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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 1-9148
THE PITTSTON COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA 54-1317776
(STATE OR OTHER JURISDICTION OF (I. R. S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
P.O. BOX 4229,
1000 VIRGINIA CENTER PARKWAY
GLEN ALLEN, VIRGINIA 23058-4229
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: (804) 553-3600
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
PITTSTON BRINK'S GROUP COMMON STOCK, PAR VALUE $1 NEW YORK STOCK EXCHANGE
PITTSTON BAX GROUP COMMON STOCK, PAR VALUE $1 NEW YORK STOCK EXCHANGE
PITTSTON MINERALS GROUP COMMON STOCK, PAR VALUE $1 NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES B PARTICIPATING CUMULATIVE PREFERRED STOCK NEW YORK STOCK EXCHANGE
RIGHTS TO PURCHASE SERIES D PARTICIPATING CUMULATIVE PREFERRED STOCK NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 2, 1999, there were issued and outstanding 40,863,615 shares
of Pittston Brink's Group Common Stock, 20,824,910 shares of Pittston BAX Group
Common Stock and 9,186,434 shares of Pittston Minerals Group Common Stock. The
aggregate market value of such stocks held by nonaffiliates, as of that date,
was $954,461,464, $151,105,783 and $13,962,972, respectively.
Documents incorporated by reference: Part I, Part II and Part IV
incorporate information by reference from the Annual Reports of Pittston Brink's
Group, Pittston BAX Group and Pittston Minerals Group for the year ended
December 31, 1998. Part III incorporates information by reference from portions
of the Registrant's definitive Proxy Statement to be filed pursuant to
Regulation 14A.
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
As used herein, the "Company" includes The Pittston Company, except as otherwise
indicated by the context. The Company is a diversified firm with three separate
groups - Pittston Brink's Group, Pittston BAX Group, and Pittston Minerals Group
(each as defined below). The Company has three classes of common stock: Pittston
Brink's Group Common Stock ("Brink's Stock"), Pittston BAX Group Common Stock
("BAX Stock") and Pittston Minerals Group Common Stock ("Minerals Stock") which
were designed to provide shareholders with separate securities reflecting the
performance of the Brink's Group, BAX Group and Minerals Group, respectively,
without diminishing the benefits of remaining a single corporation or precluding
future transactions affecting any of the Groups. The Brink's Group consists of
the Brink's and BHS segments (each as defined below) of the Company. The BAX
Group consists of the BAX Global segment (as defined below) of the Company. The
Minerals Group consists of the Pittston Coal and Mineral Ventures segments (each
as defined below) of the Company. The Company prepares three separate Annual
Reports for the Brink's, BAX and Minerals Groups, each of which includes the
consolidated financial information of the Company. Corporate allocations
reflected in Brink's, BAX and Minerals Groups' financial statements are
determined based upon methods which management believes to provide a reasonable
and equitable allocation of such items. Holders of the Brink's Group, BAX Group
and Minerals Group common stocks are shareholders of the Company, which
continues to be responsible for all its liabilities. Accordingly, the financial
statements of the Pittston Brink's Group, Pittston BAX Group and Pittston
Minerals Group must be read in conjunction with the financial statements of the
Company, which are included in each Group's Annual Report.
The Company provides to holders of Brink's Stock, BAX Stock and Minerals Stock,
separate financial statements, financial review, descriptions of business and
other relevant information in addition to the consolidated financial information
of the Company. Notwithstanding the attribution of assets and liabilities
(including contingent liabilities) among the Brink's Group, the BAX Group and
the Minerals Group, for the purpose of preparing their respective financial
statements, this attribution and the change in the capital structure of the
Company as a result of the approval of the Brink's Stock Proposal did not affect
legal title to such assets or responsibility for such liabilities for the
Company or any of its subsidiaries. Holders of Brink's Stock, BAX Stock and
Minerals Stock are shareholders of the Company, which continues to be
responsible for all its liabilities. Financial impacts arising from one group
that affect the Company's financial condition could thereby affect the results
of operations and financial condition of each of the groups. Since financial
developments within one group could affect other groups, all shareholders of the
Company could be adversely affected by an event directly impacting only one
group. Accordingly, the Company's consolidated financial statements must be read
in connection with the Brink's Group, BAX Group and Minerals Groups' financial
statements.
Financial information related to the Company's segments is included in Note 17
of the Company's consolidated financial statements. See pages 84 through 85; 87
through 88 or 92 through 93 of the Brink's Group, the BAX Group and the Minerals
Group 1998 Annual Reports, respectively, each of which includes the consolidated
financial information of the Company and are incorporated herein by reference.
The information set forth with respect to "Business and Properties" is as of
December 31, 1998 except where an earlier or later date is expressly stated.
Nothing herein should be considered as implying that such information is correct
as of any date other than December 31, 1998, except as so stated or indicated by
the context.
Activities relating to the Brink's segment are carried on by Brink's,
Incorporated and its subsidiaries and certain affiliates and associated
companies in foreign countries (together, "Brink's"). Activities relating to the
BHS segment are carried on by Brink's Home Security, Inc. and its subsidiaries
(together, "BHS"). Activities relating to the BAX Global segment are carried on
by BAX Global Inc. and its subsidiaries and certain affiliates and associated
companies in foreign countries (together, "BAX Global"). Activities relating to
Pittston Coal are carried on by the Pittston Coal Company and its subsidiaries
(together, "Pittston Coal"). Activities relating to Mineral Ventures are carried
on by Pittston Mineral Ventures Company and its subsidiaries and certain
affiliates (together, "Mineral Ventures").
The Company has a total of approximately 41,800 employees.
PITTSTON BRINK'S GROUP
Pittston Brink's Group (the "Brink's Group") consists of the armored car, air
courier and related services of Brink's, and the home security business of BHS.
BRINK'S
GENERAL
The major activities of Brink's are contract-carrier armored car, automated
teller machine ("ATM"), air courier, coin wrapping, and currency and deposit
processing services. Brink's serves customers through 153 branches in the United
States and 39 branches in Canada. Service is also provided through subsidiaries,
affiliates and associated companies in 48 countries outside the United States
and Canada. These international operations contributed approximately 50% of
Brink's total reported 1998 operating profit. Brink's ownership interest in
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subsidiaries and affiliated companies ranges from approximately 20% to 100%; in
some instances local laws limit the extent of Brink's interest.
Representative customers include banks, commercial establishments, industrial
facilities, investment banking and brokerage firms and government agencies.
Brink's provides its individualized services under separate contracts designed
to meet the distinct transportation and security requirements of its customers.
These contracts are usually for an initial term of one year or less, but
generally continue in effect thereafter until canceled by either party.
Brink's armored car services include transportation of money from industrial and
commercial establishments to banks for deposit, and transportation of money,
securities and other negotiable items and valuables between commercial banks,
Federal Reserve Banks and their branches and correspondents, and brokerage
firms. Brink's also transports new currency, coins and precious metals for the
United States Mint, the Federal Reserve System and the Bank of Canada. For
transporting money and other valuables over long distances, Brink's offers a
combined armored car and air courier service linking many cities in the United
States and abroad. Except for a subsidiary in Venezuela, Brink's does not own or
operate any aircraft, but uses regularly scheduled or chartered aircraft in
connection with its air courier services.
In addition to its armored car pickup and delivery services, Brink's provides
change services, coin wrapping services, currency and deposit processing
services, ATM services, safes and safe control services, check cashing and
pickup and delivery of valuable air cargo shipments. In certain geographic
areas, Brink's transports canceled checks between banks or between a clearing
house and its member banks. Brink's also offers CompuSafe'TM' service, designed
to streamline the handling and management of cash receipts initially implemented
for the convenience store and gas station market.
Brink's operates a worldwide specialized diamond and jewelry transportation
business and has offices in the major diamond and jewelry centers of the world,
including London, Antwerp, Tel Aviv, Hong Kong, New York, Bombay, Bangkok, Tokyo
and Arrezzo, Italy.
Brink's has a wholly owned subsidiary that develops flexible deposit processing
and vault management software systems for the financial services industry and
for Brink's internal use. Brink's has the ability to tie together a full range
of cash vault, ATM, transportation, storage, processing, inventory management
and reporting services. Brink's believes that its processing and information
capabilities differentiate its currency and deposit processing services from its
competitors and enable Brink's to take advantage of the trend by banks, retail
business establishments and others to outsource vaulting and cash room
operations.
Brink's non-North American operations which accounted for approximately 57% of
its revenues in 1998, are organized into three regions: Europe, Latin America
and Asia/Pacific. In Europe, wholly owned subsidiaries of Brink's operate in
France, Germany, the United Kingdom and the Netherlands and, in the diamond and
jewelry transportation business, in Belgium, Italy, Russia and the United
Kingdom. In January 1998, Brink's purchased substantially all of the remaining
outstanding shares of its subsidiary in France. In June 1998, Brink's purchased
the remaining 50% interest of its subsidiary in Germany. Brink's has a 70%
interest in a subsidiary in Israel, a 50.05% interest in a subsidiary in Greece
and a 51% interest in a subsidiary in Switzerland. Brink's also has ownership
interests ranging from 45% to 50% in affiliates and subsidiaries operating in
Belgium, Ireland, Jordan and Luxembourg. Wholly owned subsidiaries operate in
South Africa and Turkey. In Latin America, wholly owned subsidiaries operate in
Brazil and Bolivia. Brink's owns a 61% interest in a subsidiary in Venezuela, a
73% interest in a subsidiary in Chile, a 51% ownership interest in a subsidiary
in Argentina, a 58% interest in a subsidiary in Colombia and a 20% interest in a
Mexican company which operates one of the world's largest security
transportation services with over 1,400 armored vehicles. Brink's also has 49%
and 36% ownership interests in affiliates operating in Panama and Peru,
respectively. In the Asia/Pacific region, wholly owned subsidiaries of Brink's
operate in Australia, Taiwan and China, and majority owned subsidiaries operate
in Hong Kong (90% owned), Japan (51% owned) and Singapore (60% owned). Brink's
also has minority interests in affiliates in India, Pakistan and Thailand
ranging from 40% to 49%.
Because the financial results of Brink's are reported in US dollars, they are
affected by changes in the value of the various foreign currencies in relation
to the US dollar. Changes in exchange rates may also adversely affect
transactions which are denominated in currencies other than the functional
currency. Brink's periodically enters into such transactions in the normal
course of its business. The diversity of foreign operations helps to mitigate a
portion of the impact that foreign currency fluctuations may have in any one
country on the translated results. Brink's, from time to time, uses foreign
currency forward contracts to hedge certain transactional risks associated with
foreign currencies. Brink's 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 of such risks on Brink's cannot
be predicted.
COMPETITION
Brink's is the oldest and largest armored car service company in the United
States as well as a market leader in most of the countries in which it operates.
The foreign subsidiaries, affiliates and associates of Brink's compete with
numerous armored car and courier service companies in many areas of operation.
