common share were reduced by $0.01 per share in the third quarter and
first nine months of 2002.
8. Bank Credit Facilities
In September 2002, the Company entered into a $350 million syndicated
bank credit facility (the "Facility") which replaced the previous bank
credit agreement of $362.5 million. The Company may borrow on a
revolving basis over a three-year term ending September 2005.
Approximately $165.4 million was available for borrowing under the
facility as of September 30, 2002. The Company has the option to borrow
based on a Libor-based rate plus a margin, a prime-rate or a
competitive bid among the individual banks. The margin is 0.825% for
Libor-based borrowings. The credit agreement provides for margin
increases but does not accelerate payments should the Company's credit
rating be reduced. When borrowings under the Facility are in excess of
$175 million, the applicable margin is increased by 0.125%. The Company
also pays an annual fee on the Facility based on the Company's credit
rating. The fee, which can range from 0.125% to 0.400%, is currently
at 0.175%. The Company's major subsidiaries have guaranteed the
Facility. The new facility agreement contains various financial and
other covenants. The financial covenants, among other things, limit
the Company's total indebtedness, provide for minimum coverage of
interest costs,
--
11
and require the Company to maintain a minimum level of net worth. If
the Company were not to comply with the terms of its various loan
agreements, the repayment terms could be accelerated.
The Company has two multi-currency revolving bank credit facilities
that total $90 million in available credit, of which approximately
$34.8 million was available at September 30, 2002. Various foreign
subsidiaries maintain other secured and unsecured lines of credit and
overdraft facilities with a number of banks. Borrowings outstanding
under these agreements are included in short-term borrowings. The
Company is currently negotiating a replacement for the $60 million
multi-currency revolving bank facility (included in the $90 million
noted above) that expires in December 2002. During November 2002, the
Company entered into an additional multi-currency facility totaling $35
million.
9. Unconditional Purchase Obligations
At December 31, 2001, the Company had contractual commitments of $75.4
million with third parties to provide aircraft usage and services to
BAX Global, which expire in 2002 through 2004. The fixed and
determinable portion of the unrecorded obligations under these
arrangements aggregate approximately $41.2 million in 2002, $27.6
million in 2003 and $6.6 million in 2004. Amounts purchased under these
arrangements, including any variable component based on hours of usage,
were $63.4 million in 2001, $84.2 million in 2000 and $57.5 million in
1999.
At December 31, 2001, the Company had commitments of $58.2 million with
lessors to pay annual minimum advance royalty payments related to the
right to access and mine coal properties. These advance royalty
payments are recoverable against future production. The fixed and
determinable portion of the obligations under these arrangements
aggregate approximately $3.3 million in 2002, $2.6 million in 2003,
$2.9 million in 2004, $2.5 million in 2005, $2.6 million in 2006 and
$44.3 million in later years. Amounts paid under these arrangements,
including any variable component, were $9.8 million in 2001, $9.5
million in 2000 and $9.2 million in 1999. The variable component is
based on coal produced pursuant to the mineral lease agreement. The
Company expects the majority of these commitments related to
discontinued operations to be assumed by purchasers of the various
operations. At December 31, 2001, the Company had a $6.4 million
liability recorded for the advance royalty commitments that it does not
expect will be assumed by purchasers.
--
12
The Pittston Company and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
Summary
The Pittston Company ("Pittston") has three operating segments within its
"Business and Security Services" businesses: Brink's, Incorporated ("Brink's"),
Brink's Home Security, Inc. ("BHS"), and BAX Global Inc. ("BAX Global"). The
fourth operating segment is Other Operations, which consists of Pittston's gold,
timber and natural gas operations. Pittston intends to exit the coal business
through the sale or shutdown of its coal mining operations and assets (including
reserves) and the transfer of certain liabilities ("Coal Operations"). Coal
Operations have been reported as discontinued operations for all periods
presented herein. Pittston and its subsidiaries are referred to herein as the
"Company".
The Company's income from continuing operations (after-tax) was $22.1 million
and $60.3 million in the third quarter and first nine months of 2002,
respectively, as compared to $9.2 million and $21.7 million in the comparable
2001 periods. Income from continuing operations (after-tax) was higher in the
2002 periods primarily due to improved operating results at BAX Global.
Operating profit at Brink's in the first nine months of 2002 reflected special
euro currency-related distribution projects, with most of the benefit occurring
in the first quarter of 2002.
RESULTS OF OPERATIONS
Three Months Nine Months
Ended September 30 Ended September 30
(In millions) 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
Revenues:
Business and Security Services:
Brink's $387.6 378.2 1,188.7 1,123.6
BHS 72.2 64.9 209.6 190.9
BAX Global 483.3 431.3 1,343.0 1,332.8
- ----------------------------------------------------------------------------------------------------------------------------
Business and Security Services 943.1 874.4 2,741.3 2,647.3
Other Operations 10.6 9.9 31.0 29.8
- ----------------------------------------------------------------------------------------------------------------------------
Revenues $953.7 884.3 2,772.3 2,677.1
- ----------------------------------------------------------------------------------------------------------------------------
Operating profit (loss):
Business and Security Services:
Brink's $ 16.1 21.7 67.6 56.0
BHS 14.2 13.0 45.0 42.1
BAX Global 10.6 (10.9) 7.9 (26.7)
- ----------------------------------------------------------------------------------------------------------------------------
Business and Security Services 40.9 23.8 120.5 71.4
Other Operations 1.1 1.4 5.6 5.1
- ----------------------------------------------------------------------------------------------------------------------------
Segment operating profit 42.0 25.2 126.1 76.5
General corporate expense (5.8) (4.7) (16.4) (14.1)
- ----------------------------------------------------------------------------------------------------------------------------
Operating profit $ 36.2 20.5 109.7 62.4
- ----------------------------------------------------------------------------------------------------------------------------
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13
Brink's
Three Months Nine Months
Ended September 30 Ended September 30
(In millions) 2002 2001 2002 2001
- ----------------------------------------------------------------------------------------------------------------------------
Revenues:
North America (a) $175.6 170.2 516.7 506.6
International 212.0 208.0 672.0 617.0
- ----------------------------------------------------------------------------------------------------------------------------
Revenues $387.6 378.2 1,188.7 1,123.6
- ----------------------------------------------------------------------------------------------------------------------------
Operating profit:
North America (a) $ 13.0 12.5 37.1 33.6
International 3.1 9.2 30.5 22.4
- ----------------------------------------------------------------------------------------------------------------------------
Segment operating profit $ 16.1 21.7 67.6 56.0
- ----------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization (b) $ 15.9 15.4 45.7 44.6
Goodwill amortization - 0.6 - 1.6
Capital expenditures 21.6 20.3 55.1 53.9
- ----------------------------------------------------------------------------------------------------------------------------
(a) Includes U.S. and Canada.
