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2002 Annual Report
The Pittston Company
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The Pittston
Company
The businesses of The Pittston Company
are focused on creating shareholder value
through strategies targeted toward profit
and cash flow growth, realizing operating
efficiencies and providing the highest levels
of service quality.
Innovative business
processes and investment in the latest
technology help ensure that the businesses
of The Pittston Company remain well
positioned for the dynamic markets in
which they operate.
The Pittston Company common stock
trades on the New York Stock Exchange
under the ticker symbol PZB.
Contents
Financial Highlights
To Our Shareholders
The Pittston Company
Brink’s, Incorporated
Brink’s Home Security
BAX Global
2002 Financial Review
1
2
4
6
8
10
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The Pittston Company Financial Highlights
(Operating results for continuing operations, except where noted)
(In millions except per share data)
Operating Results
Operating Revenues
Brink’s, Incorporated
Brink’s Home Security
BAX Global
Total Business and Security Services
Other Operations
2002
2001
2000
1999
1998
$ 1,580
282
1,872
3,734
43
$ 1,536
258
1,790
3,584
40
$ 1,463
238
2,098
3,799
35
$ 1,373
229
2,083
3,685
25
$ 1,248
204
1,777
3,229
23
Total Operating Revenues
$ 3,777
$ 3,624
$ 3,834
$ 3,710
$ 3,252
Operating Profit (Loss)
Brink’s, Incorporated
Brink’s Home Security
BAX Global(a)
Total Business and Security Services(a)
Other Operations
Former Coal Operations
General Corporate Expense
$
96.1
60.9
17.6
174.6
0.4
(19.2)
(23.1)
$ 92.0
54.9
(27.6)
119.3
7.6
–
(19.3)
$ 108.5
54.3
(99.6)
$ 103.5
54.2
61.5
63.2
5.7
–
(21.2)
219.2
0.3
–
(22.9)
$ 98.4
53.0
(0.6)
150.8
5.5
–
(27.9)
Total Operating Profit(a)
$ 132.7
$ 107.6
$ 47.7
$ 196.6
$ 128.4
Diluted Income from Continuing
Operations per Share(b)
Diluted Net Income (Loss) per Share(b)(c)(d)
Diluted Weighted Average
$ 1.30
$ 0.88
$ 0.05
$ 2.19
$ 1.17
$ 0.48
$ 0.31
$ (5.12)
$ 0.70
$ 1.27
Common Shares Outstanding(b)
52.4
51.4
50.1
49.3
49.3
Cash Flow from Operating Activities(c)
Total Assets(c)
Long Term Debt, Less Current Maturities(c)
Shareholders’ Equity(c)
$ 241.3
2,459.9
304.2
381.2
$ 320.1
2,423.2
257.4
476.1
$ 369.8
2,478.7
313.6
475.8
$ 329.3
2,459.7
395.1
749.6
$ 231.8
2,331.1
323.3
736.0
(a) Includes BAX Global related restructuring charges of $57.5 million in 2000 and additional expenses of $36.0 million in 1998.
(b) Shares are pro forma for 1999 and 1998.
(c) Includes Discontinued Operations.
(d) 2000 includes $1.04 charge for the implementation of Staff Accounting Bulletin No. 101.
The financial highlights set forth above should be read only in conjunction with the 2002 Annual Report, including Management’s
Discussion and Analysis and Notes to Consolidated Financial Statements.
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To Our Shareholders
Two important events marked the transformation of
our company in recent months. We exited the coal
business and we began the process of changing the
company’s name from The Pittston Company to The
Brink’s Company.
The new name reflects the company’s
position as a global leader in business and security
services. The Brink’s brand is synonymous with
integrity, security, efficiency, global presence and
world-class service – hallmarks of the way we do
business. Although the Brink’s name is most directly
associated with our armored vehicles and our home
security services, the competitive advantages it
represents and the dedicated service it implies also
apply to BAX Global, our freight transportation
and supply chain management services company.
All of our businesses “go the extra mile” to protect
people and property – at home, at work, or en route
– virtually anywhere around the world. We are com-
mitted to providing premier service and the Brink’s
name effectively conveys that central strategy.
Although the future of The Brink’s Company
clearly lies in these high-growth service industries,
we will never forget the dedication and hard work of
thousands of people during our company’s 165-year
coal-mining history. We thank them for their many
contributions and we pledge to continue to follow
their example of hard work and faithful stewardship.
We are pleased to report that most of our former coal
operations remain open, and their new owners have
hired the vast majority of our former employees.
The Pittston Company still shoulders some
costs related to our heritage as a major producer of
coal, but we are now positioned to significantly
reduce our exposure to these liabilities. More
importantly, the disposal of our coal operations has
allowed us to focus on growth opportunities at BAX
Global, Brink’s and Brink’s Home Security.
Despite the continuing sluggish economy in
2002, BAX Global bounced back from an operating
loss of nearly $28 million in 2001 to an operating
profit of more than $17 million. While we are not
Michael T. Dan
Chairman,
President and Chief
Executive Officer
yet satisfied with the financial results of BAX, we are
pleased that it is moving in the right direction.
The people at BAX Global have done an excel-
lent job in turbulent times. In the past two years, the
business has reduced the number of aircraft flown
from 35 to 17, which is more in line with customer
demand. BAX also has built on its strengths by
establishing several new vendor hubs that provide
supply chain management services to customers in
Singapore, Hong Kong and the United States and
new supply chain operations in Europe and Brazil.
BAX Global is well-positioned to benefit from
explosive growth in China, which is rapidly becoming
the world’s factory floor. BAX has also continued
to evolve from its earlier focus as an air freight
forwarder: it is now a global logistics network that
uses the appropriate mode of transportation to
meet each customer’s needs.
Brink’s, Incorporated is the number one or
number two security services transport company in
the majority of the more than 50 countries where it
does business, and in 2002 it continued to expand
with the acquisition of the non-owned portion of
its affiliate in Japan.
Maintaining a global presence is a major com-
petitive advantage for Brink’s, Incorporated, the
worldwide leader in transporting currency and other
valuables that require the ultimate in protection
and control. Its worldwide reach allows Brink’s to
manage valuables from pickup to delivery.
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The work we do is vital for commerce and can
sometimes be dangerous. Valuables have to move, and
no one is better equipped than Brink’s to transport
and process them with the highest degree of safety
and security, whether they are moving across the
street or around the globe.
Protecting precious cargo is important, but
our number one job is protecting our people. We
want all of our employees to return safely to their
families every night, but unfortunately that does
not always happen: eight of our employees were
murdered in 2002.
Our customers’ needs are constantly evolving,
and Brink’s anticipates those needs with new and
improved services. Cash logistics, for example, is an
important part of the future of Brink’s, just as
automated teller machines drove growth during the
last decade. Retailers and financial institutions are
beginning to outsource all aspects of how their cash
is moved, counted and secured, and Brink’s has
formed a new operating unit, Brink’s Cash Logistics,
to meet this growing demand.
Anticipating trends and responding quickly to
customers’ needs have produced excellent financial
results over the years. Brink’s revenues have
increased every year since 1985, and they have more
than doubled from $754 million in 1996 to $1.6 billion
in 2002. The company’s operating profit in 2002
was $96 million.
The Brink’s name is globally recognized and
highly respected throughout the business world,
and it has developed an outstanding reputation
among homeowners as well. Brink’s Home Security,
which began operations
its
750,000th customer in 2002. That impressive
growth curve reflects the power of the Brink’s brand
name backed up by our commitment to provide
superior customer service.
in 1983, added
Brink’s Home Security’s strategy of attracting
and retaining “Customers For Life” has proven to
be the intelligent approach to this industry. By
growing organically instead of by acquisition,
Brink’s Home Security has maintained standardized
equipment that allows it to better and more efficiently
respond to homeowners’ calls. The company’s call
center was recognized for its exemplary customer care
program in the United States in 2002, but the most
important recognition came from the company’s
loyal customers. Brink’s Home Security’s annual
disconnect rate was, again, one of the lowest, if not
the lowest, in the industry. As a result, the company’s
recurring monthly revenue exceeded $21 million for
the first time in 2002.
While many of our competitors have purchased
market share via acquisition and free installations,
we have cultivated more profitable and sustainable
growth by providing outstanding service to high-
quality customers with solid credit ratings and an
appreciation for the value we provide. The results
have been gratifying. In 2002, Brinks Home Security
generated $61 million of operating profit on $282
million in revenues.
Cash flow from continuing operations for The
Pittston Company was again strong in 2002 – above
$300 million for the fourth consecutive year. This
healthy cash flow gave us the flexibility to expand
and improve our global operations.
Finally, in a year when scandals at several large
companies have severely damaged investor confidence,
we were reminded of the indispensable value of trust
and integrity throughout your Company. Trust is the
core of who and what we are, and we never take your
trust for granted. We have to earn it every day – just
as we do with our customers, who trust and depend on
Brink’s, Brink’s Home Security and BAX Global.
We made good progress in 2002 toward
attaining our strategic goals through the tireless
efforts of our employees and management. I am
equally grateful for the counsel and support of our
Board of Directors.
Sincerely,
Michael T. Dan
Chairman, President and Chief Executive Officer
The Pittston Company
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Pittston is in the process of changing its name to “The
Brink’s Company”, to reflect the focus on premier business
and security services. The name, Brink’s, is synonymous
throughout the world with integrity, trust, security, efficiency
and world-class service.
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The Pittston Company
The Pittston Company is a global business and
security services company based in Richmond,
Virginia. Pittston’s business units, with approxi-
mately 50,000 employees, generated revenues
of $3.8 billion in 2002 by providing outstanding
service to customers in more than 120 countries.
Pittston is in the process of changing its
name to “The Brink’s Company”, to reflect the
focus on premier business and security services.
The name, Brink’s, is synonymous throughout
the world with integrity, trust, security, efficiency
and world-class service. All of Pittston’s core
businesses are focused on protecting people
and property – at home, at work, or en route –
virtually anywhere in the world.
Brink’s, Incorporated is the world’s premier
provider of secure transportation and cash man-
agement services. BAX Global is an industry
leader in international freight transportation and
supply chain management services. Brink’s Home
Security is one of the largest and most successful
residential alarm companies in North America.
Pittston exited the coal business in 2002.
The company’s remaining, relatively small inter-
ests in other natural resources include natural gas,
gold and timber. These businesses do not fit
strategically with the company’s core business
and security services focus; they will be managed
consistent with achieving the highest benefit
for shareholders until they can be divested for
appropriate value.
Pittston’s transition from a diversified
natural resources company to a focused business
and security services company greatly improves
its opportunities to achieve significant growth,
superior cash flow and higher returns for share-
holders. The acceleration of world trade is driving
new business to both Brink’s and BAX Global,
while the demand for greater security is fueling
growth for both Brink’s and Brink’s Home
Security. In short, Pittston is well positioned to
help its customers reap the rewards and manage
the risks of a rapidly changing world.
In addition to being in the right businesses
at the right time, Brink’s, BAX Global and
Brink’s Home Security are trusted in their
respective industries. All three are widely recog-
nized for providing the highest levels of service
to their customers. The business units support
their customers with global networks of security,
transportation and business service assets and
their markets by continually
stay ahead of
expanding and improving service standards in
anticipation of customers’ needs.
Pittston’s focus on premier business and
security services, together with its new name,
should increase stability and consistency of
financial performance and increase visibility in
the financial and investment markets. The
Pittston Company is a powerful combination of
dedicated people and global assets. Its consistently
strong cash flow enables its operating companies
to invest in growth opportunities while maintaining
a solid financial position. Its commitment to
unparalleled customer service provides stability
in difficult times and the potential for rapid growth
as the global economy expands.
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Brink’s, Incorporated
Climbing to the top of an industry is a notable
accomplishment. Staying there is truly impressive.
For many years, Brink’s has been the global
leader in the secure transportation and cash
management industry, and its employees are
determined to maintain that position. Their hard
innovation and attention to details
work,
demonstrate their commitment to building
shareholder value by providing the best possible
customer service.
The Brink’s name is synonymous with
security and trust, but a great reputation alone
does not guarantee success. The 37,500 men and
women of Brink’s generated revenue of $1.6 billion
in 2002 and are determined to build upon the
company’s proud tradition. For more than 140
years, financial institutions, governments and
retail businesses have trusted Brink’s to transport
and process their valuables. During that time,
Brink’s has grown into a worldwide leader in the
secure transportation industry and in recent
years demand for Brink’s services has accelerated.
Commerce has become more global and technology
has changed how every business operates. At the
same time, the world has become a more dangerous
place. Now, more than ever, customers turn
to Brink’s when they need to move valuables
safely and reliably.
Brink’s presence in more than 50 countries
across six continents gives customers a trusted
partner wherever they do business. With more
than 7,000 armored vehicles around the world,
valuables can be safely moved between Saõ Paolo
and Amsterdam and from London to Seoul.
A growing number of customers outsource
various aspects of their cash logistics to Brink’s.
Central banks trust Brink’s to help meet their
unique cash logistic requirements. Commercial
banks trust Brink’s to replenish their automated
teller machines on a timely basis. Mints trust
Brink’s with the bulk distribution of coins.
Financial institutions trust Brink’s with their
vault and processing operations. Retailers trust
Brink’s to transport and process their cash.
Diamantaires and jewelers trust Brink’s to move
their diamonds and jewelry to market. And when
central banks need to issue a new currency to
replace multiple currencies throughout a conti-
nent, they trust Brink’s.
The Brink’s advantage as the only global
company in the industry is particularly impor-
tant to customers that are growing globally. As
they expand, Brink’s customers are looking for
multinational outsourcing partners with the
right resources, the best technologies and the
most experience. Customers also are seeking
security experts with solid track records of
managing risk, especially in difficult times and in
uncertain environments.
Brink’s is the clear choice, and does
not take its leadership position for granted. The
company continually identifies, adopts and
adapts best practices from around the world. It
combines the latest information technology with
time-honored integrity and common sense to
improve and expand its services in anticipation of
customers’ needs.
Brink’s strives to operate in the safest
manner possible to protect its employees and its
customers. Earning customer trust every day by
providing the best possible service is the key to
Brink’s ability to grow and prosper.
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The Brink’s name is synonymous with security and trust,
but a great reputation alone does not guarantee success.
The 37,500 men and women of Brink’s, Incorporated
generated revenue of $1.6 billion in 2002 and are determined
to build upon the company’s proud legacy.
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Today, Brink’s Home Security is a $282 million revenue
company serving more than 760,000 residential and
commercial customers in more than 100 markets throughout
North America. Brink’s Home Security’s 2,500 employees
are sharply focused on achieving customer satisfaction
with each customer contact.
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Brink’s Home Security
Since its inception in 1983, Brink’s Home Security
has been dedicated to winning “Customers for
Life” by providing customers the highest stan-
dards in security and superior customer service.
Today, Brink’s Home Security is a $282 million
revenue company serving more than 760,000
residential and commercial customers in more
than 100 markets throughout North America.
Brink’s Home Security’s focus on providing supe-
rior service continues to generate rapid growth.
Brink’s Home Security has grown organi-
cally into one of
the largest home security
companies in the United States, a strategy that
has resulted in superior service for customers and
greater value for shareholders, while many of
the company’s competitors have grown by
acquisitions. As part of Brink’s Home Security’s
strategy, the company provides superior service
through its advanced,
integrated electronic
equipment, best-practice procedures and com-
mitment to customer satisfaction. This home-grown
approach also has allowed the company to build
relationships with customers with solid credit histories
who value high-quality service and are more likely
to remain “Customers For Life”.
Brink’s Home Security’s 2,500 employees are
sharply focused on achieving customer satisfaction
with each customer contact. The professionalism
of sales consultants, the skill of certified technicians,
and the thoroughness of the company’s customer-
care representatives have enabled Brink’s Home
Security to lead the industry in customer retention.
The company’s diligent efforts to ensure
the highest quality installation standards have
earned the company the prestigious Installation
Quality (IQ) Certification. Brink’s Home Security
is the only national security company to attain
this designation from the Installation Certification
Board, an organization of police, fire, insurance,
security, and state regulatory professionals.
The company’s state of the art Customer
Monitoring Center in Irving, Texas, was recog-
nized for its exemplary customer care program by
Customer Interface Magazine. From this service
center, Brink’s Home Security monitors alarm
signals and responds to customer inquiries 24 hours
per day, seven days a week. The center, supported
by a fully redundant back-up site, was built to
meet the exacting standards of Underwriters
Laboratories (UL), and it has achieved a UL listing
every year since the company’s inception.
Brink’s Home Security continues to add
value to the Brink’s brand by finding new ways to
serve the needs of potential customers in different
segments of the market. The company works
closely with select major home builders to install
low-voltage wiring and cabling that intercon-
nects telephones, televisions, computers, sound
systems and home theaters – in addition to security
systems. Also, the company has expanded its
services to apartment and condominium complexes,
where people have the same desire for reliable secu-
rity protection as single-family homeowners.
With sales, installation and service offices
in most major metropolitan areas of the United
States and western Canada, Brink’s Home
Security is well positioned to continue its growth.
The company will attract many new customers in
the years ahead without losing sight of its mission
to win “Customers For Life.” Brink’s Home
Security employees know that every day presents
a new opportunity to earn the continued trust
and loyalty of customers by providing a sense of
security, safety and well being.
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BAX Global, with revenues of $1.9 billion in 2002, maintains
a global transportation and logistics network with approximately
500 offices in 123 countries. From ocean forwarding and
customs brokerage to expedited air freight, BAX Global’s
10,000 employees provide the full array of business-to-business
transportation and supply chain management services.
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BAX Global
When your customers include many of
the world’s top technology, health care,
and industrial companies, you must
achieve and maintain the highest stan-
dards of service. BAX Global meets
that challenge every day.
As a leading provider of interna-
tional freight transportation and supply
chain management services, BAX
Global, with revenues of $1.9 billion in
2002, enables its customers to quickly
and flexibly enter new global markets
while reducing their overall trans-
portation and logistics costs.
BAX Global maintains a global
transportation and logistics network
with approximately 500 offices in 123
countries. From ocean forwarding and
customs brokerage to expedited air
freight, BAX Global provides the full
array of business-to-business trans-
portation and logistics services. At every
point in the process, from the customer’s
initial call to freight pickup to final
delivery, BAX Global’s 10,000 employees
provide outstanding customer service.
From the latest fashions headed
for New York and Paris to aircraft
parts on their way to a maintenance
hub, BAX Global specializes in trans-
porting cargo for customers who value
speed, reliability and high levels of
cost-efficient service.
BAX Global applies the latest
information technologies to gain com-
petitive advantages, and the company
shares these advantages with its cus-
tomers. A prime example is MyBAX,
an extranet that empowers customers
to track shipments, manage trans-
portation costs and create custom
reports based on their specific account
information. Domestic shippers in
North America can manage their
entire transportation and logistics
process online – booking shipments,
getting rate quotes, preparing ship-
ping labels and maintaining customer
and product data. 10,000 customers
have registered to use MyBAX in its
first 18 months of operation.
For customers who need special-
ized levels of
service, BAX Global
provides customized supply chain man-
agement services, including inventory
management and order fulfillment
through the more than 40 integrated
logistics facilities it operates worldwide.
Air Transport
International
platform. And AGCO Corporation, one
of the world’s largest manufacturers,
designers and distributors of agricul-
tural equipment has chosen BAX
Global as their Lead Logistics Provider
for their worldwide supply chain.
AGCO’s products are sold in more
than 140 countries.
In 2002, BAX Global established
several other vendor hubs in Asia and
Air Transport International (ATI) offers a full range of worldwide contract
and charter services to air cargo entities, other airlines, major corporations, petroleum
services companies, government and military agencies and special interest customers. ATI’s fleet of
re-engined DC8 70 series jet freighters is the primary provider of lift for BAX Global’s U.S. air network. These
fuel-efficient aircraft are capable of global as well as domestic flights.
ATI’s daily operations include such diverse activities as the movement of thoroughbred racehorses
from Europe and Asia to the U.S., field support of on-location movie productions, city to city transportation of
touring music and stage shows, relocation of rare animals for aquariums and zoos, and scheduled flights under
contract to the U.S. Government, flying personnel and supplies to remote locations around the world.
ATI is licensed by the U.S. Federal Aviation Administration and is approved by the U.S. Federal Aviation
Administration and the U.S. Department of Transportation to conduct worldwide cargo and passenger operations.
ATI manages its worldwide activities 24 hours a day, 365 days a year, from its headquarters in Little
Rock, Arkansas, with a team of 500 dedicated employees for whom safety, service, efficiency and value are
interwoven with all aspects of managing the airline. (cid:1)
BAX Global’s ability to supply these
services almost anywhere in the world
is second to none as demand for inter-
national supply chain management
services is increasing rapidly. Microsoft
Corporation has appointed BAX to
design, implement and manage inven-
tory distribution and information
processes to improve efficiencies and
productivity from suppliers through
production to their end customers.
BAX provides supply chain services to
Microsoft’s OEM Hardware Group in five
locations on three continents utilizing a
single Warehouse Management System
the United States and new supply chain
management operations in Europe and
South America. The company is also well
positioned to benefit from growth of
manufacturing operations in China.
Its global presence, mode-neutral
transportation network and logistics
expertise make BAX Global a formidable
competitor in the freight transporta-
tion and supply chain management
industry. But BAX Global’s most
important advantage is its employees’
unwavering commitment to providing
the best possible customer service.
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The Pittston Company
2002
Financial Review
FINANCIAL REVIEW
FINANCIAL REVIEW
FINANCIAL REVIEW
FINANCIAL REVIEW
2002 ANNUAL REPORT
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Management's Discussion and Analysis.................................2
Statement of Management Responsibility..........................37
Independent Auditors' Report.............................................38
Consolidated Balance Sheets................................................39
Consolidated Statements of Operations.............................40
Consolidated Statements of Comprehensive Loss..............42
Consolidated Statements of Shareholders' Equity.............43
Consolidated Statements of Cash Flows..............................44
Notes to Consolidated Financial Statements.......................45
Selected Financial Data.........................................................78
Board of Directors and Senior Management......................80
1
2002 ANNUAL REPORT
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Pittston Company (“Pittston”) has three primary operating segments within its “Business and Security Services”
businesses: Brink’s, Incorporated (“Brink’s”), Brink’s Home Security, Inc. (“BHS”) and BAX Global Inc. (“BAX Global”). The
fourth operating segment is Other Operations, which consists of Pittston’s gold, timber and natural gas operations. The
Company also has significant assets and liabilities associated with its former coal operations and expects to have significant
ongoing expenses and cash outflows related to former coal operations in the future. Pittston and its subsidiaries are
referred to herein as the “Company.”
During 2002, the Company completed its planned exit of the coal business by selling or shutting down its remaining coal
operations. The results of operations of the Company’s former coal operations have been reported as discontinued
operations for all years reported. The Company defines certain of the liabilities associated with its former coal operations
as its “legacy” liabilities. Information about the Company’s legacy liabilities is contained in several sections of
Management’s Discussion and Analysis, including “Applications of Critical Accounting Policies and Recent Accounting
Pronouncements,” “Liquidity and Capital Resources – Legacy Liabilities and Assets,” “Liquidity and Capital Resources –
Significant Contractual Obligations” and “Results of Operations – Former Coal Operations.” Disclosures in these sections
discuss critical estimates used, provide a sensitivity analysis, reconcile the legacy liability components to U.S. generally
accepted accounting principles (“GAAP”) measures and show five-year projections for estimated future payments and
expense associated with the legacy liabilities.
For the year ended December 31, 2002, the Company reported net income of $26.1 million, or $0.48 per diluted share,
compared with $16.6 million, or $0.31 per diluted share, for 2001 and a net loss of $256.6 million, or $5.12 per diluted
share, in 2000.
Net income in 2002 included $19.2 million ($12.5 million after tax) of impairment and other charges associated with the
Company’s former coal business and $7.1 million ($5.0 million after tax) of impairment and other charges related to its
gold mining and exploration interests. Also included in 2002 net income was a charge of $42.9 million (after tax) related
to the Company’s discontinued operations and $3.7 million (after tax) income related to a Stabilization Act compensation
payment.
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues
Operating Profit (Loss)
(In millions)
Business Segments
Business Segments
Business Segments
Business Segments
Brink’s
BHS
BAX Global
Years Ended December 31
2002
2002
20022002
2001
2000
2002
2002
20022002
vs.vs.vs.vs.
2001
2001
20012001
(%)
(%)
(%)
(%)
1,579.9
$$$$ 1,579.9
1,579.9
1,579.9
1,536.3
1,462.9
282.4
282.4
282.4
282.4
257.6
238.1
1,871.5
1,871.5
1,871.5
1,871.5
1,790.1
2,097.6
Business and Security Services
3,733.8
3,733.8
3,733.8
3,733.8
3,584.0
3,798.6
Other Operations
42.942.942.942.9
40.2
35.5
Former coal operations
General corporate expense
-
----
-
-
-
-
3,776.7 3,624.2
$$$$ 3,776.7
3,776.7
3,776.7
3,834.1
3333
10101010
5555
4444
7777
----
----
4444
2
2001
vs.
2000
(%)
5
8
(15)
(6)
13
-
-
2002
2002
20022002
2001
Years Ended December 31
vs.vs.vs.vs.
vs.
2002
2002
20022002
2001
2000
2001
2001
20012001
2000
$$$$ 96.196.196.196.1
60.960.960.960.9
17.617.617.617.6
92.0
54.9
108.5
54.3
(27.6)
(99.6)
174.6
174.6
174.6
174.6
119.3
0.40.40.40.4
(19.2)
(19.2)
(19.2)
(19.2)
(23.1)
(23.1)
(23.1)
(23.1)
7.6
-
63.2
5.7
-
(19.3)
(21.2)
(5)
132.7
$$$$ 132.7
132.7
132.7
107.6
47.7
(%)
(%)
(%)
(%)
(%)
4444
11111111
NMNMNMNM
46464646
(95(95(95(95))))
NMNMNMNM
(20(20(20(20))))
23232323
(15)
1
72
89
33
-
9
126
Net income in 2001 included a charge of $29.2 million
(after tax) reflecting adjustments to the estimated loss
on disposition of the discontinued operations. Results in
2000 included a $207.3 million loss (after tax) from
discontinued operations, a $52.0 million (after tax)
charge to record the cumulative effect of an accounting
change and a $35.7 million (after tax) restructuring
charge.
Revenue from continuing operations in 2002 increased
primarily due to higher BAX Global air export volumes
from Asia-Pacific, largely due to improved economic
conditions in that region. In addition, revenue increased
in 2002 at Brink’s and BHS. Operating profit increased in
2002 due to improved operating performance in the
rink’s
BBBBrink’s
rink’s
rink’s
2002 ANNUAL REPORT
Company’s business and security services segments,
particularly at BAX Global, partially offset by the charges
related to the Company’s former coal operations and
gold mining and exploration interests.
Revenue from continuing operations in 2001 decreased
compared to 2000 primarily due to lower volumes at BAX
Global resulting from weak economic conditions.
Operating profit in 2000 included a pretax $57.5 million
restructuring charge at BAX Global (see discussion
below). In 2001, improved operating performance at
BAX Global (even after excluding the 2000 restructuring
charge) was partially offset by a decrease in operating
profit at Brink’s.
2222002002002002
vs.vs.vs.vs.
2001
2001
20012001
(%)
(%)
(%)
(%)
2222
3333
3333
23232323
((((11)11)11)11)
4444
2001
vs.
2000
(%)
6
4
5
(24)
(6)
(15)
2222
NMNMNMNM
11111111
3
5
(4)
(In millions, except percentages)
2002
2002
20022002
2001
2000
Years Ended December 31
$$$$
694.9
694.9
694.9
694.9
885.0
885.0
885.0
885.0
$$$$
1,579.9
1,579.9
1,579.9
1,579.9
680.3
856.0
1,536.3
642.4
820.5
1,462.9
Revenues
Revenues
Revenues
Revenues
North America (a)
International
Profit
perating Profit
OOOOperating
Profit
Profit
perating
perating
North America (a)
International
$$$$
$$$$
52.252.252.252.2
43.43.43.43.9999
96.196.196.196.1
(in percentages)
rating Margin (in percentages)
OpeOpeOpeOperating Margin
(in percentages)
(in percentages)
rating Margin
rating Margin
North America (a)
International
Total
Depreciation and amortization,
excluding goodwill amortization
$$$$
Goodwill amortization
Capital expenditures
(a) Comprises U.S. and Canada.
(%)
(%)
(%)
(%)
7.57.57.57.5
5.05.05.05.0
6666.1.1.1.1
61.361.361.361.3
N/AN/AN/AN/A
77779.39.39.39.3
55.5
53.0
108.5
(%)
8.6
6.5
7.4
58.2
2.0
73.9
42.4
49.6
92.0
(%)
6.2
5.8
6.0
60.1
2.1
71.3
3
Comparison of 2002 and 2001
Brink’s revenues increased in both North America and
International operations, and although operating profit
increased in North America, operating profit was lower
in the International operations, primarily due to lower
operating profits in South America.
Revenue increases from North American operations in
2002 were primarily related to increased currency
processing and armored transportation activities (which
includes ATM services). Operating profit increased in
2002 primarily due to improved performance in U.S.
Global Services and, to a lesser extent, armored
transportation operations and currency processing.
Revenues from International operations in 2002
increased 5% over 2001 excluding the effects of changes
in foreign currency exchange rates. International
revenues in 2002 decreased a net $14 million due to
changes in exchange rates as South American currencies
weakened relative to the U.S. dollar while most
European currencies strengthened. Revenues in Europe
reflected increased volumes in armored transportation,
ATM servicing, currency processing and Global Services
operations. South American revenues in 2002 were
negatively impacted by the continuing effects of difficult
economic and operating conditions.
The decrease in International operating profit was
primarily due to lower results in South America, which
more than offset improved results in Asia-Pacific and
Europe. Lower operating profits in South America
reflect the previously mentioned difficult economic and
operating conditions, which are expected to continue
into 2003. Absent improvement in such conditions,
management expects lower year-over-year performance
in the first half of 2003.
2002 ANNUAL REPORT
Europe’s operating profits in the fourth quarter of 2001
and the first quarter of 2002 were higher as a result of
nonrecurring euro-related processing and transportation
work, and in 2002, by the transportation and processing
work associated with the final return of the legacy
currencies. The first nine months of 2001 reflected
upfront costs associated with preparations for the euro
work, and results throughout 2002 reflected higher than
normal labor expenses as staffing levels remained high
following the euro work performed in the first half of
the year. Brink’s incurred severance expense associated
with a reduction in staffing levels in Germany in the
second half of 2002. Brink’s expects to further reduce
staffing levels in Europe in 2003 and incur additional
severance expense. European operating performance
reflected higher volume and operational improvements
in certain countries despite softness in European
economies. Such softness has continued into 2003.
Asia-Pacific operating profits in 2002 were well above
the prior year, reflecting higher pricing in Australia.
International operating profits for 2001 included
approximately $2 million of pretax gains on the sale of
two non-strategic international affiliates.
Brink’s North American operating results in 2003 are
expected to be adversely affected by approximately $10
million higher pension expense for its primary U.S.
pension plan due to the effects of unfavorable returns
on plan assets over the last three years and a lower
discount rate used to determine projected benefit
obligations.
4
Comparison of 2001 and 2000
Brink’s worldwide consolidated revenues increased $73.4
million (5%) in 2001 as compared to 2000. This increase
was attributable to both the North America and
International operations and was partially offset by the
impact of the stronger U.S. dollar relative to 2000.
Brink’s 2001 operating profit of $92.0 million
represented a 15% decrease from 2000, with decreases
in both the North America and International regions.
Operating profit in 2000 benefited from a $4.9 million
settlement associated with an insurance recovery related
to a prior year’s robbery loss.
Revenues and operating profit from North American
operations in 2001 increased $37.9 million and decreased
$13.1 million, respectively, from 2000. The 6% increase
in revenues for 2001 primarily related to higher revenues
from armored car operations, which includes ATM
services. Excluding the $4.9 million gain in 2000 from an
insurance settlement related to a prior year’s robbery
loss, operating profit decreased 16% in 2001 primarily
due to increased employee benefits, particularly for
medical benefits and workers’ compensation costs, all
risk costs, higher operating losses incurred by the Global
Services business in the U.S. (partly due to lower volumes
and higher transportation costs) and a downturn in
performance of the armored car business in Canada due
to the loss of certain customer contracts and the effects
of a labor dispute during the first nine months of 2001.
Revenues and operating profit from International
operations in 2001 increased $35.5 million and decreased
$3.4 million, respectively, from 2000. International
revenues in 2001 were reduced by approximately $50
million as a result of the year-over-year strengthening of
the U.S. dollar relative to certain local currencies,
2002 ANNUAL REPORT
primarily in Latin America and, to a lesser extent,
Europe. Excluding these foreign currency effects,
International revenues increased 10%, primarily due to
operations in Europe and, to a lesser extent, Latin
America and Asia-Pacific. The increase in Europe
reflected revenues associated with armored car services
performed under contracts with central banks and other
banks to distribute the euro currency throughout
Europe, as well as increased volumes in armored
transportation, ATM servicing, currency processing and
air courier operations. Increases in Latin America
(excluding foreign currency effects) were primarily due
to higher revenues in Brazil and Venezuela.
The net decrease in International operating profit was
due to lower results in Latin America which more than
offset improved results in Europe and Asia-Pacific. Lower
operating profits in Latin America reflected severe
pricing competition and unfavorable exchange rate
effects in Brazil as well as high labor costs and
deteriorating economic conditions in Argentina.
Improved results in Europe included the higher margin
euro transportation and distribution work as well as
volume increases in armored transportation, ATM
services and currency processing. Revenues and
operating profits for euro transportation and
distribution were primarily earned during the fourth
quarter of 2001. Operating results in the United
Kingdom were well below the prior year primarily due
to costs associated with expansion into the ATM
business, a decline in air courier volumes and reduced
armored transportation business. International
operating profits for 2001 benefited from approximately
$2 million of pretax gains on the sale of the Company’s
investments in two non-strategic international affiliates.