In the United States, Brink's presently competes nationally with one company and
regionally and locally with many smaller companies. Brink's believes that its
service, high quality insurance coverage and company reputation (including the
name
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"Brink's") are important competitive advantages. However, the cost of service
is, in many instances, the controlling factor in obtaining and retaining
customers. While Brink's cost structure is generally competitive, certain
competitors of Brink's have lower costs primarily as a result of lower wage and
benefit levels.
See also "Government Regulation" below.
SERVICE MARK, PATENTS AND COPYRIGHTS
Brink's is a registered service mark of Brink's, Incorporated in the United
States and in certain foreign countries. The Brink's mark and name are of
material significance to Brink's business. Brink's owns patents with respect to
certain coin sorting and counting machines and armored truck design. Patents
related to coin sorting and counting machines expire in 2007. Brink's holds
copyrights on certain software systems developed by Brink's. In addition,
Brink's has a patented integrated service called CompuSafe'TM' service which has
been designed to streamline the handling and management of cash receipts.
INSURANCE
Brink's carries insurance coverage for its losses. Insurance policies cover
liability for loss of various types of property entrusted to Brink's from any
cause except war and nuclear risk. The various layers of insurance are covered
by different groups of participating underwriters. Such insurance is obtained by
Brink's at rates and upon terms negotiated periodically with the underwriters.
The loss experience of Brink's and, to a limited extent, other armored carriers
affects premium rates charged to Brink's. The availability of quality and
reliable insurance coverage is an important factor in the ability of Brink's to
obtain and retain customers. Quality insurance is available to Brink's in major
markets although the premiums charged are subject to fluctuations depending on
market conditions. Less expensive armored car and air courier all-risk insurance
is available, but these policies typically contain unacceptable operating
warranties and limited customer protection.
GOVERNMENT REGULATION
The operations of Brink's are subject to regulation by the United States
Department of Transportation with respect to safety of operation and equipment
and financial responsibility. Intrastate operations in the United States and
intraprovince operations in Canada are subject to regulation by state and by
Canadian and provincial regulatory authorities, respectively. Brink's non-North
American operations are regulated to varying degrees in foreign countries.
EMPLOYEE RELATIONS
At December 31, 1998, Brink's and its subsidiaries had approximately 10,700
employees in North America, of whom approximately 3,200 are classified as
part-time employees. At December 31, 1998, Brink's had approximately 19,200
employees outside North America. In the United States, two locations (13
employees) are covered by collective bargaining agreements. At December 31,
1998, Brink's was a party to two United States and nine Canadian collective
bargaining agreements with various local unions covering approximately 1,290
employees, most of whom are employees in Canada and members of unions affiliated
with the International Brotherhood of Teamsters. Negotiations are continuing on
two agreements that expired in 1998 and three agreements expiring in 1999. The
remaining agreements will expire after 1999. Negotiations on the two agreements
which expired in 1998 are expected to be concluded by the beginning of the
second quarter of 1999. Brink's believes that its employee relations are
generally satisfactory.
PROPERTIES
Brink's owns 26 branch offices and holds under lease an additional 185 branch
offices, located in 38 states, the District of Columbia, the Commonwealth of
Puerto Rico and nine Canadian provinces. Such branches generally include office
space and garage or vehicle terminals, and serve not only the city in which they
are located but also nearby cities. Brink's corporate headquarters in Darien,
Connecticut, is held under a lease expiring in 2000, with an option to renew for
an additional five-year period. The leased branches include 109 facilities held
under long-term leases, while the remaining 76 branches are held under
short-term leases or month-to-month tenancies.
Brink's owns or leases, in the United States and Canada, approximately 2,300
armored vehicles, 300 panel trucks and 260 other vehicles which are primarily
service cars. In addition, approximately 2,700 Brink's-owned safes are located
on customers' premises. The armored vehicles are of bullet-resistant
construction and are specially designed and equipped to afford security for crew
and cargo. Brink's subsidiaries and affiliated and associated companies located
outside the United States and Canada operate from approximately 450 branches
with approximately 4,400 armored vehicles.
BHS
GENERAL
BHS is engaged in the business of installing, servicing and monitoring
electronic security systems primarily in owner-occupied, single-family
residences. At December 31, 1998, BHS was monitoring approximately 585,500
systems, including approximately 113,500 new subscribers since December 31,
1997, and was servicing 70 metropolitan areas in 40 states, the District of
Columbia and Canada. Four of these areas were added during 1998.
BHS markets its alarm systems primarily through advertising, inbound
telemarketing and a direct sales force. BHS also markets its systems directly to
home builders and has entered into several contracts which extend through 1999.
BHS employees install and service the systems from local BHS branches.
Subcontractors are utilized in some service areas. BHS does not manufacture any
of the equipment used in its security systems; instead, it purchases such
equipment from a small number of suppliers. Equipment inventories are maintained
at each branch office.
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BHS's security system consists of sensors and other devices which are installed
at a customer's premises. The equipment is designed to signal intrusion, fire
and medical alerts. When an alarm is triggered, a signal is sent by telephone
line to BHS's central monitoring station in Irving, Texas, a suburb of Dallas.
The monitoring station was designed and constructed in 1997 to meet the
specifications of Underwriters' Laboratories, Inc. ("UL"). BHS applied for and
received a UL listing for the facility. A backup monitoring center in
Carrollton, Texas, protects against a catastrophic event at the primary
monitoring center. In the event of an emergency, such as fire, tornado, major
interruption in telephone service, or any other calamity affecting the primary
facility, monitoring operations can be quickly transferred to the backup
facility.
BHS's alarm service contracts contain provisions limiting BHS's liability to its
customers. Courts have, from time to time, upheld such provisions, but there can
be no assurance that the limitations contained in BHS's agreements will be
enforced according to their terms in any or all cases. The nature of the service
provided by BHS potentially exposes it to greater risk of liability than may be
borne by other service businesses. However, BHS has not experienced any major
liability losses.
BHS carries insurance of various types, including general liability and errors
and omissions insurance, to protect it from product deficiencies and negligent
acts of its employees. Certain of BHS's insurance policies and the laws of some
states limit or prohibit insurance coverage for punitive or certain other kinds
of damages arising from employees' misconduct.
REGULATION
BHS and its personnel are subject to various Federal, state and local consumer
protection, licensing and other laws and regulations. BHS's business relies upon
the use of telephone lines to communicate signals, and telephone companies are
currently regulated by both the Federal and state governments. BHS's wholly
owned Canadian subsidiary, Brink's Home Security Canada Limited, is subject to
the laws of Canada, British Columbia and Alberta. The alarm service industry
continues to experience a high incidence of false alarms in some communities,
including communities in which BHS operates. This has caused some local
governments to impose assessments, fines and penalties on subscribers of alarm
companies (including BHS) based upon the number of false alarms reported. There
is a possibility that at some point some police departments may refuse to
respond to calls from alarm companies which would necessitate that private
response forces be used to respond to alarm signals. Since these false alarms
are generally not attributable to equipment failures, BHS does not anticipate
any significant capital expenditures will be required as a result thereof. BHS
believes its alarm service contracts will allow BHS to pass these charges on to
the appropriate customers. Regulation of installation and monitoring of fire
detection devices has also increased in several markets.
COMPETITION
BHS competes in many of its markets with numerous small local companies,
regional companies and several large national firms. BHS believes that it is one
of the leading firms engaged in the business of installing, servicing and
monitoring electronic security systems in the single-family home marketplace.
Competitive pressure on installation fees has increased since 1996. Several
significant competitors offer installation prices which match or are less than
BHS prices; however, many of the small local competitors in BHS markets continue
to charge significantly more for installation.
In February 1996, a Federal telecommunications reform bill was enacted which
contained provisions specific to the alarm industry. The key provisions include
a five year waiting period prior to entry for the six (now four) regional Bell
operating companies ("RBOCs") not already providing alarm service, restrictions
on further purchases of alarm companies by one RBOC, Ameritech, which has
already become a significant competitor in the industry, a prohibition against
cross-subsidiarization by an RBOC of any alarm subsidiaries, a prohibition
against any RBOCs accessing lists of alarm company customers and an expedited
complaint process. Consequently, RBOCs could become significant competitors in
the home security business in the near future. However, BHS believes that the
quality of its service compares favorably with that provided by current
competitors and that the Brink's name and reputation will continue to provide an
important competitive advantage subsequent to the completion of the five year
waiting period.
EMPLOYEES
BHS has approximately 2,400 employees, none of whom is covered by a collective
bargaining agreement. BHS believes that its employee relations are satisfactory.
PROPERTIES
BHS operates from 58 leased offices and warehouse facilities across the United
States and two leased offices in Canada. All premises protected by BHS alarm
systems are monitored from the central monitoring station in Irving, Texas which
is held by BHS under a lease expiring in 2003. This facility is also occupied by
administrative, technical and marketing services personnel who support branch
operations. The lease for the backup monitoring center in Carrollton, Texas,
expires in 2002.
BHS retains ownership of nearly all of the approximately 585,500 systems
currently being monitored. When a current customer cancels the monitoring
service and does not move, it is BHS' policy to temporarily disable the system
and not incur the cost of retrieving it (at which point any remaining book value
of the equipment is fully reserved). Retaining ownership helps prevent another
alarm company from providing services using BHS security equipment. On the other
hand, when a current customer cancels the monitoring service because of a move,
the retention of ownership of the equipment facilitates the marketing of the
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monitoring service to the new homeowner. BHS leases all of the 1,160 vehicles
used for installation and servicing of its security systems.
BHS has two patents on its 2000 Control Panel and Keypad which expire in 2012
and 2018.
PITTSTON BAX GROUP
Pittston BAX Group (the "BAX Group") consists of the expedited freight
transportation services, supply chain management, freight forwarding and customs
brokerage services business of BAX Global.
BAX GLOBAL
GENERAL
BAX Global is primarily engaged in North American overnight and second day
freight, and international time definite air and sea transportation, freight
forwarding, supply chain management services and international customs
brokerage. In conducting its forwarding business, BAX Global generally picks up
or receives freight shipments from its customers, consolidates the freight of
various customers into shipments for common destinations, arranges for the
transportation of the consolidated freight to such destinations (using either
commercial carriers or, in the case of most of its United States, Canadian and
Mexican shipments, its own aircraft fleet and hub sorting facility) and, at the
destinations, distributes the consolidated shipments and effects delivery to
consignees. For international shipments, BAX Global also frequently acts as
customs broker, facilitating the clearance of goods through customs at
international points of entry. BAX Global provides transportation customers with
supply chain management services and operates logistics warehouse and
distribution facilities in key world markets.
BAX Global specializes in highly customized global freight forwarding and supply
chain management services. It concentrates on providing service to customers
with significant supply chain management needs, such as manufacturers of
computer and electronics equipment. BAX Global offers its customers a variety of
service and pricing alternatives for their shipments, such as guaranteed
overnight delivery, second-day delivery or deferred service in North America. A
variety of ancillary services, such as shipment tracking, inventory control and
management reports are also provided. Internationally, BAX Global offers a
similar variety of services including ocean forwarding, door-to-door delivery
and standard and expedited freight services.