(b) Excludes amortization of goodwill.
Brink's worldwide revenues of $387.6 million and $1,188.7 million in the third
quarter and first nine months of 2002, respectively, represented a 2% and 6%
increase over the same periods in 2001. Operating profit decreased 26% for the
third quarter of 2002 as compared to the 2001 quarter due to performance in the
International region. Operating profit in the first nine months of 2002
increased 21% over the prior year period and reflected increases in both
International and North American operations. Special euro related processing and
transportation work significantly contributed to increased performance in the
first quarter of 2002 but lowered operating profits in the second and third
quarters of 2002 since labor costs remained at higher than normal levels as the
euro work approached completion. Euro banknotes and coins were introduced as the
medium of exchange in a number of European countries on January 1, 2002.
Revenue
The increase in North American revenues of 3% in the third quarter and 2% in the
first nine months of 2002 compared to the same 2001 periods reflected higher
revenues from currency processing, armored car operations (which include ATM
services) and Global Services business (air courier and diamond/jewelry).
International revenues increased 2% and 9% on a year over year basis in the
third quarter and first nine months of 2002, respectively. Changes in currency
exchange rates increased International revenues for the third quarter of 2002 by
approximately 1% from the same period of 2001 as European currencies generally
strengthened relative to the U.S. dollar during the 2002 quarter while South
American currencies weakened. Changes in such exchange rates in the first nine
months of 2002 as compared to the same period of 2001 reduced International
revenues by approximately 2% since the effects of the generally strengthening
European currencies were less pronounced while South American currencies
weakened relative to the U.S. dollar throughout the first nine months of 2002.
Excluding the effect of changes in currency rates, revenues for the third
quarter and first nine months of 2002 were 1% and 11% higher, respectively,
compared to the same periods of 2001. These improvements reflected general
business growth in Europe during the quarter and work associated with the
distribution of the euro in the nine month period of 2002 (primarily arising
during the first quarter of 2002). Both periods were negatively impacted by the
effects of difficult economic and operating conditions in South America.
Operating Profit
North American operating profits were 4% and 10% higher in the third quarter and
first nine months of 2002, respectively, versus the 2001 periods primarily due
to an increase in the U.S. Global Services operating results arising from
improved pricing and operational improvements and efficiencies.
--
14
International operating profits decreased 66% year over year in the 2002 third
quarter due to lower results in Europe and South America. International
operating profits were 36% higher in the first nine months of 2002 as compared
to the same period of 2001 due to improved results in Europe (including the
benefit of special euro related processing and transportation work, noted above)
and in Australia, largely resulting from higher pricing. These improvements
outweighed lower operating profits in South America. International results for
the third quarter and first nine months of 2001 benefited from approximately $2
million of pretax gains on the sale of the Company's investments in two
non-strategic international affiliates.
Lower operating profits in Europe in the third quarter of 2002 versus the same
period of 2001 reflected higher than normal labor expenses as a result of the
winding down of operations that had been built up for the euro work, as well as
severance expenses incurred in Germany to reduce its cost structure. European
operating performance in the nine months ended September 30, 2002 reflected both
higher volume and operational improvements and included the benefit of
transportation and processing work (primarily in the first quarter) associated
with the distribution of the euro and the return of legacy currencies. Brink's
generated a modest amount of euro-related processing revenue in the current
quarter but this was more than offset by higher than normal labor expenses as
previously mentioned. In the first nine months of 2001, European operating
performance reflected additional upfront costs associated with preparation for
the euro work, entry into new markets and certain market development and
start-up costs.
South America experienced lower operating results for the third quarter and
first nine months of 2002 as a result of difficult economic and operating
conditions. Primarily due to the impact of such conditions, operating results in
Latin America were approximately $4 million lower in this year's third quarter
as compared to last year. Economic and competitive pressures in South America
are expected to continue. Asia/Pacific results in the third quarter and first
nine months of 2002 were higher than the prior year periods primarily due to
improved results in Australia, reflecting higher pricing.
Brink's Home Security
Three Months Nine Months
Ended September 30 Ended September 30
(Dollars in millions, subscriber data in thousands) 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
Revenues $ 72.2 64.9 209.6 190.9
- ------------------------------------------------------------------------------------------------------------------------
Operating profit:
Recurring services (a) $ 26.5 24.5 81.1 75.9
Investment in new subscribers (b) (12.3) (11.5) (36.1) (33.8)
- ------------------------------------------------------------------------------------------------------------------------
Segment operating profit $ 14.2 13.0 45.0 42.1
- ------------------------------------------------------------------------------------------------------------------------
Monthly recurring revenues (c) $ 20.5 18.8
- ------------------------------------------------------------------------------------------------------------------------
Annualized disconnect rate 7.9% 8.0% 7.4% 7.6%
- ------------------------------------------------------------------------------------------------------------------------
Number of subscribers:
Beginning of period 738.6 693.0 713.5 675.3
Installations 26.8 24.0 77.7 67.1
Disconnects (14.7) (14.0) (40.5) (39.4)
- ------------------------------------------------------------------------------------------------------------------------
End of period 750.7 703.0 750.7 703.0
- ------------------------------------------------------------------------------------------------------------------------
Average number of subscribers 744.2 698.1 732.1 688.5
Depreciation and amortization (d) $ 20.7 18.6 56.8 52.5
Amortization of deferred revenue 6.2 6.2 18.0 17.9
Net cash deferrals on new subscribers (e) 2.4 3.1 7.3 9.3
Capital expenditures 22.3 20.6 63.0 60.5
- ------------------------------------------------------------------------------------------------------------------------
(a) Reflects monthly operating profit generated from the existing subscriber
base plus the amortization of deferred revenues less the amortization of
deferred subscriber acquisition costs (primarily direct selling expenses).