5
2002 ANNUAL REPORT
Brink’s Home Security
Brink’s Home Security
Brink’s Home Security
Brink’s Home Security
(Dollars in millions,
Years Ended December 31
subscriber data in thousands)
2002
2002
20022002
2001
2000
Revenueseseses
Revenu
Revenu
Revenu
$$$$
282.4
282.4
282.4
282.4
257.6
238.1
Operating profit
Operating profit
Operating profit
Operating profit
Recurring services (a)
Investment in new subscribers (b)
109.5
109.5
109.5
109.5
(48.6)
(48.6)
(48.6)
(48.6)
$$$$
60.960.960.960.9
100.9
(46.0)
54.9
96.4
(42.1)
54.3
n percentages)
Operating Margin (i(i(i(in percentages)
Operating Margin
n percentages)
n percentages)
Operating Margin
Operating Margin
21.621.621.621.6%%%%
21.3%
22.8%
Monthly recurring revenues (c)
$$$$
Annualized disconnect rate
Number of subscribers:
Beginning of period
Installations
Disconnects
End of period
Average
21.121.121.121.1
7.1%7.1%7.1%7.1%
713.5
713.5
713.5
713.5
105.8
105.8
105.8
105.8
(52.6)
(52.6)
(52.6)
(52.6)
766.7
766.7
766.7
766.7
739.0
739.0
739.0
739.0
19.2
7.6%
675.3
90.9
(52.7)
713.5
693.5
18.0
7.6%
643.3
82.0
(50.0)
675.3
659.8
Depreciation and amortization (d)
$$$$
43.943.943.943.9
36.8
32.0
Impairment charges from subscriber
disconnects
Amortization of deferred revenue
Net cash deferrals on new subscribers (e)
Capital expenditures
$$$$
32.332.332.332.3
((((22223.93.93.93.9))))
9.49.49.49.4
86.986.986.986.9
33.8
(23.9)
12.1
81.3
30.1
(20.6)
13.1
74.5
2002
2002
20022002
vs.vs.vs.vs.
2001
2001
20012001
(%)
(%)
(%)
(%)
10101010
9999
(6)(6)(6)(6)
11111111
16161616
----
7777
7777
19191919
(4)(4)(4)(4)
----
(22(22(22(22))))
7777
2001
vs.
2000
(%)
8
5
(9)
1
11
(5)
6
5
15
12
16
(8)
9
(a) Reflects monthly operating profit generated from the existing subscriber base plus the amortization of deferred revenues less the amortization of
deferred subscriber acquisition costs (primarily direct selling expenses).
(b) Primarily marketing and selling expenses, net of the deferral of direct selling expenses, incurred in the acquisition of new subscribers.
(c) Calculated based on the number of subscribers at period end multiplied by the average fee per subscriber received in the last month of the period for
contractual monitoring and maintenance services. The amortization of deferred revenues is excluded. See “Reconciliation of Non-GAAP Measures”.
(d) Includes amortization of deferred subscriber acquisition costs of $6.6 million, $5.8 million and $5.3 million in 2002, 2001 and 2000, respectively.
(e) Consists of nonrefundable payments received from customers for new installations for which revenue recognition has been deferred, net of payments for
direct selling costs for which expense recognition has been deferred. The amount is equal to “Deferred subscriber acquisition costs” and “Deferred
revenue from new subscribers” as reported in the Company’s Consolidated Statements of Cash Flows.
Operating profit comprises recurring services minus the
cost of the investment in new subscribers. Recurring
services reflects the monthly monitoring and service
earnings generated from the existing subscriber base and
the amortization of deferred revenues and deferred
direct costs from installations. Impairment charges from
subscriber disconnects and depreciation and
amortization expenses are charged to recurring services.
6
Recurring services is affected by changes in the average
monitoring fee per subscriber, the amount of
operational costs including depreciation, the size of the
subscriber base and the level of subscriber disconnect
activity. Investment in new subscribers is the net expense
(primarily marketing and selling expenses) incurred in
adding to the subscriber base every year.
Police departments in two major western U.S. cities do
not respond to calls from alarm companies unless an
emergency has been visually verified. If more police
departments in the future refuse to respond to calls from
alarm companies without visual verification, this could
have an adverse effect on future results of operations for
BHS.
2002 ANNUAL REPORT
The amount of such investment charged to income may
be influenced by several factors, including the growth
rate of new subscriber installations and the level of costs
incurred in attracting new subscribers. As a result,
increases in the rate of investment (the addition of new
subscribers) may have a negative effect on current
segment operating profit but a positive impact on long-
term operating profit, cash flow and economic value.
Comparison of 2002 and 2001
Revenues increased 10% in 2002 primarily due to a 7%
larger average subscriber base, as well as higher average
monitoring rates, higher revenues from home builders
and higher service revenues. These factors also
contributed to a 10% increase in monthly recurring
revenues as measured at year end. Installations in 2002
were 16% higher than in 2001, primarily as a result of
successful marketing efforts and new distribution
channels.
Operating profit for 2002 increased 11% as higher profit
from recurring services was partially offset by an
increased investment in new subscribers. Higher profit
from recurring services was due to increased monitoring
and service revenues resulting from a larger average
subscriber base and 4% lower impairment charges
reflecting a lower disconnect rate, partially offset by
increased depreciation from the larger number of
security systems and higher monitoring costs. Investment
in new subscribers increased only 6% on 16% higher
installations during 2002, reflecting more effective
marketing and installation efforts and the use of new
distribution channels. The Company believes the
improvement in the 2002 annualized disconnect rate of
7.1% over the 7.6% of 2001 was due primarily to the
effects of higher credit standards established for new
customers in recent years.
BHS’s operating results in 2003 are expected to be
adversely affected by approximately $1 million higher
pension expense for its primary U.S. pension plan, due to
the effects of unfavorable returns on plan assets over the
last three years and a lower discount rate used to
determine projected benefit obligations.
Comparison of 2001 and 2000
Revenues for BHS increased 8% in 2001 versus 2000,
primarily due to the 5% growth in the average
subscriber base. Monthly recurring revenues, measured
at year end, grew 7% from 2000 to 2001 as the
subscriber base grew 6% from year end to year end.
Installations in 2001 were 11% higher than in 2000 and
disconnects were 5% higher in 2001 compared to 2000
on the higher subscriber base as the disconnect rate
stayed the same.
Segment operating profit for 2001 grew by $0.6 million
to $54.9 million as subscriber volume-related growth in
recurring services was partially offset by increased field
service costs and the $3.9 million increase (9%) in the
investment in new subscribers (the number of
installations increased 11% in 2001 versus 2000).
2000 Accounting Change
BHS defers all new installation revenue and the portion
of the new installation costs deemed to be direct costs of
subscriber acquisition. Such revenues and costs are
amortized over the expected term of the relationship
with the subscriber.
BHS accounted for the adoption of Staff Accounting
Bulletin No. 101, “Revenue Recognition in Financial
Statements,” as a change in accounting principle,
effective January 1, 2000. The Company recorded a
noncash, pretax charge of $84.7 million ($52.0 million
after tax) in 2000 to reflect the cumulative effect of the
change in accounting principle on years prior to 2000.
7
Global
BAXBAXBAXBAX Global
Global
Global
(In millions)
2002
2002
20022002
2001
2000
Years Ended December 31
Revenues
Revenues
Revenues
Revenues
Americas
International
Eliminations/other
(Loss)
Operating Profit (Loss)
Operating Profit
(Loss)
(Loss)
Operating Profit
Operating Profit
Americas (a)
International (a)
Corporate and other
$$$$
989.9
989.9
989.9
989.9
951.7
951.7
951.7
951.7
(70.1))))
(70.1
(70.1
(70.1
1,871.5
$$$$ 1,871.5
1,871.5
1,871.5
$$$$
(15.1)
(15.1)
(15.1)
(15.1)
43.843.843.843.8
(11.1)
(11.1)
(11.1)
(11.1)
$$$$
17.617.617.617.6
n percentages)
argin (i(i(i(in percentages)
Operating Margin
Operating M
n percentages)
n percentages)
argin
argin
Operating M
Operating M
(%)
(%)
(%)
(%)
Americas
International
Total
Depreciation and amortization,
excluding goodwill amortization
$$$$
Goodwill amortization
Capital expenditures
((((1.5)1.5)1.5)1.5)
4.64.64.64.6
0.10.10.10.1
44.444.444.444.4
N/AN/AN/AN/A
27.127.127.127.1
1,008.1
845.0
(63.0)
1,790.1
1,236.6
917.3
(56.3)
2,097.6
(46.0)
35.6
(17.2)
(27.6)
(%)
(4.6)
4.2
(1.5)
49.4
7.4
33.1
(96.2)
33.2
(36.6)
(99.6)
(%)
(7.8)
3.6
(4.7)
53.8
7.5
60.1
Intra U.S. revenue
$$$$
445.4
445.4
445.4
445.4
457.3
604.6
Worldwide expedited freight services:
Revenues
Weight in pounds
1,452.4
$$$$ 1,452.4
1,452.4
1,452.4
1,559.3
1,559.3
1,559.3
1,559.3
1,427.2
1,453.4
1,724.2
1,764.9
2002
2002
20022002
vs.vs.vs.vs.
2001
2001
20012001
(%)
(%)
(%)
(%)
(2)(2)(2)(2)
11113333
(11)
(11)
(11)
(11)
5555
67676767
23232323
35353535
NMNMNMNM
(10)
(10)
(10)
(10)
NMNMNMNM
(18(18(18(18))))
(3)(3)(3)(3)
2222
7777
2002 ANNUAL REPORT
2001
vs.
2000
(%)
(18)
(8)
(12)
(15)
52
7
53
72
(8)
(1)
(45)
(24)
(17)
(18)
(a) Operating loss includes restructuring charges in 2000 of $54.6 million for Americas and $2.9 million for International.
BAX Global operates throughout most of the world. The
Americas includes operations in the U.S., Latin America
and Canada; International includes BAX Global’s Atlantic
and Asia-Pacific operating regions. Each region includes
both expedited and non-expedited freight services. Non-
expedited freight services primarily include deferred
delivery freight shipments, supply chain management
and ocean freight services. Revenues and profits are
shared among the origin and destination countries on
most export volumes.
BAX Global’s U.S. business, the region with the largest
export and domestic volume, significantly affects the
results of BAX Global’s worldwide expedited freight
services.
8
In addition, BAX Global’s operations include an
international customs brokerage business as well as a
federally certificated airline, Air Transport International
(“ATI”). ATI’s results include the results of charter air
service and are included in the Americas region.
Eliminations/other revenues primarily include
intercompany revenue eliminations on shared services.
Corporate and other operating profit (loss) primarily
consists of global support costs including global
information technology costs and, in 2001 and 2000,
goodwill amortization.
Comparison of 2002 and 2001
The 5% increase in BAX Global’s worldwide operating
revenues in 2002 as compared to 2001 was attributable
to the addition of new business and economic recovery
in Asia-Pacific. Worldwide operating profit in 2002
improved $45.2 million, primarily reflecting the benefit
of ongoing efforts in the Americas to better align
transportation costs and operating expenses with market
demands and economic conditions, and the volume
improvement in Asia-Pacific.
Americas revenues decreased 2% in 2002 as compared to
2001 due to a lower volume of domestic and outbound
international expedited airfreight services associated
with the continuing weak economies in the U.S. and
Europe. Americas 2002 revenues from charter activity
were $15 million higher than 2001.
Despite the reduction in revenues, the operating loss in
the Americas was reduced by 67% in 2002 as compared
to 2001. The improvement was primarily due to
reductions in Americas transportation costs. Costs per
pound shipped in 2002 decreased as compared to 2001 as
a result of fleet reductions undertaken during 2001 and
an increased use of ground transportation. Recent
increases in carrier rates on export shipments and higher
employee benefit costs are expected to increase costs in
2003. ATI is renegotiating most of its aircraft leases and,
if successful, expects further reductions in transportation
costs in 2003 as a result of more favorable lease terms.
In 2002, International revenues increased 13% and
operating profit increased 23% as compared to 2001.
The increases were primarily due to improved economic
conditions and new business in several Asia-Pacific
countries which resulted in increased air export volumes
to the U.S., primarily associated with the high technology
industry. In addition, a port dispute on the West Coast
of the U.S. resulted in a higher volume of air export
freight from Asia-Pacific during the fourth quarter of
2002. Margins on such shipments were lower due to
higher airline transportation costs, not all of which were
passed on to customers. In the Atlantic region, low
export and import air-freight volumes and lower prices
caused by the continuing weak European economy
resulted in a decrease in revenues and operating profit
for 2002 as compared to 2001. The Company expects this
weakness to continue into 2003.
2002 ANNUAL REPORT
The decrease in Corporate and other expenses in 2002 as
compared to 2001 was primarily due to the amortization
of goodwill in 2001 ($7.4 million). See Note 1 to the
Consolidated Financial Statements.
BAX Global’s operating results in 2003 are expected to
be adversely affected by approximately $5 million higher
pension expense for its primary U.S. pension plan, due to
the effects of unfavorable returns on plan assets over
the last three years and a lower discount rate used to
determine projected benefit obligations.
Comparison of 2001 and 2000
The 15% decrease in BAX Global’s worldwide operating
revenues in 2001 as compared to 2000 was attributable
to both the Americas and International regions.
Worldwide operating loss in 2001 was $27.6 million,
compared to $99.6 million in 2000. The 2000 operating
loss included a restructuring charge of $57.5 million
(discussed below).
Revenues in the Americas decreased $228.5 million (18%)
in 2001 compared to 2000 as a result of lower demand
for expedited freight primarily caused by weak economic
conditions during 2001, particularly in the U.S. and Asia.
Domestic expedited volumes and yields in 2001 declined
over the prior year. Results in 2000 for the Americas
included a restructuring charge of $54.6 million
(discussed below), a bad debt provision related to one
customer of $4.5 million and a charge of approximately
$4 million relating to the decision to terminate a logistics
contract due to inadequate operating returns. Beginning
in 2001, certain U.S.-based logistics revenues and costs
were refocused from a global to a largely Americas role,
resulting in certain revenues and costs that were
classified as Corporate and other during 2000 being
classified within the Americas results in 2001. Corporate
and other expense in 2000 included $7.1 million of such
costs. Excluding the effects of the above-mentioned 2000
charges and the effects of the change in allocation, the
Americas operating loss in 2001 increased $5.8 million
over 2000. Although lower freight volume reduced
revenues significantly, the effect on operating profit of
the lower volume was largely offset by cost savings
associated with the 2000 restructuring plan and ongoing
cost reduction efforts.
9
In 2001, International revenues decreased $72.3 million
(8%) and operating profit increased $2.4 million (7%) as
compared to 2000. The decrease in revenues was
primarily a result of weak economic conditions during
2001 in the U.S. and Asia-Pacific. Results for the Atlantic
region in 2000 included a $2.9 million restructuring
charge (see discussion below). Although International
operating profit in 2001 was impacted by lower export
volumes from the Asia-Pacific region, cost savings from
the previously mentioned 2000 restructuring plan and
continuing efforts to reduce overhead costs resulted in
essentially flat profit performance from 2000 to 2001
despite the decline in revenue.
The decrease in 2001 eliminations/other revenue was
largely due to the refocusing of certain U.S.-based
logistics revenues from a global to an Americas role.
Eliminations/other revenue in 2000 included $5.8 million
of these logistics revenues. Such revenues in 2001 are
included within the Americas. Corporate and other
expense for 2001 decreased $19.4 million as compared to
2000. The improvement was primarily due to lower
global administrative expenses stemming from cost
control efforts, as well as the reclassification of the U.S.-
based logistics costs noted above. Corporate and other
expense included goodwill amortization of $7.4 million
in 2001 and $7.5 million in 2000.
2000 Restructuring Plan
BAX Global finalized a restructuring plan in 2000 aimed
at reducing the capacity and cost of its airlift capabilities
in the U.S. as well as reducing station operating
expenses, sales, general and administrative costs in the
Americas and Atlantic regions. The actions taken
included:
•
•
•
The removal of ten planes from the fleet, nine of
which were dedicated to providing lift capacity in
BAX Global’s commercial cargo system.
The closure of nine operating stations and
realignment of domestic operations.
The reduction of employee-related costs through the
elimination of approximately 300 full-time positions
including aircraft crew and station operating, sales
and business unit overhead positions.
2002 ANNUAL REPORT
In addition, certain Atlantic region operations were
streamlined in order to reduce overhead costs and
improve overall performance in that region. The Atlantic
region planned restructuring efforts involved severance
costs and station closing costs in the UK, Denmark, Italy
and South Africa. Approximately 50 positions were
eliminated, most of which were positions at or above
manager level.
The following is a summary of the 2000 restructuring
charges:
(In millions)
Americas Atlantic
Region
Region BAX Global
Total
Fleet related charges
$ 49.7
Severance costs
Station and other closure costs
1.1
3.8
Restructuring charge
$ 54.6
-
1.2
1.7
2.9
49.7
2.3
5.5
57.5
Approximately $45.2 million of the restructuring charge
was noncash and approximately $0.3 million of the
charge was paid in 2000. The following analyzes the
changes in the remaining liabilities for such costs:
(In millions)
Fleet
Charges
Station
and
Severance Other Total
December 31, 2000
$ 6.6
Adjustments
Payments
December 31, 2001
Payments
0.6
(5.1)
2.1
(2.1)
December 31, 2002
$
-
2.0
(0.4)
(1.5)
0.1
(0.1)
-
3.4
12.0
(0.4)
(0.9)
(0.2)
(7.5)
2.1
4.3
(0.6)
(2.8)
1.5
1.5
The remaining accrual includes contractual commitments
for facilities and is expected to be paid by the end of
2007.
The Company decreased its accrual for restructuring in
2001 by a net $0.2 million as a result of changes in the
estimate of certain liabilities.
10
2002 ANNUAL REPORT
Former Coal Operations
Former Coal Operations
Former Coal Operations
Former Coal Operations
During December 2002, the Company concluded its plan to sell or shut down its coal mining operations. The Company
recorded charges to both continuing operations and discontinued operations in 2002 related to its former coal operations.
Continuing Operations
The proposed sale of the Company’s remaining West Virginia coal operations and reserves did not occur in the fourth
quarter 2002 as planned. The Company shut down its West Virginia coal mining operations prior to the end of 2002 and is
no longer operating as an active coal producer. Residual assets have been reclassified by the Company as held and used
and were tested for impairment on an individual property basis with a resulting net impairment loss of $14.1 million
recorded within operating profit from continuing operations in 2002. Prior to December 2002, the Company’s expectation
was to sell the majority of the West Virginia assets as a group and, as such, these assets were not previously considered to
be impaired. The Company also accrued $5.1 million of future lease payments related to advance royalty agreements
associated with properties it no longer believes will be transferred to purchasers.
Ongoing Expenses Related to Legacy Liabilities
After completing the disposal of its coal business, the Company has retained certain coal-related liabilities and related
expenses. Retained liabilities include obligations related to postretirement benefits for Company-sponsored plans, black
lung benefits, reclamation and other costs related to idle (shut-down) mines which have been retained, Health Benefit Act,
workers’ compensation claims and costs of withdrawal from multi-employer pension plans. Expenses related to these
liabilities have been reflected in the loss from discontinued operations through the disposal date. Subsequent to the
completion of the disposal process (for the period beginning January 1, 2003), adjustments to coal-related contingent
liabilities will be reflected in discontinued operations, and expenses related to Company-sponsored pension and
postretirement benefit obligations and black lung obligations will be reflected in continuing operations. In addition,
subsequent to the disposal date, the Company expects to have certain ongoing costs related to the administration of the
retained liabilities and will report those costs in continuing operations.
The following table reflects the Company’s current estimates of projected expenses for the next five years based on
actuarial and operational assumptions as of December 31, 2002. Such assumptions usually are adjusted annually and the
actual amount of expense reported in future periods may be materially different than amounts presented below:
(In millions)
2003
2004
2005
2006
2007
Projected Expenses for the Years Ending December 31 (a)
Company-sponsored coal-related postretirement
benefits other than pensions
$
Black lung
Pension
Administrative and legal expenses
49
7
1
5-8
49
6
3
3-4
49
6
7
2-3
50
6
9
2-3
50
5
7
2-3
Projected legacy expenses
$
62-65
61-62
64-65
67-68
64-65
(a) Excludes operating lease payments, advance minimum royalty payments, property taxes and insurance related to assets that are projected to be sold.
The timing of the sales and the amount of expenses each year of these assets is not determinable. The above table does not include any potential future
adjustments to contingent liabilities or assets.
The above table does not include certain costs of assets
expected to be sold. Such costs may be significant in
early 2003. Further, administrative and other costs are
expected to be incurred more heavily in early quarters of
2003.
The amounts to be ultimately recorded in 2004 and later
years will be dependent on many factors, including
inflation in health care and other costs, discount rates,
the market value of pension plan assets, the number of
participants in various benefit programs, the number of
idle mine sites ultimately transferred and the timing of
such transfers, and the amount of administrative costs
needed to manage the retained liabilities.
11
Discontinued Operations
Proceeds received from the sales transactions in 2002
approximated $88 million including cash of $42 million,
notes receivable of $8 million (six-month term), $16
million representing the present value of royalties (five-
year term, $20 million total payments), and liabilities
assumed by the purchasers of approximately $22 million.
proceeds to be received and changes in the expected
values of assets and liabilities through the anticipated
dates of sale or shutdown. A $13.2 million reversal of
the previously estimated loss on sale was recorded
during 2002 to reflect the final adjustment based on the
actual proceeds and values of assets and liabilities at the
dates of sale.
2002 ANNUAL REPORT
The assets disposed of primarily included operations
including coal reserves, property, plant and equipment,
the Company’s economic interest in Dominion Terminal
Associates (“DTA”) and inventory. Certain liabilities,
primarily reclamation costs related to properties disposed
of, were assumed by the purchasers.
The losses from discontinued operations in the
Company’s Consolidated Statements of Operations were
as follows:
(In millions)
Years Ended December 31
2002
2002
20022002
2001
2000
Pretax loss from the operations of
the discontinued segment
$$$$
Income tax benefit
Loss from the operations of the
discontinued segment, after tax
----
----
----
-
-
-
(32.4)
(14.2)
(18.2)
Loss on the disposal
Operating losses during
13.13.13.13.2222
(15.9)
(85.9)
the disposal period
(28.1))))
(28.1
(28.1
(28.1
(22.2)
(45.0)
Health Benefit Act liabilities and
curtailment of benefit plans
(24.0)
(24.0)
(24.0)
(24.0)
(8.0)
(163.3)
Withdrawal liabilities
(26.8)
(26.8)
(26.8)
(26.8)
(8.2)
-
Pretax loss on the disposal
of the discontinued segment
(65.7)
(65.7)
(65.7)
(65.7)
(54.3)
(294.2)
Income tax benefit
(22.8)
(22.8)
(22.8)
(22.8)
(25.1)
(105.1)
Loss on the disposal of the
discontinued segment, after tax
(42.9)
(42.9)
(42.9)
(42.9)
(29.2)
(189.1)
Loss from discontinued
operations
(42.9)
$$$$ (42.9)
(42.9)
(42.9)
(29.2)
(207.3)
Loss on the Disposal
During 2000, an estimated loss of $85.9 million was
recorded to reflect the difference between expected
proceeds and the carrying value of assets to be sold.
During 2001, an estimated additional net loss of $15.9
million was recorded to reflect changes in expected
Operating Losses
Discontinued Operations accounting required the accrual
of expenses expected to be incurred through the end of
the disposal period. Accordingly, operating losses
(including significant expenses the Company expects to
retain and classify in continuing operations subsequent
to the disposal date related to Company-sponsored
pension and postretirement benefit obligations and
black lung obligations) were recognized within
discontinued operations in different periods than they
would have been recorded if coal were a continuing
operation. Total recorded charges for Company-
sponsored pension and postretirement benefit
obligations and black lung obligations were
approximately $2 million, $53 million and $48 million in
2002, 2001 and 2000, respectively. The year 2000
included expenses incurred in 2000 and those expected
to be incurred in 2001, while 2001 (which included
expenses expected to be incurred in 2002) included only
one year of expenses. The amount in 2002 represents
the difference between the estimated amount of
expenses relating to 2002 that were accrued in 2001 and
the amount actually incurred in 2002. The increase in
the average amount of annual expense for 2002
(recorded in 2001) versus prior years primarily resulted
from the effects of actuarial assumption changes on
postretirement medical and pension benefits.
Estimated operating losses, including the above
employee expenses, through the originally anticipated
period of disposal of $45.0 million were recorded in
2000.
The Company increased the estimated operating losses in
2001 by $22.2 million. The $22.2 million increase
included the effect of extending the anticipated period
of disposal through the end of 2002, which resulted in
$53 million of additional postretirement, pension, and
black lung benefit expenses. Also included in the $22.2
million increase was a refund of $23.4 million (including
interest) of Federal Black Lung Excise Tax (“FBLET”)
received during 2001 and an accrual of $9.5 million for
litigation settlements that were paid during early 2002.
12
The Company recorded an additional $28.1 million of
operating losses during 2002, primarily reflecting worse-
than-expected price, volume and costs per ton of coal as
a result of adverse coal market conditions during the
year and the sale of coal operations and reserves in 2002.
Health Benefit Act Liabilities and Curtailment of
Benefit Plans
In 2000, the Company recorded a $161.7 million liability
for its obligations under the Coal Industry Retiree Health
Benefit Act of 1992 (the “Health Benefit Act”). In 2002
and 2001, the Company recorded additional charges of
$24.0 million and $8.0 million, respectively, to reflect
changes in the estimates of the undiscounted liability.
This liability will be adjusted in future periods as
assumptions change.
The $24.0 million of additional 2002 expense primarily
resulted from the Company’s being able to obtain and
use Company-specific information regarding the age of
the beneficiaries covered by the Health Benefit Act
rather than using averages relating to the entire
population of beneficiaries covered, slightly higher per-
beneficiary health care premiums, and slightly lower
mortality than was estimated at the end of 2001 for the
plan year ended September 30, 2002.
The $8.0 million additional 2001 expense was primarily
the result of a higher number of assigned beneficiaries as
of October 1, 2001 than was estimated at the end of
2000. The Combined Fund premium per beneficiary for
the plan year beginning October 1, 2001 was essentially
equal to that estimated at the end of 2000.
During 2000, the Company also recorded a net
curtailment loss of $1.6 million, comprising a $6.0 million
net curtailment loss on the Company’s medical benefit
plans and a $4.4 million net curtailment gain on the
Company’s pension plans.
Withdrawal Liabilities
At December 31, 2001, the Company recorded estimated
withdrawal liabilities for coal-related multi-employer
pension plans of $8.2 million associated with its planned
exit from the coal business. At December 31, 2002, the
Company increased the estimated liabilities by $26.8
million to $35.0 million.
The estimated liabilities at December 31, 2002 increased
because the funded status of the multi-employer plans
deteriorated as of the most recent measurement date.
2002 ANNUAL REPORT
The actual withdrawal liability, if any, is subject to
several factors, including funding and benefit levels of
the plans as of annual measurement dates (June 30 each
year) and the date that the Company is determined to
have completely withdrawn from the plans. Accordingly,
the ultimate obligation could change materially.
Income Taxes
Income tax benefits attributable to the loss on the
disposal of the discontinued segment include the
benefits of percentage depletion generated from the
active operations during the sale period.
Operating Performance of Former Coal Operations
Since estimated operating losses from the measurement
date to the date of disposal of the former coal
operations were recorded as part of the estimated loss
on the disposal, actual operating results of operations
during the disposal period are not included in
Consolidated Statements of Operations in the period
that they are earned. The following table shows selected
financial information for former coal operations during
2002, 2001 and 2000.
(In millions)
Sales
Operating loss
2002
2002
20022002
2001
$$$$
266.5
266.5
266.5
266.5
384.0
77.5)
((((77.5)
77.5)
77.5)
(31.7)
2000
401.0
(37.0)
Sales in 2002 of $266.5 million for the Company’s former
coal operations were $117.5 million lower than in 2001
primarily due to a decrease in sales volume because of
weak demand in the coal industry and the sale of coal
operations and reserves in 2002. The operating loss of
$77.5 million in 2002 was $45.8 million higher than in
2001, primarily due to the lower sales volumes, lower
Federal Black Lung Excise Tax (“FBLET”) refunds and
higher benefit costs in 2002. See “Liquidity and Capital
Resources – Other Contingent Gains and Losses” for a
discussion of FBLET refunds.
Sales in 2001 for the discontinued coal operations
decreased $17.0 million as compared to 2000, primarily
due to a decrease in volumes, partially offset by higher
realizations. The operating loss in 2001 of $31.7 million
was $5.3 million lower than in 2000. Results in 2001
included a pretax gain on the receipt of $23.4 million of
FBLET refunds during the fourth quarter, partially offset
by increased costs associated with difficult geological
conditions, an accrual for litigation settlements of $9.5
million as well as higher idle and closed mine costs.
13
Other Operations
Other Operations
Other Operations
Other Operations
Other Operations comprises the Company’s gold, timber and natural gas operations. The Company expects to exit these
activities to focus resources on its core Business and Security Services segments. The nature and timing of the exit and any
interim actions could result in gains or losses material to operating results in one or more periods.
2002 ANNUAL REPORT
Revenues
Operating Profit (Loss)
(In millions)
Other Operations
Other Operations
Other Operations
Other Operations
Gold
Timber
Natural gas (a)
Years Ended December 31
2002
2002
20022002
vs.vs.vs.vs.
2002
2002
20022002
2001
2000
2001
2001
20012001
$$$$ 15.215.215.215.2
20.920.920.920.9
6.86.86.86.8
$$$$ 42.942.942.942.9
14.6
18.2
7.4
40.2
16.6
13.0
5.9
35.5
(%)
(%)
(%)
(%)
4444
15151515
(8)(8)(8)(8)
7777
2001
vs.
2000
(%)
40
25
13
Years Ended December 31
vs.vs.vs.vs.
vs.
2002
2002
20022002
2001
2000
2001
2001
20012001
2000
2002
2002
20022002
2001
(12)
(7.6)
$$$$ (7.6)
(7.6)
(7.6)
(1.0)
(2.7)
(1.0)
(1.0)
(1.0)
(1.0)
9.09.09.09.0
11.3
$$$$ 0.40.40.40.4
7.6
(%)
(%)
(%)
(%)
(%)
NMNMNMNM
63636363
(20)
(20)
(20)
(20)
(95)
(95)
(95)
(95)
38
(69)
27
33
(1.6)
(1.6)
8.9
5.7
(a) Natural gas royalties are included within other operating income.
Gold
In the fourth quarter 2002, the Company entered into an
agreement to negotiate the sale of its interests in its
gold mining joint ventures to MPI Mines Ltd. (“MPI”), a
publicly traded equity affiliate in which the Company has
a minority interest, in exchange for additional shares of
MPI and other consideration. The transfer is contingent
upon various factors. The Company does not presently
control MPI and does not expect to control MPI after the
exchange.
The 4% increase in revenues for the Company’s gold
operations in 2002 resulted from an 8% stronger
Australian dollar compared to the U.S. dollar, partially
offset by a 4% decrease in the ounces of gold sold. Gold
prices in U.S. dollar terms were 8% higher in 2002 over
2001, however Australian dollar gold prices were even
with prior year due to the stronger Australian dollar.
The 2002 operating loss reflected a $5.7 million
impairment of long-lived assets and the recognition of
$1.4 million of previously deferred losses on certain gold
forward sales contracts. The losses on these contracts,
which had previously been accounted for as hedges,
were recognized in earnings since the hedged
transactions were no longer deemed probable as a result
of the potential transfer of the Company’s interest in its
joint ventures to MPI.
Lower net sales for the Company’s gold operations
during 2001 as compared to 2000 primarily resulted from
a decrease in ounces of gold sold and a strong U.S.
dollar, partially offset by higher gold realizations. The
lower operating loss in 2001 as compared to 2000
reflected the effects of a stronger U.S. dollar and higher
gold realizations, partially offset by a reduction in sales
and production volume. In addition, the operating loss
in 2000 included expenses of $0.4 million associated with
the discontinuation of exploration activities in Nevada
and a charge of $1.1 million relating to the impairment
of an open pit project in Australia.
Timber
Revenues from the Company’s timber operations are
primarily from the sale of wood chips, logs and lumber.
Revenues for the Company’s timber operations were
higher in 2002 as compared to 2001 primarily due to a
95% increase in the volume of logs sold. In addition,
higher revenues in 2002 resulting from a 12% increase in
the volume of wood chips sold were partially offset by a
12% decrease in the volume of lumber sold. The
improved operating results in 2002 were primarily due to
the higher revenues discussed above.
14
The increase in revenues from the Company’s timber
operations in 2001 as compared to 2000 was primarily
due to increased timber sales volumes, partially offset by
a decline in lumber prices. The increase in operating loss
for 2001 as compared to 2000 was largely the result of
the lower lumber prices.
Natural Gas
The decrease in revenues and operating profit including
royalty income from the Company’s natural gas
operations in 2002 as compared to 2001 resulted from a
7% reduction in natural gas prices and a 4% reduction in
volumes sold. Prices of natural gas increased in the
fourth quarter of 2002 and were 15% higher than the
third quarter of 2002.
The increase in revenues and operating profit in 2001
compared to 2000 resulted from higher natural gas
prices and increases in productive assets.
Foreign Operations
Foreign Operations
Foreign Operations
Foreign Operations
A portion of the Company’s financial results is derived
from activities in over 100 countries, each with a local
currency other than the U.S. dollar. Because the financial
results of the Company are reported in U.S. dollars, its
results are affected by changes in the value of the
various foreign currencies in relation to the U.S. dollar.
Changes in exchange rates may also affect transactions
which are denominated in currencies other than the
functional currency. The diversity of foreign operations
helps to mitigate a portion of the impact that foreign
currency fluctuations in any one country may have on
the translated results.
Brink’s Venezuelan subsidiary was considered highly
inflationary in 2000, 2001 and 2002, however Venezuela
will no longer be treated as highly inflationary effective
January 1, 2003. The Company estimates that had
Venezuela not been treated as highly inflationary
effective January 1, 2002, revenues in 2002 would have
decreased by $1.1 million and operating profit and
pretax income would have increased by $2.4 million and
$1.9 million, respectively. It is possible that Venezuela
may be considered highly inflationary again at some
time in the future.
2002 ANNUAL REPORT
The Company is exposed to certain risks when it operates
in highly inflationary economies, including the risk that
•
•
•
the rate of price increases for services will not
keep pace with cost inflation,
adverse economic conditions in the highly
inflationary country may discourage business
growth which could affect the demand for the
Company’s services and;
the devaluation of the currency may exceed the
rate of inflation and reported U.S dollars
revenues and profits may decline.
The Company, from time to time, uses foreign currency
forward contracts to hedge transactional risks associated
with foreign currencies. (See “Market Risk Exposures”
below.)
The Company is also subject to other risks customarily
associated with doing business in foreign countries,
including labor and economic conditions, political
instability, controls on repatriation of earnings and
capital, nationalization, expropriation and other forms
of restrictive action by local governments. The future
effects, if any, of such risks on the Company cannot be
predicted.
Corporate Expenses
Corporate Expenses
Corporate Expenses
Corporate Expenses
In 2002, general corporate expenses totaled $23.1 million
compared with $19.3 million and $21.2 million in 2001
and 2000, respectively. Year-over-year variances
primarily reflected lower employee-related costs in 2001.
Interest Expense
Interest Expense
Interest Expense
Interest Expense
Interest expense decreased $9.3 million in 2002 and $11.0
million in 2001 as compared to 2001 and 2000,
respectively. These decreases were primarily due to
lower average borrowings and borrowing costs.
Other Expense, Net
Other Expense, Net
Other Expense, Net
Other Expense, Net
Other expense, net, of $2.6 million in 2002 decreased
from $6.7 million in 2001, primarily due to the receipt of
$5.9 million in Stabilization Act compensation in 2002,
partially offset by a $3.9 million gain on the sale of
marketable securities in 2001.