BAX Global has the ability to provide freight service to all North American
business communities as well as to virtually all foreign countries through its
network of company-operated stations and agent locations in 119 countries. The
pickup and delivery of freight are accomplished principally by independent
contractors. BAX Global markets its services primarily through its direct sales
force and also employs other marketing methods, including print media
advertising and direct marketing campaigns.
BAX Global's freight business has tended to be seasonal, with a significantly
higher volume of shipments generally experienced during March, June and the
period August through December than during the other periods of the year. The
lowest volume of shipments has generally occurred in January and February.
Including United States export and import revenue, BAX Global's international
operations accounted for approximately 65% of its revenues in 1998. Intra-US
revenues accounted for 35% of total revenues in 1998.
BAX Global is continuing to develop import/export and supply chain management
business between shippers and consignees, in countries other than the United
States through BAX Global's network of company-operated stations and agent
locations. BAX Global has agents and sales representatives in many overseas
locations, although such agents and representatives are not subject to long-term
noncancellable contracts.
Because the financial results of BAX Global are reported in US dollars, they are
affected by changes in the value of the various foreign currencies in relation
to the US dollar. Changes in exchange rates may also adversely affect
transactions which are denominated in currencies other than the functional
currency. BAX Global periodically enters into such transactions in the normal
course of its business. The diversity of foreign operations helps to mitigate a
portion of the impact that foreign currency fluctuations may have in any one
country on the translated results. BAX Global, from time to time, uses foreign
currency forward contracts to hedge certain transactional risks associated with
foreign currencies. BAX Global is also subject to other risks 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 of such risks, if any, on BAX Global cannot be
predicted.
BAX Global's computer system, ARGUS+'r', is a satellite-based, worldwide
communications and information system which, among other things, provides
worldwide tracking and tracing of shipments and various data for management
information reports, enabling customers to improve efficiency and control costs.
BAX Global also utilizes an image processing system to centralize domestic
airbill and related document storage in BAX Global's computer for automated
retrieval by any BAX Global office.
During early 1997, BAX Global began an extensive review of the company's
information technology ("IT") strategy. Through this review, senior management
from around the world developed a new global strategy to improve business
processes with an emphasis on new information systems intended to enhance
productivity and improve the company's competitive position, as well as address
and remediate the company's Year 2000
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compliance issues. The company ultimately committed up to $120 million to be
spent from 1997 to early 2000 to improve information systems and complete Year
2000 initiatives.
However, in conjunction with priorities established by BAX Global's new
president and chief executive officer, who joined the company in June 1998,
senior management re-examined this global IT strategy. It was determined that
the critical IT objectives needed to be accomplished by the end of 1999 were
Year 2000 compliance and the consolidation and integration of certain key
operating and financial systems, supplemented by process improvement initiatives
to enhance these efforts. As a result of this re-examination, senior management
determined that certain non-critical, in-process IT software development
projects that were begun in late 1997 under BAX Process Innovation ("BPI")
project would be terminated. Therefore, costs relating to these projects, which
had previously been capitalized, were written off during the third quarter of
1998. Also, as a result of this re-examination, certain existing software
applications were found to have no future service potential or value. The
combined carrying amount of these assets, which were written off, approximated
$16 million. It is management's belief at this time that the current ongoing
information technology initiatives that originated from the previously mentioned
BPI project are necessary and will be successfully completed and implemented.
AIRCRAFT OPERATIONS
On April 30, 1998, BAX Global acquired the privately held Air Transport
International LLC ("ATI"). ATI is a US-based freight and passenger airline which
operates a certificated fleet of DC-8 aircraft providing services to BAX Global,
the US Government Air Mobility Command, and other customers. ATI provides
domestic lift service in the BAX Global system and domestic and international
lift service for the US Government Air Mobility Command and other charter
customers.
BAX Global, inclusive of the ATI fleet, utilizes a fleet of 36 leased or
contracted and 7 owned aircraft providing regularly scheduled service throughout
the United States and certain destinations in Canada and Mexico from its freight
sorting hub in Toledo, Ohio. BAX Global's fleet is also used for charters and to
serve other international markets from time to time. The fleet and hub are
primarily dedicated to providing reliable next-day service for domestic,
Canadian and Mexican air cargo customers. BAX Global owns 5 DC-8 aircraft in
cargo configuration and an additional 2 in Combi configuration (designed to
carry cargo and passengers), which are utilized for US Government Air Mobility
Command missions. There is a total of 5 DC-8s in the Combi configuration (2
owned and 3 leased) which are utilized for military flights and do not operate
in the BAX cargo system. At December 31, 1998, BAX Global utilized 17 DC-8s
(including 11 DC8-71 aircraft) under leases for terms primarily expiring between
1999 and 2003. Sixteen additional 727 cargo aircraft were under contract at
December 31, 1998, for terms ranging between three and four years. Based on the
current state of the aircraft leasing market, BAX Global believes that it should
be able to renew these leases or enter into new leases on terms reasonably
comparable to those currently in effect. The actual operation and routine
maintenance of the aircraft owned or held under long-term lease by BAX Global is
performed by ATI, a wholly owned airline subsidiary, or is contracted out,
normally for two-to-three-year terms, to other federally certificated operators
which supply the pilots and other flight services.
The nightly lift capacity in operation at December 31, 1998, was approximately
2.0 million pounds, calculated on an average freight density of 7.5 pounds per
cubic foot. BAX Global's nightly lift capacity varies depending upon the number
and type of planes operated by BAX Global at any particular time. Including
trucking capacity available to BAX Global, the aggregate daily cargo capacity at
December 31, 1998, was approximately 3.2 million pounds.
For aircraft owned or held under long-term lease, BAX Global is generally
responsible for all the costs of operating and maintaining the aircraft,
including any special maintenance or modifications which may be required by
Federal Aviation Administration ("FAA") regulations or orders (see "Government
Regulation" below). In 1998, BAX Global had cash outlays totaling approximately
$40 million on routine heavy maintenance of its aircraft fleet. BAX Global has
made provisions in its financial statements for the expected costs associated
with aircraft operations and maintenance which it believes to be adequate;
however, unanticipated maintenance costs or required aircraft modifications
could adversely affect BAX Global's profitability.
The average airframe age of the fleet leased by BAX Global under leases with
terms longer than two years is 30 years, although factors other than age, such
as cycles (numbers of takeoffs or landings) can have a significant impact on an
aircraft's serviceability. Generally, cargo aircraft tend to have fewer cycles
than passenger aircraft over comparable time periods because they have fewer
flights per day and longer flight segments.
Fuel costs are a significant element of the total costs of operating BAX
Global's aircraft fleet. For each one cent per gallon increase or decrease in
the price of jet fuel, BAX Global's airline operating costs may increase or
decrease approximately $80 thousand per month. In order to protect against price
increases in jet fuel, from time to time BAX Global enters into hedging and
other agreements, including swap contracts, options and collars.
Fuel prices are subject to world, as well as local, market conditions. It is not
possible to predict the impact of future conditions on fuel prices and fuel
availability. Competition in the airfreight industry is such that no assurance
can be given that any future increases in fuel costs (including taxes relating
thereto) will be recoverable in whole or in part from customers.
BAX Global has a lease expiring in October 2013, with the Toledo-Lucas County
Port Authority covering its freight sorting hub and related facilities (the
"Hub") at Toledo Express Airport in
6
Ohio. The Hub consists of various facilities, including a technologically
advanced material handling system which is capable of sorting approximately one
million pounds of freight per hour.
CUSTOMERS
BAX Global's domestic and foreign customer base includes thousands of industrial
and commercial shippers, both large and small. BAX Global's customer base
includes major companies in the automotive, aerospace, computer, electronics,
fashion, retail and other industries where rapid delivery of high-value products
is required. In 1998, no single customer accounted for more than 3% of BAX
Global's total worldwide revenues. BAX Global does not have long-term,
noncancellable contracts with any of its customers.
COMPETITION
The air and ocean freight forwarding and supply chain management industries have
been and are expected to remain highly competitive. The principal competitive
factors in both domestic and international markets are price, the ability to
provide consistently fast and reliable delivery of shipments and the ability to
provide ancillary services such as warehousing, distribution, shipment tracking
and sophisticated information systems and reports. There is aggressive price
competition in the domestic air freight market, particularly for the business of
high volume shippers. BAX Global competes with other integrated air freight
companies that operate their own aircraft, as well as with air freight
forwarders, express delivery services, passenger airlines and other
transportation companies. Domestically, BAX Global also competes with package
delivery services provided by ground transportation companies, including
trucking firms and surface freight forwarders, which offer specialized overnight
services within limited geographical areas. As a freight forwarder to, from and
within international markets, BAX Global also competes with government-owned or
subsidized passenger airlines and ocean shipping companies. In supply chain
management services, BAX Global competes with many third party logistics
providers.
GOVERNMENT REGULATION
The air transportation industry is subject to Federal regulation under the
Federal Aviation Act of 1958, as amended, and pursuant to that statute, the
Department of Transportation ("DOT") may exercise regulatory authority over BAX
Global. ATI operates an FAA-certificated fleet and therefore is subject to such
regulations. In addition, BAX Global's Toledo, Ohio, hub operations are directly
affected by the FAA.
Federal statues authorize the FAA, with the assistance of the Environmental
Protection Agency ("EPA"), to establish aircraft noise standards. Under the
National Emissions Standards Acts of 1967, as amended by the Clean Air Act
Amendments of 1970, and the Airport Noise and Capacity Act of 1990 (the "Noise
Act"), the administrator of the EPA is authorized to issue regulations setting
forth standards for aircraft emissions. Although the Federal government
generally regulates aircraft noise, local airport operators may, under certain
circumstances, regulate airport operations based on aircraft noise
considerations. If airport operators were to restrict arrivals or departures
during certain nighttime hours to reduce or eliminate air traffic noise for
surrounding home areas at airports where BAX Global's activities are centered,
BAX Global would be required to serve those airports with Stage III equipment.
The Noise Act requires that aircraft not complying with Stage III noise limits
be phased out by December 31, 1999. The Secretary of Transportation may grant a
waiver if it is in the public interest and if the carrier has at least 85% of
its aircraft in compliance with Stage III noise levels by July 1, 1999, and has
a plan with firm orders for making all of its aircraft comply with such noise
levels no later than December 31, 2003. No waiver may permit the operation of
Stage II aircraft in the United States after December 31, 2003.
The Noise Act requires the FAA to promulgate regulations setting forth a
schedule for the gradual phase-out of Stage II aircraft. The FAA has adopted
rules requiring each "US operator" to reduce the number of its Stage II aircraft
by 25% by the end of 1994, by 50% by the end of 1996, and by 75% by the end of
1998. The Noise Act imposes certain conditions and limitations on an airport's
right to impose new noise or access restrictions on Stage II and Stage III
aircraft but exempts present and certain proposed regulations from those
requirements.