(b) Primarily includes the marketing and selling expenses, net of the deferral
of direct selling expenses, incurred in the acquisition of new
subscribers.
--
15
(c) 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 contractual monitoring and maintenance services. The amortization of
deferred revenues is excluded.
(d) Includes amortization of deferred subscriber acquisition costs of $3.0
million and $2.7 million for the third quarters of 2002 and 2001,
respectively, and $8.5 million and $7.8 million for the first nine months
of 2002 and 2001, respectively.
(e) Consists of nonrefundable payments received from customers for new
installations for which revenue recognition has been deferred, net of
payments for direct selling costs for which expense recognition has been
deferred.
Revenue
The increase in BHS's revenues for the third quarter and first nine months of
2002 versus the comparable 2001 periods was primarily due to a larger average
subscriber base as well as higher average monitoring rates. These factors also
contributed to a 9% increase in monthly recurring revenues for September 2002 as
compared to September 2001. Installations for the third quarter and first nine
months of 2002 were 12% and 16% higher, respectively, than in the comparable
periods of 2001 primarily as a result of successful marketing efforts and new
distribution channels.
Operating Profit
Operating profit for the third quarter and first nine months of 2002 increased
$1.2 million and $2.9 million, respectively, from the same periods of 2001 as
higher profit from recurring services was partially offset by an increased
investment in new subscribers. Higher profit from recurring services was due to
increased monitoring and service revenues, partially offset by increased
depreciation from the larger number of security systems and higher monitoring
costs. The 2002 annualized disconnect rates of 7.9% for the third quarter of
2002 and 7.4% for the first nine months of 2002 improved slightly over the
comparable periods of 2001 largely due, BHS believes, to the effects of the
higher credit standards established for new subscribers in recent years and its
high quality customer service.
BAX Global
Three Months Nine Months
Ended September 30 Ended September 30
(In millions) 2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------------------------------
Revenues:
Americas $255.8 241.1 729.1 757.5
International 245.2 204.2 664.6 620.1
Eliminations/other (17.7) (14.0) (50.7) (44.8)
- --------------------------------------------------------------------------------------------------------------------------
Revenues $483.3 431.3 1,343.0 1,332.8
- --------------------------------------------------------------------------------------------------------------------------
Operating profit (loss):
Americas $ 4.7 (12.2) (8.8) (34.0)
International 9.3 5.4 25.4 19.8
Goodwill amortization - (1.9) - (5.6)
Other (3.4) (2.2) (8.7) (6.9)
- --------------------------------------------------------------------------------------------------------------------------
Segment operating profit (loss) $ 10.6 (10.9) 7.9 (26.7)
- --------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization (a) $ 10.5 12.0 32.0 36.8
Capital expenditures 6.0 5.8 15.8 25.8
- --------------------------------------------------------------------------------------------------------------------------
Intra-U.S. revenue $119.1 111.1 331.8 346.8
Worldwide expedited freight services:
Revenues $375.3 339.2 1,038.9 1,066.9
Weight in pounds 398.1 353.0 1,118.6 1,085.1
- --------------------------------------------------------------------------------------------------------------------------
(a) Excludes amortization of goodwill.
Worldwide revenues increased 12% and 1% in the third quarter and first nine
months of 2002, respectively, as compared to the same periods of 2001, primarily
due to increases in International revenues. Operating results
--
16
improved $21.5 million in the third quarter and $34.6 million in the first nine
months of 2002 as compared to the same periods of 2001, reflecting the benefit
of ongoing efforts to better align transportation costs and operating expenses
with market demands and economic conditions.
Revenue
Despite continuing weak economies in the U.S. and Europe, Americas revenues
increased 6% in the third quarter of 2002 as compared to the same period of
2001, reflecting higher domestic volumes and an increase in revenue from special
charter activity, partially offset by lower average revenue per pound. The
special charter activity is not expected to continue beyond the early part of
the fourth quarter of 2002. Revenues in the Americas for the first nine months
of 2002 were 4% lower than the same period of 2001, due to lower volume of
domestic and outbound international expedited airfreight services associated
with the previously mentioned weak economies in the U.S. and Europe.
International revenue increases in the third quarter and first nine months over
the 2001 periods were due to improved economic conditions in several Asia
Pacific countries which resulted in increased air export volumes to the U.S.,
primarily associated with the high technology industry. In the Atlantic region,
low export and import air-freight volumes caused by the continuing weak European
economy resulted in a decrease in revenues for the first nine months of 2002 as
compared to the same period of 2001. Additionally, during the quarter, Atlantic
revenues were above the weak third quarter of 2001 primarily due to special air
export activity from several large customers. Such activity is not expected to
continue into the fourth quarter of 2002.
Operating Profit
Operating performance in the Americas region for the third quarter and first
nine months of 2002 improved $16.9 million and $25.2 million, respectively, over
the 2001 periods. The improvement was primarily due to the above-mentioned
reductions in Americas transportation costs; costs per pound shipped in the
three and nine month periods ended September 30, 2002 decreased as compared to
the same periods of 2001 as a result of fleet reductions undertaken during late
2000 and 2001. The increased use of ground transportation has allowed BAX Global
to lower its transportation costs in the Americas while continuing to maintain
high levels of customer service. In addition, volume increases in the third
quarter of 2002, discussed above, contributed to the improvement.
International operating profit for the third quarter and first nine months of
2002 as compared to the 2001 periods increased $3.9 million and $5.6 million,
respectively, primarily due to improved economic conditions in Asia Pacific.
Results in the Atlantic region improved during the quarter but decreased in the
first nine months of 2002, largely due to low demand associated with a weak
European economy.
A port dispute on the West Coast of the U.S. involving the International
Longshore and Warehouse Union has been affecting trade between the U.S. and Asia
since late September, resulting in a backlog of cargo shipments. BAX Global
expects to benefit from the port dispute from higher volume of air freight
exports from Asia Pacific and by chartering more of its aircraft, but it has
also experienced lower domestic U.S. volume in October, which it believes is
partly a result of the dispute slowing ocean imports into the U.S. The cost of
space on third-party aircraft has increased as a result of higher demand, but
BAX Global does not believe its margins should be materially adversely affected
because it believes that a significant amount of these higher costs will be
passed through to customers in the form of price increases. The effect of the
port dispute on BAX Global's U.S. and International operating results is not yet
known.