15
Minority interest expense in 2002 decreased $3.6 million
as compared to 2001. Discounts and other fees
associated with the sale of a revolving interest in certain
of BAX Global’s accounts receivable decreased $2.4
million as a result of lower borrowing costs of the
conduit that purchased BAX Global’s accounts receivable.
The discount on the sale of the receivables is based on its
conduits’ borrowing costs.
Other expense, net, of $6.7 million in 2001 increased
from $3.9 million in 2000, primarily due to an increase of
$3.4 million in discounts and other fees related to BAX
Global’s accounts receivables (the securitization program
began at the end of 2000) and a $3.2 million increase in
minority interest expense, partially offset by a 2001 gain
of $3.9 million on the sale of marketable securities.
Income Taxes
Income Taxes
Income Taxes
Income Taxes
The provision for income taxes from continuing
operations was greater than the statutory federal rate
primarily due to the changes in valuation allowances
($1.5 million in 2002, $1.3 million in 2001 and $1.8
million in 2000) related to foreign deferred tax assets,
and certain differences in foreign tax rates versus the
statutory federal tax rate. The 2002 effective tax rate
was even with 2001, reflecting the reversal of certain
accruals for U.S. tax contingencies in 2002, offset by the
tax effects of the Company’s change in the method of
accounting for goodwill (See Note 1 to the Consolidated
Financial Statements).
2002 ANNUAL REPORT
In 2001 and 2000, the provision for income taxes from
continuing operations was greater than the statutory
federal income tax rate of 35% primarily due to goodwill
amortization, partially offset by lower taxes on foreign
income. In 2000, the $57.5 million BAX Global
restructuring charge and lower consolidated pretax
income caused non-deductible items (principally
goodwill amortization) to be a more significant factor in
calculating the effective tax rate. As a result of Coal
Operations being reported as discontinued operations,
the tax benefits of percentage depletion are not
reflected in the effective tax rate of continuing
operations.
Based on the Company’s historical and future expected
taxable earnings, management believes it is more likely
than not that the Company will realize the benefit of the
deferred tax assets, net of the valuation allowance,
recorded at December 31, 2002.
GAAP Measures
Reconciliation of NonNonNonNon----GAAP Measures
Reconciliation of
GAAP Measures
GAAP Measures
Reconciliation of
Reconciliation of
Monthly Recurring Revenues
(In millions)
Monthly recurring
Years Ended December 31
2002
2002
20022002
2001
2000
revenues (“MRR”)
$$$$ 21.121.121.121.1
19.2
18.0
Amounts excluded from MRR:
Amortization of deferred revenue
Other revenues (a)
Revenues (GAAP basis):
December
2.02.02.02.0
1111.2.2.2.2
1.8
1.6
2.0
0.6
24.324.324.324.3
22.6
20.6
January – November
258.1
258.1
258.1
258.1
235.0
217.5
January – December
282.4
$$$$ 282.4
282.4
282.4
257.6
238.1
(a) Revenues that are not pursuant to monthly contractual billings.
The Company believes the presentation of MRR is useful
to investors because the measure is used to assess the
amount of recurring revenues a home security business
produces.
16
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY AND CAPITAL RESOURCES
Summary of cash flows before financing activities:
(In millions)
Operating activities
Operating activities
Operating activities
Operating activities
Before changes in operating
assets and liabilities
Changes in assets and
liabilities
Discontinued operations
Years Ended December 31
2002
2002
20022002
2001
2000
$$$$ 282828286666.6.6.6.6
275.0
275.5
21212121....3333
((((66.666.666.666.6))))
38.2
6.9
63.9
30.4
Operating activities
241.3
241.3
241.3
241.3
320.1
369.8
Investing activities
Investing activities
Investing activities
Investing activities
Capital and aircraft heavy
maintenance expenditures
(235.2)
(235.2)
(235.2)
(235.2)
(208.6)
(264.9)
Proceeds from disposition of
assets and investments
Other
Discontinued operations
48.048.048.048.0
(1.5)
(1.5)
(1.5)
(1.5)
(19.7)7)7)7)
(19.
(19.
(19.
9.3
(14.7)
(11.1)
4.1
(5.5)
(7.4)
Investing activities
208.4))))
((((208.4
208.4
208.4
(225.1)
(273.7)
Cash flows before
financing activities
$$$$ 32.932.932.932.9
95.0
96.1
ctivities
Operating Activities
Operating A
ctivities
ctivities
Operating A
Operating A
Cash provided by operating activities was $78.8 million
lower in 2002 than in 2001. The primary reason was an
increase of $73.5 million in cash used by discontinued
operations as a result of higher losses from discontinued
operations. In addition, $40.7 million higher income
from continuing operations (before $17.5 million of
after-tax impairment and other charges) was more than
offset by a $35.1 million contribution to the Company’s
primary U.S. pension plan and the lower level of cash
provided by changes in net working capital. The after-
tax impairment and other charges of $17.5 million were
related to the Company's former coal operations ($12.5
million) and its gold interests ($5.0 million).
2002 ANNUAL REPORT
Cash provided by net working capital in 2001 reflected
lower receivable levels at BAX Global associated with
lower 2001 revenue. Higher cash used by the Company’s
discontinued coal operations in 2002 was primarily
related to higher operating losses resulting from weak
coal market conditions and the sale of coal operations
and reserves in 2002, lower FBLET refunds and the
payment of litigation settlements.
Changes in cash as a result of the Company’s accounts
receivable securitization program are included in
“changes in assets and liabilities” within operating
activities. The Company sold its initial interest in BAX
Global’s accounts receivables for $85.0 million in 2000.
During 2001, the net amount of revolving interest sold
decreased by $16.0 million to $69.0 million. During 2002,
the net amount of revolving interest sold increased by
$3.0 million to $72.0 million.
Investing Activities
Investing Activities
Investing Activities
Investing Activities
Capital Expenditures and Aircraft Heavy
Maintenance Activities
(In millions)
Capital Expenditures
Capital Expenditures
Capital Expenditures
Capital Expenditures
Brink’s
BHS
BAX Global
Other
Corporate
Total
Aircraft heavy
Years Ended December 31
2002
2002
20022002
2001
2000
$$$$ 79.379.379.379.3
86.986.986.986.9
27.127.127.127.1
10.810.810.810.8
0.10.10.10.1
71.3
81.3
33.1
7.2
0.2
73.9
74.5
60.1
5.1
0.8
204.2
$$$$ 204.2
204.2
204.2
193.1
214.4
maintenance expenditures
$$$$ 31.031.031.031.0
15.5
50.5
17
2002 ANNUAL REPORT
Higher capital expenditures in 2002 as compared to 2001
were primarily due to an increase in spending on
armored vehicles, facilities and information technology
at Brink’s and an increase in customer installations at
BHS.
Comparison of 2002 and 2001
Cash flows before financing activities at Brink’s in 2002
were above the 2001 period primarily due to an increase
in cash generated by working capital during 2002, and
an improvement in operating performance.
Aircraft heavy maintenance expenditures increased $15.5
million during 2002 as compared to 2001 as a result of
the timing of regularly scheduled maintenance for
airplanes. The Company expects to spend between $25
million and $35 million on aircraft heavy maintenance in
2003.
Cash flows before financing activities at BHS in 2002
increased slightly, primarily due to higher operating
profit and noncash depreciation in 2002, partially offset
by higher capital expenditures and deferred subscriber
acquisition costs associated with a higher number of
installations.
Capital expenditures for continuing operations in 2003
are currently expected to range from $200 million to
$230 million, depending on operating results throughout
the year. Expected capital expenditures for 2003 reflect
an increase in customer installations at BHS and
information technology spending at Brink’s and BAX
Global.
Proceeds from Disposition of Assets and
Investments
Proceeds from disposition of assets and investments in
2002 included approximately $42 million of cash
proceeds associated with the disposal of the Company’s
former coal operations.
Business Segment Cash Flows
Business Segment Cash Flows
Business Segment Cash Flows
Business Segment Cash Flows
The Company’s consolidated cash flows available for
financing depends on each of the operating segments’
cash flows.
(In millions)
Years Ended December 31
2002
2002
20022002
2001
2000
Cash flows before financing activitiesiesiesies
Cash flows before financing activit
Cash flows before financing activit
Cash flows before financing activit
Brink’s
BHS
BAX Global
Corporate and Other Operations
Former coal operations
sales proceeds
Discontinued operations
Cash flows before
$$$$ 57.657.657.657.6
26.326.326.326.3
13.413.413.413.4
(20.4))))
(20.4
(20.4
(20.4
40.7
25.8
32.1
0.6
37.1
22.1
(3.2)
17.1
42.342.342.342.3
((((86.386.386.386.3))))
-
-
(4.2)
23.0
financing activities
$$$$ 32.932.932.932.9
95.0
96.1
The decrease in cash flows before financing activities at
BAX Global in 2002 as compared to 2001 is primarily due
to $15.5 million of higher aircraft heavy maintenance
expenditures and a decrease in cash provided from
changes in working capital levels discussed above,
partially offset by improved operating results and lower
capital expenditures. Cash flows before financing for
BAX Global in 2001 included $3.9 million of proceeds
from the sale of marketable securities.
Cash flows before financing for Corporate and Other
Operations in the 2002 period reflect a contribution of
$35.1 million to the Company’s primary U.S. pension
plan.
Discontinued operations’ cash flow before financing was
lower in 2002 than 2001 primarily due to a larger
operating loss resulting from weak coal market
conditions and the sale of coal operations and reserves in
2002, necessary spending on the development of a deep
mine, lower FBLET refunds and payments of litigation
settlements. Discontinued operations’ cash flows before
financing in 2001 included $23.4 million of FBLET
refunds. Included in the discontinued operations cash
flows before financing are payments for benefits for
inactive coal employees, reclamation and other liabilities.
Following the disposition of its discontinued operations,
the Company expects to continue to be liable for such
payments (See Significant Contractual Obligations
below).
18
Comparison of 2001 to 2000
The improvement in cash flows before financing
activities at Brink’s in 2001 as compared to 2000 was
primarily due to higher cash generated by working
capital, partly offset by lower operating results in 2001.
Cash flows before financing activities at BHS in 2001
approximated those in 2000.
In September 2002, the Company entered into an
unsecured $350 million bank credit facility (the
“Facility”) which replaced the previous bank credit
agreement of $362.5 million. The Company may borrow
on a revolving basis over a three-year term ending
September 2005. At December 31, 2002, $199.8 million
was available for borrowing under the Facility.
2002 ANNUAL REPORT
The improvement in cash flows before financing at BAX
Global in 2001 over 2000 is primarily due to $62.1 million
lower spending for capital expenditures and aircraft
heavy maintenance and a reduction in net working
capital.
Discontinued operations’ cash flow before financing in
2000 was higher than 2001 primarily as a result of a
$44.4 million reduction in working capital used in 2000.
Discontinued operations in 2001 included a $23.4 million
refund of FBLET.
Financing Activities
Financing Activities
Financing Activities
Financing Activities
Net cash flows used by financing activities were $16.7
million for 2002 compared with $101.7 million in 2001
and $124.5 million in 2000. The Company’s cash
provided by financing activities are typically from short-
term borrowings or from net borrowings under the
Company’s revolving bank credit facility, discussed
below. The Company also borrowed $20 million during
2002 and $75 million during 2001 under long-term
issuances of Senior Notes, as discussed below. During
2002 the Company redeemed all outstanding shares of
its convertible preferred stock at an aggregate
redemption price of $10.8 million.
Net cash flows used in financing activities in 2000
reflected repayments under a bank credit facility
(described below) with the proceeds from the sale of
$85.0 million of accounts receivable at BAX Global, as
well as from the proceeds of increased borrowings in late
1999 and repayments of a portion of the debt of Brink’s
France and Venezuela affiliates during 2000.
The Company has three unsecured multi-currency
revolving bank credit facilities that total $110 million in
available credit, of which $43.5 million was available at
December 31, 2002 for additional borrowing. Various
foreign subsidiaries maintain other secured and
unsecured lines of credit and overdraft facilities with a
number of banks.
Amounts borrowed under these agreements are included
in short-term borrowings. During November 2002, the
Company entered into a new multi-currency facility
totaling $35 million and during December 2002, the
Company renegotiated a $45 million multi-currency
revolving bank facility (to replace an existing $60 million
facility). These facilities are included in the $110 million
noted above.
In April 2002, the Company completed a $20.0 million
private placement of 7.17% Senior Notes with maturities
ranging from four to six years. The Company also has
$75.0 million of Senior Notes issued in 2001, that are
scheduled to be repaid in 2005 through 2008. The
Company has the option to prepay all or a portion of the
Notes prior to maturity with a prepayment penalty. The
proceeds from issuance of the Senior Notes were used to
repay borrowings under the Company’s U.S. revolving
bank credit facility in each year. The Notes are
unsecured.
19
The U.S. bank credit agreement, the agreement under
which the Senior Notes were issued and the multi-
currency revolving bank credit facilities each contain
various financial and other covenants. The financial
covenants limit the Company’s total indebtedness,
provide for minimum coverage of interest costs, and
require the Company to maintain a minimum level of net
worth. A failure to comply with the terms of one of
these loan agreements could result in the acceleration of
the repayment terms in that agreement as well as the
Company’s other agreements. At December 31, 2002,
the Company was in compliance with all financial
covenants.
The Company believes it has adequate sources of
liquidity to meet its near-term requirements.
As of December 31, 2002, debt as a percentage of
capitalization (total debt and shareholders’ equity) was
49% compared to 38% at December 31, 2001. The
increase was due to $95 million lower equity and $61
million higher debt. The Company recorded a $131
million charge to equity in 2002 related to minimum
pension liabilities. The Company also reclassified $43
million associated with DTA to long-term debt in 2002
from other liabilities. See Notes 11 and 12.
2002 ANNUAL REPORT
During 2002, 2001 and 2000, the Company paid
dividends on Pittston Common Stock of $5.2 million
($0.10 per share), $5.1 million ($0.10 per share) and $5.0
million ($0.10 per share), respectively. In 2002, 2001, and
2000, dividends paid on the Convertible Preferred Stock
amounted to $0.5 million, $0.7 million and $0.9 million,
respectively.
Future regular dividends are dependent on the
Company’s earnings, financial condition, cash flow and
business requirements and must be declared by the
Board. At present, the annual dividend rate for Pittston
Common Stock is $0.10 per share. In February 2003, the
Board declared a quarterly cash dividend of $0.025 per
share on Pittston Common Stock, payable on March 3,
2003 to shareholders of record on February 18, 2003.
Under a share repurchase program authorized by the
Board, the Company purchased $2.2 million of
Convertible Preferred Stock during 2000 and redeemed
all its outstanding shares of Convertible Preferred Stock
for $10.8 million in 2002. See Capitalization below for
further information on the Company’s share repurchase
program.
20
ficant Contractual Obligations
Significant Contractual Obligations
Signi
ficant Contractual Obligations
ficant Contractual Obligations
Signi
Signi
The following table includes certain significant contractual obligations of the Company. See Notes 12, 14 and 21 to the
Consolidated Financial Statements for additional information related to these and other obligations.
(In millions)
with fixed minimum payments
Contractual obligations with fixed minimum payments
Contractual obligations
with fixed minimum payments
with fixed minimum payments
Contractual obligations
Contractual obligations
Payments Due by Period
2003
2004-
2005
2006-
2007
Later
Years
Total
2002 ANNUAL REPORT
Ongoing businesses:
Ongoing businesses:
Ongoing businesses:
Ongoing businesses:
Operating leases (a)
Unconditional purchase obligations (b):
ACMI (c)
Service contracts
Property and equipment
Long-term debt (d)
Aircraft lease obligations
rations:
Former coal operations:
Former coal ope
rations:
rations:
Former coal ope
Former coal ope
Operating leases expected to be:
Assumed by purchasers
Retained (e)
Advance minimum royalties expected to be:
Assumed by purchasers
Retained (e)
$ 123.6
161.9
82.1
144.6
512.2
32.5
6.1
-
13.3
13.4
0.5
1.2
0.7
2.2
6.6
5.9
13.2
170.5
42.1
0.2
-
1.9
5.2
-
-
-
57.7
-
0.1
-
1.5
2.1
-
-
-
76.0
-
-
-
21.0
19.6
261.2
39.1
12.0
13.2
317.5
55.5
0.8
1.2
25.1
29.1
1,005.7
Total
$ 193.5
407.5
143.5
(a) Payments for operating leases in ongoing businesses are recognized as an expense in the Consolidated Statement of Operations as incurred.
(b) Payments made pursuant to unconditional purchase obligations are recognized as an expense in the Consolidated Statement of Operations as incurred.
Unconditional purchase obligations generally specify a minimum amount of service or product to be consumed by the Company, and the Company
currently expects to consume at least the minimum levels specified in its contracts.
(c) Aircraft, crew, maintenance and insurance agreements.
(d) Long-term debt (including capital lease obligations) is reduced when payments of principal are made. Table excludes interest payments.
(e) Former coal operations’ obligations that have been or are expected to be retained have been recorded as liabilities. See “Legacy Liabilities” below.
21
The following table includes certain other significant estimated payments related to the Company’s former coal
operations for the next five years where minimum payments are not fixed. The amounts are based on actuarial and
operations assumptions as of December 31, 2002. The actual amount of payments made in future periods may be
materially different than amounts presented below:
2002 ANNUAL REPORT
(In millions)
Postretirement benefits other than pensions:
Company-sponsored medical plans
Health Benefit Act
Black lung
Workers’ compensation
Reclamation and inactive mine costs
Administrative
Total (a)
Estimated Payments by Period
2003
2004-
2005
2006-
2007
$
$
31
9
6
6
12
5
69
68
19
12
8
4
7
76
20
12
5
2
4
118
119
(a) Excludes the Company’s estimated withdrawal obligations of $35.0 million from coal-related multi-employer pension
plans. The timing and the actual amount to be paid, if any, will be based on the funded status of the plans as of the
beginning of the plan year that a withdrawal has deemed to have occurred.
Pension Plans
The Company has noncontributory defined benefit
pension plans covering substantially all nonunion
employees in the U.S. who meet certain requirements.
Information regarding these plans and the Company’s
other pension plans can be found in Note 15 to the
Consolidated Financial Statements.
Due to the continuing weak performance of U.S. and
international investment markets during 2002, the
Company made a voluntary contribution of $35.1 million
to its primary U.S. pension plan trust in September 2002.
Based on the plan’s liabilities and asset position as of
December 31, 2002 as well as actuarial assumptions as of
that date, there is no requirement for the Company to
contribute additional amounts through 2005, but it
could be required to make significant contributions after
2005.
Funding requirements depend on applicable regulations
and laws, future returns on plan assets and future
discount rates and other factors. The Company may elect
to contribute to its U.S. pension plan prior to any future
required funding date. Amounts which are required to
be funded in future periods could change materially
from current estimates.
As discussed in Results of Operations, each of the
Company’s business segments and its former coal
operations expects to report higher pension expense in
2003. On a consolidated basis, the increase in pension
expense for 2003 is expected to be approximately $23
million, including $6 million related to former coal
operations. The Company also expects approximately
$13 million in average increases in each of 2004 and 2005
based on assumptions as of December 31, 2002. For
additional information regarding the assumptions that
the Company has used to project further pension
expense, see “Application of Critical Accounting Policies
and Recent Accounting Pronouncements.”
22
2002 ANNUAL REPORT
Surety Bonds
The Company is required by various state and federal
laws to provide security with regard to its obligations to
pay workers’ compensation, to reclaim lands used for
mining by the Company’s former coal operations and to
satisfy other benefits. As of December 31, 2002, the
Company had outstanding surety bonds with third
parties totaling approximately $235 million that it has
arranged in order to satisfy the various security
requirements. Most of these bonds provide financial
security for previously recorded liabilities. Because some
of the Company’s reclamation obligations have been
assumed by purchasers of the Company’s former coal
operations, $67 million of the Company’s surety bonds
are expected to be replaced by purchasers’ surety bonds.
These bonds are typically renewable on a yearly basis,
however there can be no assurance the bonds will be
renewed or that premiums in the future will not
increase. If the surety bonds are not renewed, the
Company believes that it has adequate available
borrowing capacity under its U.S. credit facility to
provide letters of credit or other collateral to secure its
obligations.
Other Commercial Commitments
The following table includes certain commercial
commitments of the Company as of December 31, 2002.
See Notes 12, 14 and 21 of the Consolidated Financial
Statements for additional information related to these
and other commitments.
Amount of Commitment Expiring each Period
2004- 2006-
Later
(In millions)
2003
2005
2007 Years
Total
Undrawn letters
of credit
$ 58.4
-
Operating leases (a)
3.4
12.1
-
-
4.0
62.4
-
15.5
(a) Maximum residual guarantees of certain operating leases. See Note
14 in the Consolidated Financial Statements.
Accounts Receivable Securitization
At December 31, 2002, the Company has sold an
undivided interest in certain of its BAX Global U.S.
accounts receivable balances, which amounts are not
included in the Consolidated Balance Sheets or in the
previous table. See Note 13 to the Consolidated Financial
Statements. Under this program, the Company sells
without recourse an undivided ownership interest in a
pool of accounts receivable to a third party (the
“conduit”). The conduit issues debt to fund their
purchase, and the Company used the proceeds it
received from the initial purchase primarily to pay down
its outstanding debt. The Company has no obligation
related to the conduit’s debt, and there is no existing
obligation to repurchase sold receivables. Upon
termination of the program, the conduit would cease
purchasing new receivables and collections related to the
sold receivables would be retained by the conduit. If the
program is terminated, the Company would more than
likely use its credit sources to finance the higher level of
receivables.
23
2002 ANNUAL REPORT
and Assets
Legacy Liabilities and Assets
Legacy Liabilities
and Assets
and Assets
Legacy Liabilities
Legacy Liabilities
Under U.S. generally accepted accounting principles (“GAAP”), some of the Company’s assets and liabilities from its former
coal operations (“Legacy” assets and liabilities) are not fully recorded on the balance sheet because certain losses have
been deferred. In addition, some of the liabilities under GAAP are discounted to reflect a present value, while others have
not been discounted. To facilitate an understanding of the estimated present value of the Company’s legacy liabilities as
of December 31, 2002, the following table presents a “Legacy Value” that includes the full value of the Company’s
liabilities, discounted to a present value (for those liabilities with extended payment dates). PLEASE NOTE THAT THIS IS
NOT A GAAP PRESENTATION AND THIS TABLE SHOULD ONLY BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS. The Legacy Values are considered non-GAAP measures, and the table below reconciles each
Legacy Value to its GAAP counterpart.
(In millions)
Legacy liabilities:
December 31, 2002
Legacy
Value (e)
Add Back Present
Losses Not Yet Recognized
GAAP
Value Effect
Under GAAP
Amount
Company-sponsored retiree medical (a)
$ 518.3
Health Benefit Act (b)
Black lung (c)
Workers’ compensation
Reclamation and inactive mines
Advance minimum royalties
Legacy liabilities (d)
Legacy assets:
VEBA
Present value of royalties receivable
Deferred tax assets (f)
90.2
60.0
37.4
21.5
14.7
$ 742.1
$
18.2
15.7
247.8
-
83.9
-
-
-
-
83.9
-
-
29.4
(250.6)
-
(14.6)
-
-
-
(265.2)
-
-
(92.8)
267.7
174.1
45.4
37.4
21.5
14.7
560.8
18.2
15.7
184.4
(a) Company-sponsored retiree medical liabilities are accounted for in the Company’s Consolidated Financial Statements in accordance
with SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions.” Generally, SFAS No. 106 requires a
liability be recorded for the present value of future obligations, although SFAS No. 106 requires an exception for actuarial gains and
losses. Actuarial gains and losses occur as a result of actual events differing from assumptions and changes in assumptions used to
estimate the liability, including assumptions as to the discount rate used to compute the present value, expected health care inflation
rates and life expectancy rates. Actuarial gains and losses are not immediately recognized in earnings because SFAS No. 106 requires
employers to defer these gains and losses and then amortize these gains and losses into earnings in future periods if the total
unrecognized net gains and losses exceed 10% of the accumulated postretirement benefit obligation. As a result, the Company’s
balance sheet does not reflect these liabilities at the full present value of the ultimate projected obligations at the end of the year. The
Legacy Value in the table reflects the Company’s liability had the Company’s total projected obligations been fully accrued at the end
of the year. The Company discloses the projected amount of its obligation before the required deferral of unrecognized gains and
losses as “accumulated plan benefit obligation” in Note 15 to the Consolidated Financial Statements.
(b) Health Benefit Act liabilities are accounted for in accordance with EITF No. 92-13, “Accounting for Estimated Payments in Connection
with the Coal Industry Retiree Health Benefit Act of 1992” and accordingly, the Company has accrued the undiscounted estimate of its
projected obligation. As discussed in Note 15 to the Consolidated Financial Statements, the Company uses various assumptions to
estimate its liability to The United Mine Workers of America Combined Fund (the “Combined Fund”) for future annual premiums,
including the number of assigned and unassigned beneficiaries in future periods, medical inflation, and the amount of funding of the
Combined Fund to be provided from the Abandoned Mine Reclamation Fund in future periods. The estimated annual payments are
expected to be paid out over the next seventy or more years. To determine its Legacy Value, the Company’s actuaries discounted the
estimated future cash flows to a present value amount using a discount rate of 6.75%. The Company’s estimates of annual payments
may change materially due to changes in future assumptions. Statutory changes to the 1992 law under which such benefits are paid
also could materially affect the Company’s estimate of its liability in the future. The estimation of the Legacy Value should not be
considered a precise estimate because of the many variables that have been used to determine the estimate, including the discount
rate and the amount of expected annual cash flows. There are many factors that may change and cause the amount recorded in the
balance sheet to not be representative of the amount the Company may actually pay.
24
2002 ANNUAL REPORT
(c) Actuarial gains and losses resulting from changes in estimates of the Company’s black lung liabilities are deferred and amortized into
earnings in future periods. As a result, the Company’s balance sheet does not report these liabilities as if the Company’s projected
obligation had been fully accrued at the end of the year. The Legacy Value in the table reflects the Company’s projected obligations
had it been fully accrued at the end of the year. Of the Company’s $60.0 million of present value of self-insured black lung benefit
obligations at December 31, 2002, approximately $45.4 million had been recognized on the balance sheet, with the difference relating
to deferred unrecognized actuarial losses (see Note 15 to the Consolidated Financial Statements).
(d) Legacy liabilities above exclude the Company’s estimated withdrawal obligations of $35.0 million from coal-related multi-employer
pension plans. The timing and actual amount to be paid, if any, will be based on the funded status of the plans as of the beginning of
the plan year in which a withdrawal has deemed to have occurred. See “Results of Operations – Former Coal Operations” and
“Application of Critical Accounting Policies and Recent Accounting Pronouncements.”
(e) The Legacy Value table includes the Company’s significant long-term coal-related assets and liabilities. Other shorter-term coal-related
assets and liabilities have been excluded from the total amount of the Legacy Value table.
(f) The Company has not yet taken deductions in its tax returns for most of the accrued legacy liabilities. The Company has recorded a
deferred tax asset for the amount of taxes on future taxable income it will not have to pay resulting from the payment/tax deductions
of the legacy liabilities. An estimate of the incremental tax effect of the pretax reconciling items have been included in the deferred
tax assets (Legacy Value basis) assuming a 35% incremental tax rate.
The above estimated Legacy Value and GAAP amounts
are as of December 31, 2002. These estimated amounts
will be adjusted annually to reflect actual experience,
annual actuarial revaluations and periodic revaluations
of reclamation liabilities. The amounts are based on a
variety of estimates, including actuarial assumptions, as
described below in the Application of Critical Accounting
Policies and in the Notes to the Consolidated Financial
Statements.
Under the Health Benefit Act, the Company and various
subsidiaries are jointly and severally liable for
approximately $386 million, at Legacy Value, of
postretirement medical and Health Benefit Act
obligations in the above table.
Contingent Gains and Losses
Other Contingent Gains and Losses
Other
Contingent Gains and Losses
Contingent Gains and Losses
Other
Other
Federal Black Lung Excise Tax (“FBLET”)
On February 10, 1999, the U.S. District Court of the
Eastern District of Virginia entered a final judgment in
favor of certain of the Company’s subsidiaries, ruling
that the FBLET is unconstitutional as applied to export
coal sales. A total of $0.8 million (including interest) was
refunded in 1999 for the FBLET that those companies
paid for the first quarter of 1997. The Company sought
refunds of the FBLET it paid on export coal sales for all
open statutory periods and received refunds of $23.4
million (including interest) during the fourth quarter of
2001. During the fourth quarter of 2002, the Company
reached a settlement under which it will collect
additional refunds of $3.2 million.
The Company continues to pursue the refund of other
FBLET payments. Due to uncertainty as to the ultimate
additional future amounts to be received, if any, which
could amount to as much as $18 million (before income
taxes), as well as the timing of any additional FBLET
refunds, the Company has not currently recorded
receivables for such other FBLET refunds.
Environmental Remediation
The Company has agreed to pay 80% of the remediation
costs arising from hydrocarbon contamination at a
formerly owned petroleum terminal facility (“Tankport”)
in Jersey City, New Jersey, which was sold in 1983. The
Company is in the process of remediating the site under
an approved plan. The Company estimates its portion of
the actual remaining clean-up and operational and
maintenance costs, on an undiscounted basis, to be
between $2.2 million and $4.3 million. The Company is
in discussions with another potentially responsible party
to recover a portion of the amount paid and to be paid
by the Company related to this matter.
Litigation
The Company is defending potentially significant civil
suits relating to its former coal business. Although the
Company is defending these cases vigorously and
believes that its defenses have merit, there exists the
possibility that one or more of these suits ultimately may
be decided in favor of the plaintiffs. If so, the Company
expects that the ultimate amount of unaccrued losses
could range from $0 to $25 million.
25
Capitalization
Capitalization
Capitalization
Capitalization
MARKET RISK EXPOSURES
MARKET RISK EXPOSURES
MARKET RISK EXPOSURES
MARKET RISK EXPOSURES
2002 ANNUAL REPORT
At December 31, 2002, the Company had 100 million
shares of Pittston Common Stock authorized and 54.3
million shares issued and outstanding. The Company has
the remaining authority to purchase up to 1.0 million
shares of Pittston Common Stock with an aggregate
purchase price limitation of $19.1 million. The Company
made no such purchases during 2002.
The Company has the authority to issue up to 2.0 million
shares of preferred stock, par value $10 per share.
Accounting Change
2000 Accounting Change
2000
Accounting Change
Accounting Change
2000
2000
Pursuant to guidance issued in Staff Accounting Bulletin
No. 101, “Revenue Recognition in Financial Statements,”
by the Securities and Exchange Commission in December
1999, and a related interpretation issued in October
2000, BHS changed its method of accounting for
nonrefundable installation revenues and a portion of the
related direct costs of obtaining new subscribers
(primarily sales commissions). Under the new method, all
of the nonrefundable installation revenues and a portion
of the new installation costs deemed to be direct costs of
subscriber acquisition are deferred and recognized in
income over the estimated term of the subscriber
relationship. Prior to 2000, BHS charged against earnings
as incurred, all marketing and selling costs associated
with obtaining new subscribers and recognized as
revenue all nonrefundable payments received from such
subscribers to the extent that costs exceeded such
revenues.
The accounting change was implemented in 2000 and
the Company reported a noncash, after-tax charge of
$52.0 million ($84.7 million pretax), to reflect the
cumulative effect of the accounting change on years
prior to 2000. The pretax cumulative effect charge of
$84.7 million comprised a net deferral of $121.1 million
of revenues partially offset by $36.4 million of customer
acquisition costs. The change in accounting principle
decreased operating profit for 2000 by $2.3 million,
reflecting a net decrease in revenues of $6.4 million and
a net decrease in operating expenses of $4.1 million. Net
income for 2000 was reduced by $1.4 million ($0.03 per
diluted share).
The Company has activities in over 100 countries and a
number of different industries. These operations expose
the Company to a variety of market risks, including the
effects of changes in foreign currency exchange rates
and interest rates. In addition, the Company consumes
and sells certain commodities in its businesses, exposing
it to the effects of changes in the prices of such
commodities. These financial and commodity exposures
are monitored and managed by the Company as an
integral part of its overall risk management program.
The Company utilizes various derivative and non-
derivative hedging instruments, as discussed below, to
hedge its foreign currency, interest rate, and commodity
exposures when appropriate. The risk that counterparties
to such instruments may be unable to perform is
minimized by limiting the counterparties used to major
financial institutions with investment grade credit
ratings. Management of the Company does not expect
any losses due to such counterparty default.
The Company maintains a control system to monitor
changes in interest rate, foreign currency and commodity
exposures that may adversely impact expected future
cash flows. The risk management control systems involve
the use of analytical techniques to estimate the expected
impact of changes in interest rates, foreign currency
exchange rates and commodity prices on the Company’s
future cash flows. The Company does not use derivative
instruments for purposes other than hedging.
The sensitivity analyses discussed below for the market
risk exposures were based on facts and circumstances in
effect at December 31, 2002. Actual results will be
determined by a number of factors that are not under
management’s control and could vary materially from
those disclosed.
Interest Rate Risk
Interest Rate Risk
Interest Rate Risk
Interest Rate Risk
The Company uses both fixed and floating rate debt
denominated primarily in U.S. dollars to finance its
operations. Floating rate debt obligations, including the
Company’s U.S. bank credit facility, expose the Company
to fluctuations in interest expense due to changes in the
general level of interest rates. To a lesser extent, the
Company uses debt denominated in foreign currencies,
primarily including euros and British pounds.
26
In order to limit the variability of the interest expense on
its debt, the Company has converted the floating rate
cash flows on a portion ($65.0 million effective through
September 2003 and $50.0 million effective September
2003 through August 2005) of its $350.0 million
revolving credit facility to fixed-rate cash flows by
entering into interest rate swap agreements which
involve the exchange of floating rate interest payments
for fixed rate interest payments. The fair value liability
of these interest swaps at December 31, 2002 was $2.4
million. In addition to the interest rate swaps, the
Company also has fixed rate debt, including the
Company’s Senior Notes. The fixed rate debt and interest
rate swaps are subject to fluctuations in their fair values
as a result of changes in interest rates.
Based on the effective interest rates on the floating rate
debt outstanding at December 31, 2002, a hypothetical
10% increase in these rates would increase interest
expense by approximately $0.5 million over a twelve-
month period. (In other words, the Company’s weighted
average interest rate on its floating rate debt was 3.68%
per annum at December 31, 2002. If that average rate
were to increase by 37 basis points to 4.05%, the interest
expense associated with these borrowings would
increase by $0.5 million annually). The effect on the fair
value of fixed rate debt and interest rate swaps for a
hypothetical 10% uniform shift (as a percentage of
market interest rates) in the yield curves for interest rates
in various countries from year-end 2002 levels is not
material.