Forty-one of the 43 aircraft in BAX Global's fleet primarily held under
long-term leases or owned now comply with the Stage III limits. Through 1999,
BAX Global anticipates that the two remaining aircraft will be hush-kitted to
comply with Stage III standards.
The FAA has recently imposed a regulation mandating Boeing 727 container load
reductions. A supplier of lift to BAX Global does operate Boeing 727 that are
subject to this regulation. BAX Global does not anticipate that this regulation
will have any significant impact on its operations.
BAX Global is subject to various requirements and regulations in connection with
the operation of its motor vehicles, including certain safety regulations
promulgated by DOT and state agencies.
EMPLOYEE RELATIONS
BAX Global and its subsidiaries have approximately 7,600 employees worldwide, of
whom about 2,500 are classified as part-time. Approximately 130 of these
employees (principally customer service, clerical and/or dock workers) in BAX
Global's stations at John F. Kennedy Airport, New York; Secaucus, New Jersey;
Minneapolis, Minnesota; and Toronto, Canada are represented by labor unions,
which in most cases are affiliated with the International Brotherhood of
Teamsters. The hourly collective bargaining agreement at John F. Kennedy Airport
has been negotiated and was ratified in 1998. BAX Global is currently
negotiating with the clerical union at John F. Kennedy Airport.
7
BAX Global did not experience any significant strike or work stoppage in 1998
and considers its employee relations satisfactory.
Substantially all of BAX Global's cartage operations are conducted by
independent contractors. Certain flight crews for its aircraft are employees of
the independent airline companies which operate such aircraft and certain flight
crews are employees of ATI.
PROPERTIES
BAX Global operates 267 (106 domestic and 161 international) stations with BAX
Global personnel, and has agency agreements at an additional 227 (47 domestic
and 180 international) stations. These stations are located near primary
shipping areas, generally at or near airports. BAX Global-operated domestic
stations, which generally include office space and warehousing facilities, are
located in 47 states, the District of Columbia and Puerto Rico. BAX
Global-operated international facilities are located in 28 countries. Most
stations serve not only the city in which they are located, but also nearby
cities and towns. Nearly all BAX Global-operated stations are held under lease.
The Hub in Toledo, Ohio, is held under a lease expiring in 2013, with rights of
renewal for three five-year periods. Other facilities, including the corporate
headquarters in Irvine, California, are held under leases having terms of one to
ten years.
BAX Global owns or leases, in the United States and Canada, a fleet of
approximately 44 automobiles as well as 152 vans and trucks utilized in station
work or for hauling freight between airport facilities and BAX Global's
stations.
PITTSTON MINERALS GROUP
Pittston Minerals Group (the "Minerals Group") is primarily engaged in the
mining, preparation and marketing of coal, the purchase of coal for resale, the
sale or leasing of coal lands to others and has interests in the timber and
natural gas businesses through Pittston Coal. The Minerals Group also explores
for and acquires mineral assets other than coal, primarily gold, through its
Mineral Ventures operations. Revenues from such Mineral Ventures activities
currently represent approximately 3% of Minerals Group revenues.
PITTSTON COAL
GENERAL
Pittston Coal produces coal from approximately 17 company-operated surface and
deep mines located in Virginia, West Virginia and eastern Kentucky for
consumption in the steam and metallurgical markets. Steam coal is sold primarily
to utilities and industrial customers located in the eastern United States.
Metallurgical coal is sold to steel and coke producers primarily located in the
United States, Europe, the Mediterranean basin, Japan, Korea and Brazil.
Pittston Coal's strategy is to continue to develop its business as a low-cost
producer of low sulphur steam coal and high-quality metallurgical coal.
Pittston Coal has substantial reserves of low sulphur coal, much of which can be
produced from lower cost surface mines. Moreover, it has a significant share of
the premium quality metallurgical coal reserves in the United States, along with
other high quality feed stock seams in demand by the coke and steel-making
industry.
Steam coal is sold primarily to domestic utility customers through long-term
contracts (contracts in excess of one year) which have the effect of moderating
the impact of short-term market conditions, thereby reducing one element of risk
in new or expanded projects. Most of the steam coal consumed in the United
States is used to generate electricity. Through September 1998, coal accounted
for approximately 56% of the electricity generated by the electric utility
industry. Pittston Coal believes that it is well-positioned to take advantage of
any increased demand for low sulphur steam coal. Such increased demand could
result from factors such as regulatory requirements mandating lower emissions of
sulphur dioxide and utility deregulation which should favor coal as the lowest
cost energy source for power plants.
In contrast, the market for metallurgical coal, for most of the past fifteen
years, has been characterized by a weakening demand from primary steel
producers, a move to non-metallurgical coal and/or weak metallurgical coal in
coke and steel making, and intense competition from foreign coal producers,
especially those in Australia and Canada who benefited over this period from a
declining currency value versus the US dollar (coal sales contracts are priced
in US dollars). 1996 results benefited from some relief from declining
currencies while 1997 and 1998 results suffered from a sharp weakening of the
Australian dollar. Metallurgical coal sales contracts typically are subject to
annual price renegotiation, which increases the exposure to market forces.
PRODUCTION
The following table indicates the approximate tonnage of coal purchased and
produced by Pittston Coal for the years ended 1998, 1997 and 1996.
Years Ended December 31
(In thousands of tons) 1998 1997 1996
- --------------------------------------------------------------------------------
Produced:
Deep 5,332 4,975 3,930
Surface (a) 6,689 10,238 11,151
Contract 831 1,433 1,621
- --------------------------------------------------------------------------------
12,852 16,646 16,702
Purchased 3,536 4,075 5,762
- --------------------------------------------------------------------------------
Total 16,388 20,721 22,464
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(a) Reduction from 1997 is primarily the result of the sale of certain assets of
the Elkay mining operation in April 1998.
8
SALES
The following table indicates the approximate tonnage of coal sold by Pittston
Coal in the years ended December 31, 1998, 1997 and 1996 in the domestic (United
States and Canada) and export markets and by categories of customers:
Years Ended December 31
(In thousands,
except per ton amounts) 1998 1997 1996
- --------------------------------------------------------------------------------
DOMESTIC:
Steel and coke producers 1,109 792 139
Utility, industrial and other 9,797 12,912 14,794
- --------------------------------------------------------------------------------
10,906 13,704 14,933
EXPORT:
Utility, industrial and other -- -- 217
Steel and coke producers 5,831 6,764 7,821
- --------------------------------------------------------------------------------
Total sold 16,737 20,468 22,971
- --------------------------------------------------------------------------------
Average selling price per ton $29.59 29.52 29.17
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
For the year ended December 31, 1998, Pittston Coal sold approximately 16.7
million tons of coal, of which approximately 9.8 million tons were sold under
long-term contracts. In 1997, Pittston Coal sold approximately 20.5 million tons
of coal, of which approximately 13.5 million tons were sold under long-term
contracts.
The following table provides year by year estimates of the tons of coal
committed for sale under long-term contracts at December 31, 1998:
Thousands
Year of tons
- --------------------------------------------------------------------------------
1999 8,244
2000 5,917
2001 4,886
2002 3,070
2003 1,445
2004 1,080
2005 1,005
2006 780
2007 460
- --------------------------------------------------------------------------------
Total 26,887
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Contracts relating to a certain portion of this tonnage are subject to periodic
price renegotiation, which can result in termination by the purchaser or the
seller prior to contract expiration in case the parties should fail to agree
upon price.
During 1998, the ten largest domestic customers purchased 8.6 million tons of
coal (51% of total coal sales and 79% of domestic coal sales, by tonnage). The
three largest domestic customers purchased 5.9 million tons of coal for the year
ended December 31, 1998 (36% of total coal sales and 54% of domestic coal sales,
by tonnage). The largest single customer, American Electric Power Company,
purchased 4.3 million tons of coal, accounting for 26% of total coal sales and
39% of domestic coal sales, by tonnage. In 1997, the ten largest domestic
customers purchased 11.2 million tons of coal (55% of total coal sales and 82%
of domestic coal sales, by tonnage). The three largest domestic customers
purchased 8.0 million tons of coal in 1997 (39% of total coal sales and 59% of
domestic coal sales, by tonnage). In 1997, American Electric Power Company
purchased 5.6 million tons of coal, accounting for 27% of total coal sales and
41% of domestic coal sales, by tonnage.
Of the 5.8 million tons of coal sold in the export market in 1998, the ten
largest customers accounted for 3.4 million tons (21% of total coal sales and
59% of export coal sales, by tonnage) and the three largest customers purchased
1.8 million tons (11% of total coal sales and 31% of export coal sales, by
tonnage). Of the 6.8 million tons of coal sold in the export market in 1997, the
ten largest customers accounted for 3.7 million tons (18% of total coal sales
and 54% of export coal sales, by tonnage) and the three largest customers
purchased 1.7 million tons (8% of total coal sales and 24% of export coal sales,
by tonnage). Export coal sales are made principally under annual contracts or
long-term contracts that are subject to annual price renegotiation. Under these
export contracts, the price for coal is expressed and paid in United States
dollars.
Virtually all coal sales in the domestic utility market pursuant to long-term
contracts are subject to periodic price adjustments on the basis of provisions
which permit an increase or decrease periodically in the price to reflect
increases and decreases in certain price indices. In certain cases, price
adjustments are permitted when there are changes in taxes other than income
taxes, when the coal is sold other than FOB the mine and when there are changes
in railroad and barge freight rates. The provisions, however, are not identical
in all of such contracts, and the selling price of the coal does not necessarily
reflect every change in production cost incurred by the seller.
Metallurgical contracts are generally of one-year duration. The longest-term
metallurgical contract is valid through December 31, 2001. Contracts for the
sale of metallurgical coal in the domestic and export markets are generally
subject to price renegotiations on an annual basis. Pittston Coal's sales of
metallurgical coal are diversified geographically on a worldwide basis.
Approximately 1.1 million tons, or 16% of metallurgical sales were domestic; 3.6
million tons, or 52%, were to the Europe/Mediterranean basin; 1.0 million tons,
or 14%, were to the Far East and 1.3 million tons, or 18%, were to Latin
America. Contract negotiations for 1999, which typically occur in April, are
expected to be negatively impacted as a result of the increased competitiveness
of foreign metallurgical coal producers caused by the relative strength of the
US dollar versus the currencies of those producers' countries.
COMPETITION
The bituminous coal industry is highly competitive. Pittston Coal competes with
many other large coal producers and with hundreds of small producers in the
United States and abroad.
In the export market, many foreign competitors, particularly Australian, South
African and Canadian coal producers, benefit
9
from certain competitive advantages existing in the countries in which they
operate, such as less difficult mining conditions, lower transportation costs,
less severe government regulation and lower labor and health benefit costs, as
well as currencies which have generally depreciated against the United States
dollar. The metallurgical coal produced by Pittston Coal is generally of higher
quality, and is often used by foreign steel producers to blend with coals from
other sources to improve the quality of coke and coke oven efficiency. However,
in recent years, steel producers have developed facilities and techniques which,
to some extent, enable them to accept lower quality metallurgical coal in their
coke ovens. Moreover, new technologies for steel production which utilize
pulverized coal injection, direct reduction iron and the electric arc furnace
have reduced the demand for all types of metallurgical coal. However, the use of
lesser quality coals and less coke in the blast furnace has increased the
importance of coke strength and the importance of premium quality coal in coke
making.