2000 Restructuring Plan
During the fourth quarter of 2000, BAX Global finalized a restructuring plan
aimed at reducing the capacity and cost of its airlift capabilities in the U.S.
as well as reducing station operating expenses and sales, general and
administrative costs in the Americas and Atlantic regions. This included the
elimination of ten planes from the fleet and approximately 300 full-time
positions including aircraft crew and station operating, sales and business unit
overhead positions. The following table analyzes the changes in liabilities
during the first nine months of 2002 for such costs:
--
17
Fleet Station and
(In millions) Charges Other Total
- -------------------------------------------------------------------------------------------------------
Balance at December 31, 2001 $ 2.1 2.2 4.3
Adjustments - (0.1) (0.1)
Payments (1.6) (0.5) (2.1)
- -------------------------------------------------------------------------------------------------------
Balance at September 30, 2002 $ 0.5 1.6 2.1
- -------------------------------------------------------------------------------------------------------
The remaining accrual primarily includes contractual commitments for aircraft
and facilities. The majority of the remaining accrual for fleet charges is
expected to be paid by the end of 2002. The remaining accrual for station and
other costs is expected to be paid through the end of 2007.
Other Operations
The Company's gold operations had net sales of $3.4 million during the third
quarter of 2002 and $11.0 million in the first nine months of 2002, a decrease
of $0.2 million and an increase of $0.5 million, respectively, over the 2001
periods. Operating profit for the third quarter of 2002 decreased $0.7 million
as a result of higher costs per ounce sold. Operating results for the nine
months ended September 30, 2002 improved $1.3 million as a result of higher gold
realizations and lower costs per ounce sold.
The Company previously reported an agreement in principle with respect to the
sale of substantially all of its gold operations, subject to execution of a
definitive sale and purchase agreement and significant conditions. During the
quarter, in anticipation of the likely failure of significant conditions, the
parties agreed to restructure their agreement in principle. The agreement in
principle is subject to execution of a definitive sale and purchase agreement
and significant conditions.
Net sales from the Company's timber business of $5.6 million in the third
quarter and $ 15.2 million in the first nine months of 2002 reflected increases
of 22% and 11%, respectively, over the comparable 2001 periods, primarily due to
increased sales volumes. Operating losses of $0.2 million in the third quarter
and $0.6 million in the first nine months of 2002, respectively, decreased $0.6
million and $1.1 million from the 2001 periods, primarily due to the higher
sales volumes.
Net sales from the Company's natural gas operations remained flat in the third
quarter of 2002 as compared to the third quarter of 2001 and decreased $0.9
million to $4.8 million, for the nine months ended September 30, 2002 primarily
due to lower natural gas prices. Operating profit for the natural gas
operations, including royalty income, declined $0.2 million and $2.0 million
from the third quarter and first nine months of 2001, respectively, to $2.3
million and $6.6 million, respectively, primarily due to lower natural gas
prices.
Discontinued Operations
The Company is exiting the coal business through the sale or shutdown of its
coal mining operations and assets (including reserves) and the transfer of
certain liabilities. The Company's Coal Operations have been reported as
discontinued operations for all periods presented herein.
The Company's plan of disposal includes the sale or shutdown of its active and
idle coal mining operations (including 24 Company or contractor operated mines
and 5 active plants) and reserves, as well as other assets which support those
operations. The assets to be disposed of primarily include property, plant and
equipment, some inventory and the Company's partnership interest in Dominion
Terminal Associates, a coal port facility in Newport News, Virginia. It is
expected that certain liabilities will be assumed by the purchasers. Total
proceeds from the sale of Coal Operations, which could include cash, notes
receivable, the present value of minimum future royalties to be received and
liabilities to be transferred, are expected to exceed $100 million.
The Company sold certain properties in West Virginia in January 2002. In July
2002, the Company sold substantially all of its operations and assets in
Kentucky. Although the Company had announced in July 2002 that it had agreed to
sell substantially all of its remaining coal mining assets (including reserves)
in West
--
18
Virginia, due to closing conditions not being satisfied, the Company and
the purchaser have preliminarily agreed to restructure the West Virginia sale
transaction. Under the restructured transaction the purchaser is expected to
purchase all of the active mining operations in West Virginia and obtain a
one-year option to acquire the Company's other West Virginia coal reserves,
which are currently not being mined by the Company. In October 2002, the Company
agreed to sell substantially all of its remaining coal assets in Virginia. The
Company currently expects to complete the disposal of its coal operations before
the end of 2002.
Through the end of 2001, the Company recorded an estimated pretax loss on the
disposal of the discontinued segment of $348.5 million including $110.0 million
of losses on the disposal, $67.2 million of estimated operating losses to be
incurred from the December 2000 measurement date to the estimated dates of
disposal for the various operations and assets, including reserves, and $171.3
million to accrue certain "legacy" liabilities, as more fully described in the
Company's 2001 Annual Report on Form 10-K. During the first quarter of 2002 the
Company increased its estimate of the pretax loss from discontinued operations
by $15.0 million ($11.0 million after-tax) in response to adverse coal market
conditions.
The Company continues to assess, among other things, expected operating
performance of assets through dates of anticipated disposal, contingent gains
and losses and its estimates of the timing of expected sales of the Coal
Operations, and such estimates may affect results from discontinued operations
in future periods. The Company has evaluated the factors which entered into the
calculation of the estimated loss and has determined that no adjustment to the
estimated loss is appropriate for the third quarter of 2002.
Estimates regarding losses on the disposal of Coal Operations and losses during
the disposal period are subject to known and unknown risks, uncertainties and
contingencies which could cause actual results 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, demand and competitive factors in the
coal industry, the impact of delays in the issuance or the nonissuance of mining
permits, the timing of and consideration received for the sale of the remaining
coal assets, costs associated with shutting down those operations that are not
sold, funding and benefit levels of the multi-employer pension plans, geological
conditions and variations in the spot prices of coal.
Certain assets and liabilities are expected to be retained by the Company,
including most net working capital, other assets, certain parcels of land,
income and non-income tax assets and liabilities, certain employee liabilities
primarily for postretirement medical benefits, workers' compensation and black
lung obligations, and reclamation related liabilities associated with certain
closed coal mining sites in Virginia, West Virginia and Kentucky. In addition,
the Company expects to continue to be liable for other contingencies, including
its unconditional guarantee of the payment of the principal, interest and
premium, if any, on coal terminal revenue refunding bonds (principal amount of
$43.2 million).