Foreign Currency Risk
Foreign Currency Risk
Foreign Currency Risk
Foreign Currency Risk
The Company, primarily through its Brink’s and BAX
Global operations, has certain exposures to the effects of
foreign exchange rate fluctuations on the results of
foreign operations which are reported in U.S. dollars.
The Company is exposed periodically to the foreign
currency rate fluctuations that affect transactions not
denominated in the functional currency of domestic and
foreign operations. To mitigate these exposures, the
Company, from time to time, enters into foreign
currency forward contracts.
The Company does not purchase derivative instruments
to hedge investments in foreign subsidiaries due to their
long-term nature.
2002 ANNUAL REPORT
The effects of a hypothetical simultaneous 10%
appreciation in the U.S. dollar from year-end 2002 levels
against all other currencies of countries in which the
Company operates were measured for their potential
impact on, (i) translation of earnings into U.S. dollars
based on 2002 results, (ii) transactional exposures, and
(iii) translation of investments in foreign subsidiaries. The
hypothetical effects would be approximately (i) $3.6
million unfavorable for the translation of net income
into U.S. dollars, (ii) $2.6 million favorable net income
effect for transactional exposures, and (iii) $33.1 million
unfavorable change to the Company’s cumulative
translation adjustment (equity).
Commodities Price Risk
Commodities Price Risk
Commodities Price Risk
Commodities Price Risk
The Company consumes and sells various commodities in
the normal course of its business and, from time to time,
utilizes derivative instruments to minimize the variability
in forecasted cash flows due to price movements in these
commodities. The derivative contracts are entered into in
accordance with guidelines set forth in the Company’s
hedging policies.
The Company utilizes forward swap contracts for the
purchase of jet fuel to fix a portion of forecasted jet fuel
costs at specific price levels and it utilizes option
strategies to hedge a portion of the remaining risk
associated with jet fuel. In most cases, the Company is
able to adjust its pricing through the use of surcharges
on customers to partially offset large increases in the cost
of jet fuel.
The Company utilizes forward sales contracts and option
strategies to hedge the selling price on a portion of its
forecasted natural gas and gold sales.
The following table represents the Company’s
outstanding commodity hedge contracts as of
December 31, 2002. Amounts presented as the fair value
after a hypothetical 10% change in commodity prices
reflect a hypothetical 10% reduction in the future price
of jet fuel and a hypothetical 10% increase in the future
prices of gold and natural gas.
27
Estimated Fair Value of
Assets (Liabilities)
Notional
With 10%
(In millions, except as noted) Amount Actual Price Change
Forward gold sale contracts (a)
89.0 $
(2.9)
(5.5)
Forward swap and option contracts:
Jet fuel purchases (b)
Natural gas sales (c)
19.0
0.6
2.3
(0.7)
0.8
(1.0)
(a) Notional amount in thousands of ounces of gold. Excludes equity
affiliates.
(b) Notional amount in millions of gallons of fuel.
(c) Notional amount in millions of MMBTUs.
APPLICATION OF CRITICAL ACCOUNTING
APPLICATION OF CRITICAL ACCOUNTING
APPLICATION OF CRITICAL ACCOUNTING
APPLICATION OF CRITICAL ACCOUNTING
POLICIES
AND RECENT ACCOUNTING
POLICIES AND RECENT ACCOUNTING
AND RECENT ACCOUNTING
AND RECENT ACCOUNTING
POLICIES
POLICIES
CEMENTS
PRONOUNCEMENTS
PRONOUN
CEMENTS
CEMENTS
PRONOUN
PRONOUN
The application of accounting principles requires the use
of estimates and judgments which are the responsibility
of management. Management makes such estimates and
judgments based on, among other things, knowledge of
operations, markets, historical trends and likely future
changes, similarly situated businesses and, when
appropriate, the opinions of advisors with knowledge
and experience in certain fields. Many assumptions,
judgments and estimates are straightforward. However,
due to the nature of certain assets and liabilities, there
are uncertainties associated with some of the judgments,
assumptions and estimates which are required to be
made. Reported results could have been materially
different under a different set of assumptions and
estimates for certain accounting principle applications.
Management has discussed the development and
selection of the following critical accounting estimates
with the Audit and Ethics Committee of the Board of
Directors and the Audit and Ethics Committee has
reviewed the Company’s disclosure relating to such
estimates.
Deferred Tax Assets
Deferred Tax Assets
Deferred Tax Assets
Deferred Tax Assets
It is common for companies to record expenses and
accruals before such expenses and costs are paid. In the
U.S. and most other countries and tax jurisdictions, many
deductions for tax return purposes cannot be taken until
the expenses are paid.
2002 ANNUAL REPORT
Similarly, certain tax credits and tax loss carryforwards
cannot be used until future periods when sufficient
taxable income is generated. In these circumstances,
under GAAP, companies accrue for the tax benefit
expected to be received in future years if, in the
judgment of management, it is “more likely than not”
that the company will receive such benefits. Such
benefits (deferred tax assets) are often offset, in whole
or in part, by the effects of deferred tax liabilities which
relate primarily to deductions available for tax return
purposes under existing tax laws and regulations before
such expenses are reported as expenses under GAAP.
As of December 31, 2002, the Company had in excess of
$400 million of net deferred tax assets on its
consolidated balance sheet. For more details associated
with this net balance, see Note 17 to the accompanying
Consolidated Financial Statements.
Since there is no absolute assurance that these assets will
be ultimately realized, management periodically reviews
the Company’s deferred tax positions to determine if it is
more likely than not that such assets will be realized.
Such periodic reviews include, among other things, the
nature and amount of the tax income and expense items,
the expected timing when certain assets will be used or
liabilities will be required to be reported and the
reliability of historical profitability of businesses
expected to provide future earnings. Furthermore,
management considers tax-planning strategies it can
employ in order to increase the likelihood that the use of
tax assets will be achieved. These strategies are also
considered in the periodic reviews. If after conducting
such a review, management determines that the
realization of the tax asset does not meet the “more-
likely-than-not” criteria, an offsetting valuation reserve
is recorded thereby reducing net earnings and the
deferred tax asset in that period. For these reasons and
since changes in estimates can materially effect net
earnings, management believes the accounting estimate
related to deferred tax asset valuation reserves is a
“critical accounting estimate.”
Of the net deferred tax assets at December 31, 2002,
approximately 92% relates to the Company’s operations
in the U.S., including individual state tax jurisdictions.
28
Because of its expectation that the historically reliable
profitability of the Company’s U.S. portion of the
Business and Security Services operations will continue
and the lengthy period over which certain of the
recorded expenses will become available for deduction
on tax returns, management has concluded that it is
more likely than not that these net deferred tax assets
will be realized.
For international operations, the Company has evaluated
its ability to fully utilize the net assets on an individual
country basis and due to doubts in certain countries
about whether future operating performance will be
profitable enough to offset prior tax losses, the Company
has recorded a $9.8 million valuation allowance at
December 31, 2002.
Should tax statutes, the timing of deductibility of
expenses, or if expectations for future performance
change in the future, the Company could decide to
record additional valuation allowances, thereby
increasing the tax provision.
Goodwill and Property and Equipment
Goodwill and Property and Equipment
Goodwill and Property and Equipment
Goodwill and Property and Equipment
Valuations
Valuations
Valuations
Valuations
At December 31, 2002, the Company has $871 million of
property and equipment and $228 million of goodwill,
net of accumulated depreciation and amortization. The
Company reviews the assets for possible impairment
using the guidance in SFAS No. 142, “Goodwill and Other
Intangible Assets,” for goodwill and SFAS No. 144,
“Accounting for the Impairment or Disposal of Long-
lived Assets,” for property and equipment. The review
for impairment requires the use of significant judgments
about the future performance of the Company’s
operating subsidiaries.
2002 ANNUAL REPORT
Goodwill is reviewed for impairment at least annually.
The Company estimates the fair value of Brink’s and BAX
Global, the two reporting units that have goodwill,
primarily using estimates of future cash flows. The fair
value of the reporting unit is compared to its carrying
value to determine if an impairment exists. At December
31, 2002, net goodwill was $65 million at Brink’s and
$163 million at BAX Global.
To determine if an impairment exists of property and
equipment, the Company compares estimates of the
future undiscounted net cash flows of the asset to its
carrying value when there is a triggering event for a
review. For purposes of assessing impairment, assets are
grouped at the lowest level for which there are
identifiable cash flows that are largely independent of
the cash flows of other groups of assets.
Due to a history of profitability and cash flow, the
carrying values of long-lived assets of Brink’s are believed
to be appropriate.
Each quarter, when BHS customers disconnect their
monitoring service, BHS records an impairment charge
related to the carrying value of the related home security
systems estimated to be permanently disconnected based
on historical reconnection experience. Such charge is
included within the Recurring Services component of
operating profit. BHS makes estimates about future
reconnection experience in its estimate of impairment
charges. Future reconnection experience is estimated
using historical data. Should the estimate of future
reconnection experience change, BHS’s impairment
charges would be affected.
29
BAX Global had a profit in 2002 and losses in 2001 and
2000. Changes to the Company’s operations, resources
used, and cost structure in 2000 resulted in a trend of
improved year-over-year operating results in each of the
last two years, despite a significant decline in revenue
from 2000. In management’s opinion, the changes
implemented at BAX Global plus a return to more
normal levels of global economic performance will result
in substantial improvement in operating performance
and cash flow over time. Based on this judgment, the
Company prepared multi-year projections of operating
performance for BAX Global, which it used to estimate
fair value and undiscounted cash flow, neither of which
indicated impairment.
Had the Company expected no long-term improvement
in the performance of BAX Global, or a worsening of
conditions at the Company’s other subsidiaries, the
Company may have concluded that its goodwill or fixed
assets were impaired and, in such circumstances, would
have reduced the carrying values of such assets and
recognized a loss.
As required by SFAS No. 144, certain residual long-lived
assets associated with the Company’s former coal
operations were reclassified from assets of discontinued
operations to assets held and used at December 31, 2002.
These assets were tested for impairment on an individual
property basis with a resulting net impairment loss of
$14.1 million recorded within operating profit from
continuing operations. Prior to December 2002, the
2002 ANNUAL REPORT
Company’s expectation was to sell the majority of these
assets as a group and, as such, the assets were not
previously considered to be impaired. Different
estimates of the net realizable value of the residual coal
assets could have materially affected the net impairment
loss recorded.
Related Lease Obligations
CoalCoalCoalCoal----Related Lease Obligations
Related Lease Obligations
Related Lease Obligations
The Company has not accrued approximately $26 million
of future minimum lease and royalty payments related to
the equipment and idle coal mines and reserves which
management believes will be sold. If the Company is
unable to transfer its commitments to buyers of these
assets, the Company will recognize the obligations as
liabilities, with a charge to earnings.
Withdrawal Liabilities
Withdrawal Liabilities
Withdrawal Liabilities
Withdrawal Liabilities
The Company recorded an estimate of the value of
potential withdrawal obligations for coal-related multi-
employer pension plans in 2001 associated with its exit
from the coal business. During the fourth quarter of
2002, the Company increased the estimated withdrawal
liabilities to $35.0 million. The withdrawal liabilities
were estimated by the Company using a formula that
depends on the funded status of the multi-employer
pension plans at the time that the Company is deemed
to have withdrawn from the plans.
30
The $35 million for the estimated withdrawal liabilities is
based on the funded status of the plan as of June 30,
2002. The Company expects that its actual withdrawal
liability for each of the plans will be based on the funded
status of the plans as of June 30, 2003 or possibly later.
The estimate may change materially each year until the
Company is deemed to have withdrawn from the plan.
Annual changes in this estimate will be recorded in
discontinued operations.
MultiMultiMultiMulti----Year Employee and Retiree Benefit
Year Employee and Retiree Benefit
Year Employee and Retiree Benefit
Year Employee and Retiree Benefit
Obligations
Obligations
Obligations
Obligations
The Company provides its employees and retirees
benefits arising from both Company-sponsored plans
(e.g. defined benefit pension plans) and statutory
requirements (e.g. medical benefits for otherwise
ineligible former employees and non employees under
the Health Benefit Act). Certain of these benefit
obligations require payments to be made by the
Company or by trusts funded by the Company over long
periods of time.
2002 ANNUAL REPORT
The primary benefits which require cash payments over
an extended period of years are:
• Defined Benefit Pension
•
Postretirement Medical
• Health Benefit Act Medical
•
Black Lung
As is normal for such benefits, cash payments will be
made for periods ranging from the current year to well
over fifty years from now for certain benefits. The
amount of such payments and related expenses will be
affected over time by inflation, investment returns and
market interest rates, changes in the numbers of plan
participants and changes in the benefit obligations
and/or laws and regulations covering the benefit
obligations.
GAAP requires that the Company reevaluate all
significant benefit obligations at least annually, and as a
result of such reevaluations, the Company records
increases or decreases in liabilities and associated
expenses over time as required under GAAP.
Below are the critical assumptions that determine the
carrying values of such liabilities and the resulting annual
expense. The plans that are affected by the assumptions
discussed are identified parenthetically in the relevant
title.
31
Discount Rate (Pension Plans, Postretirement
Medical Benefits Under Company-Sponsored Plans
and “Black Lung” Benefits)
The discount rate is used to determine the present value
of future payments. This rate reflects returns expected
from high-quality bonds and will fluctuate over time
with market interest rates. In general, the Company’s
liability changes in an inverse relationship to interest
rates, i.e. the lower the discount rate, the higher the
associated liability for the noted benefit obligations.
The Company selects a discount rate for its pension
liabilities after reviewing published long-term yield
information for a small number of high quality fixed
income securities (Moody’s AA bond yields), yields for
the broader range of long-term high quality securities
and a calculated plan-specific rate of return developed
by its actuaries using long-term high quality bonds with
similar maturities to the liability. After considering the
above, the Company selected a discount rate of 6.75%
for the valuation as of December 2002. A year ago, such
discount rate was 7.25%.
Calculations of net periodic pension expense are based
on the assumptions used for the previous year-end
measurements of plan assets and obligations.
Accordingly, the discount rate selected at the end of
each year affects the pension expense in the following
year. In general, the lower the discount rate, the higher
the calculated expense. If the discount rate were to
decrease by 25 basis points, the related expense would
increase by approximately $3 million before tax in 2002.
Under government regulations, funding requirements
for the Company’s primary U.S. pension plan are
determined using a different set of assumptions than is
used for financial accounting purposes. Near term
funding requirements would, therefore, not be affected
unless interest rates declined sharply.
2002 ANNUAL REPORT
Return on Assets (Pension Plan)
The Company’s primary defined benefit pension plan
had assets at December 31, 2002 of approximately $431
million. This pension plan’s assets are invested primarily
using actively managed accounts with asset allocation
targets of 70% equities, which include a broad array of
market cap sizes and investment styles and international
equities, and 30% fixed income securities. Among other
factors, the performance of asset groups and investment
managers will affect the long-term rate of return.
Pension accounting principles require companies to use
estimates of expected asset returns over long periods of
time. The Company selects the expected long-term rate
of return assumption using advice from its investment
advisor and its actuary considering the plan’s asset
allocation targets and expected overall investment
manager performance and a review of its most recent
ten year historical average compounded rate of return.
After following the above process, the Company selected
8.75% as its expected long-term rate of return as of
December 31, 2002. The expected long-term rate was
10.0% as of December 31, 2001.
Because returns from global financial markets fluctuate,
it is unlikely that in any given year, the actual rate of
return will be the same as the assumed long-term rate of
return. In general, if actual returns exceed the expected
long-term rate of return, future levels of expense will go
down and vice-versa. The Company’s assumed long-term
rate of return is 8.75% as of December 31, 2002. Over
the last ten years, the annual returns of the Company’s
primary pension plan have fluctuated from a high of a
25% gain (1995) to a low of a 9% loss (2002). During
that time period there were six years in which returns
exceeded the assumed long-term rate of return and four
years, including the last three years, with returns below
the assumed long-term rate of return.
32
If the Company were to use a different long-term rate of
return assumption, it would affect annual pension
expense but would have no immediate effect on funding
requirements. For every hypothetical change of 25 basis
points in the assumed long-term rate of return on plan
assets, the Company’s U.S. annual pension plan expense
in 2002 would increase or decrease by approximately
$1.3 million before tax.
The Company calculates expected investment returns by
applying the expected long-term rate of return to the
market-related value of plan assets. The market-related
value of plan assets is calculated by deferring and
amortizing investment gains or losses on a straight-line
basis over five years. Investment gain or loss for each
year is the difference between the actual return and the
expected return calculated using the beginning market-
related asset value less non-investment expenses and the
expected long-term rate of return. Each year’s gain or
loss is then amortized over five years.
The Company has had significant investment losses in the
last three years that have not yet fully affected pension
expense. The Company expects its pension expense will
increase in the next several years because of the
amortization of investment gains and losses.
The offset (or “credit”) to expense associated with the
assumed investment return fluctuates based on the level
of plan assets (over time, the higher the level of assets,
the higher the credit and vice versa) and the assumed
rate of return (the higher the rate, the higher the credit
and vice versa). Plan assets for the Company’s primary
defined benefit plan have declined by approximately $28
million in 2002 and $122 million over the three years
ended December 31, 2002 as a result of general
investment market conditions. In addition, the plan paid
out approximately $25 million in benefits and the
Company contributed $35 million to plan assets during
the same time period. With the reduction in plan assets
in 2002 and the expected rate of return, the investment
credit is expected to decline by $8.5 million in 2003. This
will have the effect of increasing the Company’s net
pension expense.
2002 ANNUAL REPORT
Inflation Assumptions on Salary Levels (Pension
Plan) and Medical Inflation (Postretirement
Medical Benefits, Health Benefit Act Medical
Benefits)
Pension expense and liabilities will vary with the
expected rate of salary increases – the higher or lower
the annual increase, the higher or lower the liability and
expense. The Company expects its salary increase
assumption to remain at or about 5.1%, assuming
current rates of inflation.
Changes in medical inflation will affect liability and
expense amounts differently for the three plans noted.
There is a direct link between medical inflation and
expected spending for postretirement medical benefits
under the Company’s plan for 2003 and for later years.
Future cash payments associated with the Health Benefit
Act will reflect some but not all of the effect of medical
inflation as a result of statutory limitations on premium
growth.
With the increase in medical inflation seen over the last
few years, the Company raised the assumed level of
inflation in its plans in 2001 and again in 2002. Because
of the volatility of medical inflation it is likely that there
will be future adjustments, although the direction and
extent of such adjustments cannot be predicted at the
present time.
Numbers of Participants (All Plans)
The valuations of all of these benefit plans are affected
by the life expectancy of the participants. Accordingly,
the Company relies on actuarial information to predict
the number and life expectancy of participants. Further,
due to the complexity of the contractual relationship
with the United Mine Workers of America (“UMWA”) for
postretirement medical benefits and the application of
regulations associated with the Health Benefit Act, the
Company’s related liability and expense has and will
continue to fluctuate as new participants are made
known to the Company and as the Company and others
investigate such applications. As a result, the Company’s
liabilities under its plans will vary as the expected
number and life expectancy of participants change.
33
Changes in Laws
The Company’s valuations of its liabilities are determined
under existing laws and regulations. Changes in laws and
regulations which affect the ultimate level of liabilities
and expense are reflected once the changes are final and
their impact can be reasonably estimated. Recent
changes in black lung regulations could increase the
Company’s total liability. Future changes in laws directed
at reducing national levels of medical inflation or
changing the funding available for medical benefits (e.g.
proposals for coverage of pharmaceuticals under
Medicare) could significantly reduce the Company’s
ultimate liability for certain postretirement medical
benefits.
Workers’ Compensation
Workers’ Compensation
Workers’ Compensation
Workers’ Compensation
Besides the effects of changes in medical costs, workers’
compensation costs are affected by the severity and
types of injuries, changes in state and federal regulations
and their application and the quality of programs which
assist an employee’s return to work. The Company’s
liability for future payments for workers’ compensation
claims is evaluated annually with the assistance of its
actuary.
counting Pronouncements
Recent Accounting Pronouncements
Recent Ac
counting Pronouncements
counting Pronouncements
Recent Ac
Recent Ac
SFAS No. 143, “Accounting for Asset Retirement
Obligations,” was issued in June 2001 and addresses
financial accounting and reporting for obligations
associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No.
143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in
which it becomes an obligation, if a reasonable estimate
of fair value can be made. The Company will adopt SFAS
No. 143 in the first quarter of 2003. The implementation
of the new standard is not expected to have a material
effect on the Company’s results of operations or financial
position.
SFAS No. 146, “Accounting for Costs Associated with Exit
or Disposal Activities,” was issued in June 2002 and
applies to costs associated with an exit activity (including
restructuring) or with a disposal of long-lived assets. This
statement nullifies Emerging Issues Task Force Issue No.
94-3, “Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring).”
Under SFAS No. 146, a commitment to a plan to exit an
2002 ANNUAL REPORT
activity or dispose of long-lived assets will no longer be
sufficient to record a charge for most anticipated costs.
Instead, a liability for costs associated with an exit or
disposal activity will be recorded when that liability is
incurred and can be measured at fair value. SFAS No. 146
also revises accounting for specified employee and
contract terminations that are part of restructuring
activities. SFAS No. 146 is effective for exit or disposal
activities initiated after December 31, 2002.
SFAS No. 148 “Accounting for Stock-Based Compensation
- Transition and Disclosure,” was issued in December
2002 and provides alternative methods of transition for a
voluntary change to the fair value-based method of
accounting for stock-based compensation. It also
amends the disclosure provisions of SFAS No. 123 to
require prominent disclosure in the “Summary of
Significant Accounting Policies” about the effects on
reported net income of an entity’s accounting policy
decisions with respect to stock-based employee
compensation. SFAS No. 148 requires disclosure as to the
pro forma effects on interim financial statements if
stock-based compensation is accounted for under the
intrinsic value method prescribed in APB No. 25. The
amendments to SFAS No. 123 as to transition alternatives
and as to prominent disclosure are effective for fiscal
years ending after December 15, 2002. The amendment
is effective for interim periods beginning after December
15, 2002.
In November 2002, the Financial Accounting Standards
Board (“FASB”) issued FASB Interpretation No. 45 (“FIN
45”), “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others.” FIN 45 requires
that upon issuance of a guarantee, the guarantor must
recognize a liability for the fair value of the obligation it
assumes under that guarantee. FIN 45 also requires
additional disclosures by a guarantor in its interim and
annual financial statements about the obligations
associated with guarantees issued. The required
disclosures have been included in Notes 12, 14 and 21.
The recognition and measurement provisions are
effective on a prospective basis to guarantees issued or
modified after December 31, 2002. The adoption of this
interpretation is not expected to have a material effect
on the Company’s Consolidated Financial Statements.
34
In January 2003, the FASB issued FASB Interpretation No.
46 (“FIN 46”), “Consolidation of Variable Interest
Entities.” FIN 46 provides guidance on the identification
of entities for which control is achieved through means
other than through voting rights, variable interest
entities, and how to determine when and which business
enterprises should consolidate variable interest entities.
Variable interest entities created after January 31, 2003,
if any, will be assessed for consolidation using the new
interpretation beginning in the first quarter of 2003.
Variable interest entities in which the Company holds a
variable interest that it acquired before February 1, 2003
will be assessed for consolidation beginning in the third
quarter of 2003. The adoption of this interpretation is
not expected to have a material effect on the Company’s
Consolidated Financial Statements.
Looking Information
Forward----Looking Information
Forward
Looking Information
Looking Information
Forward
Forward
Certain of the matters discussed herein, including
statements regarding the impact of difficult economic
and operating conditions in South America on Brink’s
performance in the first half of 2003, reductions in
staffing levels by Brink’s in Europe in 2003 and related
increases in severance expense, expected increases in
pension expenses and the adverse affect on Brink’s, BHS’
and BAX Global’s 2003 operating results of higher
pension expense, the impact that the refusal of police
departments to respond to calls from alarm companies
without visual verification would have on BHS’ results of
operations, the impact of increases in carrier rates and
employee benefit health costs on BAX’s costs in 2003,
possible reductions in transportation costs resulting from
aircraft lease negotiations, the weakness of the
European economy in 2003, payment by BAX Global of
contractual commitments for facilities by the end of
2007, the retention of certain coal-related liabilities and
related expenses and cash outflows following
completion of disposal, projected expenses related to
legacy liabilities of former coal operations (including
estimated ranges of these expenses), the significance in
early 2003 of certain costs of assets expected to be sold,
the expectation that administrative and other costs
related
2002 ANNUAL REPORT
to the former coal operations will be incurred more
heavily in the early quarters of 2003, the disposal of the
Company’s gold, timber and natural gas operations,
control of MPI following the exchange of the Company’s
interest in gold mining joint ventures for additional
shares of MPI and other consideration, the impact on
2002 revenues, operating profit and pretax income if
Venezuela had not been treated as highly inflationary
effective January 1, 2002 and the possibility that
Venezuela may be considered highly inflationary again,
the expectation that the Company will realize the
benefit of its net deferred tax assets, expenditures for
aircraft heavy maintenance in 2003, capital expenditures
for continuing operations in 2003, estimated significant
contractual obligations for the next five years, required
pension plan funding after 2005, the replacement of
some of the Company’s surety bonds due to the
assumption of various reclamation obligations by
purchasers of the Company’s former coal operations, the
ability of the Company to provide letters of credit or
other collateral to replace any surety bonds that are not
renewed in the future, the timing of Combined Fund
payments, the amount and timing of additional FBLET
refunds, if any, estimated remaining clean-up,
operational and maintenance costs for the Tankport
matter and the possibility that the Company will be able
to recover a portion of the amount paid from another
potentially responsible party, the outcome of pending
litigation, the likelihood of losses due to non-
performance by parties to hedging instruments,
operating performance of the Company’s subsidiaries,
the timing of and liability for withdrawal from multi-
employer pension plans associated with the exit from the
coal business, the sale of additional coal assets, expected
decline in the pension plan investment credit, changes in
the assumed level of inflation for a number of the
Company’s benefit plans, the impact of recent regulatory
changes on the Company’s total black lung liability, and
the impact of recent accounting pronouncements on the
Company’s results of operations involve forward-looking
information which is subject to known and unknown
risks, uncertainties, and contingencies which could cause
actual results, performance or achievements, to differ
materially from those which are anticipated.
35
Such risks, uncertainties and contingencies, many of
which are beyond the control of the Company, include,
but are not limited to, government reforms and
initiatives in South America, strategic decisions by Brink’s
competitors with respect to their South American
operations, the matching of staffing levels with the
demand for Brink’s services in Europe, the ultimate
amount of pension expense, determinations made by
police departments and municipalities regarding
responses to alarms, the willingness of BHS’ customers to
pay for private response personnel or other alternatives
to police responses to alarms, the size and timing of rate
and cost increases, the aircraft leasing market, the
satisfaction of contractual obligations by third parties,
the willingness and ability of purchasers of the
remaining coal assets to assume liabilities, the timing of
any sale of remaining coal assets, the timing of the pass-
through of costs relating to the disposal of coal assets by
third parties and governmental authorities, the
negotiation of definitive agreements with respect to the
Company’s gold joint ventures and the satisfaction of
any conditions contained therein, actions taken by MPI
to reduce the number of its outstanding shares,
changes in strategy or the allocation of resources, the
market for the Company’s gold, timber and natural gas
operations and the ability to negotiate and conclude
sales of those operations on mutually agreeable terms,
the performance of U.S. and international investment
2002 ANNUAL REPORT
markets, the profitability of the Company in the U.S. and
abroad, the completion and processing of permit
replacement documentation and the ability of
purchasers of coal assets to post the required bonds,
capacity for borrowing under the Company’s U.S. credit
facility, the position taken by various governmental
entities with respect to the claims for FBLET refunds,
changes in the scope or method of remediation or
monitoring of the Tankport property, the negotiation of
a mutually acceptable agreement with the potentially
responsible party in the Tankport matter, the funding
and benefit levels of the multi-employer plans and
pension plans, actual retirement experience of the
Company’s coal employees, black lung claims incidence,
the number of dependents covered, coal industry
turnover rates, actual medical and legal costs relating to
benefits, changes in inflation rates (including the
continued volatility of medical inflation), fluctuations in
interest rates, overall economic and business conditions,
developing guidance with respect to recent accounting
pronouncements, foreign currency exchange rates, the
impact of continuing initiatives to control costs and
increase profitability, pricing and other competitive
industry factors, fuel prices, new government
regulations, legislative initiatives, judicial decisions,
variations in costs or expenses and the ability of
counterparties to perform.
36
2002 ANNUAL REPORT
STATEMENT OF MANAGEMENT RESPONSIBILITY
STATEMENT OF MANAGEMENT RESPONSIBILITY
STATEMENT OF MANAGEMENT RESPONSIBILITY
STATEMENT OF MANAGEMENT RESPONSIBILITY
The management of The Pittston Company (the “Company”) is responsible for preparing the accompanying Consolidated
Financial Statements and for their integrity and objectivity. The statements were prepared in accordance with accounting
principles generally accepted in the United States of America. Management has also prepared the other information in the
annual report and is responsible for its accuracy.
In meeting our responsibility for the integrity of the Consolidated Financial Statements, we maintain a system of internal
controls designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in
accordance with management’s authorization and that the accounting records provide a reliable basis for the preparation
of the Consolidated Financial Statements. Qualified personnel throughout the organization maintain and monitor these
internal controls on an ongoing basis. In addition, the Company maintains an internal audit department that systematically
reviews and reports on the adequacy and effectiveness of the controls, with management follow-up as appropriate.
Management has also established a formal Business Code of Ethics for all employees including its financial executives. We
acknowledge our responsibility to establish and preserve an environment in which all employees properly understand the
fundamental importance of high ethical standards in the conduct of our business.
The Company’s Consolidated Financial Statements have been audited by KPMG LLP, independent auditors.
The Company’s Board of Directors pursues its oversight role with respect to the Company’s Consolidated Financial
Statements through the Audit and Ethics Committee, which is composed solely of outside directors. The Committee meets
periodically with the independent auditors, internal auditors and management to review the Company’s control system
and to ensure compliance with applicable laws and the Company’s Business Code of Ethics.
We believe that the policies and procedures described above are appropriate and effective and enable us to meet our
responsibility for the integrity of the Company’s Consolidated Financial Statements.
37
2002 ANNUAL REPORT
INDEPENDENT AUDITORS’ REPORT
INDEPENDENT AUDITORS’ REPORT
INDEPENDENT AUDITORS’ REPORT
INDEPENDENT AUDITORS’ REPORT
The Board of Directors and Shareholders
The Pittston Company
We have audited the accompanying consolidated balance sheets of The Pittston Company and subsidiaries (the
“Company”) as of December 31, 2002 and 2001, and the related consolidated statements of operations, comprehensive
loss, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2002. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of The Pittston Company and subsidiaries as of December 31, 2002 and 2001, and the results of their operations
and their cash flows for each of the years in the three-year period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, effective January 1, 2002, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets.” Also as
discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for
nonrefundable installation revenues and the related direct costs of acquiring new subscribers in 2000 as a result of the
implementation of Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.”
KPMG LLP
Richmond, Virginia
February 10, 2003
38
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
ONSOLIDATED BALANCE SHEETS
CCCCONSOLIDATED BALANCE SHEETS
ONSOLIDATED BALANCE SHEETS
ONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
ASSETS
ASSETS
ASSETS
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, (net of estimated uncollectible
amounts: 2002 - $35.5; 2001 - $41.8)
Prepaid expenses and other current assets
Deferred income taxes
Discontinued operations
Total current assets
Property and equipment, net
Goodwill, net
Prepaid pension assets
Deferred income taxes
Other
Discontinued operations
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings
Current maturities of long-term debt
Accounts payable
Accrued liabilities
Discontinued operations
Total current liabilities
Long-term debt
Accrued pension costs
Postretirement benefits other than pensions
Deferred revenue
Deferred income taxes
Other
Discontinued operations
Total liabilities
Commitments and contingent liabilities (Notes 5, 8, 12, 13, 14, 15, 17 and 21)
Shareholders’ equity:
Preferred stock, par value $10 per share,
$31.25 Series C Cumulative Convertible Preferred Stock
Authorized: 0.161 shares
Issued and outstanding: 2001 - 0.021 shares
Common stock, par value $1 per share:
Authorized: 100.0 shares
Issued and outstanding: 2002 and 2001– 54.3 shares
Capital in excess of par value
Retained earnings
Employee benefits trust, at market value
Accumulated other comprehensive loss:
Minimum pension liabilities
Foreign currency translation
Deferred expense on cash flow hedges
Unrealized losses on marketable securities
Accumulated other comprehensive loss
Total shareholders’ equity
2002 ANNUAL REPORT
December 31
2002
2002
20022002
2001
$$$$
102.3
102.3
102.3
102.3
540.0
540.0
540.0
540.0
58.458.458.458.4
81.381.381.381.3
----
782.0
782.0
782.0
782.0
878787871.21.21.21.2
227.9
227.9
227.9
227.9
23.823.823.823.8
349.3
349.3
349.3
349.3
205.7
205.7
205.7
205.7
----
86.7
493.3
57.5
103.1
19.9
760.5
818.1
224.8
109.0
233.2
184.9
92.7
$$$$
459.9
2,2,2,2,459.9
459.9
459.9
2,423.2
$$$$
41.841.841.841.8
13.313.313.313.3
244.0
244.0
244.0
244.0
494.2
494.2
494.2
494.2
----
793.3
793.3
793.3
793.3
304.2
304.2
304.2
304.2
122.6
122.6
122.6
122.6
471.7
471.7
471.7
471.7
127.0
127.0
127.0
127.0
28.428.428.428.4
231.5
231.5
231.5
231.5
----
2,078.7
2,078.7
2,078.7
2,078.7
27.8
17.2
256.6
516.1
3.3
821.0
252.9
22.9
445.0
123.8
20.7
231.2
29.6
1,947.1
----
0.2
54.354.354.354.3
383.0000
383.
383.383.
213.1
213.1
213.1
213.1
(33.0)
(33.0)
(33.0)
(33.0)
(137.2)
(137.2)
(137.2)
(137.2)
(93.5555))))
(93.
(93.
(93.
(5.2)
(5.2)
(5.2)
(5.2)
(0.3)
(0.3)
(0.3)
(0.3)
(2(2(2(236363636.2).2).2).2)
381.2
381.2
381.2
381.2
54.3
400.1
193.3
(58.9)
(6.5)
(101.6)
(4.7)
(0.1)
(112.9)
476.1
Total liabilities and shareholders’ equity
$$$$
459.9
2,2,2,2,459.9
459.9
459.9
2,423.2
See Accompanying Notes to Consolidated Financial Statements.