Metallurgical sales in 1999 are expected to be lower than those of 1998,
primarily as a result of the increased competitiveness of foreign metallurgical
coal producers caused by the relative strength of the US dollar versus the
currencies of those producers' countries, especially in Asia. In addition, this
currency disadvantage is expected to negatively impact 1999 contract
negotiations which typically occur in April.
Pittston Coal competes domestically on the basis of the premium quality of its
coal, which is not only valuable in the making of steel but, because of low
sulphur and high heat content, is also an attractive source of fuel to the
electric utility and other coal burning industries.
Other factors which affect competition include the price, availability and
public acceptance of alternative energy sources (in particular, oil, natural
gas, hydroelectric power and nuclear power), as well as the impact of federal
energy policies. Pittston Coal is not able to predict the effect, if any, on its
business (especially with respect to sales to domestic utilities) of particular
price levels for such alternative energy sources, especially oil and natural
gas. However, any sustained and marked decline in such prices could have a
material adverse effect on such business.
ENVIRONMENTAL MATTERS
The Surface Mining Control and Reclamation Act of 1977 and the regulations
promulgated thereunder ("SMCRA") by the Federal Office of Surface Mining
Reclamation and Enforcement ("OSM"), and the enforcement thereof by the US
Department of the Interior, establish mining and reclamation standards for all
aspects of surface mining as well as many aspects of deep mining. SMCRA also
imposes a tax of $0.35 on each ton of surface-mined coal and $0.15 on each ton
of deep-mined coal. OSM and its state counterparts monitor compliance with SMCRA
and its regulations by the routine issuance of "notices of violation" which
direct the mine operator to correct the cited conditions within a stated period
of time. Pittston Coal's policy is to correct the conditions that are the
subject of these notices or to contest those believed to be without merit in
appropriate proceedings.
As previously reported, Pittston Coal has reached a broad settlement with the
OSM involving SMCRA liabilities of former contractors. Pittston Coal has also
entered into a number of similar agreements with the states. Under these
agreements, Pittston Coal agreed to perform certain reclamation and to pay
certain fees of former contractors. In return, the agencies agreed not to deny
or "block" permits to Pittston Coal on account of the contractor liabilities
being settled. Pittston Coal is in the process of successfully completing all
required work under these agreements.
Pittston Coal is subject to various federal environmental laws, including the
Clean Water Act, the Clean Air Act and the Safe Drinking Water Act, as well as
state laws of similar scope in Virginia, West Virginia, Kentucky and Ohio. These
laws require approval of many aspects of coal mining operations, and both
federal and state inspectors regularly visit Pittston Coal's mines and other
facilities to assure compliance.
While it is not possible to quantify the costs of compliance with all applicable
federal and state laws, those costs have been and are expected to continue to be
significant. In that connection, it is estimated that Pittston Coal made capital
expenditures for environmental control facilities in the amount of approximately
$1.1 million in 1998 and estimates expenditures of $1.2 million in 1999.
Compliance with these laws has substantially increased the cost of coal mining,
but is, in general, a cost common to all domestic coal producers. The Company
believes that the competitive position of Pittston Coal has not been and should
not be adversely affected except in the export market where Pittston Coal
competes with various foreign producers not subject to regulations prevalent in
the US.
Federal, state and local authorities strictly monitor the sulphur dioxide and
particulate emissions from electric power plants served by Pittston Coal. In
1990, Congress enacted the Clean Air Act Amendments of 1990, which, among other
things, permit utilities to use low sulphur coals in lieu of constructing
expensive sulphur dioxide removal systems. The Company believes this should have
a favorable impact on the marketability of Pittston Coal's extensive reserves of
low sulphur coals. However, the Company cannot predict at this time the timing
or extent of such favorable impact.
MINE HEALTH AND SAFETY LAWS
The coal operating companies included within Pittston Coal are generally liable
under federal laws requiring payment of benefits to coal miners with
pneumoconiosis ("black lung"). The Black Lung Benefits Revenue Act of 1977 and
the Black Lung Benefits Reform Act of 1977 (the "1977 Act"), as amended by the
Black Lung Benefits and Revenue Amendments Act of 1981 (the "1981 Act"),
expanded the benefits for black lung disease and levied a tax on coal production
of $1.10 per ton for deep-mined coal and $0.55 per ton for surface-mined coal,
but not to exceed 4.4% of
10
the sales price. In addition, the 1981 Act provides that certain claims for
which coal operators had previously been responsible will be obligations of the
government trust funded by the tax. The 1981 Act also tightened standards set by
the 1977 Act for establishing and maintaining eligibility for benefits. The
Revenue Act of 1987 extended the termination date of the tax from January 1,
1996 to the earlier of January 1, 2014 or the date on which the government trust
becomes solvent. The Company cannot predict whether any future legislation
effecting changes in the tax will be enacted. A number of the subsidiaries of
the Company filed a civil action in the United States District Court for the
Eastern District of Virginia asking the Court to find that the assessment of the
black lung tax on coal the Company subsidiaries sold to foreign customers for
the first quarter of 1997 was unconstitutional. On December 28, 1998, the
District Court found the black lung tax, as assessed against foreign coal sales,
to be unconstitutional and entered judgment for the Company's subsidiaries in an
amount in excess of $0.7 million. The Company will seek a refund of the black
lung tax it paid on any of its foreign coal sales for periods as far back as
applicable statute limitations will permit.
Stringent safety and health standards have been imposed by federal legislation
since 1969 when the Federal Coal Mine Health and Safety Act was adopted, which
resulted in increased operating costs and reduced productivity. The Federal Mine
Safety and Health Act of 1977 significantly expanded the enforcement of health
and safety standards.
Compliance with health and safety laws is, in general, a cost common to all
domestic coal producers. The Company believes that the competitive position of
Pittston Coal has not been and should not be adversely affected except in the
export market where Pittston Coal competes with various foreign producers
subject to less stringent health and safety regulations.
EMPLOYEE RELATIONS
At December 31, 1998, approximately 490 of the 1,800 employees of Pittston Coal
were members of the United Mine Workers of America ("UMWA"). The remainder of
such employees are either unrepresented hourly employees or supervisory
personnel. During the fourth quarter of 1998, certain of the Pittston coal
companies and the UMWA agreed to a five year wage contract. The agreement covers
approximately 400 employees and became effective January 1, 1999. Since 1990, no
significant labor disruptions involving UMWA-represented employees have
occurred. Pittston Coal believes that its employee relations are satisfactory.
HEALTH BENEFIT ACT
In October 1992, the Coal Industry Retiree Health Benefit Act of 1992 (the
"Health Benefit Act") was enacted as part of the Energy Policy Act of 1992. The
Health Benefit Act established rules for the payment of future health care
benefits for thousands of retired union mine workers and their dependents. The
Health Benefit Act established a trust fund to which "signatory operators" and
"related persons," including the Company and certain of its subsidiaries
(collectively, the "Pittston Companies"), are jointly and severally liable to
pay annual premiums for assigned beneficiaries, together with a pro rata share
for certain beneficiaries who never worked for such employers, including, in the
Company's case, the Pittston Companies ("unassigned beneficiaries"), in amounts
determined on the basis set forth in the Health Benefit Act. In October 1993 and
at various times in subsequent years, the Pittston Companies have received
notices from the Social Security Administration (the "SSA") with regard to their
assigned beneficiaries for which they are responsible under the Health Benefit
Act. For 1998 and 1997, these amounts were approximately $9.6 million and $9.3
million, respectively. As a result of legal developments in 1998 involving the
Health Benefit Act, the Company experienced an increase in its assessments under
the Health Benefit Act for the twelve month period beginning October 1, 1998,
approximating $1.7 million, $1.1 million of which relates to retroactive
assessments for years prior to 1998. This increase consists of charges for death
benefits which are provided for by the Health Benefit Act, but which previously
have been covered by other funding sources. As with all the Company's Health
Benefit Act assessments, this amount is to be paid in 12 equal monthly
installments over the plan year beginning October 1, 1998. The Company is unable
to determine at this time whether any other additional amounts will apply in
future plan years.
The Company currently estimates that the annual cash funding under the Health
Benefit Act for the Pittston Companies' assigned beneficiaries will continue at
approximately $10 million per year for the next several years and should begin
to decline thereafter as the number of such beneficiaries decreases. Based on
the number of beneficiaries actually assigned by the SSA, the Company estimates
the aggregate pretax liability relating to the Pittston Companies' beneficiaries
at December 31, 1998 at approximately $216 million, which when discounted at
7.0% provides a present value estimate of approximately $99 million. The
Company accounts for the obligation under the Health Benefit Act as a
participant in a multi-employer plan and the annual cost is recognized on a
pay-as-you-go basis.
In addition, under the Health Benefit Act, the Pittston Companies are jointly
and severally liable for certain post-retirement health benefits for thousands
of retired union mine workers and their dependents. Substantially all of the
Company's accumulated postretirement benefit obligations as of December 31, 1998
for retirees of $282.7 million relates to such retired workers and their
beneficiaries.
The ultimate obligation that will be incurred by the Company could be
significantly affected by, among other things, increased medical costs,
decreased number of beneficiaries, governmental funding arrangements, and such
federal health benefit legislation of general application as may be enacted. In
addition, the Health Benefit Act requires the Pittston Companies to fund, pro
rata according to the total number of assigned beneficiaries, a portion of the
health benefits for unassigned beneficiaries. At this time, the funding for such
health benefits is being provided from
11
another source and for this and other reasons the Pittston Companies' ultimate
obligation for the unassigned beneficiaries cannot be determined.
EVERGREEN CASE
In 1988, the trustees of the 1950 Benefit Trust Funds and the 1974 Pension
Benefit Trust Fund (the "Trust Funds") established under collective bargaining
agreements with the UMWA brought an action (the "Evergreen Case") against the
Company and a number of its coal subsidiaries claiming that the defendants are
obligated to contribute to such Trust Funds in accordance with the provisions of
the 1988 and subsequent National Bituminous Coal Wage Agreements, to which
neither the Company nor any of its subsidiaries is a signatory. In 1993, the
Company and the Minerals Group recognized in their financial statements the
potential liability that might have resulted from an ultimate adverse judgment
in the Evergreen Case.
In late March 1996 a settlement was reached in the Evergreen Case. Under the
terms of the settlement, the coal subsidiaries which had been signatories to
earlier National Bituminous Coal Wage Agreements agreed to make various lump sum
payments in full satisfaction of all amounts allegedly due to the Trust Funds
through January 31, 1996, to be paid over time as follows: approximately $25.8
million upon dismissal of the Evergreen Case and the remainder of $24.0 million
in installments of $7.0 million in 1996 and $8.5 million in each of 1997 and
1998. The first payment was entirely funded through an escrow account previously
established by the Company. The second, third and fourth (last) payments of $7.0
million and $8.5 million were paid according to schedule and were funded by cash
flows from operating activities. In addition, the coal subsidiaries agreed to
future participation in the UMWA 1974 Pension Plan.