The Company has accrued $8.2 million (pretax) for its estimate of a
multi-employer pension plan withdrawal liability associated with its planned
exit from the coal business. The estimate is based on the most recent actuarial
estimate of liability for a withdrawal occurring in the plan year ended June 30,
2002. The ultimate withdrawal liability, if any, is subject to several factors,
including investment performance, as well as funding and benefit levels of the
plans and the ultimate timing and form of the sale transactions.
Accordingly, the actual amount of this liability could change materially.
The Company has established a Voluntary Employees' Beneficiary Association
("VEBA") which is intended to tax-efficiently fund certain retiree medical
liabilities primarily for retired coal miners and their dependents. The VEBA may
receive partial funding from the proceeds of the planned sale of the Company's
coal business as well as other sources over time. As of September 30, 2002, the
balance in the VEBA was $17.3 million and was included in other non-current
assets.
On February 10, 1999, the U.S. District Court of the Eastern District of
Virginia entered a final judgment in favor of certain of the Company's
subsidiaries and ruled that the Federal Black Lung Excise Tax ("FBLET") is
unconstitutional as applied to export coal sales. A total of $0.8 million
(including interest) was refunded in 1999
--
19
for the FBLET that those companies paid for the first quarter of 1997. The
Company sought refunds of the FBLET it paid on export coal sales for all open
statutory periods and received refunds of $23.4 million (including interest)
during the fourth quarter of 2001. The Company continues to pursue the refund of
other FBLET payments. Due to uncertainty as to the ultimate additional future
amounts to be received, if any, which could amount to as much as $20 million
(before interest and applicable income taxes), as well as the timing of any
additional FBLET refunds, the Company has not recorded the benefit of such
additional FBLET refunds in its estimate of operating losses to be incurred
during the disposal period.
Operating Performance of Discontinued Operations
Since estimated operating losses during the sales period for the discontinued
operations are recorded as part of the estimated loss on the disposal of the
discontinued segment, actual operating results of operations during this period
are not included in consolidated results of operations. The following table
shows selected financial information for Coal Operations during the third
quarter and first nine months of 2002 and 2001.
Three Months Ended Nine Months Ended
September 30 September 30
(In millions) 2002 2001 2002 2001
- -----------------------------------------------------------------------------------------------------------------------------
Sales $ 69.0 99.3 206.8 299.4
Operating profit (loss) before inactive
employee benefit costs (8.7) 1.3 (16.5) (1.3)
Inactive employee benefit costs (14.9) (6.7) (35.6) (19.6)
- -----------------------------------------------------------------------------------------------------------------------------
Operating loss (23.6) (5.4) (52.1) (20.9)
Loss before income taxes $(23.1) (4.9) (50.7) (19.2)
- -----------------------------------------------------------------------------------------------------------------------------
Coal revenues of $69.0 million and $206.8 million for the third quarter and
first nine months of 2002, respectively, were $30.3 million and $92.6 million
lower than the comparable periods of 2001 primarily as a result of a decrease in
sales volumes. Operating loss before inactive employee costs in the third
quarter and first nine months of 2002 was $10.0 million and $15.2 million higher
than the respective 2001 periods. The higher losses were primarily due to lower
production volumes as a result of idling certain mines, which resulted in lower
coal margin in 2002. The higher 2002 operating losses were partially offset by
$1.6 million of other operating income related to a Harbor Maintenance Tax
refund received in the first nine months of 2002. Inactive employee benefit
costs in the third quarter and first nine months of 2002 were higher than the
comparable 2001 periods primarily as a result of changes in actuarial
assumptions and valuations.
The Company expects to incur ongoing expenses associated with its Coal
Operations in future years including interest costs and amortization expenses on
its retiree medical and black lung obligations, changes, if any, in valuations
of liabilities for workers' compensation benefits, Health Benefit Act benefits
and retained reclamation liabilities, and certain ongoing costs, if any, for
abandoned sites or operations. Such expenses, related to 2001 and 2002, have
been included in the loss from discontinued operations. Upon completion of the
disposal of the Company's Coal Operations, these expenses will continue to be
charged annually against the Company's earnings. Using assumptions in existence
as of December 31, 2001, the Company estimated that such expenses over the
following five years would approximate $45 million to $55 million per annum.
Also using assumptions as of December 31, 2001, estimated cash payments
associated with these liabilities were expected to be approximately
$60 million to $70 million per annum during the following five years.
Such estimates of expenses and cash flow will be revised following the annual
actuarial valuations which will be completed over the next few months.
Foreign operations
The Company operates in over 100 countries each with a local currency other than
the U.S. dollar. Because the financial results of the Company are reported in
U.S. dollars, its results are affected by changes in the value of the various
foreign currencies in relation to the U.S. dollar. Changes in exchange rates may
also affect transactions which are denominated in currencies other than the
functional currency. The diversity of foreign
--
20
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.
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.
Other operating income, net
Other operating income, net, which is a component of each operating segment's
previously discussed operating profit, generally includes the Company's share of
net earnings or losses of unconsolidated affiliates, gains or losses on the sale
of subsidiaries and affiliates, royalty income and gains and losses from foreign
currency exchange. Other operating income, net for the three and nine months
ended September 30, 2002 was $4.2 million and $10.3 million, respectively,
compared to $7.4 million and $16.3 million, respectively, in the three and nine
months ended September 30, 2001. The decrease in other operating income for the
three and nine month periods ended September 30, 2002 as compared to the same
periods of 2001 is primarily attributed to approximately $2 million of gains
realized from the sale of Brink's interests in two non-strategic international
affiliates during the third quarter of 2001, as well as lower earnings of
unconsolidated foreign equity affiliates in the 2002 periods and the effects of
foreign currency exchange fluctuations.
Stabilization Act compensation
The terrorist attacks in the U.S. in September 2001 directly impacted BAX
Global's operating results to the extent that it was not able to provide air
cargo service to its customers for a short period in September 2001. The Company
received $5.9 million in September 2002 in compensation from the U.S. government
pursuant to the Air Transportation Safety and System Stabilization Act. The
Company does not expect any additional amounts to be collected pursuant to the
Act.