39
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
PERATIONS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF O
PERATIONS
PERATIONS
CONSOLIDATED STATEMENTS OF O
CONSOLIDATED STATEMENTS OF O
(In millions, except per share amounts)
2002 ANNUAL REPORT
Years Ended December 31
2001
2000
2002
2002
20022002
Revenues
Revenues
Revenues
Revenues
$$$$
3,776.7
3,776.7
3,776.7
3,776.7
3,624.2
3,834.1
Expenses:
Expenses:
Expenses:
Expenses:
Operating expenses
Selling, general and administrative expenses
Impairment and other charges related to:
Former coal operations
Gold operations
Restructuring charge
Total expenses
Other operating income, net
Operating profit
Operating profit
Operating profit
Operating profit
Interest income
Interest expense
Other expense, net
Income from continuing operations before income taxes
and cumulative effect of change in accounting principle
Provision for income taxes
Income from continuing operations before
Income from continuing operations before
Income from continuing operations before
Income from continuing operations before
cumulative effect of change in accounting principle
cumulative effect of change in accounting principle
cumulative effect of change in accounting principle
cumulative effect of change in accounting principle
Discontinued operations, net of income taxes:
Loss from operations, net of $14.2 of income tax benefits
Estimated loss on disposition, net of
3,164.0
3,164.0
3,164.0
3,164.0
466.3
466.3
466.3
466.3
19.219.219.219.2
7.17.17.17.1
----
3,656.6
3,656.6
3,656.6
3,656.6
12.612.612.612.6
3,090.6
448.6
-
-
(0.2)
3,539.0
22.4
3,264.2
477.8
-
-
57.5
3,799.5
13.1
132.7
132.7
132.7
132.7
107.6
47.7
3.23.23.23.2
(23.1)
(23.1)
(23.1)
(23.1)
((((2.62.62.62.6))))
110.2
110.2
110.2
110.2
41.41.41.41.2222
4.7
(32.4)
(6.7)
73.2
27.4
69.69.69.69.0000
45.8
4.2
(43.4)
(3.9)
4.6
1.9
2.7
----
-
(18.2)
income tax benefits of: $22.8 (2002), $25.1 (2001) and $105.1 (2000)
((((42.942.942.942.9))))
(29.2)
(189.1)
Loss from discontinued operations
(Includes certain retained expenses of former coal operations which,
beginning in 2003, will be recorded in continuing operations – such expenses
(pretax) recorded in 2002, 2001 and 2000 were $2 million, $53 million, and
$48 million respectively. See Note 5.)
Income (loss) before cumulative effect of change
in accounting principle
Cumulative effect of change in accounting principle,
net of $32.7 income tax benefit
Net income (loss)
Net income (loss)
Net income (loss)
Net income (loss)
Preferred stock dividends, net
((((42.942.942.942.9))))
(29.2)
(207.3)
26.126.126.126.1
16.6
(204.6)
----
-
(52.0)
26.126.126.126.1
(1.1)
(1.1)
(1.1)
(1.1)
16.6
(256.6)
(0.7)
0.8
Net income (loss) attributed to common shares
$$$$
25.025.025.025.0
15.9
(255.8)
40
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
(CONTINUED)
DATED STATEMENTS OF OPERATIONS (CONTINUED)
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLI
(CONTINUED)
(CONTINUED)
DATED STATEMENTS OF OPERATIONS
DATED STATEMENTS OF OPERATIONS
CONSOLI
CONSOLI
2002 ANNUAL REPORT
(In millions, except per share amounts)
income (loss) per common share
NetNetNetNet income (loss) per common share
income (loss) per common share
income (loss) per common share
Basic:
Continuing operations
Discontinued operations
Cumulative effect of change in accounting principle
Diluted:
Continuing operations
Discontinued operations
Cumulative effect of change in accounting principle
See Accompanying Notes to Consolidated Financial Statements.
Years Ended December 31
2001
2000
2002
2002
20022002
$$$$
$$$$
$$$$
$$$$
1.301.301.301.30
(0.82))))
(0.82
(0.82
(0.82
----
0.0.0.0.48484848
1.301.301.301.30
(0.82
(0.82))))
(0.82
(0.82
----
0.480.480.480.48
0.88
(0.57)
-
0.31
0.88
(0.57)
-
0.31
0.07
(4.14)
(1.04)
(5.11)
0.05
(4.13)
(1.04)
(5.12)
41
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
IVE LOSS
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
CONSOLIDATED STATEMENTS OF COMPREHENS
IVE LOSS
IVE LOSS
CONSOLIDATED STATEMENTS OF COMPREHENS
CONSOLIDATED STATEMENTS OF COMPREHENS
2002 ANNUAL REPORT
(In millions)
Net income (loss)
Years Ended December 31
2001
2000
2002
2002
20022002
$$$$
26.126.126.126.1
16.6
(256.6)
Other comprehensive income (loss):
Minimum pension liability adjustments:
Adjustment to minimum pension liability
Tax benefit related to minimum pension liability adjustment
Minimum pension liability adjustments, net of tax
(210.8)
(210.8)
(210.8)
(210.8)
80.80.80.80.1111
(130.7))))
(130.7
(130.7
(130.7
Foreign currency:
Translation adjustments
Reclassification adjustment for loss included in net income (loss)
Foreign currency translation adjustments
Cash flow hedges:
Deferred benefit (expense) on cash flow hedges
Tax benefit (expense) related to deferred benefit (expense)
on cash flow hedges
Reclassification adjustment for cash flow hedge expense (benefits)
realized in net income (loss)
Tax expense (benefit) related to cash flow hedge
realized in net income (loss)
Deferred benefit (expense) on cash flow hedges, net of tax
Marketable securities:
Unrealized net gains (losses) on marketable securities
Tax expense related to unrealized gains on marketable securities
Reclassification adjustment for gains realized in net income (loss)
Tax expense related to gains realized in net income (loss)
Unrealized net gains (losses) on marketable securities, net of tax
8.18.18.18.1
----
8.8.8.8.1111
(4.2)
(4.2)
(4.2)
(4.2)
1.31.31.31.3
3.53.53.53.5
(1.1)
(1.1)
(1.1)
(1.1)
(0.5)
(0.5)
(0.5)
(0.5)
0.0.0.0.6666
(0.2)
(0.2)
(0.2)
(0.2)
(0.8(0.8(0.8(0.8))))
0.20.20.20.2
(0.(0.(0.(0.2)2)2)2)
(9.9)
3.4
(6.5)
(28.4)
0.5
(27.9)
2.4
(1.0)
3.9
(1.4)
3.9
3.5
(1.2)
(4.0)
1.4
(0.3)
-
-
-
(14.1)
-
(14.1)
(8.0)
1.8
(7.7)
2.8
(11.1)
(0.1)
-
(0.3)
0.1
(0.3)
Other comprehensive loss
Comprehensive loss
(123.3333))))
(123.
(123.
(123.
(30.8)
(25.5)
$$$$
(97.2)2)2)2)
(97.
(97.
(97.
(14.2)
(282.1)
See Accompanying Notes to Consolidated Financial Statements.
42
2002 ANNUAL REPORT
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Years Ended December 31, 2002, 2001 and 2000
(In millions)
Balance as of December 31, 1999 (a)
Net loss
Other comprehensive loss
Dividends:
Common stock
Preferred stock
Exchange of stock (b)
Repurchase shares of Preferred stock
Employee benefits trust:
Remeasurement
Shares used for employee benefit programs
Tax benefit of stock options exercised
Preferred
Stock
0.3
Common
Stock
71.8
$
Capital
in Excess
of Par
Value
341.0
Retained
Earnings
443.4
Employee
Benefits
Trust
(50.3)
Accumulated
Other
Comprehensive
Loss
(56.6)
Total
749.6
-
-
-
-
-
(0.1)
-
-
-
-
-
-
-
(20.0)
-
-
-
-
-
-
(256.6)
-
-
-
20.2
(3.8)
(8.3)
(0.4)
0.1
(5.0)
(0.9)
-
1.7
-
-
-
-
-
-
-
(0.2)
-
8.3
16.7
-
-
(25.5)
(256.6)
(25.5)
-
-
-
-
-
-
-
(5.0)
(0.9)
-
(2.2)
-
16.3
0.1
Balance as of December 31, 2000
0.2
51.8
348.8
182.6
(25.5)
(82.1)
475.8
Net income
Other comprehensive loss
Dividends:
Common stock
Preferred stock
Employee benefits trust:
Shares issued to trust
Remeasurement
Shares used for employee benefit programs
Tax benefit of stock options exercised
Other
-
-
-
-
-
-
-
-
-
-
-
-
-
2.5
-
-
-
-
-
-
-
-
51.6
2.4
(2.7)
0.1
(0.1)
16.6
-
(5.1)
(0.7)
-
-
-
-
(0.1)
-
-
-
-
(54.1)
(2.4)
23.1
-
-
-
(30.8)
16.6
(30.8)
-
-
-
-
-
-
-
(5.1)
(0.7)
-
-
20.4
0.1
(0.2)
Balance as of December 31, 2001
0.2
54.3
400.1
193.3
(58.9)
(112.9)
476.1
Net income
Other comprehensive loss
Dividends:
Common stock
Preferred stock
Repurchase shares of:
Common stock
Preferred stock
Employee benefits trust:
Remeasurement
Shares used for employee benefit programs
Tax benefit of stock options exercised
Balance as of December 31, 2002
$
-
-
-
-
-
(0.2)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(0.3)
(10.0)
(5.3)
(1.7)
0.2
26.1
-
(5.2)
(0.5)
-
(0.6)
-
-
-
-
-
-
-
-
-
5.3
20.6
-
-
(123.3)
26.1
(123.3)
-
-
-
-
-
-
-
(5.2)
(0.5)
(0.3)
(10.8)
-
18.9
0.2
54.3
383.0
213.1
(33.0)
(236.2)
381.2
(a) Includes Brink’s Group Common Stock – 40.9 shares; BAX Group Common Stock – 20.8 shares and Minerals Group Common Stock – 10.1 shares.
(b) On January 14, 2000, the Company eliminated its tracking stock capital structure by an exchange of all outstanding shares of Minerals Group Common
Stock and BAX Group Common Stock for shares of Brink’s Group Common Stock.
See Accompanying Notes to Consolidated Financial Statements.
43
THE PITTSTO
N COMPANY AND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
N COMPANY AND ITS SUBSIDIARIES
N COMPANY AND ITS SUBSIDIARIES
THE PITTSTO
THE PITTSTO
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
Cash flows from operating activities:
Cash flows from operating activities:
Cash flows from operating activities:
Cash flows from operating activities:
$$$$
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by continuing operations:
Loss from discontinued operations, net of tax
Cumulative effect of change in accounting principle, net of tax
Depreciation and amortization
Impairment charges from subscriber disconnects
Amortization of deferred revenue
Impairment of other long-lived assets
Aircraft heavy maintenance expense
Deferred income taxes
Provision for uncollectible accounts receivable
Other operating, net
Pension expense, net of contributions
Change in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable
Accounts payable and accrued liabilities
Deferred subscriber acquisition cost
Deferred revenue from new subscribers
Other, net
Net cash provided by continuing operations
Net cash provided (used) by discontinued operations
Net cash provided by operating activities
Cash flows from investing activities:
Cash flows from investing activities:
Cash flows from investing activities:
Cash flows from investing activities:
Capital expenditures
Aircraft heavy maintenance expenditures
Cash proceeds from disposal of:
Former coal operations
Other property and equipment
Other assets and investments
Acquisitions
Discontinued operations, net
Other, net
Net cash used by investing activities
Cash flows from financing activities:
Cash flows from financing activities:
Cash flows from financing activities:
Cash flows from financing activities:
Long-term debt:
Additions
Repayments
Short-term borrowings (repayments), net
Repurchase of stock
Dividends
Other, net
Net cash used by financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
See Accompanying Notes to Consolidated Financial Statements.
44
2002 ANNUAL REPORT
Years Ended December 31
2000
2002
2002
20022002
2001
26.126.126.126.1
16.6
(256.6)
42.942.942.942.9
----
154.8
154.8
154.8
154.8
32.332.332.332.3
(23.9)
(23.9)
(23.9)
(23.9)
21.521.521.521.5
30.630.630.630.6
(0.8)
(0.8)
(0.8)
(0.8)
3.23.23.23.2
23.723.723.723.7
23.8)
((((23.8)
23.8)
23.8)
((((14.214.214.214.2))))
17.417.417.417.4
(17.7)
(17.7)
(17.7)
(17.7)
27.127.127.127.1
8.78.78.78.7
307.9999
307.
307.307.
(66.6)
(66.6)
(66.6)
(66.6)
241.3333
241.
241.241.
29.2
-
160.6
33.8
(23.9)
1.6
32.4
(6.7)
12.0
10.9
8.5
41.8
(21.3)
(14.9)
27.0
5.6
313.2
6.9
320.1
207.3
52.0
158.8
30.1
(20.6)
47.8
40.2
(28.1)
22.9
12.4
9.3
40.5
11.9
(14.0)
27.1
(1.6)
339.4
30.4
369.8
(204.2)
(204.2)
(204.2)
(204.2)
(31.0)
(31.0)
(31.0)
(31.0)
(193.1)
(15.5)
(214.4)
(50.5)
42.342.342.342.3
5.75.75.75.7
----
(0.1)
(0.1)
(0.1)
(0.1)
(19.7))))
(19.7
(19.7
(19.7
(1.4)
(1.4)
(1.4)
(1.4)
-
2.0
7.3
(8.4)
(11.1)
(6.3)
-
4.1
-
(3.9)
(7.4)
(1.6)
(208.4))))
(208.4
(208.4
(208.4
(225.1)
(273.7)
294.7
294.7
294.7
294.7
(304.1)
(304.1)
(304.1)
(304.1)
9.19.19.19.1
(11.1)
(11.1)
(11.1)
(11.1)
(5.3)
(5.3)
(5.3)
(5.3)
----
107.7
(185.8)
(23.0)
-
(5.4)
4.8
332.0
(410.1)
(39.2)
(2.2)
(5.6)
0.6
((((16.716.716.716.7))))
(101.7)
(124.5)
((((0.60.60.60.6))))
15.615.615.615.6
86.786.786.786.7
$$$$
102.3
102.3
102.3
102.3
(4.4)
(11.1)
97.8
86.7
(5.0)
(33.4)
131.2
97.8
THE PITTSTON COMPANY A
ND ITS SUBSIDIARIES
THE PITTSTON COMPANY AND ITS SUBSIDIARIES
ND ITS SUBSIDIARIES
ND ITS SUBSIDIARIES
THE PITTSTON COMPANY A
THE PITTSTON COMPANY A
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1
Note 1
Note 1
Note 1
SUMMARY OF SIGNIFICANT ACCOUNTING
SUMMARY OF SIGNIFICANT ACCOUNTING
SUMMARY OF SIGNIFICANT ACCOUNTING
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
POLICIES
POLICIES
POLICIES
Basis of Presentation
Basis of Presentation
Basis of Presentation
Basis of Presentation
The Pittston Company, a Virginia corporation, has three
primary operating segments within its “Business and
Security Services” businesses: Brink’s, Incorporated
(“Brink’s”); Brink’s Home Security, Inc. (“BHS”); and BAX
Global Inc. (“BAX Global”).
The fourth operating segment is Other Operations, which
consists of gold, timber and natural gas operations. The
Company also has significant assets and liabilities
associated with its former coal operations and expects to
have significant ongoing expenses and cash outflows
related to former coal operations in the future.
The Pittston Company and its subsidiaries are referred to
herein as the “Company.” The Company’s common stock
trades on the New York Stock Exchange under the symbol
“PZB.”
Prior to January 14, 2000, the Company had three classes
of common stock, each designed to track a segment of
the Company’s businesses: Pittston Brink’s Group Common
Stock (“Brink’s Stock”), Pittston BAX Group Common
Stock (“BAX Stock”) and Pittston Minerals Group
Common Stock (“Minerals Stock”).
The Company eliminated its tracking stock capital
structure on January 14, 2000 by exchanging all
outstanding shares of Minerals Stock and BAX Stock for
shares of Brink’s Stock (the “Exchange”). See Note 3 for
additional information concerning the Exchange.
2002 ANNUAL REPORT
Principles of Consolidation
Principles of Consolidation
Principles of Consolidation
Principles of Consolidation
The Consolidated Financial Statements include the
accounts of The Pittston Company and the subsidiaries it
controls, including all subsidiaries that are majority
owned. The Company’s interest in 20% to 50% owned
companies are accounted for using the equity method
(“equity affiliates”) unless control exists, in which case,
consolidation accounting is used. Undistributed earnings
of equity affiliates included in consolidated retained
earnings approximated $33.1 million at December 31,
2002. All material intercompany items and transactions
have been eliminated in consolidation.
Revenue Recognition
Revenue Recognition
Revenue Recognition
Revenue Recognition
Brink’s – Revenue is recognized when services are
performed. Services related to armored car
transportation, including ATM servicing, cash logistics,
coin sorting and wrapping are performed in accordance
with the terms of customer contracts, which contract
prices are fixed and determinable. Brink’s assesses the
customer’s ability to meet the terms of the contract,
including payment terms, before entering into contracts.
BHS - Monitoring revenues are recognized monthly as
services are provided pursuant to the terms of customer
contracts, which contract prices are fixed and
determinable. BHS assesses the customer’s ability to meet
the terms of the contract, including payment terms,
before entering into contracts. Amounts collected in
advance as deposits from customers are deferred and
recognized as income over the applicable monitoring
period, which is generally one year or less. Beginning in
2000, nonrefundable installation revenues and a portion
of the related direct costs of acquiring new subscribers
(primarily sales commissions) are deferred and recognized
over the estimated term of the subscriber relationship,
which is generally 15 years.
45
When an installation is identified for disconnection, any
unamortized deferred revenues and deferred costs
related to that installation are recognized at that time.
Prior to 2000, BHS charged against earnings as incurred,
all marketing and selling costs associated with obtaining
new subscribers and recognized as revenue all
nonrefundable payments received from such subscribers
to the extent that costs exceeded such revenues.
BAX Global - Revenues related to transportation services
are recognized, together with related transportation
costs, on the date shipments physically depart from
facilities en route to destination locations. BAX Global
and its customer agree to the terms of the shipment,
including pricing, prior to shipment. Pricing terms are
fixed and determinable, and BAX Global only agrees to
shipments when it believes that collectibility is reasonably
assured. Revenues and operating results determined
under existing recognition policies do not materially
differ from those which would result from an allocation
of revenue between reporting periods based on relative
transit times in each reporting period with expenses
recognized as incurred.
Cash and Cash Equivalents
Cash and Cash Equivalents
Cash and Cash Equivalents
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand
deposits and investments with original maturities of three
months or less.
Trade Accounts Receivable
Trade Accounts Receivable
Trade Accounts Receivable
Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced
amount and do not bear interest. The allowance for
doubtful accounts is the Company’s best estimate of the
amount of probable credit losses in the Company’s
existing accounts receivable. The Company determines
the allowance based on historical write-off experience by
industry and customer specific data. The Company
reviews its allowance for doubtful accounts quarterly.
Account balances are charged off against the allowance
after all means of collection have been exhausted and the
potential for recovery is considered remote. The
Company has an accounts receivable securitization
program described in Note 13.
2002 ANNUAL REPORT
Property and Equipment
Property and Equipment
Property and Equipment
Property and Equipment
Property and equipment is accounted for at cost.
Depreciation is calculated principally on the straight-line
method. Amortization of capitalized software is
calculated principally on the straight-line method.
Estimated Useful Lives
Buildings
Home security systems
Vehicles
Capitalized software
Other machinery and equipment
Years
10 to 40
15
3 to 12
3 to 7
3 to 20
Expenditures for routine maintenance and repairs on
property and equipment, including aircraft, are charged
to expense. Major renewals, betterments and
modifications are capitalized and amortized over the
lesser of the remaining life of the asset or, if applicable,
lease term. Scheduled airframe and periodic engine
overhaul costs are capitalized, and reported within other
assets, when incurred and amortized over the flying time
to the next scheduled major maintenance or overhaul
date, respectively.
BHS retains ownership of most home security systems
installed at subscriber locations. Costs for those systems
are capitalized and depreciated over the estimated lives of
the assets. Costs capitalized as part of home security
systems include equipment and materials used in the
installation process, direct labor required to install the
equipment at customer sites, and other costs associated
with the installation process. These other costs include the
cost of vehicles used for installation purposes and the
portion of telecommunication, facilities and administrative
costs incurred primarily at BHS’ branches that are
associated with the installation process. Direct labor and
other costs represent approximately 70% of the amounts
capitalized, while equipment and materials represent
approximately 30% of amounts capitalized. In addition to
regular straight line depreciation expense each period, the
Company charges to expense the carrying value of security
systems estimated to be permanently disconnected based
on each period’s actual disconnects and historical
reconnection experience.
46
The costs of computer software developed or obtained
for internal use are accounted for in accordance with
AICPA Statement of Position (“SOP”) No. 98-1,
“Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use.” SOP No. 98-1
requires that certain costs related to the development or
purchase of internal-use software be capitalized and
amortized over the estimated useful life of the software.
Costs that are capitalized include external direct costs of
materials and services to develop or obtain the software,
and internal costs for employees directly associated with a
software development project, including payroll and
other employee benefits. Amortization of capitalized
software costs was $19.8 million, $15.1 million and $14.6
million in 2002, 2001 and 2000, respectively.
Goodwill
Goodwill
Goodwill
Goodwill
Goodwill is recognized for the excess of the purchase
price over the fair value of tangible and identifiable
intangible net assets of businesses acquired. Prior to the
adoption of Statement of Financial Accounting Standards
(“SFAS”) No. 142, “Goodwill and Other Intangible Assets”
in January 2002, goodwill was amortized over the
estimated period of benefit on a straight-line basis up to
a maximum of 40 years, and was reviewed for impairment
under the provisions of SFAS No. 121 “Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets
to be Disposed Of,” for other long-lived assets. Since the
adoption of SFAS No. 142, amortization of goodwill has
been discontinued and goodwill is reviewed at least
annually for impairment. The Company completed the
transitional and annual goodwill impairment tests during
2002 with no impairment charges required. The
Company’s goodwill amortization in each of 2001 and
2000 was approximately $9.5 million.
A reconciliation of net income (loss) and net income (loss)
per share for the three years ended December 31, 2002 as
reported in the Company’s Consolidated Statements of
Operations, to net income (loss) and net income (loss) per
share for the same periods, as adjusted to exclude
goodwill amortization expense (net of tax effects), is
presented below:
2002 ANNUAL REPORT
(In millions, except
per share amounts)
Years Ended December 31
2002
2002
20022002
2001
2000
Reported net income (loss)
$$$$ 26.126.126.126.1
16.6
(256.6)
Goodwill amortization,
net of tax effects
----
8.3
8.2
Net income (loss) as adjusted
$$$$ 26.126.126.126.1
24.9
(248.4)
Reported diluted
net income (loss) per share
$$$$ 0.480.480.480.48
0.31
(5.12)
Goodwill amortization, net
of tax effects
----
0.16
0.16
Diluted net income (loss)
per share as adjusted
$$$$ 0.480.480.480.48
0.47
(4.96)
Lived Assets
Impairment of Long----Lived Assets
Impairment of Long
Lived Assets
Lived Assets
Impairment of Long
Impairment of Long
Long-lived assets that are deemed impaired are recorded
at the lower of the carrying amount or fair value in
accordance with SFAS No. 142 for goodwill, as noted
above, and SFAS No. 144, “Accounting for the Impairment
or Disposal of Long-Lived Assets” for long-lived assets
besides goodwill. Long-lived assets besides goodwill are
reviewed for impairment when circumstances indicate the
carrying value of an asset may not be recoverable. For
assets that are to be held and used, an impairment is
recognized when the estimated undiscounted cash flows
associated with the asset or group of assets is less than
their carrying value. If impairment exists, an adjustment is
made to write the asset down to its fair value, and a loss
is recorded as the difference between the carrying value
and fair value. Fair values are determined based on
quoted market values, discounted cash flows or internal
and external appraisals, as applicable. Assets held for sale
are carried at the lower of carrying value or estimated net
realizable value. See Note 8.
Based Compensation
Stock----Based Compensation
Stock
Based Compensation
Based Compensation
Stock
Stock
The Company accounts for its stock-based compensation
plans using the intrinsic value method prescribed in
Accounting Principles Board Opinion (“APB”) No. 25,
“Accounting for Stock Issued to Employees” and related
interpretations. Accordingly, since options are granted
with an exercise price equal to the market price of the
stock on the date of grant, the Company has not
recognized any compensation expense related to its stock
option plans for the years ended December 31, 2002, 2001
and 2000. See Note 16.
47
2002 ANNUAL REPORT
Pensions
Postretirement Benefits Other Than Pensions
Postretirement Benefits Other Than
Pensions
Pensions
Postretirement Benefits Other Than
Postretirement Benefits Other Than
Postretirement benefits other than pensions, except for
those established pursuant to the Coal Industry Retiree
Health Benefit Act of 1992 (the “Health Benefit Act”), are
accounted for in accordance with SFAS No. 106,
“Employers’ Accounting for Postretirement Benefits Other
Than Pensions,” which requires employers to accrue the
cost of such retirement benefits during the employees’
service with the Company. Actuarial gains and losses are
deferred. The portion of the deferred gains or losses that
exceeds 10% of the accumulated postretirement benefit
obligation at the beginning of the year is amortized into
earnings generally over the average remaining life
expectancy for inactive participants.
Postretirement benefit obligations established by the
Health Benefit Act are recorded as a liability when they
are probable and estimable in accordance with Emerging
Issues Task Force (“EITF”) No. 92-13, “Accounting for
Estimated Payments in Connection with the Coal Industry
Retiree Health Benefit Act of 1992.” Prior to the
Company’s formal plan to exit the coal business in
December 2000, the Company recognized expense when
payments were made, similar to the accounting for multi-
employer plans, as provided in EITF 92-13.
Income Taxes
Income Taxes
Income Taxes
Income Taxes
Deferred tax assets and liabilities are recognized for the
expected future tax consequences of events that have
been included in the financial statements or tax returns.
Deferred tax assets and liabilities are determined based
on the difference between the financial statement and
tax bases of assets and liabilities using enacted tax rates in
effect for the year in which these items are expected to
reverse.
Had compensation costs for the Company’s stock-based
compensation plans been determined based on the fair
value of awards at the grant dates consistent with the
optional recognition provision of SFAS No. 123,
“Accounting for Stock Based Compensation,” net income
(loss) and net income (loss) per share would be the pro
forma amounts indicated below:
(In millions, except
per share amounts)
Years Ended December 31
2002
2002
20022002
2001
2000
Net income (loss)
Net income (loss)
Net income (loss)
Net income (loss)
As reported
$$$$ 26.126.126.126.1
16.6
(256.6)
Less stock-based compensation
expense determined under
fair value method
(4.(4.(4.(4.4444))))
(5.0)
(4.4)
Pro forma
$$$$ 21.721.721.721.7
11.6
(261.0)
Net income (loss) per common share
Net income (loss) per common share
Net income (loss) per common share
Net income (loss) per common share
Basic, as reported
Basic, pro forma
Diluted, as reported
Diluted, pro forma
$$$$
$$$$
0.480.480.480.48
0.400.400.400.40
0.40.40.40.48888
0.390.390.390.39
0.31
0.21
0.31
0.21
(5.11)
(5.21)
(5.12)
(5.21)
The fair value of each stock option grant is estimated at
the time of the grant using the Black-Scholes option-
pricing model. Pro forma net income (loss) and net
income (loss) per share disclosures are computed by
amortizing the estimated fair value of the grants over
respective vesting periods. The weighted-average
assumptions used in the model for Pittston Common Stock
and the resulting weighted-average grant-date estimates
of fair value are as follows:
Assumptions:
Expected dividend yield
Expected volatility
Risk-free interest rate
Expected term (in years)
Fair value estimates:
In millions
Per share
Years Ended December 31
2002
2002
20022002
2001
2000
0.5%0.5%0.5%0.5%
37%37%37%37%
3.7%3.7%3.7%3.7%
4.04.04.04.0
0.5%
38%
4.8%
4.6
0.4%
31%
6.0%
4.5
$$$$
$$$$
6.66.66.66.6
9.6
6.976.976.976.97
8.10
5.5
5.21
48
2002 ANNUAL REPORT
Mine development costs are capitalized and amortized
over the estimated useful life of the mine. These costs
include expenses incurred for site preparation and
development at the mines during the development stage.
A mine is considered under development until
management determines that all planned production
units are in place and the mine is available for commercial
operation and the mining of coal. Capitalized mine
development costs are included within noncurrent assets
(classified as part of discontinued operations at December
31, 2001) on the Company's Consolidated Balance Sheets.
The associated amortization is included as a component
of the Company's loss from discontinued operations in the
Company's Consolidated Statements of Operations.
Reclamation Costs
Expenditures relating to environmental regulatory
requirements and reclamation costs undertaken during
mine operations are expensed as incurred. Estimated site
restoration and post closure reclamation costs are
expensed using the units of production method over the
estimated recoverable tonnage at each mine. In each case,
such charges are included as a component of the
Company's loss from discontinued operations in the
Company's Consolidated Statements of Operations.
Accrued reclamation costs are subject to review by
management on a regular basis and are revised when
appropriate for changes in future estimated costs and/or
regulatory requirements. Accrued reclamation costs for
mines are included in either current or noncurrent
liabilities (amounts expected to be assumed by purchasers
were classified as part of discontinued operations at
December 31, 2001) in the Company's Consolidated
Balance Sheets.
Inventories
Inventories are stated at cost (determined under the first-
in, first-out or average cost method) or market, whichever
is lower. Inventory is recorded within current assets
(classified as part of discontinued operations at December
31, 2001) in the Company's Consolidated Balance Sheets.
Foreign Currency Translation
Foreign Currency Translation
Foreign Currency Translation
Foreign Currency Translation
The Company’s Consolidated Financial Statements are
reported in U.S. dollars. Assets and liabilities of foreign
subsidiaries are translated using rates of exchange at the
balance sheet date and resulting cumulative translation
adjustments have been recorded as a separate component
of accumulated other comprehensive loss. Revenues and
expenses are translated at rates of exchange in effect
during the year. Translation adjustments relating to
subsidiaries in countries with highly inflationary
economies are included in net income, along with all
transaction gains and losses.
Hedging Activities
Derivative Instruments and Hedging Activities
Derivative Instruments and
Hedging Activities
Hedging Activities
Derivative Instruments and
Derivative Instruments and
All derivative instruments are recorded in the
Consolidated Balance Sheet at fair value. If the derivative
has been designated as a cash flow hedge, changes in the
fair value of derivatives are recognized in other
comprehensive loss until the hedged transaction is
recognized in earnings.
Former Coal Operations
Former Coal Operations
Former Coal Operations
Former Coal Operations
The following accounting policies of the Company’s
former coal operations were in effect through December
2002, at which point the Company completed its exit of
the coal business by either selling or shutting down its
active coal operations.
Revenue Recognition
Coal sales are generally recognized when coal is loaded
onto transportation vehicles for shipment to customers.
For domestic sales, this generally occurs when coal is
loaded onto railcars at mine locations. For export sales,
this generally occurs when coal is loaded onto marine
vessels at terminal facilities. Coal sales are included as a
component of the Company’s loss from discontinued
operations in the Company's Consolidated Statements of
Operations.
Property, Plant and Equipment
Depletion of bituminous coal lands is provided on the
basis of tonnage mined in relation to the estimated total
of recoverable tonnage in the ground and is included as a
component of the Company's loss from discontinued
operations in the Company's Consolidated Statements of
Operations.
49
Use of Estimates
Use of Estimates
Use of Estimates
Use of Estimates
In accordance with accounting principles generally
accepted in the U.S., management of the Company has
made a number of estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these
Consolidated Financial Statements. Actual results could
differ materially from those estimates. The most
significant estimates used by management are related to
the accounting for goodwill and property and equipment
valuations, employee and retiree benefit obligations,
discontinued operations, and deferred tax assets.
Reclassifications
Reclassifications
Reclassifications
Reclassifications
Certain prior year amounts have been reclassified to
conform to the current year’s financial statement
presentation.
2000
Accounting Change ---- 2000
Accounting Change
2000
2000
Accounting Change
Accounting Change
Pursuant to guidance issued in Staff Accounting Bulletin
(“SAB”) No. 101, “Revenue Recognition in Financial
Statements,” by the Securities and Exchange Commission
in December 1999, and a related interpretation issued in
October 2000, BHS changed its method of accounting for
nonrefundable installation revenues and a portion of the
related direct costs of obtaining new subscribers
(primarily sales commissions). Under the new method, all
of the nonrefundable installation revenues and a portion
of the new installation costs deemed to be direct costs of
subscriber acquisition are deferred and recognized in
income over the estimated term of the subscriber
relationship. Prior to 2000, BHS charged against earnings
as incurred, all marketing and selling costs associated with
obtaining new subscribers and recognized as revenue all
nonrefundable payments received from such subscribers
to the extent that costs exceeded such revenues.
2002 ANNUAL REPORT
The accounting change was implemented in 2000 and the
Company reported a noncash after-tax charge of $52.0
million ($84.7 million pretax), to reflect the cumulative
effect of the accounting change on years prior to 2000.
The pretax cumulative effect charge of $84.7 million
comprised a net deferral of $121.1 million of revenues
partially offset by $36.4 million of customer acquisition
costs. The change in accounting principle decreased
operating profit for 2000 by $2.3 million, reflecting a net
decrease in revenues of $6.4 million and a net decrease in
operating expenses of $4.1 million. Net income for 2000
was reduced by $1.4 million ($0.03 per diluted share).
Pronouncements
Recent Accounting Pronouncements
Recent Accounting
Pronouncements
Pronouncements
Recent Accounting
Recent Accounting
SFAS No. 143, “Accounting for Asset Retirement
Obligations,” was issued in June 2001 and addresses
financial accounting and reporting for obligations
associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS No.
143 requires that the fair value of a liability for an asset
retirement obligation be recognized in the period in
which it becomes an obligation, if a reasonable estimate
of fair value can be made. The Company will adopt SFAS
No. 143 in the first quarter of 2003. The implementation
of the new standard is not expected to have a material
effect on the Company’s results of operations or financial
position.
SFAS No. 146, “Accounting for Costs Associated with Exit
or Disposal Activities,” was issued in June 2002 and
applies to costs associated with an exit activity (including
restructuring) or with a disposal of long-lived assets. This
statement nullifies Emerging Issues Task Force Issue No.
94-3, “Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring).”
Under SFAS No. 146, a commitment to a plan to exit an
activity or dispose of long-lived assets will no longer be
sufficient to record a charge for most anticipated costs.
Instead, a liability for costs associated with an exit or
disposal activity will be recorded when that liability is
incurred and can be measured at fair value. SFAS No. 146
also revises accounting for specified employee and
contract terminations that are part of restructuring
activities. SFAS No. 146 is effective for exit or disposal
activities initiated after December 31, 2002.
50
SFAS No. 148 “Accounting for Stock-Based Compensation
- Transition and Disclosure,” was issued in December 2002
and provides alternative methods of transition for a
voluntary change to the fair value-based method of
accounting for stock-based compensation. It also amends
the disclosure provisions of SFAS No. 123 to require
prominent disclosure in the “Summary of Significant
Accounting Policies” about the effects on reported net
income of an entity’s accounting policy decisions with
respect to stock-based employee compensation. SFAS No.