PROPERTIES
The principal properties of Pittston Coal are coal reserves, coal mines and coal
preparation plants, all of which are located in Virginia, West Virginia and
eastern Kentucky. Such reserves are either owned or leased. Leases of land or
coal mining rights generally are either for a long-term period or until
exhaustion of the reserves, and require the payment of a royalty based generally
on the sales price and/or tonnage of coal mined from a particular property. Many
leases or rights provide for payment of minimum royalties.
Pittston Coal's estimated proven and probable surface mining, deep mining and
total coal reserves as of December 31, 1998 were 103 million, 397 million and
500 million tons, respectively. Such estimates represent economically
recoverable and minable tonnage and include allowances for extraction and
processing.
The decrease in total reserves over 1997 levels is primarily attributable to the
sale in the second quarter of 1998 of the Elkay mining operation in West
Virginia.
Of the 500 million tons of proven and probable coal reserves as of year-end
1998, approximately 60% has a sulphur content of less than 1% (which is
generally regarded in the industry as low sulphur coal) and approximately 40%
has a sulphur content greater than 1%. Approximately 36% of total proven and
probable reserves consist of metallurgical grade coal.
As of December 31, 1998, Pittston Coal controlled approximately 536 million tons
of additional coal deposits in the eastern United States, and approximately 170
million tons of low sulphur coal deposits in Sheridan County, Wyoming which
cannot be expected to be economically recovered without market improvement
and/or the application of new technologies.
Pittston Coal also owns other non-coal properties, such as land, hardwood
forests and natural gas reserves. It owns approximately 225 thousand surface
acres of land which includes approximately 125 thousand acres of saw timber
grade hardwood forests, comprising approximately 435 million board feet. Most of
the oil and gas rights are managed by an indirect wholly owned subsidiary of
Pittston Coal which, in general, receives royalty and other income from gas
development and operation by third parties. As of December 31, 1998, including
royalty interests, net proven developed natural gas reserves located in Virginia
and West Virginia approximated 3.5 Bcf. Pittston Coal also receives income from
the sale of timber cutting rights on certain properties as well as from the
operation of a sawmill.
Pittston Coal owns a 32.5% interest in Dominion Terminal Associates ("DTA"),
which leases and operates a ground storage-to-vessel coal transloading facility
in Newport News, Virginia. DTA has a throughput capacity of 22.0 million tons of
coal per year and ground storage capacity of 2.0 million tons. A portion of
Pittston Coal's share of the throughput and ground storage capacity of the DTA
facility is subject to user rights of third parties which pay Pittston Coal a
fee. The DTA facility serves export customers, as well as domestic coal users
located on the eastern seaboard of the United States. For information relating
to the financing arrangements for DTA, see page 87 of the Minerals Group's 1998
Annual Report which is incorporated herein by reference.
MINERAL VENTURES
Mineral Ventures' business is directed at locating and acquiring mineral assets,
advanced stage projects and operating mines. Mineral Ventures continues to
evaluate gold projects in North America and Australia. An exploration office
operates from Reno, Nevada to coordinate Mineral Ventures' continuing
exploration program in the Western United States. In 1998, Mineral Ventures
expended approximately $4.6 million on all such programs.
Mineral Ventures primarily consists of a 50% direct interest in the Stawell gold
mine ("Stawell") located in Western Victoria, Australia. The remaining 50%
interest in Stawell is owned by Mining Project Investors ("MPI"). In addition,
Mineral Ventures has a 51.5% ownership interest in its joint venture partner
MPI. This ownership interest increased during 1998 from 34.1% to 51.5% (45% on a
fully diluted basis) as a result of a sale by MPI
12
of its 50% interest in the Black Swan Nickel Joint Venture (including the Silver
Swan Mine). The sale of the venture was to one of its shareholders, Outokumpu,
for a combination of cash and Outokumpu's shareholding in MPI. The Stawell gold
mine produced approximately 93,500 ounces of gold in 1998. Mineral Ventures
estimates that on December 31, 1998, the Stawell gold mine had approximately
406,000 ounces of proven and probable gold reserves. In-mine and surface
exploration at Stawell continue to generate positive results.
A substantial portion of Mineral Ventures' financial results is derived from
activities in Australia, which has a local currency other than the US dollar.
Because the financial results of Mineral Ventures are reported in US dollars,
they are affected by the changes in the value of the foreign currency in
relation to the US dollar. Rate fluctuations may adversely affect transactions
which are denominated in the Australian dollar. Mineral Ventures routinely
enters into such transactions in the normal course of its business. Mineral
Ventures, from time to time, uses foreign currency forward contracts to hedge
the currency risks associated with these transactions
Mineral Ventures is also subject to other risks customarily associated with
doing business in foreign countries, including labor and economic conditions.
MATTERS RELATING TO FORMER OPERATIONS
In April 1990, the Company entered into a settlement agreement to resolve
certain environmental claims against the Company arising from hydrocarbon
contamination at a petroleum terminal facility ("Tankport") in Jersey City, New
Jersey, which operations were sold in 1983. Under the settlement agreement, the
Company is obligated to pay for 80% of the remediation costs.
Based on data available to the Company and its environmental consultants, the
Company estimates its portion of the cleanup costs, on an undiscounted basis,
using existing technologies to be between $6.6 million and $11.2 million and to
be incurred over a period of up to five years. Management is unable to determine
that any amount within that range is a better estimate due to a variety of
uncertainties, which include the extent of the contamination at the site, the
permitted technologies for remediation and the regulatory standards by which the
clean-up will be conducted. The estimate of costs and the timing of payments
could change as a result of changes to the remediation plan required, changes in
the technology available to treat the site, unforeseen circumstances existing at
the site and additional cost inflation.
The Company commenced insurance coverage litigation in 1990, in the United
States District Court for the District of New Jersey, seeking a declaratory
judgment that all amounts payable by the Company pursuant to the Tankport
obligation were reimbursable under comprehensive general liability and pollution
liability policies maintained by the Company. In August 1995, the District Court
ruled on various Motions for Summary Judgment. In its decision, the Court found
favorably for the Company on several matters relating to the comprehensive
general liability policies but concluded that the pollution liability policies
did not contain pollution coverage for the types of claims associated with the
Tankport site. On appeal, the Third Circuit reversed the District Court and held
that the insurers could not deny coverage for the reasons stated by the District
Court, and the case was remanded to the District Court for trial. In the latter
part of 1998, the Company concluded a settlement with its comprehensive general
liability insurer and has agreements with three other groups of insurers. If
these agreements are consummated, only one group of insurers will be remaining
in this coverage action. In the event the parties are unable to settle the
dispute with this group of insurers, the case is scheduled to be tried in June
1999. Management and its outside legal counsel continue to believe, however,
that recovery of a substantial portion of the cleanup costs ultimately will be
probable of realization. Accordingly, based on estimates of potential liability,
probable realization of insurance recoveries, related developments of New Jersey
law and on the Third Circuit's decision, it is the Company's belief that the
ultimate amount that it would be liable for related to the remediation of the
Tankport site will not significantly adversely impact the Company's results of
operations or financial position.
13
ITEM 3. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
Not applicable.
14
The Pittston Company and Subsidiaries
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list as of March 15, 1999, of the names and ages of the
executive and other officers of Pittston and the names and ages of certain
officers of its subsidiaries, indicating the principal positions and offices
held by each. There is no family relationship between any of the officers named.
Name Age Positions and Offices Held Held Since
- -----------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS:
Michael T. Dan 48 President and Chief Executive Officer 1998
Chairman of the Board 1999
James B. Hartough 51 Vice President-Corporate Finance and Treasurer 1988
Frank T. Lennon 57 Vice President-Human Resources and Administration 1985
Austin F. Reed 47 Vice President, General Counsel and Secretary 1994
Robert T. Ritter 47 Vice President and Chief Financial Officer 1998
OTHER OFFICERS:
Amanda N. Aghdami 30 Controller 1997
Jonathan M. Sturman 56 Vice President-Corporate Development 1995
Arthur E. Wheatley 56 Vice President and Director of Risk Management 1988
SUBSIDIARY OFFICERS:
C. Robert Campbell 54 President and Chief Executive Officer of BAX Global Inc. 1998
Thomas W. Garges, Jr. 59 President and Chief Executive Officer of Pittston Coal Company 1999
Mark T. Gritton 49 President and Chief Operating Officer of Brink's, Incorporated 1998
Peter A. Michel 56 President and Chief Executive Officer of Brink's Home Security, Inc. 1988
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Executive and other officers of Pittston are elected annually and serve at the
pleasure of its Board of Directors.
Mr. Dan was elected President, Chief Executive Officer and Director of The
Pittston Company on February 6, 1998 and was elected Chairman of the Board
effective January 1, 1999. He also serves as Chief Executive Officer of Brink's
Incorporated, a position he has held since July 1993 and as President and Chief
Executive Officer of Brink's Holding Company, a position he has held since
December 31, 1995. He also serves as Chairman of the Board of BAX Global Inc., a
position he has held since February 1998. He also serves as Chairman of the
Board of Pittston Mineral Ventures, a position he has held since August 31, 1998
and as Chairman of the Board of Pittston Coal Company, a position he has held
since September 1, 1998. From August 1992 to July 1993 he served as President of
North American operations of Brink's, Incorporated and as Executive Vice
President of Brink's, Incorporated from 1985 to 1992.
Mr. Ritter joined The Pittston Company as Vice President and Chief Financial
Officer in August of 1998. Prior thereto, he served as Chief Financial Officer
of WLR Foods, Inc. from June 1996 to July 1998. From April 1995 to May 1996, he
was a private investor and financial consultant and was Treasurer at American
Cyanamid Company from March 1991 to January 1994 and Controller from February
1994 to March 1995.
Messrs. Hartough, Lennon, Reed, Sturman and Wheatley have served in their
present positions for more than the past five years.
Ms. Aghdami was elected to her current position on November 7, 1997. She joined
The Pittston Company in September 1996 as Manager of Financial Reporting. Prior
to September 1996, she was Audit Manager with Ernst & Young LLP.
Mr. Campbell joined BAX Global Inc. in June 1998 as President and Chief
Executive Officer. Before joining BAX Global, he served as Executive Vice
President for Advantica Restaurant Group, Inc. from 1995 to June 1998. From 1991
to 1995 he served as Executive Vice President at Ryder System Inc.
Mr. Gritton was elected President and Chief Operating Officer in December 1998
after joining Brink's, Inc. in July 1997 as Executive Vice President of Brink's
US Operations. Before joining Brink's, he worked at Deluxe Corporation where he
served as president of its financial services group division.