Interest expense, net
Interest expense, net decreased $3.0 million and $8.4 million in the third
quarter and first nine months of 2002, respectively, as compared to the same
periods of 2001 due to lower average borrowings and borrowing rates.
Other income (expense), net
Other income (expense), net for the three and nine months ended September 30,
2002 was expense of $1.0 million and $4.0 million, respectively, compared to
income of $2.9 million and expense of $0.6 million for the three and nine months
ended September 30, 2001, respectively. The 2001 periods included a $3.9 million
gain on the sale of marketable securities.
Income taxes
The provision for income taxes from continuing operations was greater than the
statutory federal income tax rate of 35% in each of the 2002 and 2001 periods
presented primarily due to certain nondeductible goodwill amortization expense
in 2001 and state income taxes, partially offset by lower taxes on foreign
income. The Company's effective tax rate in the first nine months of 2002 is
lower than the same period in 2001 due to adoption of Statement of Financial
Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets"
(See "Accounting Changes") because goodwill amortization, the majority of which
is not deductible for income tax purposes, is no longer deducted from income
from continuing operations. The tax provision in the third quarter was higher
than in the first half of 2002 due to higher tax expense related to
international operations. As a result of Coal Operations being reported as
discontinued operations, the tax benefits of percentage depletion are not
reflected in the effective tax rate from continuing operations.
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21
LIQUIDITY AND CAPITAL RESOURCES
Summary of cash flows before financing activities:
Nine Months Ended September 30
(In millions) 2002 2001
- ----------------------------------------------------------------------------------------------------
Operating activities:
Before changes in operating assets and liabilities $ 234.4 212.7
Changes in assets and liabilities (11.8) (2.9)
Discontinued operations (61.8) (23.6)
- ----------------------------------------------------------------------------------------------------
Operating activities 160.8 186.2
Investing activities:
Capital and aircraft heavy maintenance expenditures (166.4) (156.2)
Other 3.8 (1.8)
Discontinued operations (12.2) (6.7)
- ----------------------------------------------------------------------------------------------------
Investing activities (174.8) (164.7)
- ----------------------------------------------------------------------------------------------------
Cash flows before financing activities $ (14.0) 21.5
- ----------------------------------------------------------------------------------------------------
Operating activities
Cash provided by operating activities was $25.4 million lower in the first nine
months of 2002 compared to the same period of 2001 as $38.6 million higher
income from continuing operations was more than offset by a $38.2 million
increase in cash used for discontinued operations and a $35.1 million
contribution to the Company's primary U.S. pension plan. Higher cash used by the
Company's discontinued Coal Operations in 2002 was primarily related to higher
operating losses resulting from weak coal market conditions.
During the first nine months of 2002, BAX Funding Corporation ("BAX Funding"), a
wholly owned, consolidated special-purpose subsidiary of BAX Global, has
increased the net amount of revolving interest sold in certain of BAX Global's
U.S. domestic accounts receivable by $4.0 million to $73.0 million. During the
same period of 2001, Bax Funding decreased the net amount of revolving interest
sold by $18 million to $67 million.
Investing activities
Capital expenditures for the first nine months of 2002 of $142.4 million were
$2.9 million lower than for the same period in 2001. Of the 2002 capital
expenditures, $55.1 million was spent by Brink's, $63.0 million was spent by
BHS, $15.8 million was spent by BAX Global and $8.5 million was spent by Other
Operations. Lower capital expenditures in 2002 as compared to 2001 were
primarily due to a reduction in spending on major information technology
initiatives at BAX Global in the first nine months of 2002.
Aircraft heavy maintenance expenditures increased $13.1 million during the first
nine months of 2002 to $24.0 million as compared to the same period of 2001 as a
result of the timing of regularly scheduled maintenance for airplanes. The
Company expects to spend between $28 million and $32 million on aircraft heavy
maintenance in 2002.
Capital expenditures for continuing operations in 2002 are currently expected to
range from $190 million to $200 million, depending on operating results over the
balance of the year. Expected capital expenditures for 2002 reflect an increase
in customer installations at BHS and security and information technology
spending at Brink's. Additionally, an amount ranging from $19 million to $20
million of necessary or committed expenditures relating to the discontinued
operations is expected during the full year 2002. The increase in investing
activities for the discontinued operations reflects spending in the first half
of 2002 on the development of a deep mine.
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22
The Company's consolidated cash flows before financing activities depends on
each of the operating segments' cash flows.
Nine Months
Ended September 30
(In millions) 2002 2001
- ------------------------------------------------------------------------------------------
Cash flows before financing activities:
Brink's $ 50.8 32.0
BHS 33.6 28.9
BAX Global 11.2 (4.4)
Corporate and Other Operations (39.7) (4.8)
Discontinued operations (69.9) (30.2)
- ------------------------------------------------------------------------------------------
Cash flows before financing activities $(14.0) 21.5
- ------------------------------------------------------------------------------------------
Cash flows before financing activities at Brink's were above the 2001 period
primarily due to an improvement in operating performance in the 2002 period
versus the 2001 period, and favorable changes in working capital and a decrease
in cash used in investing activities during 2002. Cash flows before financing
activities at BHS increased primarily due to an improvement in operating
performance in 2002 partially offset by higher capital expenditures and deferred
sales costs associated with a higher number of installations. The increase in
cash flows before financing activities at BAX Global in 2002 as compared to the
first nine months of 2001 is primarily due to improved operating results and
lower capital expenditures, partially offset by higher aircraft heavy
maintenance expenditures. Cash flows before financing for BAX Global in 2001
included a $3.9 million gain on the sale of marketable securities. Cash flows
before financing for corporate and other operations in the 2002 period reflect a
contribution of $35.1 million to the Company's primary U.S. pension plan.
Discontinued operations' cash flow before financing was lower in 2002 than 2001
primarily due to a larger operating loss resulting from weak coal market
conditions and development spending on the above-mentioned deep mine.
Financing activities
Net cash flows provided by financing activities were $50.2 million for the first
nine months of 2002 compared with net cash flows used by financing activities of
$8.1 million for the same period of 2001. The Company's cash provided by
financing activities are typically from short-term borrowings or from net
borrowings under the Company's revolving bank credit facility, discussed below.
The Company also borrowed $20 million in the second quarter of 2002 and $75
million in the first quarter of 2001 under longer-term issuances of Senior
Notes, also discussed below.