148 requires disclosure as to the pro forma effects on
interim financial statements if stock-based compensation
is accounted for under the intrinsic value method
prescribed in APB No. 25. The amendments to SFAS No.
123 as to transition alternatives and as to prominent
disclosure are effective for fiscal years ending after
December 15, 2002. The amendment is effective for
interim periods beginning after December 15, 2002.
In November 2002, the Financial Accounting Standards
Board (the “FASB”) issued FASB Interpretation No. 45
(“FIN 45”), “Guarantor’s Accounting and Disclosure
Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others.” FIN 45 requires
that upon issuance of a guarantee, the guarantor must
recognize a liability for the fair value of the obligation it
assumes under that guarantee. FIN 45 also requires
2002 ANNUAL REPORT
additional disclosures by a guarantor in its interim and
annual financial statements about the obligations
associated with guarantees issued. The required
disclosures have been included in Notes 12, 14 and 21. The
recognition and measurement provisions are effective on
a prospective basis to guarantees issued or modified after
December 31, 2002. The adoption of this interpretation is
not expected to have a material effect on the Company’s
Consolidated Financial Statements.
In January 2003, the FASB issued FASB Interpretation No.
46 (“FIN 46”), “Consolidation of Variable Interest
Entities.” FIN 46 provides guidance on the identification
of entities for which control is achieved through means
other than through voting rights (“variable interest
entities”) and how to determine when and which business
enterprises should consolidate variable interest entities.
Variable interest entities created after January 31, 2003, if
any, will be assessed for consolidation using the new
interpretation beginning in the first quarter of 2003.
Variable interest entities in which the Company holds a
variable interest that it acquired before February 1, 2003
will be assessed for consolidation beginning in the third
quarter of 2003. The adoption of this interpretation is not
expected to have a material effect on the Company’s
Consolidated Financial Statements.
51
2002 ANNUAL REPORT
Note 2
Note 2
Note 2
Note 2
EGMENT INFORMATION
SSSSEGMENT INFORMATION
EGMENT INFORMATION
EGMENT INFORMATION
The Company conducts business in four different operating segments: Brink’s, BHS, and BAX Global (collectively “Business
and Security Services”) and Other Operations. These reportable segments are identified by the Company based on how
resources are allocated and how operating decisions are made. Management evaluates performance and allocates
resources based on operating profit or loss excluding corporate allocations.
Brink’s operates in the U.S. and 49 international countries. Services offered by Brink’s include contract-carrier armored car,
ATM servicing, air courier (global services), coin wrapping and cash logistics.
BHS is engaged in the business of marketing, selling, installing, monitoring and servicing electronic security systems,
primarily in owner-occupied, single-family residences.
BAX Global is a worldwide transportation and supply chain management company offering multi-modal freight
forwarding to business-to-business shippers through a global network. In North America, BAX Global provides overnight,
second day and deferred freight delivery as well as supply chain management services. Internationally, BAX Global is
engaged in time-definite air and sea delivery, freight forwarding, supply chain management services and international
customs brokerage.
The Company has no single customer that represents more than 10% of its total revenue.
Other Operations consists of the Company’s gold, timber and natural gas businesses. The Company expects to ultimately
exit these activities to focus resources on its core Business and Security Services segments.
The Company also has significant assets and liabilities associated with its former coal operations and expects to have
significant ongoing expenses and cash outflows related to former coal operations in the future.
(In millions)
2002
2002
20022002
2001
2000
2002
2002
20022002
2001
2000
2002
2002
20022002
2001
2000
Assets
December 31
Revenues
Operating Profit (Loss)
Years Ended December 31
Years Ended December 31
Segmentssss
Business Segment
Business
Segment
Segment
Business
Business
Brink’s
BHS
BAX Global (a)
851.4
$$$$ 851.4
851.4
851.4
418.9
418.9
418.9
418.9
764.5
764.5
764.5
764.5
801.7
386.4
696.8
764.9
365.6
798.6
1,579.9
$$$$ 1,579.9
1,579.9
1,579.9
1,536.3 1,462.9
$$$$ 96.196.196.196.1
282.4
282.4
282.4
282.4
257.6
238.1
1,871.5
1,871.5
1,871.5
1,871.5
1,790.1 2,097.6
60.960.960.960.9
17.617.617.617.6
92.0
54.9
108.5
54.3
(27.6)
(99.6)
Business and Security Services
2,034.8
2,034.8
2,034.8
2,034.8
1,884.9
1,929.1
3,733.8
3,733.8
3,733.8
3,733.8
3,584.0 3,798.6
174.6
174.6
174.6
174.6
119.3
Other Operations (b)
General corporate
Former coal operations:
Deferred tax assets
Other (c)
51.151.151.151.1
27.727.727.727.7
46.2
70.3
50.1
67.2
238.7
238.7
238.7
238.7
107.6
107.6
107.6
107.6
244.4
177.4
231.6
200.7
42.942.942.942.9
40.2
35.5
0.40.40.40.4
7.6
----
----
----
-
-
-
-
-
-
(23.1)
(23.1)
(23.1)
(23.1)
(19.3)
(21.2)
----
(19.2)
(19.2)
(19.2)
(19.2)
-
-
-
-
63.2
5.7
2,459.9
$$$$ 2,459.9
2,459.9
2,459.9
2,423.2
2,478.7
3,776.7
$$$$ 3,776.7
3,776.7
3,776.7
3,624.2 3,834.1
132.7
$$$$ 132.7
132.7
132.7
107.6
47.7
(a) BAX Global’s operating loss in 2000 includes restructuring charges of $57.5 million (see Note 20).
(b) Other Operations operating profit in 2002 includes a $7.1 million of impairment and other charges.
(c) Former coal operations operating loss in 2002 represents impairment and other charges.
52
(In millions)
Segments
usiness Segments
BBBBusiness
Segments
Segments
usiness
usiness
Brink’s
BHS
BAX Global (a)
Business and Security Services
Other Operations
General corporate
Property and equipment
Amortization of BHS deferred subscriber acquisition costs
Goodwill amortization:
Brink’s
BAX Global
2002 ANNUAL REPORT
Capital Expenditures
Depreciation and Amortization
Years Ended December 31
Years Ended December 31
2002
2002
20022002
2001
2000
2002
2002
20022002
2001
2000
$$$$
79.379.379.379.3
86.986.986.986.9
27.127.127.127.1
193.3
193.3
193.3
193.3
10.810.810.810.8
0.10.10.10.1
204.2
204.2
204.2
204.2
----
----
----
-
71.3
81.3
33.1
73.9
74.5
60.1
$$$$
61.361.361.361.3
37.337.337.337.3
44.444.444.444.4
60.1
31.0
49.4
58.2
26.7
53.8
185.7
208.5
143.0
143.0
143.0
143.0
140.5
138.7
7.2
0.2
5.1
0.8
193.1
214.4
-
-
-
-
-
-
-
-
4.94.94.94.9
0.30.30.30.3
148.2
148.2
148.2
148.2
6.66.66.66.6
----
----
----
4.3
0.5
4.9
0.4
145.3
144.0
5.8
5.3
2.1
7.4
9.5
2.0
7.5
9.5
Total
204.2
$$$$ 204.2
204.2
204.2
193.1
214.4
$$$$
154.8
154.8
154.8
154.8
160.6
158.8
(a) Excludes aircraft heavy maintenance expenditures and amortization.
(In millions)
Other BHS Information
Other BHS Information
Other BHS Information
Other BHS Information
Impairment charges from subscriber disconnects
Amortization of deferred revenue
Deferred subscriber acquisition costs (current year payments)
Deferred revenue from new subscribers (current year receipts)
Years Ended December 31
2002
2002
20022002
2001
2000
$$$$
32.332.332.332.3
33.8
30.1
(23.9)
(23.9)
(23.9)
(23.9)
(17.7)
(17.7)
(17.7)
(17.7)
27.127.127.127.1
(23.9)
(14.9)
(20.6)
(14.0)
27.0
27.1
Long-Lived Assets
Revenues
December 31
Years Ended December 31
2002
2002
20022002
2001
2000
2002
2002
20022002
2001
2000
Operating Profit (Loss)
Years Ended December 31
2000
2001
2002
2002
20022002
(In millions)
Geographic
Geographic
Geographic
Geographic
United States (a)
$$$$
777777773.33.33.33.3
762.7
France
134.7
134.7
134.7
134.7
102.7
241.3
Other international (a) 241.3
241.3
241.3
248.2
General corporate (b)
0.80.80.80.8
1.1
745.0
101.3
252.1
1.4
Former coal operations (b) 33331.51.51.51.5
113.4
119.4
1,796.1
$$$$ 1,796.1
1,796.1
1,796.1
1,775.4
1,932.1
$$$$
375.6
375.6
375.6
375.6
326.0
297.0
1,601,601,601,605.05.05.05.0
1,522.8
1,605.0
----
----
-
-
-
-
88882.62.62.62.6
21.321.321.321.3
71.71.71.71.1111
(23.1)
(23.1)
(23.1)
(23.1)
(19.2)
(19.2)
(19.2)
(19.2)
39.0
25.3
62.6
(28.3)
20.9
76.3
(19.3)
(21.2)
-
-
1,181.6
$$$$ 1,181.6
1,181.6
1,181.6
1,228.1
1,219.2
3,776.7
$$$$ 3,776.7
3,776.7
3,776.7
3,624.2
3,834.1
$$$$
132.7
132.7
132.7
132.7
107.6
47.7
(a) Operating profit (loss) in 2000 includes restructuring charges of $54.6 million and $2.9 million in the U.S. and Other international, respectively, (see Note
20).
(b) U.S. based assets and expense.
53
Brink’s has investments in unconsolidated equity
affiliates of $23.8 million, $26.0 million and $22.1 million
in 2002, 2001 and 2000, respectively. Brink’s equity
interest in net income of unconsolidated equity affiliates
was $1.3 million in 2002, $5.5 million in 2001 and $4.3
million in 2000.
Other operations has investments in unconsolidated
equity affiliates of $3.4 million, $3.4 million and $4.4
million in 2002, 2001 and 2000, respectively. Other
operation’s equity interest in net income (loss) of
unconsolidated equity affiliates was $0.1 million in 2002,
($0.6) million in 2001 and $0.4 million in 2000.
The Company has an additional investment in an
unconsolidated equity affiliate of $8.3 million in 2002,
$7.1 million in 2001 and $6.2 million in 2000.
Revenues are recorded in the country where the service
is initiated/performed with the exception of most of BAX
Global’s export freight service where revenue is shared
among the origin and destination countries. The
Company’s net assets in non-U.S. subsidiaries were $377.8
million and $318.1 million at December 31, 2002 and
2001, respectively.
Note 3
Note 3
Note 3
Note 3
CAPITAL STOCK
CAPITAL STOCK
CAPITAL STOCK
CAPITAL STOCK
Common Stock
Common Stock
Common Stock
Common Stock
On January 14, 2000, the Company eliminated its
tracking stock capital structure by exchanging all
outstanding shares of Minerals Stock and BAX Stock for
10.9 million shares of Brink’s Stock. The holders of
Minerals Stock received 0.0817 share of Brink’s Stock for
each share of their Minerals Stock; and holders of BAX
Stock received 0.4848 share of Brink’s Stock for each
share of their BAX Stock. The exchange ratios were
derived using a shareholder-approved formula that was
based on the relative fair market values of each stock, as
defined in the Company’s Articles of Incorporation.
After January 14, 2000, Brink’s Stock became the only
outstanding class of common stock of the Company and
is hereinafter referred to as “Pittston Common Stock.”
2002 ANNUAL REPORT
Convertible Preferred Stock
Convertible Preferred Stock
Convertible Preferred Stock
Convertible Preferred Stock
On August 15, 2002 the Company redeemed all 21,433
outstanding shares of the $31.25 Series C Cumulative
Preferred Stock (the “Convertible Preferred Stock”) for
$10.8 million, or $506.25 per share.
At December 31, 2002, the Company has authority to
issue up to 2.0 million shares of preferred stock, par
value $10 per share.
Repurchase Program
Repurchase Program
Repurchase Program
Repurchase Program
The Company has the remaining authority to purchase
up to 1.0 million shares of Pittston Common Stock under
a share repurchase program authorized by the Board of
Directors, with an aggregate purchase price limitation of
$19.1 million.
(Dollars in millions,
shares in thousands)
Years Ended December 31
2002
2002
20022002
2001
2000
rred Stock
Convertible Preferred Stock
Convertible Prefe
rred Stock
rred Stock
Convertible Prefe
Convertible Prefe
Shares repurchased
Cash paid to repurchase
Premium on redemption of
preferred stock (a)
Discount on repurchase of
preferred stock (b)
21.421.421.421.4
$$$$ 10.810.810.810.8
(0.6)
(0.6)
(0.6)
(0.6)
-
-
-
-
-
8.1
2.2
-
1.7
(a) Represents the excess of cash paid to holders over the carrying value
of the shares redeemed and is included within preferred dividends in
the Company’s Consolidated Statements of Operations.
(b) Represents the excess of carrying value over cash paid to holders of
the shares repurchased and is included within preferred dividends in
the Company’s Consolidated Statements of Operations.
Dividends
Dividends
Dividends
Dividends
During 2002, 2001 and 2000, the Company paid
dividends of $5.2 million, $5.1 million and $5.0 million,
respectively, on Pittston Common Stock. In 2002, 2001
and 2000, dividends paid on the Convertible Preferred
Stock amounted to $0.5 million, $0.7 million, and $0.9
million, respectively.
Dividends distributed to employee benefit plans in the
form of common stock were $0.4 million, $0.4 million
and $0.3 million for the years ended December 31, 2002,
2001 and 2000, respectively.
54
2002 ANNUAL REPORT
A Preferred Stock equivalent to the number of shares of
common stock which at the time of the triggering event
would have a market value of twice the purchase price.
As an alternative to the purchase described in the
previous sentence, the Board may elect to exchange the
rights for other forms of consideration, including that
number of shares of common stock obtained by dividing
the purchase price by the market price of the common
stock at the time of the exchange or for cash equal to
the purchase price. The rights may be redeemed by the
Company at a price of $0.01 per right and expire on
September 25, 2007.
Employee Benefits Trust
Employee Benefits Trust
Employee Benefits Trust
Employee Benefits Trust
The Pittston Company Employee Benefits Trust (the
“Trust”) holds shares of Pittston Common Stock to fund
obligations under certain compensation and employee
benefit programs that provide for the issuance of stock.
In 2001, the Company issued an additional 2.5 million
shares of Pittston Common Stock to the Trust. In 2000,
the Trust exchanged its BAX Stock and Minerals Stock for
0.7 million shares of Pittston Common Stock in the
Exchange. As of December 31, 2002, 2001 and 2000, 1.8
million, 2.7 million and 1.3 million shares, respectively, of
Pittston Common Stock were held by the Trust. The fair
value as of the balance sheet date of the shares owned
by the Trust are accounted for as a reduction of
shareholders’ equity. Shares of Pittston Common Stock
will be voted by the trustee in the same proportion as
those voted by the Company’s employees participating in
the Company’s Savings Investment Plan.
In February 2003, the Board declared a cash dividend of
$0.025 per share on Pittston Common Stock payable on
March 3, 2003 to shareholders of record on February 18,
2003.
Series A Preferred Stock Rights Agreement
Series A Preferred Stock Rights Agreement
Series A Preferred Stock Rights Agreement
Series A Preferred Stock Rights Agreement
Under the Amended and Restated Rights Agreement
dated as of January 14, 2000, as amended effective
November 30, 2001, holders of Pittston Common Stock
have rights to purchase a new Series A Participating
Cumulative Preferred Stock (the “Series A Preferred
Stock”) of the Company at the rate of one right for each
share of Pittston Common Stock. Each right, if and when
it becomes exercisable, will entitle the holder to
purchase one-thousandth of a share of Series A Preferred
Stock at a purchase price of $60.00, subject to
adjustment.
Each fractional share of Series A Preferred Stock will be
entitled to participate in dividends and to vote on an
equivalent basis with one whole share of Pittston
Common Stock. Each right will not be exercisable until
after a third party acquires more than 15% of the total
voting rights of all outstanding Pittston Common Stock
or on such date as may be designated by the Board after
commencement of a tender offer or exchange offer by a
third party for more than 15% of the total voting rights
of all outstanding Pittston Common Stock.
If after the rights become exercisable, the Company is
acquired in a merger or other business combination,
each right will entitle the holder to purchase, for the
purchase price, common stock of the surviving or
acquiring company having a market value of twice the
purchase price. In the event a third party acquires more
than 15% of all outstanding Pittston Common Stock, the
rights will entitle each holder to purchase, at the
purchase price, that number of fractional shares of Series
55
Note 4
Note 4
Note 4
Note 4
EARNINGS PER SHARE
EARNINGS PER SHARE
EARNINGS PER SHARE
EARNINGS PER SHARE
Note
Note 5 5 5 5
Note
Note
DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS
2002 ANNUAL REPORT
The following is a reconciliation between the
calculations of basic and diluted income from continuing
operations per common share:
(In millions)
Numerator
Numerator
Numerator
Numerator
Years Ended December 31
2002
2002
20022002
2001
2000
Income from continuing operations
$$$$ 69.69.69.69.0000
45.8
2.7
Preferred stock dividends
(0.5(0.5(0.5(0.5))))
(0.7)
(0.9)
(Premium) discount on repurchase of
preferred stock (a)
(0.6)
(0.6)
(0.6)
(0.6)
-
1.7
Basic income from continuing
operations
Preferred stock dividends
Discount on repurchase of
preferred stock
Diluted income from
67.967.967.967.9
45.1
----
----
-
-
3.5
0.9
(1.7)
continuing operations
$$$$
67.967.967.967.9
45.1
2.7
Denominator
Denominator
Denominator
Denominator
Basic weighted average
common shares outstanding
52.152.152.152.1
51.2
50.1
Effect of dilutive
stock options
Diluted weighted average
0.30.30.30.3
0.2
-
common shares outstanding
52.452.452.452.4
51.4
50.1
(a) See “Repurchase Program” in Note 3.
Unallocated shares of Pittston Common Stock held in the
Pittston Company Employee Benefits Trust (the “Trust”),
a grantor trust, are treated as treasury shares for
earnings per share purposes. Accordingly, such shares
are excluded from the basic and diluted income per
common share calculations. Shares held by the Trust that
were excluded were 1.8 million, 2.7 million and 1.3
million in 2002, 2001 and 2000, respectively.
The Company excludes the effect of antidilutive
securities from the computations of diluted income from
continuing operations per common share. The equivalent
weighted average shares of common stock that were
excluded were 1.2 million, 2.0 million and 2.8 million in
2002, 2001 and 2000, respectively.
After completing the disposal of its coal business, the
Company has retained certain coal-related liabilities and
related expenses. Retained liabilities include obligations
related to postretirement benefits for Company-
sponsored plans, black lung benefits, reclamation and
other costs related to idle (shut-down) mines which have
been retained, Health Benefit Act, workers’
compensation claims and costs of withdrawal from multi-
employer pension plans. Expenses related to these
liabilities have been reflected in the loss from
discontinued operations through the disposal date.
Subsequent to the completion of the disposal process
(for the period beginning January 1, 2003), adjustments
to coal-related contingent liabilities will be reflected in
discontinued operations, and expenses related to
Company-sponsored pension and postretirement benefit
obligations and black lung obligations will be reflected
in continuing operations. In addition, subsequent to the
disposal date, the Company expects to have certain
ongoing costs related to the administration of the
retained liabilities and will report those costs in
continuing operations.
The amounts to be recorded in future years will be
dependent on many factors, including inflation in health
care and other costs, discount rates, the market value of
pension plan assets, the number of participants in
various benefit programs, the number of idle mine sites
ultimately transferred and the timing of such transfers,
and the amount of administrative costs needed to
manage the retained liabilities.
Proceeds received from the sales transactions in 2002
approximated $88 million including cash of $42 million,
notes receivable of $8 million (six-month term), $16
million representing the present value of royalties (five-
year term, $20 million total payments), and liabilities
assumed by the purchasers of approximately $22 million.
The assets disposed of primarily included operations
including coal reserves, property, plant and equipment,
the Company’s economic interest in Dominion Terminal
Associates (“DTA”) and inventory. Certain liabilities,
primarily reclamation costs related to properties disposed
of, were assumed by the purchasers.
56
The losses from discontinued operations in the
Company’s Consolidated Statements of Operations were
as follows:
(In millions)
Years Ended December 31
2002
2002
20022002
2001
2000
Pretax loss from the operations of
the discontinued segment
$$$$
Income tax benefit
Loss from the operations of the
discontinued segment, after tax
----
----
----
-
-
-
(32.4)
(14.2)
(18.2)
Loss on the disposal
Operating losses during
13131313....2222
(15.9)
(85.9)
the disposal period
(28.1))))
(28.1
(28.1
(28.1
(22.2)
(45.0)
Health Benefit Act liabilities and
curtailment of benefit plans
Withdrawal liability
Pretax loss on the disposal
(24.0)
(24.0)
(24.0)
(24.0)
(26.8)
(26.8)
(26.8)
(26.8)
(8.0)
(8.2)
(163.3)
-
of the discontinued segment
(65.7)
(65.7)
(65.7)
(65.7)
(54.3)
(294.2)
Income tax benefit
(22.8)
(22.8)
(22.8)
(22.8)
(25.1)
(105.1)
Loss on the disposal of the
discontinued segment, after tax
(42.9)
(42.9)
(42.9)
(42.9)
(29.2)
(189.1)
Loss from discontinued
operations
(42.9)
$$$$ (42.9)
(42.9)
(42.9)
(29.2)
(207.3)
Loss on the Disposal
Loss on the Disposal
Loss on the Disposal
Loss on the Disposal
During 2000, an estimated loss of $85.9 million was
recorded to reflect the difference between expected
proceeds and the carrying value of assets to be sold.
During 2001, an estimated additional net loss of $15.9
million was recorded to reflect changes in expected
proceeds to be received and changes in the expected
values of assets and liabilities through the anticipated
dates of sale or shutdown. A $13.2 million reversal of
the previously estimated loss on sale was recorded
during 2002 to reflect the final adjustment based on the
actual proceeds and values of assets and liabilities at the
dates of sale.
2002 ANNUAL REPORT
Operating Losses
Operating Losses
Operating Losses
Operating Losses
Discontinued Operations accounting required the accrual
of expenses expected to be incurred through the end of
the disposal period. Accordingly, operating losses
(including significant expenses the Company expects to
retain and classify in continuing operations subsequent
to the disposal date related to Company-sponsored
pension and postretirement benefit obligations and
black lung obligations) were recognized within
discontinued operations in different periods than they
would have been recorded if coal were a continuing
operation. Total recorded charges for Company-
sponsored pension and postretirement benefit
obligations and black lung obligations, were
approximately $2 million, $53 million and $48 million in
2002, 2001 and 2000, respectively. The year 2000
included expenses incurred in 2000 and those expected
to be incurred in 2001, while 2001 (which included
expenses expected to be incurred in 2002) included only
one year of expenses. The amount in 2002 represents
the difference between the estimated amount of
expenses relating to 2002 that were accrued in 2001 and
the amount actually incurred in 2002. The increase in
the average amount of annual expense for 2002
(recorded in 2001) versus prior years primarily resulted
from the effects of actuarial assumption changes on
postretirement medical and pension benefits.
Estimated operating losses, including the above
employee expenses, through the originally anticipated
period of disposal of $45.0 million were recorded in
2000.
The Company increased the estimated operating losses in
2001 by $22.2 million. The $22.2 million increase
included the effect of extending the anticipated period
of disposal through the end of 2002, which resulted in
$53 million of additional postretirement, pension, and
black lung benefit expenses. Also included in the $22.2
million increase was a refund of $23.4 million (including
interest) of Federal Black Lung Excise Tax (“FBLET”)
received during 2001 and an accrual of $9.5 million for
litigation settlements that were paid during early 2002.
The Company recorded an additional $28.1 million of
operating losses during 2002, primarily reflecting worse-
than-expected price, volume and costs per ton of coal as
a result of adverse coal market conditions during the
year, and the sale of coal operations and reserves in
2002.
No interest expense has been allocated to discontinued
operations.
57
Health Benefit Act Liabilities and Cur
tailment
Health Benefit Act Liabilities and Curtailment
tailment
tailment
Health Benefit Act Liabilities and Cur
Health Benefit Act Liabilities and Cur
of Benefit Plans
of Benefit Plans
of Benefit Plans
of Benefit Plans
Operating Performance of
Former Coal
Operating Performance of Former Coal
Former Coal
Former Coal
Operating Performance of
Operating Performance of
Operations
Operations
Operations
Operations
2002 ANNUAL REPORT
In 2000, the Company recorded a $161.7 million liability
for its obligations under the Coal Industry Retiree Health
Benefit Act of 1992 (the “Health Benefit Act”). In 2002
and 2001, the Company recorded additional charges of
$24.0 million and $8.0 million, respectively, to reflect
changes in the estimates of the undiscounted liability.
This liability will be adjusted in future periods as
assumptions change. See Note 15.
During 2000, the Company also recorded a net
curtailment loss of $1.6 million, comprising a $6.0 million
net curtailment loss on the Company’s medical benefit
plans and a $4.4 million net curtailment gain on the
Company’s pension plans.
Withdrawal Liability
Withdrawal Liability
Withdrawal Liability
Withdrawal Liability
The Company participates in the United Mine Workers of
America (“UMWA”) 1950 and 1974 pension plans at
defined contribution rates, but expects to ultimately
withdraw from these plans. At December 31, 2001, the
Company recorded $8.2 million of estimated withdrawal
liabilities for these multi-employer pension plans
associated with its planned exit from the coal business.
At December 31, 2002, the Company increased the
estimated liabilities by $26.8 million to $35.0 million.
The Company’s estimate of the obligation in each year is
based on the funded status of the multi-employer plans
at the most recent measurement date.
The actual withdrawal liability, if any, is subject to
several factors, including funding and benefit levels of
the plans and the date that the Company is determined
to have completely withdrawn from the plans.
Accordingly, the ultimate obligation could change
materially.
Income Taxes
Income Taxes
Income Taxes
Income Taxes
Income tax benefits attributable to the loss on the
disposal of the discontinued segment include the
benefits of percentage depletion generated from the
active operations during the sale period.
Since estimated operating losses from the measurement
date to the date of disposal of the former coal
operations were recorded as part of the estimated loss
on the disposal, actual results of operations during the
disposal period are not included in Consolidated
Statements of Operations in the period that they are
earned.
The following table shows selected financial information
for former coal operations during 2002, 2001 and 2000.
(In millions)
Sales
Operating loss
Loss before income taxes
2002
2002
20022002
2001
2000
266.5
$$$$ 266.5
266.5
266.5
384.0
401.0
((((77777.57.57.57.5))))
((((75.675.675.675.6))))
(31.7)
(29.5)
(37.0)
(32.4)
Note
Note 6666
Note
Note
SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
SUPPLEMENTAL CASH FLOW INFORMATION
(In millions)
Cash payments for:
Income taxes, net
Interest
Years Ended December 31
2002
2002
20022002
2001
2000
$$$$ 14.814.814.814.8
22.722.722.722.7
20.1
31.1
28.2
44.8
Noncash investing activities in connection with the
disposal of the Company’s former coal operations were
as follows:
(In millions)
Year Ended
December 31
2002
2002
20022002
Fair market value of coal assets disposed
$$$$ 88.488.488.488.4
Liabilities assumed by purchasers as consideration
Notes receivable
Present value of royalties (a)
Net cash received
22.1)
((((22.1)
22.1)
22.1)
((((8.38.38.38.3))))
(15.7)
(15.7)
(15.7)
(15.7)
$$$$ 44442.32.32.32.3
(a)
Five-year maximum term, with $20 million of total payments.
58
Note
Note 7777
Note
Note
RTY AND EQUIPMENT
PROPERTY AND EQUIPMENT
PROPE
RTY AND EQUIPMENT
RTY AND EQUIPMENT
PROPE
PROPE
The following table presents the Company’s property
and equipment that is classified as held and used:
(In millions)
Land
Buildings
Leasehold improvements
Vehicles
Aircraft and related assets
Home security systems
Capitalized software
Other machinery and equipment
December 31
2002
2002
20022002
$$$$
72.972.972.972.9
140.4
140.4
140.4
140.4
138.9
138.9
138.9
138.9
161.3
161.3
161.3
161.3
85.885.885.885.8
527.0
527.0
527.0
527.0
131.7
131.7
131.7
131.7
456.1
456.1
456.1
456.1
2001
48.9
123.3
133.2
145.6
85.5
455.9
111.7
395.9
Accumulated depreciation
and amortization
842.9
842.9
842.9
842.9
Property and equipment, net
$$$$
871.2
871.2
871.2
871.2
681.9
818.1
1,714.1.1.1.1
1,714
1,714
1,714
1,500.0
Note 8
Note 8
Note 8
Note 8
LIVED ASSETS
IMPAIRMENT OF LONG----LIVED ASSETS
IMPAIRMENT OF LONG
LIVED ASSETS
LIVED ASSETS
IMPAIRMENT OF LONG
IMPAIRMENT OF LONG
Each quarter, the Company records impairment charges
at BHS related to disconnected home security systems as
described in Note 1. Other impairment charges are as
follows:
(In millions)
Years Ended December 31
2002
2002
20022002
2001
2000
Former coal operations
$$$$ 14.114.114.114.1
Gold operations
BAX Global restructuring
Other
Total
5.75.75.75.7
----
1.71.71.71.7
$$$$ 21.521.521.521.5
-
-
-
1.6
1.6
-
-
45.2
2.6
47.8
Approximately $43.3 million (original carrying value) of
residual long-lived coal assets were reclassified at
December 31, 2002 from discontinued operations to
assets held and used. The assets held and used were
reclassified individually at the lower of their actual cost,
adjusted for depreciation since the time originally
classified as held for sale, and their fair value at the date
the assets were reclassified to assets held and used. Fair
value was estimated using sales proceeds for similar
assets during 2002 as well as estimates provided by
investment advisors. An impairment charge of $14.1
million was recognized as a result of the reclassification.
2002 ANNUAL REPORT
In the fourth quarter of 2002, the Company entered into
an agreement to negotiate the transfer of its interests in
its gold mining joint ventures to a publicly traded equity
affiliate in which it has a minority interest in exchange
for additional shares of the equity affiliate and other
consideration. The transfer is contingent upon various
factors. The Company does not presently control the
equity affiliate and does not expect to control the
affiliate after the exchange.
The Company recognized a $5.7 million (pretax)
impairment of its long-lived assets and recognized $1.4
million (pretax) of previously deferred losses on certain
of its gold forward sales contracts that had been
accounted for as hedges now that the hedged
transactions were no longer deemed probable as a result
of the potential transfer. See Note 19. Fair value was
estimated using projected weighted-average discounted
cash flows.
In 2000, certain aircraft-related assets were written down
to fair value pursuant to BAX Global’s restructuring plan
(see Note 20).
December 31
2002
2002
20022002
2001
54.754.754.754.7
40.740.740.740.7
35.535.535.535.5
48.4
28.4
36.5
27.827.827.827.8
29.1
18.218.218.218.2
28.828.828.828.8
16.6
25.9
205.7
$$$$ 205.7
205.7
205.7
184.9
Note 9
Note 9
Note 9
Note 9
OTHER ASSETS
OTHER ASSETS
OTHER ASSETS
OTHER ASSETS
(In millions)
Deferred subscriber acquisition costs
$$$$
Long-term receivables
Investment in equity affiliates
Aircraft heavy maintenance
deferred charges
Voluntary Employees’
Beneficiary Association (see Note 15)
Other
Other assets
59
Note
Note 12121212
Note
Note
TERM DEBT
LONG----TERM DEBT
LONG
TERM DEBT
TERM DEBT
LONG
LONG
(In millions, denominated
in U.S. dollars unless noted)
Senior Notes:
2002 ANNUAL REPORT
December 31
2002
2002
20022002
2001
Series A, 7.84%, due 2005-2007
$$$$ 55.055.055.055.0
Series B, 8.02%, due 2008
Series C, 7.17%, due 2006-2008
Bank credit facilities:
U.S. Revolving Bank Credit Facility
(year-end weighted average rate
20.020.020.020.0
20.020.020.020.0
95.095.095.095.0
55.0
20.0
-
75.0
2.27% in 2002 and 3.43% in 2001)
129.0
129.0
129.0
129.0
136.2
Euro-denominated credit facilities of
French subsidiaries (year-end weighted
average rate 4.35% in 2002 and
5.28% in 2001)
12.412.412.412.4
14.4
Venezuelan bolivar-denominated term loan
(31.20% in 2001)
----
6.6
Other various non-U.S. dollar denominated
facilities (year-end weighted average rate
9.88% in 2002 and 13.46% in 2001)
DTA 7.375% bonds, due 2020
Capital leases (average rates:
5.37% in 2002 and 5.72% in 2001)
Current maturities of long-term debt:
Bank credit facilities
Capital leases
10.510.510.510.5
151.9
151.9
151.9
151.9
43.43.43.43.2222
27.427.427.427.4
317.5
317.5
317.5
317.5
6.6.6.6.4444
6.6.6.6.9999
13.2
170.4
-
24.7
270.1
11.0
6.2
17.2
Total current maturities of long-term debt
11113.33.33.33.3
Total long-term debt excluding
current maturities
304.2
$$$$ 304.2
304.2
304.2
252.9
231.5
$$$$ 231.5
231.5
231.5
231.2
Total long-term debt
Note
Note 10101010
Note
Note
ACCRUED LIABILITIES
ACCRUED LIABILITIES
ACCRUED LIABILITIES
ACCRUED LIABILITIES
(In millions)
December 31
2002
2002
20022002
2001
Payroll and other employee liabilities
107.5
$$$$ 107.5
107.5
107.5
104.0
Taxes
Workers’ compensation and other claims
Postretirement benefits other than pensions
Reclamation and inactive mine costs
Accrued loss of discontinued operations
102.8888
102.
102.102.
41.941.941.941.9
39.439.439.439.4
8.58.58.58.5
----
191919194.14.14.14.1
494.2
$$$$ 494.2
494.2
494.2
89.9
42.1
38.5
14.9
46.0
180.7
516.1
Workers’ compensation and other claims
$$$$ 52.752.752.752.7
Other
Accrued liabilities
Note 11
Note 11
Note 11
Note 11
OTHER LIABILITIES
OTHER LIABILITIES
OTHER LIABILITIES
OTHER LIABILITIES
(In millions)
Aircraft lease obligations
Minority interest
Withdrawal obligations for
coal-related multi-employer
pension plans (Note 5)
Liability for DTA financing guarantee
Reclamation and inactive mine costs
Other
Other liabilities
December 31
2002
2002
20022002
2001
42.142.142.142.1
36.036.036.036.0
35.035.035.035.0
----
13.013.013.013.0
52.752.752.752.7
38.7
53.0
35.5
-
43.2
9.8
51.0
During 2002, in conjunction with the disposal of its coal
operations, the Company transferred its economic
interest in Dominion Terminal Associates (“DTA”), a
partnership with three coal companies that operates a
leased coal port terminal in Newport News, Virginia (the
“Terminal”). Since the Company no longer has an
economic interest in DTA, its related $43.2 million
guarantee of underlying debt was reclassified to long-
term debt as of December 31, 2002. See Note 12 for a
description of the terms of the underlying debt.