Mr. Garges joined Pittston Coal Company on January 4, 1999 as President and
Chief Executive Officer. Before joining Pittston Coal, he served as President
and Chief Executive Officer of Rochester and Pittsburgh Coal Company. From 1971
to 1986, he was Executive Vice President - Operations for Pittston Coal and
President of Pittston Coal's Pyxis operations.
Mr. Michel was elected President and Chief Executive Officer of Brink's Home
Security, Inc. in April 1988. From 1985 to 1987, he served as President and
Chief Executive Officer of Penn Central Technical Security Co.
15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
- --------------------------------------------------------------------------------
The Company has three classes of common stock: Pittston Brink's Group Common
Stock ("Brink's Stock"), Pittston BAX Group Common Stock ("BAX Stock") and
Pittston Minerals Group Common Stock ("Minerals Stock") which were designed to
provide shareholders with separate securities reflecting the performance of the
Brink's Group, BAX Group and Minerals Group, respectively, without diminishing
the benefits of remaining a single corporation or precluding future transactions
affecting any of the Groups. The Brink's Group consists of the Brink's and BHS
segments of the Company. The BAX Group consists of the BAX Global segment of the
Company. The Minerals Group consists of the Pittston Coal and Mineral Ventures
segments of the Company. The Company prepares separate Annual Reports for the
Brink's, BAX and Minerals Groups, each of which includes the consolidated
financial information of the Company.
Holders of Brink's Group, BAX Group and Minerals Group common stocks are
shareholders of the Company, which continues to be responsible for all its
liabilities. Accordingly, the financial statements of the Pittston Brink's
Group, Pittston BAX Group and Pittston Minerals Group must be read in
conjunction with the financial statements of The Pittston Company which are
included in each Group's Annual Report.
Reference is made to page 88 of the Brink's Group 1998 Annual Report, page 91 of
the BAX Group 1998 Annual Report and page 96 of the Minerals Group 1998 Annual
Report, which are incorporated herein by reference, for information required by
this item.
ITEM 6. SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
Reference is made to pages 6 and 39 of the Brink's Group 1998 Annual Report,
pages 7 and 41 of the BAX Group 1998 Annual Report and pages 6 and 47 of the
Minerals Group 1998 Annual Report, which are incorporated herein by reference,
for information required by this item.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITIONS
- --------------------------------------------------------------------------------
Reference is made to pages 7 through 16 and 40 through 55 of the Brink's Group
1998 Annual Report, pages 8 through 17 and 42 through 58 of the BAX Group 1998
Annual Report and pages 7 through 20 and 48 through 63 of the Minerals Group
1998 Annual Report, which are incorporated herein by reference, for information
required by this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------------------
The information regarding quantitative and qualitative disclosures about market
risk is included in this report under Item 7.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
Reference is made to pages 17 through 37 and 56 through 87 of the Brink's Group
1998 Annual Report, pages 18 through 38 and 59 through 90 of the BAX Group 1998
Annual Report and pages 21 through 45 and 64 through 95 of the Minerals Group
1998 Annual Report, which are incorporated herein by reference, for information
required by this item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
- --------------------------------------------------------------------------------
Not applicable.
16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- --------------------------------------------------------------------------------
The information required by this Item regarding directors is incorporated by
reference to Pittston's definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after December 31, 1998. The information
regarding executive officers is included in this report following Item 4, under
the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- --------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------------------------------
The information required by Items 11 through 13 is incorporated by reference to
Pittston's definitive proxy statement to be filed pursuant to Regulation 14A
within 120 days after December 31, 1998.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. All financial statements - see index to financial statements and
schedules.
2. Financial statement schedules - see index to financial statements and
schedules.
3. Exhibits - see exhibit index.
(b) Reports on Form 8-K were filed on (i) October 15, 1998, with respect to a
press release filed by Mining Project Investors Pty Ltd., an affiliate of
the Company, announcing the sale of its 50% interest in the Black Swan
Nickel Joint Venture; (ii) November 13, 1998, with respect to an
announcement by Pittston Minerals Group, that Mining Project Investors Pty
Ltd. had completed the previously announced sale; and (iii) November 19,
1998, with respect to the Company's sale of additional shares of Pittston
BAX Group Common Stock and Pittston Minerals Group Common Stock to The
Pittston Company Employee Benefits Trust.
UNDERTAKING
For the purposes of complying with the amendments to the rules governing Form
S-8 (effective July 13, 1990) under the Securities Act of 1933, the undersigned
Registrant hereby undertakes as follows, which undertaking shall be incorporated
by reference into Registrant's Registration Statements on Form S-8 Nos. 2-64258,
33-2039, 33-21393, 33-23333, 33-69040, 33-53565 and 333-02219:
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
17
The Pittston Company and Subsidiaries
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on March 12, 1999.
The Pittston Company
(Registrant)
By M. T. Dan
______________________________________
(M. T. Dan,
Chairman, President and
Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated, on March 12, 1999.
Signatures Title
---------- -----
R. G. Ackerman* Director
J. R. Barker* Director
J. L. Broadhead* Director
W. F. Craig* Director
M. T. Dan Chairman, President and
_______________________________________ Chief Executive Officer
(M. T. Dan) (principal executive officer)
G. Grinstein* Director
R. M. Gross* Director
C. F. Haywood* Director
R. T. Ritter
_______________________________________ Vice President
(R. T. Ritter) and Chief Financial Officer
(principal accounting officer)
C. S. Sloane* Director
R. H. Spilman* Director
A. H. Zimmerman* Director
*By M. T. Dan
___________________________________
(M. T. Dan, Attorney-in-Fact)
18
The Pittston Company and Subsidiaries
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
FINANCIAL STATEMENTS:
The consolidated financial statements of The Pittston Company, Pittston Brink's
Group, Pittston BAX Group and Pittston Minerals Group, listed in the index below
which are included in the Annual Report of Pittston Brink's Group, Pittston BAX
Group and Pittston Minerals Group, for the year ended December 31, 1998 are
incorporated herein by reference. With the exception of the pages listed in the
index below and the information incorporated by reference included in Parts I,
II and IV, the 1998 Annual Reports of the Pittston Brink's Group, Pittston BAX
Group and Pittston Minerals Group to Shareholders are not deemed filed as part
of this report.
PITTSTON BRINK'S GROUP ANNUAL REPORT
PITTSTON BRINK'S GROUP
Selected Financial Data................................. 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition..................... 7-16
Independent Auditors' Report............................ 17
Balance Sheets.......................................... 18
Statements of Operations................................ 19
Statements of Shareholder's Equity...................... 20
Statements of Cash Flows................................ 21
Notes to Financial Statements...........................22-37
THE PITTSTON COMPANY AND SUBSIDIARIES
Selected Financial Data................................. 39
Management's Discussion and Analysis of Results of
Operations and Financial Condition.....................40-55
Independent Auditors' Report............................ 56
Consolidated Balance Sheets............................. 57
Consolidated Statements of Operations................... 58
Consolidated Statements of Shareholders' Equity......... 59
Consolidated Statements of Cash Flows................... 60
Notes to Consolidated Financial Statements..............61-87
PITTSTON BAX GROUP ANNUAL REPORT
PITTSTON BAX GROUP
Selected Financial Data................................. 7
Management's Discussion and Analysis of Results of
Operations and Financial Condition..................... 8-17
Independent Auditors' Report............................ 18
Balance Sheets.......................................... 19
Statements of Operations................................ 20
Statements of Shareholder's Equity...................... 21
Statements of Cash Flows................................ 22
Notes to Financial Statements...........................23-38
THE PITTSTON COMPANY AND SUBSIDIARIES
Selected Financial Data................................. 41
Management's Discussion and Analysis of Results of
Operations and Financial Condition.....................42-58
Independent Auditors' Report............................ 59
Consolidated Balance Sheets............................. 60
Consolidated Statements of Operations................... 61
Consolidated Statements of Shareholders' Equity......... 62
Consolidated Statements of Cash Flows................... 63
Notes to Consolidated Financial Statements..............64-90
PITTSTON MINERALS GROUP ANNUAL REPORT
PITTSTON MINERALS GROUP
Selected Financial Data................................. 6
Management's Discussion and Analysis of Results of
Operations and Financial Condition..................... 7-20
Independent Auditors' Report............................ 21
Balance Sheets.......................................... 22
Statements of Operations................................ 23
Statements of Shareholder's Equity...................... 24
Statements of Cash Flows................................ 25
Notes to Financial Statements...........................26-45
THE PITTSTON COMPANY AND SUBSIDIARIES
Selected Financial Data................................. 47
Management's Discussion and Analysis of Results of
Operations and Financial Condition.....................48-63
Independent Auditors' Report............................ 64
Consolidated Balance Sheets............................. 65
Consolidated Statements of Operations................... 66
Consolidated Statements of Shareholders' Equity......... 67
Consolidated Statements of Cash Flows................... 68
Notes to Consolidated Financial Statements..............69-95
FINANCIAL STATEMENT SCHEDULES:
Schedules are omitted because they are not material, not applicable or not
required, or the information is included elsewhere in the financial statements.
19
The Pittston Company and Subsidiaries
EXHIBIT INDEX
Each Exhibit listed previously filed document is hereby incorporated by
reference to such document.
Exhibit
Number Description
- ------- -----------
2 Membership Interest Acquisition Agreement Among Air Transport
International LLC and BAX Global Inc., dated February 3, 1998.
Exhibit 2 to the Registrant's Current Report on Form 8-K filed
May 14, 1998.
3(i) The Registrant's Articles of Correction. Exhibit 3(l) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998 (the "First Quarter 1998 Form 10-Q").
3(ii) The Registrant's Bylaws, as amended through January 1, 1999.
4(a) (i) Amendment dated as of July 1, 1997, to the Rights
Agreement between Registrant and BankBoston, N.A., as
successor Rights Agent. Exhibit 4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997.
(ii) Amended and Restated Rights Agreement dated as of
January 19, 1996 (the "Rights Agreement"), between the
Registrant and Chemical Mellon Shareholder Services,
L.L.C., as Rights Agent. Exhibit 2 to the Registrant's
Registration Statement on Form 8-A dated February 26,
1996 (the "Form 8-A").
(iii) Form of Right Certificate for Brink's Rights. Exhibit
B-1 to Exhibit 2 to the Form 8-A.
(iv) Form of Right Certificate for Minerals Rights. Exhibit
B-2 to Exhibit 2 to the Form 8-A.
(v) Form of Right Certificate for BAX Rights. Exhibit B-3
to Exhibit 2 to the Form 8-A.
Instruments defining the rights of holders of long-term debt of
the Registrant and its consolidated subsidiaries have been
omitted because the amount of debt under any such instrument does
not exceed 10% of the total assets of the Registrant and its
consolidated subsidiaries. The Registrant agrees to furnish a
copy of any such instrument to the Commission upon request.
10(a)* The Key Employees Incentive Plan, as amended.
10(b)* The Key Employees' Deferred Compensation Program, as amended.
Exhibit 10(d) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1995 (the "1995 Form 10-K").
10(c)* (i) The Registrant's Pension Equalization Plan as amended.
Exhibit 10(e)(I) to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1997 (the
"1997 Form 10-K").