In September 2002, the Company entered into a $350 million bank credit facility
(the "Facility") which replaced the previous bank credit agreement of $362.5
million. The Company may borrow on a revolving basis over a three-year term
ending September 2005. Approximately $165.4 million was available for borrowing
under the facility on September 30, 2002.
The Company has two multi-currency revolving bank credit facilities that total
$90 million in available credit, of which approximately $34.8 million was
available at September 30, 2002. Various foreign subsidiaries maintain other
secured and unsecured lines of credit and overdraft facilities with a number of
banks. Borrowings outstanding under these agreements are included in short-term
borrowings. The Company is currently negotiating a replacement for the $60
million multi-currency revolving bank facility (included in the $90 million
noted above) that expires in December 2002. During November 2002, the Company
entered into an additional multi-currency facility totaling $35 million.
The Company completed a $20.0 million private placement of 7.17% Senior Notes in
April 2002 with maturities ranging from four to six years. The Company also has
$75.0 million of Senior Notes that were issued in the first quarter of 2001 that
are due in 2005 through 2008. The Company has the option to prepay all or a
portion of the Notes prior to maturity with a prepayment penalty. The proceeds
of the Notes were used to repay a portion of the Company's U.S. revolving bank
credit facility in each year.
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23
The U.S. revolving bank credit facility, the agreements under which the Senior
Notes were issued and the multi-currency revolving bank credit facilities each
contain various financial and other covenants. The financial covenants limit the
Company's total indebtedness, provide for minimum coverage of interest costs,
and require the Company to maintain a minimum level of net worth. A failure to
comply with the terms of one of these loan agreements could result in the
acceleration of the repayment terms in that agreement as well as in the
Company's other loan agreements. At September 30, 2002 the Company was in
compliance with all financial covenants.
Other
Due to the continuing weak performance of U.S. and international investment
markets during 2002, the Company made a voluntary contribution of $35.1 million
to its primary U.S. pension plan trust in September 2002. The Company may elect
to make further voluntary contributions during the fourth quarter of 2002. If
investment markets do not show substantial improvement in the fourth quarter of
2002, the Company expects its pension plan expense will increase in 2003. The
amount of change in expense, if any, cannot be estimated prior to the completion
of the annual reevaluation of actuarial assumptions and the determination of
year end pension trust asset values.
During the first quarter of 2002, certain of Brink's French operating
subsidiaries upgraded information systems used to bill customers and to record
revenues. During the upgrade process, the subsidiaries billed customers on a
delayed basis and recognized revenues using estimates of services performed. The
subsidiaries have been adjusting their customer billings and revenues for
differences between the estimated billings and actual billings during the second
and third quarters of 2002 and are expected to complete such billing adjustments
during the fourth quarter of 2002. The Company does not expect these adjustments
to customer billings and revenues to be material. Largely as the result of
delays associated with the process, receivables at Brink's French subsidiaries
were $31.0 million higher at September 30, 2002 than at December 31, 2001.
Capitalization
As of September 30, 2002, the Company had the remaining authority to purchase
over time up to 1.0 million shares of Pittston Common Stock with an aggregate
purchase price limitation of $19.1 million for all such purchases. Such shares
are to be purchased from time to time in the open market or in private
transactions, as conditions warrant.
On August 15, 2002, the Company redeemed all 21,433 outstanding shares of the
$31.25 Series C Cumulative Preferred Stock (the "Convertible Preferred Stock")
at an aggregate redemption price of $11.0 million, or $512.67 per share,
including accrued and unpaid dividends of $0.2 million up to the redemption
date. The Company no longer has any outstanding Convertible Preferred Stock and,
therefore, dividends on the Convertible Preferred Stock have ceased to accrue.
As a result of the premium paid in the redemption, basic and diluted earnings
per common share were reduced by $0.01 per share in the third quarter and first
nine months of 2002.
Dividends
During the first nine months of 2002 and 2001, the Company paid cash dividends
of $3.6 million and $3.5 million, respectively on Pittston Common Stock.
Dividends paid on the Company's preferred stock were $0.5 million in the first
nine months in each of 2002 and 2001. Future dividends, if any, on the Company's
common stock are dependent on the earnings, financial condition, cash flow and
business requirements of the Company, as determined by the Company's Board of
Directors (the "Board"). On October 31, 2002, the Board declared its regular
quarterly dividend of $0.025 per share on its common stock, payable during the
fourth quarter of 2002.
Preferred dividends included in the Company's computation of basic and diluted
earnings per share for the three and nine months ended September 30, 2002
include a $0.6 million premium on the redemption of the Company's Convertible
Preferred Stock. The premium is the difference between the cash paid to the
holders of the Convertible Preferred Stock and the carrying amount of the
redeemed Convertible Preferred Stock. As a result of the above mentioned
redemption of all outstanding shares of the Convertible Preferred Stock, no
--
24
further preferred dividends will be declared.
Accounting changes
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets," in the first quarter of 2002 and,
in accordance with the new standard, goodwill and intangible assets with
indefinite useful lives are no longer amortized, but are tested for impairment
at least annually. The Company's goodwill amortization for the third quarter and
first nine months of 2001 was $1.8 million and $5.3 million, respectively ($0.04
and $0.11 per diluted share) including tax effects. The Company completed the
transitional goodwill impairment test during the second quarter of 2002 with no
impairment charges resulting.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
was issued in August 2001. This statement supersedes SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed
of," and will provide a single accounting model for long-lived assets held for
sale. SFAS No. 144 also supersedes the provisions of Accounting Principles Board
Opinion ("APB") No. 30, "Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," with regard to reporting the effects of a disposal of a segment
of a business and will require expected future operating losses from
discontinued operations to be reported in the periods in which the losses are
incurred (rather than as of the measurement date as required by APB No. 30). In
addition, SFAS No. 144 expands the definition of asset dispositions that may
qualify for discontinued operations treatment in the future. The Company adopted
SFAS No. 144 beginning January 1, 2002 with no current effect on the Company's
Consolidated Financial Statements.
Pending accounting changes
SFAS No. 143, "Accounting for Asset Retirement Obligations," was issued in June
2001 and addresses financial accounting and reporting for obligations associated
with the retirement of tangible long-lived assets and the associated asset
retirement costs. SFAS No. 143 requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in which it becomes
an obligation, if a reasonable estimate of fair value can be made. The Company
will adopt SFAS No. 143 in 2003. The Company is currently evaluating the effect
that implementation of the new standard may have on its results of operations
and financial position.
SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities," was issued in June 2002 and applies to costs associated with an
exit activity (including restructuring) or with a disposal of long-lived assets.
This statement nullifies Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)." Under SFAS No.
146, a commitment to a plan to exit an activity or dispose of long-lived assets
will no longer be sufficient to record a charge for most anticipated costs.
Instead, a liability for costs associated with an exit or disposal activity will
be recorded when that liability is incurred and can be measured at fair value.
SFAS No. 146 also revises accounting for specified employee and contract
terminations that are part of restructuring activities. SFAS No. 146 will be
effective for exit or disposal activities initiated after December 31, 2002.
Market risks and hedging and derivative activities
The Company has activities in over 100 countries and a number of different
industries. These operations 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
consolidated 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, 2001.
--
25
Controls and procedures
Within the 90 days prior to the filing date of this report, the Company
performed an evaluation under the supervision and with the participation of the
Company's management, including the Chief Executive Officer and the Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation, the
Company's management, including the Chief Executive Officer and Chief Financial
Officer, concluded that the Company's disclosure controls and procedures were
effective in ensuring that material information relating to the Company was made
known to them, particularly with respect to the period covered by this report.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
date of the evaluation.
Forward-looking information
Certain of the matters discussed herein, including statements regarding the
timing and outcome of the disposal of the coal business, assets expected to be
disposed of, expected proceeds from the disposal of the coal business, the
retention of certain assets and liabilities following the disposal of the coal
assets, the Company's ongoing expenses associated with its Coal Operations, the
impact of SFAS No. 143 on the Company's results of operations and financial
position, the timing of funding and source of funds for the VEBA, the amount and
timing of additional FBLET refunds, if any, the expectation that economic and
competitive pressures in South America will continue, the belief that increased
special charter activity will not continue past the early part of the fourth
quarter of 2002, the expected impact of the West Coast port dispute on BAX
Global, the timing of the payment of fleet charges and station and other costs
relating to the BAX Global restructuring, the outcome of the proposed
transaction with respect to the Company's gold operations, projected aircraft
heavy maintenance expenses and capital spending, the replacement of one of the
Company's multi-currency credit facilities, possible contributions to the
Company's primary U.S. pension plan trust during the fourth quarter of 2002,
the potential for increases in pension plan expenses in 2003 compared to 2002
and the timing and impact of expected adjustments to Brink's subsidiaries'
customer bills in France, involve forward-looking information which is subject
to known and unknown risks, uncertainties, and contingencies, many of which
are beyond the control of Pittston and its subsidiaries, that could cause
actual results, performance or achievements to differ materially from those
that are anticipated. Such risks, uncertainties and contingencies include, but
are not limited to, the ultimate outcome of efforts to sell the coal business,
the negotiation and execution of documentation for the restructured West
Virginia coal transaction and the receipt of various consents related thereto,
the financial condition of the potential purchaser in the West Virginia coal
transaction and approvals of the bankruptcy court, the satisfaction of various
conditions to the consummation of the sale of coal mining assets and reserves
in Virginia, including the receipt of various consents and the approval of
various transaction documents by the buyer's lenders, the completion of sales
of coal assets on mutually agreeable terms, the parties that purchase the coal
assets, variations in the price of coal, variations in the number of people
entitled to retiree medical benefits arising from Coal Operations, the
interpretation of SFAS No. 143 by third parties, the position taken by
governmental entities with respect to the timing and amount of additional
FBLET refunds, if any, the economy, political conditions and performance of
Brink's competitors in South America, the need for customers to utilize BAX
Global's special charter capabilities to meet delivery demands, the timing of
the resolution of the West Coast port dispute and responses by producers of
goods to the dispute, the execution of a definitive agreement with respect
to the sale of the Company's gold operations and the satisfaction of
significant conditions to such sale, the allocation of funds to pay the costs
relating to the BAX Global restructuring, the commercial lending market,
the performance of the various markets in which the Company's primary
U.S. pension plan trust invested, the results of the reevaluation of actuarial
assumptions and the determination of year end pension trust asset values, the
ability of certain of Brink's subsidiaries in France to realize the full amount
of accounts receivable, net of allowance for doubtful accounts, the expansion of
any of the operating segments into new markets, the costs in 2002 associated
with security and information technology enhancements at Brink's and the
development of a deep mine by the Company's Coal Operations, overall economic
and business conditions, the domestic and international demand for the Company's
products and services, pricing and other competitive factors in the Company's
businesses, labor relations, new government regulations and legislative
initiatives, variations in costs or expenses and performance delays by any
public or private sector supplier, service provider or customer.
--
26
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 September 13, 2002.
10 Credit Agreement, dated as of September 6, 2002, among The
Pittston Company, as Borrower, Certain of Its Subsidiaries, as
Guarantors, Various Lenders, Fleet National Bank, as
Co-Arranger and Documentation Agent, Wachovia Bank, National
Association, and The Bank of Nova Scotia, as Co-Arrangers and
Syndication Agents, JPMorgan Chase Bank, as Administrative
Agent, and J.P. Morgan Securities Inc., as Sole Advisor, Lead
Arranger and Bookrunner
(b) Report on Form 8-K, filed on August 14, 2002, reporting the filing of
sworn statements pursuant to Section 21(a)(1) of the Securities
Exchange Act of 1934, as amended, and the provision of certifications
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
--
27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE PITTSTON COMPANY
November 14, 2002 By: /s/ Robert T. Ritter
-----------------------------
Robert T. Ritter
(Vice President and
Chief Financial Officer)
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28
CERTIFICATIONS
I, Michael T. Dan, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The
Pittston Company;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) All significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/ Michael T. Dan
-----------------------------
Michael T. Dan
Chief Executive Officer
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29
CERTIFICATIONS (CONTINUED)
I, Robert T. Ritter, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The
Pittston Company;
2. Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
b) Evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date
within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officer and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent
function):
a) All significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated
in this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 /s/ Robert T. Ritter
--------------------------------------
Robert T. Ritter
Vice President and Chief Financial Officer
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STATEMENT OF DIFFERENCES
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The section symbol shall be expressed as............................... 'SS'