60
2002 ANNUAL REPORT
The Peninsula Ports Authority of Virginia (the “Peninsula
Authority”) issued tax exempt bonds in 1992 to refund
bonds related to DTA, a partnership in which the
Company no longer has an economic interest. The
Company continues to guarantee payment of $43.2
million of the Peninsula Authority’s bonds and has
concluded it is probable that it will have to fund the
guarantee. The bonds bear a fixed interest rate of
7.375%, and the interest on the bonds is not taxable to
the holders. The bonds may be redeemed beginning in
June 2002.
The Company’s Brink’s, BHS, and BAX Global subsidiaries
have guaranteed the U.S. bank credit facility and Notes.
The U.S. revolving bank credit agreement, the
agreement under which the Notes were issued and the
multi-currency revolving bank credit facilities each
contain various financial and other covenants. The
financial covenants, among other things, limit the
Company’s total indebtedness, provide for minimum
coverage of interest costs, and require the Company to
maintain a minimum level of net worth. If the Company
were not to comply with the terms of its various loan
agreements, the repayment terms could be accelerated.
An acceleration of the repayment terms under one
agreement could trigger the acceleration of the
repayment terms under the other loan agreements. The
Company was in compliance with all financial covenants
at December 31, 2002.
The Company entered into capital lease obligations of
$2.7 million in 2002 and $7.5 million in 2001.
At December 31, 2002, the Company had undrawn
unsecured letters of credit totaling $62.4 million. These
letters of credit primarily support the Company’s
obligations under various self-insurance programs, credit
facilities and aircraft lease obligations.
The Company has an unsecured $350 million syndicated
bank credit facility (the “Facility”) from which it may
borrow on a revolving basis over a three-year term
ending September 2005. At December 31, 2002, $199.8
million was available for borrowing under the Facility.
The Company has the option to borrow based on a Libor-
based rate plus a margin, a prime rate plus a margin or a
competitive bid among the individual banks.
The margin is 0.825% for LIBOR based borrowings. The
credit agreement provides for margin increases, but does
not accelerate payments should the Company's credit
rating be reduced. When borrowings and letters of
credit under the Facility are in excess of $175 million, the
applicable interest rate is increased by 0.125%. The
Company also pays an annual fee on the Facility based
on the Company's credit rating. The fee, which can
range from 0.125% to 0.400%, was 0.175% as of
December 31, 2002.
The Company has $55 million of 7.84% Senior Notes,
Series A due 2005-2007 and $20 million of 8.02% Senior
Notes, Series B due in 2008. In April 2002, the Company
completed a $20.0 million private placement of 7.17%
Senior Notes due 2006-2008, referred to herein as the
Series C Notes. Proceeds from the Series C Notes were
used to repay borrowings under the U.S. revolving bank
credit facility. Interest on each series of the Notes is
payable semiannually, and the Company has the option
to prepay all or a portion of the Notes prior to maturity
with a prepayment penalty. The Notes are unsecured.
The Company has three unsecured multi-currency
revolving bank credit facilities that total $110 million in
available credit, of which $43.5 million was available at
December 31, 2002 for additional borrowing. Various
foreign subsidiaries maintain other secured and
unsecured lines of credit and overdraft facilities with a
number of banks. Amounts outstanding under these
agreements are included in short-term borrowings.
Minimum repayments of long-term debt for years 2004
through 2007 total $14.4 million, $156.1 million, $29.6
million and $28.1 million, respectively.
61
Note 13
Note 13
Note 13
Note 13
ACCOUNTS RECEIVABLE AND ASSET
ACCOUNTS RECEIVABLE AND ASSET
ACCOUNTS RECEIVABLE AND ASSET
ACCOUNTS RECEIVABLE AND ASSET
SECURITIZATION
SECURITIZATION
SECURITIZATION
SECURITIZATION
(In millions)
Trade
Other
Estimated uncollectible amounts
December 31
2002
2002
20022002
2001
522.1
$$$$ 522.1
522.1
522.1
53.453.453.453.4
575.5
575.5
575.5
575.5
35.535.535.535.5
496.3
38.8
535.1
41.8
493.3
Accounts receivable, net
540.0
$$$$ 540.0
540.0
540.0
In December 2000, the Company entered into a five-year
agreement to sell a revolving interest in BAX Global’s
U.S. domestic accounts receivable through a commercial
paper conduit program. The primary purpose of the
agreement was to obtain access to a lower cost source of
funds.
Qualifying accounts receivable of BAX Global’s U.S.
operations are sold on a monthly basis, without recourse,
to BAX Funding Corporation (“BAX Funding”), a wholly
owned, consolidated special-purpose subsidiary of BAX
Global. BAX Funding then sells an undivided interest in
the entire pool of accounts receivable to a bank-
sponsored conduit entity. The conduit issues commercial
paper to finance the purchase of its interest in the
receivables. Under the program, BAX Funding may sell
up to a $90.0 million interest in the receivables pool to
the conduit. During the term of the agreement, the
conduit’s interest in daily collections of accounts
receivable is reinvested in newly originated receivables.
BAX Funding’s sale of the undivided interest in the
accounts receivable pool to the conduit is accounted for
as a sale under SFAS No. 140, “Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of
Liabilities.” BAX Funding’s retained interest is reported
as accounts receivable in the Consolidated Balance Sheet.
2002 ANNUAL REPORT
At the end of the five-year term, or in the event certain
circumstances cause an early termination of the program,
the daily reinvestment will be discontinued and
collections will be used to pay down the conduit’s
interest in the receivables pool. Early termination of the
program may occur if certain ratios, including ratios of
delinquent and defaulted accounts, are exceeded. Early
termination may also be triggered if other events occur
as described in the agreement, including the acceleration
of debt repayments of the Company’s $350 million U.S.
revolving bank credit facility.
The conduit has a priority collection interest in the entire
pool of receivables and, as a result, BAX Funding has
retained credit risk to the extent the pool exceeds the
amount sold. BAX Funding sells its receivables to the
conduit at a discount. The amount of the discount is
based on the conduit’s borrowing cost plus incremental
fees. BAX Global is the designated servicer of the
receivables pool and is responsible for collections,
reinvestment, and periodic reporting to the conduit. The
Pittston Company has guaranteed the performance of
BAX Global with respect to the agreement.
(In millions)
Accounts receivable purchased by
BAX Funding:
Total pool
Revolving interest sold to conduit
Amount included in Consolidated
December 31
2002
2002
20022002
2001
$$$$ 93.393.393.393.3
(72.0)
(72.0)
(72.0)
(72.0)
81.8
(69.0)
Balance Sheets of the Company
$$$$ 21.321.321.321.3
12.8
The fair value of the Company’s retained interest in the
receivables approximates its carrying value. The discount
and related expenses of $1.6 million in 2002, $4.0 million
in 2001 and $0.6 million in 2000 are reported as other
expense, net, in the Consolidated Statement of
Operations. The Company has not recorded a servicing
asset or liability because it believes the servicing
compensation BAX Global receives is representative of
market rates and because the average servicing period
for accounts receivable approximates one month.
62
2002 ANNUAL REPORT
Note 14
Note 14
Note 14
Note 14
OPERATING LEASES
OPERATING LEASES
OPERATING LEASES
OPERATING LEASES
Note
Note 15151515
Note
Note
EMPLOYEE BENEFITS
EMPLOYEE BENEFITS
EMPLOYEE BENEFITS
EMPLOYEE BENEFITS
The Company leases facilities, aircraft, vehicles,
computers and other equipment under long-term
operating and capital leases with varying terms. Most of
the operating leases contain renewal and/or purchase
options. Information relating to capital leases is included
in Note 12.
The employee benefit plans and other liabilities
described below cover employees and retirees of both
the Company’s continuing operating units and former
coal operations. Accordingly, a portion of these benefit
expenses have been included in the results of
discontinued operations for the years presented.
Pension Plans
Pension Plans
Pension Plans
Pension Plans
The Company has noncontributory defined benefit
pension plans covering substantially all U.S. nonunion
employees who meet certain minimum requirements.
The Company also has other contributory and
noncontributory defined benefit plans for eligible non-
U.S. employees. Benefits under most of the plans are
based on salary (including commissions, bonuses,
overtime and premium pay) and years of service. The
Company’s policy is to fund at least the minimum
actuarially determined amounts necessary in accordance
with applicable regulations.
The Company’s U.S. defined benefit pension plans
represent 82% of Projected Benefit Obligation (“PBO”)
and 81% of plan assets at December 31, 2002. The
assumptions used in determining the net pension
expense and funded status for the Company’s U.S.
pension plans were as follows:
Discount rate:
Expense
Funded status
Expected long-term rate of
return on assets :
Expense
Funded status
Average rate of increase in
salaries (a):
Expense
Funded status
2002
2002
20022002
2001
2000
7.25%7.25%7.25%7.25%
7.50%
6.75%6.75%6.75%6.75%
7.25%
7.50%
7.50%
10.010.010.010.00000%%%%
10.00%
10.00%
8.75%8.75%8.75%8.75%
10.00%
10.00%
4.0%4.0%4.0%4.0%
5.1%5.1%5.1%5.1%
4.0%
4.0%
4.0%
4.0%
(a) Salary scale assumptions vary by age and industry.
As of December 31, 2002, aggregate future minimum
lease payments for continuing operations under
operating leases were as follows:
(In millions)
Facilities
Aircraft and Other
Total
Equipment
2003
2004
2005
2006
2007
Later years
$
75.7
56.4
42.6
32.5
27.6
133.3
15.0
12.7
4.9
0.5
0.2
-
32.9
25.8
19.5
12.7
8.6
11.3
$
368.1
33.3
110.8
123.6
94.9
67.0
45.7
36.4
144.6
512.2
The above table includes amounts due under
noncancellable leases with initial or remaining lease
terms in excess of one year, and excludes operating
leases associated with the Company’s former coal
operations. See Note 21 for a description of the leases
related to former coal operations.
The above table includes lease payments for the initial
accounting lease term and all renewal periods for certain
vehicles used in Brink’s and BHS’ operations. If the
Company were to not renew these leases, it would be
subject to a residual value guarantee. The Company’s
maximum residual value guarantee was $53 million at
December 31, 2002. If the Company continues to renew
the leases and pays all of the lease payments for the
vehicles that have been included in the above table
(which aggregate lease payments decline over eight
years), this residual guarantee will reduce to zero at the
end of the final renewal period.
The Company has leases on four facilities under each of
which it has the option to either renew the lease,
purchase the facility at original cost, or pay a guaranteed
residual. At December 31, 2002, the maximum
guaranteed residuals on these four leases totaled $15.5
million.
Net rent expense amounted to $149.0 million in 2002,
$142.3 million in 2001 and $146.9 million in 2000.
63
The net pension expense (excluding curtailment gain) for
2002, 2001 and 2000 for all plans is as follows:
(In millions)
Service cost
Interest cost on PBO
Years Ended December 31
2002002002002222
2001
2000
$$$$ 30.530.530.530.5
42.342.342.342.3
26.0
38.5
23.6
35.0
(55.3)
(0.3)
3.0
Return on assets - expected
(60.2)2)2)2)
(60.
(60.
(60.
(58.6)
Other amortization, net
Net pension expense
1.41.41.41.4
$$$$ 14.014.014.014.0
0.5
6.4
Pursuant to its formal plan to exit the coal business, the
Company recorded a curtailment gain during 2000 of
$4.4 million comprising a $5.8 million reduction in PBO,
partially offset by reductions in unrecognized experience
losses and prior service costs.
Reconciliations of the PBO, plan assets, funded status
and prepaid pension expense at December 31, 2002 and
2001 for all of the Company’s pension plans are as
follows:
(In millions)
PBO at beginning of year
Service cost
Interest cost
Plan participants’ contributions
Benefits paid
Actuarial loss
Foreign currency exchange rate changes
December 31
2002002002002222
595.0
$$$$ 595.0
595.0
595.0
30.530.530.530.5
42.342.342.342.3
1.61.61.61.6
2001
527.5
26.0
38.5
1.0
(24.6)
(24.6)
(24.6)
(24.6)
(24.0)
60.160.160.160.1
10.10.10.10.8888
30.5
(4.5)
PBO at end of year
715.7
$$$$ 715.7
715.7
715.7
595.0
Fair value of plan assets at beginning
of year
554.3
$$$$ 554.3
554.3
554.3
Return on assets – actual
Plan participants’ contributions
Employer contributions
Benefits paid
Foreign currency exchange rate changes
(49.8)
(49.8)
(49.8)
(49.8)
1.61.61.61.6
40.040.040.040.0
(24.6)6)6)6)
(24.
(24.
(24.
8.48.48.48.4
621.3
(40.9)
1.0
2.3
(24.0)
(5.4)
Fair value of plan assets at end of year
529.9
$$$$ 529.9
529.9
529.9
554.3
Funded status
185.8)8)8)8)
$$$$ ((((185.
185.185.
Unrecognized experience loss
Unrecognized prior service cost
Other
Net pension assets
Current pension liabilities
Noncurrent pension liabilities
294.9
294.9
294.9
294.9
1.61.61.61.6
0.90.90.90.9
111.6
111.6
111.6
111.6
0.40.40.40.4
122.6
122.6
122.6
122.6
(40.7)
135.3
1.7
(0.5)
95.8
0.2
22.9
Adjustments to minimum pension liabilities
(210.8)
(210.8)
(210.8)
(210.8)
(9.9)
Prepaid pension assets
$$$$
23.823.823.823.8
109.0
2002 ANNUAL REPORT
Selected information for the above Company plans that
have PBOs greater than plan assets are aggregated
below.
(In millions)
December 31
2002002002002222
2001
Projected benefit obligations
683.0
$$$$ 683.0
683.0
683.0
Accumulated benefit obligations (“ABO”)
Fair value of plan assets
666610.210.210.210.2
495.8
495.8
495.8
495.8
555.0
489.4
498.9
The Company’s unrecognized experience loss increased
significantly in the last two years primarily due to lower
discount rate assumptions (which increased the PBO) and
worse than expected returns on plan assets. At
December 31, 2002 and 2001, the Company recognized
additional minimum pension liabilities for plans that had
ABOs in excess of the fair value of plan assets.
Expense included in continuing operations in 2002, 2001
and 2000 for multi-employer pension plans (excluding
coal-related plans) was $1.8 million, $1.2 million and $0.9
million, respectively.
Savings Plans
Savings Plans
Savings Plans
Savings Plans
The Company sponsors a 401(k) Savings-Investment Plan
to assist eligible U.S. employees in providing for
retirement. Employee contributions are matched at rates
of between 50% to 100% for up to 5% of compensation
(subject to certain limitations). Contribution expense in
continuing operations under the plan aggregated $10.9
million in 2002, $9.8 million in 2001 and $8.4 million in
2000. Contribution expense included in discontinued
operations was $0.6 million in 2002 and $0.7 million in
2001 and 2000.
The Company sponsors other defined contribution
benefit plans based on hours worked or other
measurable factors. Contributions under all of these
plans aggregated $3.8 million in 2002, $3.2 million in
2001 and $2.8 million in 2000.
64
Postretirement Benefits Other Than Pensions
Postretirement Benefits Other Than Pensions
Postretirement Benefits Other Than Pensions
Postretirement Benefits Other Than Pensions
Company-Sponsored Plans
The Company provides certain postretirement health care and life insurance benefits (the “Company-sponsored plans”) for
eligible active and retired employees in the U.S. and Canada of the Company’s current and former businesses, including
eligible participants of the former coal operations (the “coal-related“ plans). The components of net periodic
postretirement costs (excluding curtailment loss) related to Company-sponsored plans were as follows:
2002 ANNUAL REPORT
(In millions)
Coal-related plans
Other plans
Service cost
Interest cost on accumulated
postretirement benefit obligations (“APBO”)
Amortization of losses
Net periodic postretirement costs
Years Ended December 31
Years Ended December 31
2002
2002
20022002
0.40.40.40.4
31.731.731.731.7
9.9.9.9.7777
41.841.841.841.8
2001
2000
0.2
0.2
24.9
3.7
28.8
22.3
3.6
26.1
$$$$
$$$$
2002
2002
20022002
2001
2000
$$$$
0.80.80.80.8
0.7
0.6
1.41.41.41.4
----
$$$$
2.22.22.22.2
1.5
-
2.2
1.5
-
2.1
Pursuant to its formal plan to exit the coal business, the Company recorded a curtailment loss during 2000 of $6.0 million.
Reconciliations of the APBO, funded status and accrued postretirement benefit cost for Company-sponsored plans at
December 31, 2002 and 2001 are as follows:
(In millions)
Coal-related plans
December 31
Other plans
December 31
APBO at beginning of year
Service cost
Interest cost
Benefits paid
Actuarial loss, net
APBO and funded status at end of year
Unrecognized experience gain (loss)
2002002002002222
$$$$
442.0
442.0
442.0
442.0
0.40.40.40.4
31.731.731.731.7
(28.3)
(28.3)
(28.3)
(28.3)
72.572.572.572.5
555518.318.318.318.3
(250.6)
(250.6)
(250.6)
(250.6)
Accrued postretirement benefit cost at end of year
$$$$
267.7
267.7
267.7
267.7
2001
355.9
0.2
24.9
(26.0)
87.0
442.0
(187.8)
254.2
2002
2002
20022002
$$$$
21.921.921.921.9
0.80.80.80.8
1.41.41.41.4
(2.3)
(2.3)
(2.3)
(2.3)
1.31.31.31.3
23.123.123.123.1
0.80.80.80.8
$$$$
23.923.923.923.9
2001
20.5
0.7
1.5
(1.2)
0.4
21.9
2.1
24.0
65
The APBO for each of the plans was determined using the
unit credit method and an assumed discount rate of
6.75% in 2002 and 7.25% in 2001. For Company-
sponsored coal-related plans, the assumed health care
cost trend rate used in 2002 was 10% for 2003, declining
1% per year to 5% in 2008 and thereafter. Other plans
provide for fixed-dollar value coverage for eligible
participants and, accordingly, are not adjusted for
inflation.
A one percentage point increase (decrease) each year in
the assumed health care cost trend rate used for 2002
would increase (decrease) the aggregate service and
interest components of expense for 2002, and increase
(decrease) the APBO of Company-sponsored plans at
December 31, 2002 as follows:
(In millions)
Higher (lower):
Effect of 1% Change in
Health Care Trend Rates
Increase
Decrease
Service and interest cost in 2002
$
4.2
APBO at December 31, 2002
65.9
(3.5)
(54.6)
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, The United Mine Workers of America
Combined Benefit Fund (the “Combined Fund”), to which
“signatory operators” and “related persons”, including
The Pittston Company and certain of its subsidiaries
(collectively, the “Pittston Companies”), are jointly and
severally liable to pay annual premiums for those
beneficiaries directly assigned to a signatory operator and
its related persons, on the basis set forth in the Health
Benefit Act. In October 1993 and on an annual basis in
subsequent years, the Pittston Companies have received
notices from the Social Security Administration (the
“SSA”) with regard to the current number of assigned
beneficiaries for which the Pittston Companies are
deemed responsible under the Health Benefit Act.
2002 ANNUAL REPORT
In addition, the Health Benefit Act provides that assigned
companies, including the Pittston Companies, are
required to fund, pro rata according to the total number
of assigned beneficiaries, a portion of the health benefits
for unassigned beneficiaries if not funded from other
designated sources. To date, the funding for unassigned
beneficiaries has been provided from transfers from the
Abandoned Mine Reclamation Fund.
The Company’s liability for Health Benefit Act obligations
to the Combined Fund is equal to the undiscounted
estimated amount of future annual premiums the
Company expects to pay to the Combined Fund. The
Company’s estimated annual premium is generally equal
to the total number of beneficiaries (including assigned
beneficiaries and an allocated percentage of the total
unassigned beneficiaries) at October 1, the beginning of
the plan year, multiplied by the premiums per beneficiary
for that year. The Company expects to pay annual
premiums over the next 70 or more years, but it expects
these annual premiums to gradually decline over time as
the number of beneficiaries decreases. The estimated
liability at December 31, 2002 and 2001 assumes that the
Company will not be required to pay premiums for its pro
rata allocation of the unassigned beneficiaries until 2005
because these benefits are assumed to be funded with
contributions from the Abandoned Mine Reclamation
Fund in accordance with the existing statute. The
Company’s estimate of its liability for premiums for
unassigned beneficiaries could be materially changed in
future periods depending on the amount of future
funding by the Abandoned Mine Reclamation Fund or
other sources. Moreover, the Company’s share of
unassigned beneficiaries could be increased on a pro rata
basis in the future if other responsible coal operators
become insolvent.
Information provided by the Combined Fund is as follows:
December 31
2002
2002
20022002
2001
Number of assigned beneficiaries
at the beginning of the plan year
2,814
2,814
2,814
2,814
3,035
Health benefit premium per
beneficiary
2,853
$$$$ 2,853
2,853
2,853
2,725
66
According to the Health Benefit Act, the rate of inflation
for per-beneficiary health care premiums is equal to the
medical care component of the Consumer Price Index.
The U.S. Life 79-81 mortality table has been used to
estimate a gradual decline in the number of beneficiaries.
The Company’s estimate assumes that there will be no
additions to the Combined Fund unassigned beneficiary
group as a result of future coal operator insolvencies.
Other major assumptions used by the Company to
estimate the liabilities at December 31, 2002 and 2001 are
described below.
December 31
2002
2002
20022002
2001
Percent of total unassigned beneficiaries
allocated to the Company
6.7%6.7%6.7%6.7%
6.7%
At December 31, 2002, annual inflation rates for per-
beneficiary health care premiums was assumed to be 5%
declining to 4.5% over five years. At December 31, 2001,
annual inflation was assumed to be 4.5%.
Prior to December 31, 2000, the Company accounted for
its obligations under the Health Benefit Act as a
participant in a multi-employer benefit plan and thus,
recognized the annual cost of these obligations on a pay-
as-you-go basis. Pursuant to its formal plan to exit the
coal business, the Company recorded its estimated
undiscounted liability relating to such obligations at
December 31, 2000 as a $161.7 million charge to the net
loss from discontinued operations. The obligations at
December 31, 2002 and 2001 were $174.1 million and
$159.9 million, respectively.
The Company recorded $24.0 million of expense in its
2002 loss from discontinued operations to reflect an
increase in the estimated liabilities for Health Benefit Act
obligations to the Combined Fund. The increase primarily
resulted from the Company’s being able to obtain and use
Company-specific information regarding the age of its
beneficiaries covered by the Health Benefit Act rather
than using averages relating to the entire population of
beneficiaries covered, slightly higher per-beneficiary
health care premiums, and slightly lower mortality than
was estimated at the end of 2001 for the plan year ended
September 30, 2002.
2002 ANNUAL REPORT
The Company recorded $8.0 million of additional expense
in its 2001 loss from discontinued operations related to
changes in the estimated liabilities for Health Benefit Act
obligations to the Combined Fund. The higher amount of
expense was primarily the result of a 1.7% higher number
of assigned beneficiaries as of October 1, 2001 than was
estimated at the end of 2000, partially offset by a 0.5%
lower number of total unassigned beneficiaries as of
October 1, 2001 than was estimated at the end of 2000.
The Combined Fund premium per beneficiary for the plan
year beginning October 1, 2001 was essentially equal to
that estimated at the end of 2000.
For 2002, 2001 and 2000, annual cash payments under the
Health Benefit Act were approximately $9.8 million, $9.7
million and $9.0 million, respectively. The Company
currently estimates that the annual cash funding under
the Health Benefit Act for the Pittston Companies’
assigned beneficiaries will continue at about the same
annual level for the next several years and should begin
to decline thereafter as the number of such assigned
beneficiaries decreases.
Pneumoconiosis (Black Lung) Expense
(In millions)
Actuarial present value of
self-insured black lung benefits
Unrecognized loss
Accrued liabilities
December 31
2002002002002222
2001
$$$$ 60.060.060.060.0
(14.6666))))
(14.
(14.
(14.
$$$$ 45.445.445.445.4
58.7
(13.3)
45.4
The Company acts as self-insurer with respect to almost all
black lung benefits. Provision is made for estimated
benefits based on annual reports prepared by
independent actuaries. Unrecognized losses, representing
the excess of the present value of expected future
benefits over existing accrued liabilities, are amortized
over the average remaining life expectancy of participants
(approximately 10 years). Prior to December 31, 2000,
assumptions used in the calculation of the actuarial
present value of black lung benefits were based on actual
retirement experience of the Company’s coal employees,
black lung claims incidence, actual dependent
information, industry turnover rates, actual medical and
legal cost experience and projected inflation rates.
67
As of December 31, 2000, certain assumptions were
modified to reflect the planned sale of the Company’s
coal business. The amount of expense incurred for annual
black lung benefits was $7.3 million in 2002, $5.2 million
for 2001 and $5.3 million for 2000.
Note 16
Note 16
Note 16
Note 16
BASED COMPENSATION PLANS
STOCK----BASED COMPENSATION PLANS
STOCK
BASED COMPENSATION PLANS
BASED COMPENSATION PLANS
STOCK
STOCK
The Company has stock and incentive plans related to
employees which allow for stock options, performance
unit awards, stock appreciation rights and stock awards.
The following are the other key actuarial assumptions for
the black lung obligations:
tock Option Plans
SSSStock Option Plans
tock Option Plans
tock Option Plans
2002 ANNUAL REPORT
Discount rate:
Expense
Liability valuation
Medical cost inflation
December 31
2002
2002
20022002
2001
7.25%7.25%7.25%7.25%
7.50%
6.75%6.75%6.75%6.75%
7.25%
8.0%8.0%8.0%8.0%
8.0%
The 1959-1961 Mortality Table for U.S. White Males and
Females is used.
The U.S. Department of Labor issued regulations in 2000
that are intended to expand entitlement provisions and
that may have the effect of limiting an employer’s ability
to rebut claims. The regulation is being disputed by
companies in the coal industry. Due to the dispute and to
the Company’s judgment that any additional amounts
owed are not reasonably estimable, the Company has not
included any additional amounts related to the new
regulations in the actuarial present value of self-insured
black lung benefits.
VEBAVEBAVEBAVEBA
The Company has established a Voluntary Employees’
Beneficiary Association (“VEBA”) which is intended to tax
efficiently fund certain retiree medical liabilities primarily
for retired coal miners and their dependents. The
Company contributed $1.5 million to the VEBA in 2002. As
of December 31, 2002, the balance in the VEBA was $18.2
million and was included in other noncurrent assets.
The Company grants options under its 1988 Stock Option
Plan (the “1988 Plan”) to executives and key employees
and under its Non-Employee Directors’ Stock Option Plan
(the “Non-Employee Plan”) to outside directors, to
purchase common stock at a price not less than the
average quoted market value at the date of grant. All
grants under the 1988 Plan made in the last three years
have a maximum term of six years and substantially all of
these grants either vest over three years from the date of
grant or vest 100% at the end of the third year. The Non-
Employee Plan options are granted with a maximum term
of ten years vesting in full at the end of six months. There
are 1.3 million shares underlying options for both plans
that are authorized, but not yet granted.
As of January 14, 2000, with the elimination of the
Company’s tracking stock capital structure, the 1988 Plan
and Non-Employee Plan were amended to provide that all
future grants would be made solely in Pittston Common
Stock and that all outstanding options related to BAX
Stock and Minerals Stock would be converted into options
to purchase Pittston Common Stock. On January 14, 2000,
options to purchase a total of 2.0 million shares of BAX
Stock with an average exercise price of $15.03 per share
and 0.6 million shares of Minerals Stock with an average
exercise price of $7.77 per share were converted into
options to purchase 1.0 million shares of Pittston Common
Stock.
68
The table below summarizes the activity in all plans for
options of Pittston Common Stock for 2002, 2001 and
2000.
The following table summarizes information about stock
options outstanding as of December 31, 2002.
2002 ANNUAL REPORT
Per
Share
Weighted
Average
Exercise
(Shares in millions)
Shares
Price
Outstanding at December 31, 1999
Options converted in the Exchange
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2000
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2001
Granted
Exercised
Forfeited or expired
1.8
1.0
1.1
(0.1)
(0.4)
3.4
1.2
(0.3)
(0.6)
3.7
1.0
(0.1)
(0.5)
$ 27.01
33.97
15.12
10.68
26.07
25.83
21.03
16.15
32.88
23.96
21.50
17.17
25.80
Outstanding at December 31, 2002
4.1
$ 23.29
Options exercisable at the end of 2002, 2001 and 2000 for
Pittston Common Stock were 2.1 million, 1.7 million, and
1.9 million, respectively.
(Shares in millions)
Range of
Exercise Prices Shares
$ 10.55 to 14.13 0.6
16.77 to 19.76 0.5
20.05 to 21.48 1.0
21.60 to 23.78 0.9
26.69 to 30.60 0.4
31.21 to 35.19 0.3
37.47 to 315.06 0.4
Total
4.1
Stock
Options
Outstanding
Stock
Options
Exercisable
Weighted
Per
Per
Share
Average
Remaining Weighted
Average
Contractual
Exercise
Life
Price
(Years)
Share
Weighted
Average
Exercise
Price
Shares
3.6
3.4
5.1
4.7
2.8
0.5
1.4
3.7
$ 13.64
0.3 $ 13.63
18.56
21.36
21.76
27.21
31.60
43.06
0.3
18.52
0.1
20.42
0.3
21.87
0.4
27.21
0.3
31.60
0.4
43.06
$ 23.29
2.1 $ 26.40
Employee Stock Purchase Plan
Employee Stock Purchase Plan
Employee Stock Purchase Plan
Employee Stock Purchase Plan
Under the 1994 Employee Stock Purchase Plan (the
“ESPP”), as amended, the Company is authorized to issue
up to 1.0 million shares of Pittston Common Stock (of
which 0.7 million shares had been issued as of December
31, 2002) to eligible employees. The ESPP is a
noncompensatory plan that allows eligible employees to
buy the Company’s common stock at below market value.
Under the ESPP, the Company sold 0.1 million shares of
Pittston Common Stock to employees during each of
2002, 2001, and 2000.
69
2002 ANNUAL REPORT
Note 17
Note 17
Note 17
Note 17
INCOME TAXES
INCOME TAXES
INCOME TAXES
INCOME TAXES
The components of the net deferred tax asset are as
follows:
The provision (benefit) for income taxes from continuing
operations consists of the following:
(In millions)
U.S. Federal
Foreign
State
Total
(In millions)
ssets
Deferred tax assets
Deferred tax a
ssets
ssets
Deferred tax a
Deferred tax a
December 31
2002
2002
20022002
2001
2002002002002222::::
Current
Deferred
Total
2001:
Current
Deferred
Total
2000:
Current
Deferred
Total
$ 13.5
3.0
$ 16.5
$
6.7
3.3
$ 10.0
$
0.6
(14.2)
$ (13.6)
25.4
0.3
25.7
23.9
(5.9)
18.0
25.7
(8.9)
16.8
3.1
(4.1)
(1.0)
3.5
(4.1)
(0.6)
3.7
(5.0)
(1.3)
42.0
(0.8)
41.2
34.1
(6.7)
27.4
30.0
(28.1)
1.9
Accounts receivable
$$$$ 10.910.910.910.9
164.3
Postretirement benefits other than pensions 164.3
164.3
164.3
Pension liabilities
Multi-employer pension plans
withdrawal liabilities
Workers’ compensation and other claims
Deferred revenue
49.449.449.449.4
12.212.212.212.2
45.945.945.945.9
54.454.454.454.4
11.2
153.0
3.5
2.9
41.2
55.4
Other assets and liabilities
138.8
138.8
138.8
138.8
121.6
Estimated loss on coal operations
Net operating loss carryforwards
Alternative minimum tax credits
Valuation allowance
Total deferred tax assets
----
54.154.154.154.1
52.552.552.552.5
30.3
52.0
40.1
(9.8)
(9.8)
(9.8)
(9.8)
(10.3)
572.7
572.7
572.7
572.7
500.9
The U.S. current federal income tax provision on
continuing operations in all years shown is offset by
current tax benefits included in the loss from discontinued
operations.
The tax benefit for compensation expense related to the
exercise of certain employee stock options for tax
purposes in excess of compensation expense for financial
reporting purposes is recognized as an adjustment to
shareholders’ equity.
Deferred tax liabilities
Deferred tax liabilities
Deferred tax liabilities
Deferred tax liabilities
Property and equipment, net
Prepaid assets
Prepaid pension assets
Other assets
Investments in equity affiliates
Miscellaneous
Total deferred tax liabilities
Net deferred tax asset
80.080.080.080.0
17.917.917.917.9
3.83.83.83.8
31.331.331.331.3
6.06.06.06.0
32.332.332.332.3
70.0
17.7
35.9
26.4
6.0
29.3
171.3
171.3
171.3
171.3
401.4
$$$$ 401.4
401.4
401.4
185.3
315.6
70
Approximately $0.8 million of deferred tax liabilities at
December 31, 2002 were recorded in accrued liabilities.
The valuation allowance relates to deferred tax assets in
certain foreign jurisdictions. Based on the Company’s
historical and expected future taxable earnings,
management believes it is more likely than not that the
Company will realize the benefit of the existing deferred
tax assets, net of the valuation allowance, at December
31, 2002.
The following table accounts for the difference between
the actual tax provision from continuing operations and
the amounts obtained by applying the statutory U.S.
federal income tax rate of 35% in 2002, 2001 and 2000 to
the income (loss) from continuing operations before
income taxes and cumulative effect of change in
accounting principle.
Years Ended December 31
2002002002002222
2001
2000
(In millions)
Income (loss) from continuing
operations before income taxes
and accounting change:
United States
Foreign
Total
$$$$ 54.754.754.754.7
3.2
(65.1)
55.555.555.555.5
110.2
$$$$ 110.2
110.2
110.2
70.0
73.2
69.7
4.6
Tax provision computed at
statutory rate
$$$$ 38.638.638.638.6
25.6
1.6
Increases (reductions) in taxes due to:
State income taxes (net of federal
tax benefit)
Resolution of prior year
tax contingencies
Goodwill amortization
Difference between total taxes on
foreign income and the U.S.