(ii) Amended and Restated Trust Agreement, dated December 1,
1997, between Registrant and Chase Manhattan Bank, as
Trustee. Exhibit 10(e)(ii) to the 1997 Form 10-K.
(iii) Trust Agreement under the Pension Equalization Plan,
Retirement Plan for Non-Employee Directors and Certain
Contractual Arrangements of The Pittston Company made
as of September 16, 1994, by and between the Registrant
and Chase Manhattan Bank (National Association), as
Trustee. Exhibit 10(l) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1994 (the "Third Quarter 1994 Form 10-Q").
(iv) Form of letter agreement dated as of September 16,
1994, between the Registrant and one of its officers.
Exhibit 10(e) to the Third Quarter 1994 Form 10-Q.
(v) Form of letter agreement dated as of September 16,
1994, between the Registrant and Participants pursuant
to the Pension Equalization Plan. Exhibit 10(f) to the
Third Quarter 1994 Form 10-Q.
10(d)* The Registrant's Executive Salary Continuation Plan. Exhibit
10(e) to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991 (the "1991 Form 10-K").
10(e)* The Registrant's Non-Employee Directors' Stock Option Plan, as
amended. Exhibit 10(g) to the 1997 Form 10-K.
10(f)* The Registrant's 1988 Stock Option Plan, as amended. Exhibit
10(h) to the 1997 Form 10-K.
10(g)* (i) Employment Agreement dated as of May 1, 1993, between
the Registrant and J.C. Farrell. Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993.
20
(ii) Amendment No. 1 to Employment Agreement dated as of May
1, 1993, between the Registrant and J. C. Farrell.
Exhibit 10(h) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993.
(iii) Form of Amendment No. 2 dated as of September 16, 1994,
to Employment Agreement dated as of May 1, 1993, as
amended by Amendment No. 1 thereto dated March 18,
1994, between the Registrant and J. C. Farrell. Exhibit
10(b) to the Third Quarter 1994 Form 10-Q.
(iv) Amendment No. 3 to Employment Agreement dated as of May
1, 1996, between the Registrant and J.C. Farrell.
Exhibit 10(i)(iv) to the 1995 Form 10-K.
(v) Amendment No. 4 to Employment Agreement, dated as of
April 23, 1997, between the Registrant and J.C.
Farrell. Exhibit 10(i)(v) to the 1997 Form 10-K.
10(h)* (i) Employment Agreement dated as of June 1, 1994, between
the Registrant and D. L. Marshall. Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the
Quarter ended June 30, 1994.
(ii) Form of Letter Agreement dated as of September 16,
1994, amending Employment Agreement dated as of June 1,
1994, between the Registrant and D. L. Marshall.
Exhibit 10(c) to the Third Quarter 1994 Form 10-Q.
(iii) Form of Letter Agreement dated as of June 1, 1995,
replacing all prior Employment Agreements and
amendments or modifications thereto, between the
Registrant and D. L. Marshall (the "Marshall Employment
Agreement"). Exhibit 10 to the Registrant's Quarterly
Report on Form 10-Q for the Quarter ended June 30,
1995.
(iv) Letter Agreement dated as of April 1, 1996, amending
the Marshall Employment Agreement. Exhibit 10(j)(iv)
to the 1995 Form 10-K.
(v) Form of Letter Agreement dated as of June 1, 1997,
replacing all prior Employment Agreements and
amendments or modifications thereto, between the
Registrant and D. L. Marshall. Exhibit 10(j)(v) to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996 (the "1996 Form 10-K").
(vi) Form of Letter Agreement dated as of October 1, 1997,
replacing all prior Employment Agreements and
amendments or modifications thereto, between the
Registrant and D. L. Marshall. Exhibit 10(b) to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.
(vii) Retirement Agreement, dated as of May 4, 1998, between
the Registrant and D. L. Marshall. Exhibit 10(a) to the
First Quarter 1998 Form 10-Q.
10(i)* (i) Form of change in control agreement replacing all prior
change in control agreements and amendments and
modifications thereto, between the Registrant and J. C.
Farrell. Exhibit 10(l)(i) to the 1997 Form 10-K.
(ii) Form of change in control agreement replacing all prior
change in control agreements and amendments and
modifications thereto, between the Registrant (or a
subsidiary) and various officers of the Registrant.
Exhibit 10(l)(ii) to the 1997 Form 10-K.
10(j)* Form of Indemnification Agreement entered into by the Registrant
with its directors and officers. Exhibit 10(l) to the 1991 Form
10-K.
10(k)* (i) Registrant's Retirement Plan for Non-Employee
Directors, as amended. Exhibit 10(g) to the Third
Quarter 1994 Form 10-Q.
(ii) Form of letter agreement dated as of September 16,
1994, between the Registrant and its Non-Employee
Directors pursuant to Retirement Plan for Non-Employee
Directors. Exhibit 10(h) to the Third Quarter 1994 Form
10-Q.
10(l)* (i) Form of severance agreement between Registrant and J.C.
Farrell. Exhibit 10(o)(i) to the 1997 Form 10-K.
(ii) Form of severance agreement between the Registrant (or
a subsidiary) and various of the Registrant's officers.
Exhibit 10(o)(ii) to the 1997 Form 10-K.
10(m)* Registrant's Directors' Stock Accumulation Plan. Exhibit A to the
Registrant's Proxy Statement filed March 26, 1996.
10(n)* Registrant's Amended and Restated Plan for Deferral of Directors'
Fees. Exhibit 10(o) to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1989.
21
10(o) (i) Lease dated as of April 1, 1989, between Toledo-Lucas
County Port Authority (the "Authority"), as Lessor, and
Burlington, as Lessee. Exhibit 10(i) to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1989 (the "Second Quarter 1989
Form 10-Q").
(ii) Lease Guaranty Agreement dated as of April 1, 1989,
between Burlington (formerly Burlington Air Express
Management Inc.), as Guarantor, and the Authority.
Exhibit 10(ii) to the Second Quarter 1989 Form 10-Q.
(iii) Trust Indenture dated as of April 1, 1989 between the
Authority and Society Bank & Trust (formerly,
Trustcorp. Bank, Ohio) (the "Trustee"), as Trustee.
Exhibit 10(iii) to the Second Quarter 1989 Form 10-Q.
(iv) Assignment of Basic Rent and Rights Under a Lease and
Lease Guaranty dated as of April 1, 1989 from the
Authority to the Trustee. Exhibit 10(iv) to the Second
Quarter 1989 Form 10-Q.
(v) Open-End First Leasehold Mortgage and Security
Agreement dated as of April 1, 1989 from the Authority
to the Trustee. Exhibit 10(v) to the Second Quarter
1989 Form 10-Q.
(vi) First Supplement to Lease dated as of January 1, 1990,
between the Authority and Burlington, as Lessee.
Exhibit 10 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1990.
(vii) Revised and Amended Second Supplement to Lease dated as
of September 1, 1990, between the Authority and
Burlington. Exhibit 10(i) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1990 (the "Third Quarter 1990 Form 10-Q").
(viii) Amendment Agreement dated as of September 1, 1990,
among City of Toledo, Ohio, the Authority, Burlington
and the Trustee. Exhibit 10(ii) to the Third Quarter
1990 Form 10-Q.
(ix) Assumption and Non-Merger Agreement dated as of
September 1, 1990, among Burlington, the Authority and
the Trustee. Exhibit 10(iii) to the Third Quarter 1990
Form 10-Q.
(x) First Supplemental Indenture between Toledo-Lucas
County Port Authority, and Society National Bank, as
Trustee, dated as of March 1, 1994. Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1994 (the "First Quarter 1994
Form 10-Q").
(xi) Third Supplement to Lease between Toledo-Lucas County
Port Authority, as Lessor, and Burlington Air Express
Inc., as Lessee, dated as of March 1, 1994. Exhibit
10.2 to the First Quarter 1994 Form 10-Q.
(xii) Fourth Supplement to Lease between Toledo-Lucas County
Port Authority, as Lessor, and Burlington Air Express
Inc., as Lessee, dated as of June 1, 1991. Exhibit 10.3
to the First Quarter 1994 Form 10-Q.
(xiii) Fifth Supplement to Lease between Toledo-Lucas County
Port Authority, as Lessor, and Burlington Air Express
Inc., as Lessee, dated as of December 1, 1996. Exhibit
10(r)(xiii) to the 1996 Form 10-K.
10(p)* (i) Credit Agreement dated as of March 4, 1994, among The
Pittston Company, as Borrower, Lenders Parties Thereto,
Chemical Bank, Credit Suisse and Morgan Guaranty Trust
Company of New York, as Co-agents, and Credit Suisse,
as Administrative Agent (the "Credit Agreement").
Exhibit 10.4 to the First Quarter 1994 Form 10-Q.
(ii) Amendment to the Credit Agreement dated as of May 1,
1995. Exhibit 10(s)(ii) to the 1995 Form 10-K.
(iii) Amendment to Credit Agreement dated as of May 15, 1996.
Exhibit 10(t)((iii) to the 1996 Form 10-K.
10(q)* Retirement Agreement dated March 11, 1998 between the Registrant
and J. C. Farrell. Exhibit 10(v) to the 1997 Form 10-K.
10(r)* Employment Agreement dated as of May 4, 1998, between the
Registrant and M. T. Dan. Exhibit 10(a) to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998 (the "Third Quarter 1998 Form 10-Q").
10(s)* Executive Agreement dated as of May 4, 1998, between the
Registrant and M. T. Dan. Exhibit 10(b) to the Third Quarter 1998
Form 10-Q.
10(t)* Executive Agreement dated as of August 7, 1998, between the
Registrant and R. T. Ritter. Exhibit 10(c) to the Third
Quarter 1998 Form 10-Q.
22
10(u)* Severance Agreement dated as of August 7, 1998, between the Registrant
and R. T. Ritter. Exhibit 10(d) to the Third Quarter 1998 Form 10-Q.
10(v)* Share Purchase Agreement, dated as of January 27, 1998, between
Brink's Security International, Inc., acting as Purchaser, and
Generale de Transport et D'Industrie, acting as Seller.
10(w)* Shareholders' Agreement, dated as of January 10, 1997, between Brink's
Security International, Inc., and Valores Tamanaco, C.A.
13 (a) Pittston Brink's Group 1998 Annual Report
(b) Pittston BAX Group 1998 Annual Report
(c) Pittston Minerals Group 1998 Annual Report
21 Subsidiaries of the Registrant.
23 Consent of independent auditors.
24 Powers of attorney.
27 Financial Data Schedule.
99* (a) Amendment to Registrant's Pension-Retirement Plan relating to
preservation of assets of the Pension-Retirement Plan upon a
change in control. Exhibit 99 to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992.
(b) 1994 Employee Stock Purchase Plan of The Pittston Company's
Annual Report on Form 11-K for the year ended December 31, 1998.
- --------------------------
*Management contract or compensatory plan or arrangement.
23
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as..............................'TM'
The registered trademark symbol shall be expressed as...................'r'