(0.7)
(0.7)
(0.7)
(0.7)
(0.4)
(0.8)
((((3.43.43.43.4))))
----
-
2.1
-
2.1
federal statutory rate
3.13.13.13.1
(1.5)
(2.7)
Adjustments to the valuation allowance
for deferred tax assets
Miscellaneous
Actual tax provision from
1.51.51.51.5
2.12.12.12.1
1.3
0.3
1.8
(0.1)
continuing operations
$$$$ 41.241.241.241.2
27.4
1.9
2002 ANNUAL REPORT
As of December 31, 2002, the Company has not recorded
U.S. deferred income taxes on $142.3 million of
undistributed earnings of its foreign subsidiaries and
equity affiliates. It is expected that these earnings will
either be permanently reinvested in operations outside
the U.S. or, if repatriated, will be substantially offset by
tax credits. If such earnings were remitted to the U.S. and
no credits were available, additional U.S. tax expense of
$49.8 million would be recognized.
The Company’s U.S. entities file a consolidated U.S.
federal income tax return.
As of December 31, 2002, the Company had $52.5 million
of alternative minimum tax credits available to offset
future U.S. federal income taxes and, under current tax
law, the carryforward period for such credits is unlimited.
The tax benefit of net operating loss carryforwards as of
December 31, 2002 was $54.1 million and related to U.S.
federal and various state and foreign taxing jurisdictions.
The gross amount of such net operating losses was $227.6
million as of December 31, 2002. The expiration periods
primarily range from 5 years to an unlimited period.
The Company and its subsidiaries are subject to tax
examinations in various U.S. and foreign jurisdictions. The
Company believes that it has adequately provided for all
income tax liabilities and interest thereon and that final
resolution of any examinations will not have a material
effect on the Company’s financial position or results of
operations.
Note 18
Note 18
Note 18
Note 18
EXPENSE, NET
OTHER EXPENSE, NET
OTHER
EXPENSE, NET
EXPENSE, NET
OTHER
OTHER
(In millions)
Minority interest
Discounts and other fees of
accounts receivable
securitization program
Stabilization Act compensation
Gain on sale of marketable
securities
Other
Total
Years Ended December 31
2002
2002
20022002
2001
2000
$$$$
(3.3)
(3.3)
(3.3)
(3.3)
(6.9)
(3.7)
(1.6)
(1.6)
(1.6)
(1.6)
5.95.95.95.9
----
(3.6)
(3.6)
(3.6)
(3.6)
(4.0)
(0.6)
-
3.9
0.3
-
-
0.4
$$$$
(2.6)
(2.6)
(2.6)
(2.6)
(6.7)
(3.9)
71
Note 19
Note 19
Note 19
Note 19
RISK MANAGEMENT
RISK MANAGEMENT
RISK MANAGEMENT
RISK MANAGEMENT
The Company has risk management policies designed to
manage, among other things, its currency, commodity
and interest rate risks. The Company’s policies are
intended to reduce the effect of short-term market
variability on the Company’s results of operations and
cash flow.
The Company utilizes various hedging instruments to
hedge a portion of its foreign currency, interest rate, and
commodity exposures. The Company does not use
derivative instruments for purposes other than hedging.
The risk that counterparties to such instruments may be
unable to perform is minimized by limiting the
counterparties to major financial institutions with
investment grade credit ratings. The Company does not
expect any losses due to counterparty default.
Derivative Financial Instruments
and Hedging
Derivative Financial Instruments and Hedging
and Hedging
and Hedging
Derivative Financial Instruments
Derivative Financial Instruments
Activities
Activities
Activities
Activities
Interest Rate Risk Management
The Company’s risk management policy requires a balance
to be maintained within certain ranges between fixed
and floating rate debt and the Company uses interest rate
swaps to assist in meeting this objective. The Company
has designated its interest rate hedges as cash flow
hedges for accounting purposes.
The Company has entered into interest rate swaps that
effectively change the variable cash flows on a portion of
the $350.0 million revolving credit facility, to fixed cash
flows. The swaps outstanding at December 31, 2002 fix
the interest rate on $65.0 million of debt at 5.5%,
including the margin on the revolving credit facility
through September 2003 and fix the interest rate on $50
million of debt at 4%, including the margin on the
revolving credit facility, from September 2003 through
August 2005.
Changes in fair value on interest rate swaps are recorded
in other comprehensive loss and are subsequently
reclassified to interest expense in the same period in
which the interest on the floating-rate debt obligations
affects earnings. During each of the three years ended
December 31, 2002, the Company’s interest rate swaps
2002 ANNUAL REPORT
were completely effective as defined under SFAS No. 133
and no amounts were included in earnings as a result of
the interest rate swaps being ineffective, nor were any
amounts excluded from the assessment of effectiveness.
At December 31, 2002, $1.9 million of unrecognized
pretax loss was included in accumulated other
comprehensive loss and of this amount, $1.6 million is
expected to be recognized in earnings in 2003.
Commodities Risk Management
The Company consumes or sells various commodities in
the normal course of its business and utilizes derivative
instruments to minimize the variability in forecasted cash
flows due to price movements in certain of these
commodities. Transactions involving commodities that are
the subject of the Company’s risk management policy
include:
•
•
purchases of jet fuel for BAX Global’s North
American fleet operations; and
revenues of the Company’s gold and natural gas
operations.
The Company enters into swap contracts and collars to
hedge a portion of its forecasted jet fuel purchases for
use in the BAX Global aircraft operation. Depending on
market conditions, the Company has charged its
customers a fuel surcharge to offset the effects of high jet
fuel prices. At December 31, 2002, the outstanding
notional amount of hedges for jet fuel totaled 19 million
gallons.
The Company enters into forward gold sales contracts to
fix the Australian dollar selling price on a portion of
forecasted gold sales. At December 31, 2002, the notional
amount of gold under forward sales contracts (excluding
hedges entered into by equity affiliates) was
approximately 89,000 ounces, representing approximately
57% of the Company’s share of the gold operations’
proven and probable reserves.
The Company enters into swap contracts and collars to
hedge a portion of its forecasted natural gas sales. At
December 31, 2002, the outstanding notional amount of
hedges was 0.6 million MMbtu.
The Company has designated its commodity hedges as
cash flow hedges for accounting purposes. Effectiveness is
assessed based on the total changes in the estimated
72
present value of cash flows for its jet fuel and natural gas
hedges. The effectiveness of gold hedges is assessed based
on changes in the spot rate of gold and the Australian
dollar exchange rate and other changes in expected cash
flows are excluded from the assessment.
For jet fuel, the changes in fair value are recorded in
other comprehensive loss and subsequently reclassified to
earnings, as a component of operating expenses, in the
same period as the jet fuel is used. For gold contracts, the
changes in fair value are recorded in other accumulated
comprehensive loss and subsequently reclassified to
earnings, as a component of either revenue or, if related
to its equity affiliate, other operating income, net in the
same period as the gold is sold. Amounts excluded in the
assessment of effectiveness are included as a component
of other operating income, net. For natural gas contracts,
the changes in fair value are recorded in accumulated
other comprehensive loss and subsequently reclassified to
earnings, as a component of either revenue or, if related
to royalty income, other operating income, net.
(In millions, except)
number of months)
Jet
Fuel
Natural
Gas
Gold
Amounts recognized in 2002 pretax earnings:
Ineffective amounts
$ 0.1
-
-
Amounts excluded in
assessment of effectiveness
Amounts for which the forecasted
transaction is not
expected to occur (a)
Net gain (loss) in other comprehensive
loss at December 31, 2002
expected to be reclassified to
-
-
-
-
0.8
(1.4)
earnings in 2003
$ 1.4
(0.5)
(0.8)
Maximum number of months
hedges outstanding
12
3
42
(a) See Note 8.
Foreign Currency Risk Management
The Company is exposed to foreign currency exchange
fluctuations due to certain transactions to which the
Company is a party. Certain customers are billed for BAX
Global’s services in currencies that are different than the
functional currency of the subsidiary that recognizes the
sale. Certain transportation costs incurred by BAX Global’s
2002 ANNUAL REPORT
non-U.S. subsidiaries are denominated in currencies that
are different than the subsidiaries’ functional currency.
The Company’s BAX Global operation has a wholly owned
international subsidiary that serves as a finance
coordination center. The subsidiary has the U.S. dollar as
its functional currency, and has intercompany receivables
and payables that are not denominated in U.S. dollars.
The Company utilizes foreign currency forward contracts
to minimize the variability in cash flows due to foreign
currency risks. The contracts have not been designated for
accounting purposes as hedges in accordance with SFAS
No. 133 due to their short-term nature. Because the
contracts are settled shortly after they are entered into,
any gains and losses that would be deferred at any
balance sheet date if the Company designated the
instruments as hedges, would be small. Accordingly,
changes in the fair value of foreign currency forward
contracts are reported in earnings. The Company’s foreign
currency forward contracts provide an economic hedge of
the risk associated with the changes in currency rates on
the related assets and liabilities.
As of December 31, 2002, the maximum length of time
over which the Company is hedging its exposure to the
variability in future cash flows associated with foreign
currency forecasted transactions is 18 months.
Instruments
Financial Instruments
Derivative Financial
NonNonNonNon----Derivative
Instruments
Instruments
Financial
Financial
Derivative
Derivative
Non-derivative financial instruments, which potentially
subject the Company to concentrations of credit risk,
consist principally of cash and cash equivalents and trade
receivables. The Company places its cash and cash
equivalents with high credit quality financial institutions
and the Company limits the amount of credit exposure to
any one financial institution. Concentrations of credit risk
with respect to trade receivables are reduced as a result of
the diversification benefit provided by the large number
of customers comprising the Company’s customer base,
and their dispersion across many different industries and
geographic areas. Credit limits, ongoing credit evaluation
and account-monitoring procedures are utilized to
minimize the risk of loss from nonperformance on trade
receivables.
73
2002 ANNUAL REPORT
The carrying amounts of cash and cash equivalents,
accounts receivable, accounts payable and accrued
liabilities approximate fair value because of the short-
term nature of these instruments.
The fair value of the Company’s floating-rate short-term
and long-term debt approximates the carrying amount.
The fair value of the Company’s significant fixed rate
long-term debt is described below. Fair value is estimated
by discounting the future cash flows using rates for
similar debt instruments at the valuation date.
In addition, certain Atlantic region operations were
streamlined in order to reduce overhead costs and
improve overall performance in that region. The Atlantic
region planned restructuring efforts involved severance
costs and station closing costs in the UK, Denmark, Italy
and South Africa. Approximately 50 positions were
eliminated, most of which were positions at or above
manager level.
The following is a summary of the 2000 restructuring
charges:
December 31
Americas Atlantic
Total
2002
2002
20022002
2001
(In millions)
Region
Region BAX Global
Fair
Value
Carrying
Values
Fair
Value
Carrying
Values
Senior Notes
107.3
$$$$ 107.3
107.3
107.3
DTA bonds (a)
53.153.153.153.1
95.095.095.095.0
43.243.243.243.2
76.3
N/A
75.0
N/A
(a) DTA was included in Other liabilities in 2001.
Note
Note 20202020
Note
Note
2000
RESTRUCTURING ---- 2000
RESTRUCTURING
2000
2000
RESTRUCTURING
RESTRUCTURING
During 2000, BAX Global finalized a restructuring plan
aimed at reducing the capacity and cost of its airlift
capabilities in the U.S. as well as reducing station
operating expenses, sales, general and administrative
expense in the Americas and Atlantic regions. The actions
taken included:
Fleet related charges
$ 49.7
Severance costs
Station and other closure costs
1.1
3.8
Total restructuring charge
$ 54.6
-
1.2
1.7
2.9
49.7
2.3
5.5
57.5
Approximately $45.2 million of the restructuring charge
was noncash and approximately $0.3 million of the charge
was paid in 2000. The following analyzes the changes in
the remaining liabilities for such costs:
(In millions)
Station
and
Charges Severance Other
Fleet
Total
•
•
•
The removal of ten planes from the fleet, nine of
which were dedicated to providing lift capacity in
BAX Global’s commercial cargo system.
Adjustments
Payments
The closure of nine operating stations and
realignment of domestic operations.
December 31, 2001
Payments
0.6
(5.1)
2.1
(2.1)
December 31, 2000
$ 6.6
2.0
(0.4)
(1.5)
0.1
(0.1)
3.4
12.0
(0.4)
(0.9)
(0.2)
(7.5)
2.1
4.3
(0.6)
(2.8)
The reduction of employee-related costs through the
elimination of approximately 300 full-time positions
including aircraft crew and station operating, sales
and business unit overhead positions.
December 31, 2002
$
-
-
1.5
1.5
The remaining accrual includes contractual commitments
for facilities and is expected to be paid by the end of
2007. The Company decreased its accrual for
restructuring in 2001 by a net $0.2 million as a result of
changes in the estimate of certain liabilities.
74
Note
Note 21212121
Note
Note
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES
Future minimum lease and royalty payments due under
the agreements at December 31, 2002 were as follows:
2002 ANNUAL REPORT
ACMI Agreements
ACMI Agreements
ACMI Agreements
ACMI Agreements
At December 31, 2002, the Company had aircraft, crew,
maintenance and insurance (“ACMI”) agreements with
third parties to provide aircraft usage and services to BAX
Global, which expire in 2003 through 2004. The fixed and
determinable portion of the obligations under ACMI
agreements aggregate approximately $32.5 million in
2003 and $6.6 million in 2004. Amounts purchased under
these arrangements, including any variable component
based on hours of usage, were $49.4 million in 2002,
$63.4 million in 2001 and $84.2 million in 2000.
Former Coal Operations
Former Coal Operations
Former Coal Operations
Former Coal Operations
The Company is continuing to market the residual assets
of its former coal operations, and expects purchasers to
assume a portion of the Company’s coal equipment
operating leases and advance minimum royalty
obligations. Advance royalty payments relate to the right
to access and mine coal properties. These advance royalty
payments are recoverable against future production by
purchasers of the residual coal assets. Amounts paid by
the Company’s former coal operations under these
arrangements, including any variable component, were
$6.6 million in 2002, $9.8 million in 2001, and $9.5 million
in 2000. The variable component is based on coal
produced pursuant to the mineral lease agreements. The
Company has recorded a $14.7 million liability for the
present value of obligations (including $5.1 million
accrued in continuing operations in 2002) that are not
expected to be assumed by purchasers.
(In millions)
Operating Leases
Expected to Be
Advance Minimum
Royalty Agreements
Expected to Be
Assumed Retained
Assumed
Retained
$
2003
2004
2005
2006
2007
Later years
0.5
0.2
0.1
-
-
-
1.2
$
-
-
-
-
-
0.7
1.1
0.8
0.8
0.7
21.0
$
0.8
1.2
$
25.1
2.2
2.9
2.3
1.1
1.0
19.6
29.1
In connection with the sale of certain assets and
businesses of the former coal operations, the Company
subleased to Alpha Natural Resources, LLC, coal mining
equipment that has $2.6 million of remaining lease
payments. The sublease has substantially the same terms
and conditions as the Company's leases. If Alpha does not
meet its sublease obligations, the Company would be
required to pay any remaining lease payments.
Purchase Agreements
Purchase Agreements
Purchase Agreements
Purchase Agreements
At December 31, 2002, the Company had noncancelable
commitments to purchase $13.2 million of equipment and
$12.0 million of computer processing and consulting
services.
Federal Black Lung Excise Tax (“FBLET”)
Federal Black Lung Excise Tax (“FBLET”)
Federal Black Lung Excise Tax (“FBLET”)
Federal Black Lung Excise Tax (“FBLET”)
On February 10, 1999, the U.S. District Court of the
Eastern District of Virginia entered a final judgment in
favor of certain of the Company’s subsidiaries, ruling that
the FBLET is unconstitutional as applied to export coal
sales. A total of $0.8 million (including interest) was
75
refunded in 1999 for the FBLET that those companies paid
for the first quarter of 1997. The Company sought refunds
of the FBLET it paid on export coal sales for all open
statutory periods and received refunds of $23.4 million
(including interest) during the fourth quarter of 2001.
During the fourth quarter of 2002, the Company reached
a settlement under which it will collect additional refunds
of $3.2 million.
The Company continues to pursue the refund of other
FBLET payments. Due to uncertainty as to the ultimate
additional future amounts to be received, if any, which
could amount to as much as $18 million (before income
taxes), as well as the timing of any additional FBLET
refunds, the Company has not currently recorded
receivables for such additional FBLET refunds.
Environmental Remediation
Environmental Remediation
Environmental Remediation
Environmental Remediation
The Company has agreed to pay 80% of the remediation
costs arising from hydrocarbon contamination at a
formerly owned petroleum terminal facility (“Tankport”)
in Jersey City, New Jersey, which was sold in 1983. The
Company is in the process of remediating the site under
an approved plan. The Company estimates its portion of
the actual remaining clean-up and operational and
maintenance costs, on an undiscounted basis, to be
between $2.2 million and $4.3 million. The Company is in
discussions with another potentially responsible party to
recover a portion of the amount paid and to be paid by
the Company related to this matter.
2002 ANNUAL REPORT
Litigation
Litigation
Litigation
Litigation
The Company is defending potentially significant civil
suits relating to its former coal business. Although the
Company is defending these cases vigorously and believes
that its defenses have merit, there exists the possibility
that one or more of these suits ultimately may be decided
in favor of the plaintiffs. If so, the Company expects that
the ultimate amount of unaccrued losses could range
from $0 to $25 million.
Surety Bonds
Surety Bonds
Surety Bonds
Surety Bonds
The Company is required by various state and federal laws
to provide security with regard to its obligations to pay
workers’ compensation, to reclaim lands used for mining
by the Company’s former coal operations and to satisfy
other benefits. As of December 31, 2002, the Company
had outstanding surety bonds with third parties totaling
approximately $235 million that it has arranged in order
to satisfy the various security requirements. Most of these
bonds provide financial security for previously recorded
liabilities. Because some of the Company’s reclamation
obligations have been assumed by purchasers of the
Company’s former coal operations, $67 million of the
Company’s surety bonds are expected to be replaced by
purchasers’ surety bonds. These bonds are typically
renewable on a yearly basis, however there can be no
assurance the bonds will be renewed or that premiums in
the future will not increase. If the surety bonds are not
renewed, the Company believes that it has adequate
available borrowing capacity under its U.S. credit facility
to provide letters of credit or other collateral to secure its
obligations.
76
2002 ANNUAL REPORT
Note
Note 22222222
Note
Note
SELECTED QUARTERLY FINANCIAL DATA
SELECTED QUARTERLY FINANCIAL DATA
SELECTED QUARTERLY FINANCIAL DATA
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
(UNAUDITED)
(UNAUDITED)
(UNAUDITED)
(In millions, except
per share amounts)
Revenues
Operating profit
Depreciation and amortization
Impairment charges for subscriber
1111stststst
2002 Quarters
2002 Quarters
2002 Quarters
2002 Quarters
3333rdrdrdrd
2222ndndndnd
4444thththth
1st
2001 Quarters
3rd
2nd
4th
$$$$
899.5
899.5
899.5
899.5
919.1
919.1
919.1
919.1
953.7
953.7
953.7
953.7
1,004.4
1,004.4
1,004.4
1,004.4
$ 908.3
884.5
884.3
947.1
37.37.37.37.1111
36.636.636.636.6
35.635.635.635.6
37.837.837.837.8
35.535.535.535.5
39.039.039.039.0
24.524.524.524.5
41.441.441.441.4
24.8
39.2
15.9
39.5
20.0
40.5
46.9
41.4
disconnects
7.37.37.37.3
8.18.18.18.1
9.49.49.49.4
7.57.57.57.5
7.5
8.7
9.2
8.4
Income from continuing operations
Loss from discontinued operations
Net income (loss)
Net income (loss) per common share:
Basic:
Continuing operations
Discontinued operations
Basic
Diluted:
Continuing operations
Discontinued operations
Diluted
Dividends declared per common share
Stock prices:
High
Low
$$$$
$$$$
$$$$
$$$$
$$$$
$$$$
$$$$
19.119.119.119.1
(11.0)
(11.0)
(11.0)
(11.0)
8.18.18.18.1
19.119.119.119.1
22.122.122.122.1
----
----
19.119.119.119.1
22.122.122.122.1
8.78.78.78.7
((((31.931.931.931.9))))
((((23.223.223.223.2))))
0.370.370.370.37
(0.22)
(0.22)
(0.22)
(0.22)
0.150.150.150.15
0.370.370.370.37
(0.22)
(0.22)
(0.22)
(0.22)
0.150.150.150.15
0.360.360.360.36
0.410.410.410.41
----
----
0.360.360.360.36
0.410.410.410.41
0.170.170.170.17
(0.(0.(0.(0.61616161))))
(0.(0.(0.(0.44444444))))
0.360.360.360.36
0.410.410.410.41
----
----
0.360.360.360.36
0.410.410.410.41
0.170.170.170.17
(0.61))))
(0.61
(0.61
(0.61
(0.(0.(0.(0.44444444))))
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
0.025
$$$$
25.90
25.90
25.90
25.90
20.50
20.50
20.50
20.50
28.92
28.92
28.92
28.92
22.20
22.20
22.20
22.20
25.00
25.00
25.00
25.00
23.70
23.70
23.70
23.70
18.60
18.60
18.60
18.60
17.50
17.50
17.50
17.50
$
$
$
$
$
$
$
$
8.7
-
8.7
3.8
-
3.8
9.2
-
9.2
24.1
(29.2)
(5.1)
0.17
0.07
0.17
-
-
-
0.46
(0.56)
0.17
0.07
0.17
(0.10)
0.17
0.07
0.17
-
-
-
0.46
(0.56)
0.17
0.07
0.17
(0.10)
0.025
0.025
0.025
0.025
22.44
17.86
25.31
19.35
23.15
22.90
15.75
17.20
Pittston Brink’s Group Common Stock (“Pittston Common Stock”) is the only outstanding class of common stock of the
Company and trades on the New York Stock Exchange as “PZB.” As of March 1, 2003, there were approximately 3,800
shareholders of record of Pittston Common Stock.
77
SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
Five Years in Review
Five Years in Review
Five Years in Review
Five Years in Review
(In millions, except per share amounts)
2002002002002222
2001
2000
1999
1998
2002 ANNUAL REPORT
Revenues and Income
Revenues and Income
Revenues and Income
Revenues and Income
Revenues
Income from continuing operations before
cumulative effect of change in accounting principle
Income (loss) from discontinued operations (a)
Cumulative effect of change in accounting principle (b)
Net income (loss)
Financial Position
Financial Position
Financial Position
Financial Position
Property and equipment, net
Total assets
Long-term debt, less current maturities
Shareholders’ equity
on Common Share (c)(c)(c)(c)
Per Pittston Common Share
Per Pittst
on Common Share
on Common Share
Per Pittst
Per Pittst
Basic, net income (loss):
Continuing operations
Discontinued operations (a)
Cumulative effect of change in accounting principle (b)
Total basic
Diluted, net income (loss):
Continuing operations
Discontinued operations (a)
Cumulative effect of change in accounting principle (b)
Total diluted
Cash dividends
$$$$
$$$$
$$$$
$$$$
$$$$
$$$$
pro forma for accounting change ( ( ( (dddd))))
Common Share, pro forma for accounting change
Pittston Common Share,
Per Per Per Per Pittston
pro forma for accounting change
pro forma for accounting change
Common Share,
Common Share,
Pittston
Pittston
Basic, income (loss) from:
Continuing operations
Discontinued operations
Total basic, pro forma
Diluted, income (loss) from:
Continuing operations
Discontinued operations
Total diluted, pro forma
$$$$
$$$$
$$$$
$$$$
$$$$
3,776.7
3,776.7
3,776.7
3,776.7
3,624.2
3,834.1
3,709.7
3,251.6
69.69.69.69.0000
((((42.942.942.942.9))))
----
26.126.126.126.1
45.8
(29.2)
-
16.6
2.7
(207.3)
(52.0)
(256.6)
108.0
(73.3)
-
34.7
61.2
4.9
-
66.1
871.2
871.2
871.2
871.2
2,459.9
2,459.9
2,459.9
2,459.9
304.2
304.2
304.2
304.2
381.2222
381.
381.381.
915.5
2,423.2
257.4
476.1
925.8
2,478.7
313.6
475.8
930.4
2,459.7
395.1
749.6
849.9
2,331.1
323.3
736.0
1.301.301.301.30
(0.(0.(0.(0.82828282))))
----
0.0.0.0.48484848
1.301.301.301.30
(0.82
(0.82))))
(0.82
(0.82
----
0.0.0.0.48484848
0.100.100.100.10
1.301.301.301.30
(0.82)
(0.82)
(0.82)
(0.82)
0.480.480.480.48
1.301.301.301.30
(0.82)
(0.82)
(0.82)
(0.82)
0.480.480.480.48
0.88
(0.57)
-
0.31
0.88
(0.57)
-
0.31
0.10
0.88
(0.57)
0.31
0.88
(0.57)
0.31
0.07
(4.14)
(1.04)
(5.11)
0.05
(4.13)
(1.04)
(5.12)
0.10
0.07
(4.14)
(4.07)
0.05
(4.13)
(4.08)
2.55
(1.49)
-
1.06
2.19
(1.49)
-
0.70
N/A
2.46
(1.49)
0.97
2.09
(1.49)
0.60
1.18
0.10
-
1.28
1.17
0.10
-
1.27
N/A
1.04
0.10
1.14
1.03
0.10
1.13
Common Shares Outstanding
Pittston Common Shares Outstanding
Weighted Average Pittston
Weighted Average
Common Shares Outstanding
Common Shares Outstanding
Pittston
Pittston
Weighted Average
Weighted Average
Basic
Diluted
52.152.152.152.1
52.452.452.452.4
51.2
51.4
50.1
50.1
49.1
49.3
48.8
49.3
78
SELECTED FINANCIAL DATA (CONTINUED)
SELECTED FINANCIAL DATA (CONTINUED)
SELECTED FINANCIAL DATA (CONTINUED)
SELECTED FINANCIAL DATA (CONTINUED)
Five Years in Review
Five Years in Review
Five Years in Review
Five Years in Review
(In millions, except per share amounts)
Per Pittston Brink’s Group Common Share (c)
Per Pittston Brink’s Group Common Share (c)
Per Pittston Brink’s Group Common Share (c)
Per Pittston Brink’s Group Common Share (c)
Basic net income
Diluted net income
Pro forma basic (b)
Pro forma diluted (b)
Cash dividends
n BAX Group Common Share (c)
Per Pittston BAX Group Common Share (c)
Per Pittsto
n BAX Group Common Share (c)
n BAX Group Common Share (c)
Per Pittsto
Per Pittsto
Basic net income (loss)
Diluted net income (loss)
Cash dividends
mmon Share (c)
inerals Group Common Share (c)
Per Pittston Minerals Group Co
Per Pittston M
mmon Share (c)
mmon Share (c)
inerals Group Co
inerals Group Co
Per Pittston M
Per Pittston M
Basic net income (loss):
Continuing operations
Discontinued operations (a)
Total basic
Diluted net income (loss):
Continuing operations
Discontinued operations (a)
Total diluted
Cash dividends
2002 ANNUAL REPORT
2020202002020202
2001
2000
1999
1998
N/AN/AN/AN/A
N/AN/AN/AN/A
N/AN/AN/AN/A
N/AN/AN/AN/A
N/AN/AN/AN/A
N/AN/AN/AN/A
N/AN/AN/AN/A
N/AN/AN/AN/A
N/AN/AN/AN/A
N/AN/AN/AN/A
N/AN/AN/AN/A
N/AN/AN/AN/A
N/AN/AN/AN/A
N/AN/AN/AN/A
N/AN/AN/AN/A
$$$$
$$$$
$$$$
$$$$
$$$$
$$$$
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
2.16
2.15
2.03
2.03
0.10
1.73
1.72
0.24
0.93
(8.26)
(7.33)
(0.98)
(7.63)
(8.61)
0.025
2.04
2.02
1.87
1.85
0.10
(0.68)
(0.68)
0.24
(1.01)
0.59
(0.42)
(1.01)
0.59
(0.42)
0.24
(a) Income (loss) from discontinued operations reflects the operations and losses on disposal of the Company’s former coal operations. Some of the expenses
recorded within discontinued operations will continue after the disposition of the coal business is complete and will be recorded within continuing
operations. The expenses that are expected to continue primarily consist of postretirement and other employee benefits associated with Company-
sponsored plans and black lung obligations; reclamation and other costs for retained inactive operations, if any; and administrative and legal expenses to
oversee residual assets and retained benefit obligations. See Note 5. In accordance with APB No. 30, the Company included these expenses within
discontinued operations for all periods presented above. Beginning in 2003, expenses related to our Company-sponsored pension and postretirement
benefit obligations, black lung obligations and related administrative costs will be recorded as a component of continuing operations. The amount of
expenses related to postretirement and other employee benefits associated with the Company-sponsored plans and black lung obligations that were
charged to discontinued operations were $2 million, $53 million, and $48 million for the years ended 2002, 2001, and 2000, respectively. As required by
APB No. 30, expenses recorded in 2000 include both the actual expenses for that year plus an accrual of costs through the expected disposal period, which
at the time was expected to be the end of 2001. Expenses recorded in 2001 represent an estimate of costs for 2002 due to the extension of the expected
disposal period to the end of 2002. Future adjustments to contingent liabilities will continue to be recorded within discontinued operations.
(b) The Company’s results for 2000 include a noncash after-tax charge of $52.0 million, or $1.04 per diluted share, to reflect the cumulative effect of a change
in accounting principle pursuant to guidance issued in Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements,” by the Securities
and Exchange Commission in December 1999 and a related interpretation issued in October 2000.
(c) Prior to January 14, 2000, the Company was comprised of three separate groups – Pittston Brink’s Group, Pittston BAX Group, and Pittston Minerals
Group. The Pittston Brink’s Group included the Brink’s and BHS operations of the Company. The Pittston BAX Group included the BAX Global operations
of the Company. The Pittston Minerals Group included the Pittston Coal Company and Mineral Ventures operations of the Company. Also, prior to
January 14, 2000, the Company had 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, the BAX Group and the Minerals Group, respectively. On December 6, 1999, the Company announced
that its Board of Directors approved the elimination of the tracking stock capital structure by an exchange of all outstanding shares of Minerals Stock and
BAX Stock for shares of Brink’s Stock (the “Exchange”). The Exchange took place on January 14, 2000.
(d) Pro forma income per share amounts prior to 2000 have been adjusted to show the effect of the change in accounting noted in (b) above as if it had been
in effect all periods.
79
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
BOARD OF DIRECTORS AND SENIOR MANAGEMENT
The Board of Directors, as elected by the shareholders, is
divided into three classes, with the term of office of one
of the three classes of directors expiring each year, and
with each class being elected for a three-year term.
Presently, there are twelve members of the Board of
Directors, eleven of whom are outside directors with
broad experience in business, finance and public affairs.
Roger G. Ackerman1, 3, 5
Retired Chairman and Chief Executive Officer - Corning
Incorporated (specialty glass, ceramics and communications)
Betty C. Alewine1, 4, 6
Retired President and Chief Executive Officer - COMSAT
Corporation (provider of global satellite services and digital
networking services and technology)
James R. Barker1, 2, 3
Chairman - The Interlake Steamship Co. (vessel owners and
operators of self unloaders); Vice Chairman - Mormac Marine
Group, Inc. (vessel owners of oil product carriers); and Vice
Chairman - Moran Towing Corporation (tug and barge owners
and operators)
Marc C. Breslawsky1, 5, 6
President and Chief Executive Officer - Imagistics International
Inc. (direct sales, service and marketing of enterprise office
imaging and document solutions)
2002 ANNUAL REPORT
Gerald Grinstein1, 3, 4
Non-Executive Chairman - Agilent Technologies (a diversified
technology company); and Principal - Madrona Investment
Group LLC (private investment company); Strategic Advisor –
Madrona Venture Fund (Seattle-based venture fund)
Ronald M. Gross1, 2, 4
Chairman Emeritus, Former Chairman and Chief Executive
Officer - Rayonier, Inc. (a global supplier of specialty pulps,
timber and wood products)
Carl S. Sloane1, 2, 6
Private Consultant and Ernest L. Arbuckle Professor of Business
Administration, Emeritus, Harvard University, Graduate School
of Business Administration
Ronald L. Turner1, 4, 5
Chairman, President and Chief Executive Officer – Ceridian
Corporation (information services company engaged in
providing human resource outsourcing services, as well as
payment services, to transportation and retail markets in the
U.S., Canada and Europe)
1 Executive Committee
2 Audit and Ethics Committee
3 Compensation and Benefits Committee
4 Corporate Governance and Nominating Committee
5 Finance Committee
6 Pension Committee
James L. Broadhead1, 3, 6
Retired Chairman and Chief Executive Officer - FPL Group, Inc.
(public utility holding company)
THE PITTSTON COMPANY
THE PITTSTON COMPANY
THE PITTSTON COMPANY
THE PITTSTON COMPANY
EXECUTIVE OFFICERS
EXECUTIVE OFFICERS
EXECUTIVE OFFICERS
EXECUTIVE OFFICERS
William F. Craig1, 2, 5
Private Investor and Retired Chairman - New Dartmouth Bank
Michael T. Dan1
Chairman, President and Chief Executive Officer - The Pittston
Company
Michael L. Grimes1, 2, 5
President and Chief Executive Officer - Stewart and Stevenson
Services, Inc. (manufacturer, distributor and provider of service
for industrial, transportation and energy related equipment)
Michael T. Dan
Chairman, President and Chief Executive Officer
James B. Hartough
Vice President - Corporate Finance and Treasurer
Frank T. Lennon
Vice President - Human Resources and Administration
Austin F. Reed
Vice President, General Counsel and Secretary
Robert T. Ritter
Vice President and Chief Financial Officer
80
303209a2.qxd 5/7/03 5:04 PM Page 13
The Pittston Company
Corporate Headquarters
The Pittston Company
1801 Bayberry Court, P.O. Box 18100
Richmond, VA 23226-8100
Telephone: (804) 289-9600
Facsimile: (804) 289-9770
Annual Meeting
The Annual Meeting of the shareholders of the Company is scheduled to be held at 1:00 pm
(EST), May 2, 2003, at the Hotel Inter-Continental The Barclay New York, 111 East 48th Street,
New York, New York 10017.
Inquiries
Communications concerning stock transfer requirements, lost certificates, dividends, or change of
address should be addressed to the Company’s transfer agent, EquiServe Trust Company, N.A., at
the address listed below, or by calling (800) 730-6001.
Auditors
KPMG LLP
Richmond, VA
Common Stock Transfer Agent and Registrar
EquiServe Trust Company, N.A.
P.O. Box 43010
Providence, RI 02940-3010
Investor Relations Number 800-730-6001
Internet Address: www.EquiServe.com
Investor Information
Copies of the 2002 Annual Report for the Company; press releases announcing quarterly results;
the 2002 Form 10-K filed with the Securities and Exchange Commission; and any other information
are available on the world wide web at www.pittston.com or by calling, toll free (877) 275-7488
or by writing to the Investor Relations Department at Pittston Corporate Headquarters.
The Pittston Company and its Subsidiaries are Equal Opportunity Employers
303209a2.qxd 5/7/03 5:03 PM Page 1
The Pittston Company
1801 Bayberry Court
P.O. Box 18100
Richmond, VA 23226-8100
Telephone (804) 289-9600
Fax (804) 289-9770
www.pittston.com