BCO

Business Context and Reporting Period

This Form 10-Q covers The Pittston Company (operating primarily as Brink's, BAX Global, and Brink's Home Security) for the quarterly and nine-month periods ended September 30, 2002. The Company is in the process of exiting its coal mining business, which is reported as discontinued operations. The Company operates in over 100 countries and has three primary continuing segments: Brink's (security services), Brink's Home Security (BHS), and BAX Global (expedited freight).

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 7.8% in Q3 2002 and 3.6% for the nine months ended Sept 30, 2002, compared to 2001. Growth was driven by Brink's (6% increase for 9M) and BAX Global (12% increase in Q3).
• Profitability Surge: Operating profit from continuing operations more than doubled in Q3 2002 ($36.2M vs $20.5M) and increased 75.8% for the nine-month period ($109.7M vs $62.4M). This was primarily due to improved results at BAX Global and Brink's.
• Discontinued Operations: The Company recorded a loss from discontinued operations of $11.0 million (net of tax) for the nine months ended Sept 30, 2002, related to the exit of its coal business. No loss was recorded in the comparable 2001 period.
• Accounting Changes: The adoption of SFAS No. 142 eliminated goodwill amortization, which previously reduced net income. Adjusted net income for the nine months ended Sept 30, 2001, would have been $27.0 million without goodwill amortization.

Guidance, Outlook, and Risks

• Coal Exit: The Company expects to complete the disposal of its coal operations before the end of 2002. Proceeds are expected to exceed $100 million. However, the Company will retain significant legacy liabilities, including retiree medical benefits, black lung obligations, and reclamation costs, estimated to cost $45 million to $55 million annually for the next five years.
• Capital Expenditures: Full-year 2002 capital expenditures for continuing operations are expected to range from $190 million to $200 million. An additional $19 million to $20 million is expected for discontinued operations.
• Pension Funding: Due to weak investment markets, the Company made a voluntary contribution of $35.1 million to its primary U.S. pension plan in September 2002. Further contributions may be made in Q4 2002, and pension expenses may increase in 2003.
• Operational Risks:
  • BAX Global: A West Coast port dispute is affecting trade volumes. While BAX Global expects to benefit from increased air freight demand, it faces higher third-party aircraft costs and lower domestic volume.
  • Brink's: Economic conditions in South America continue to negatively impact operating results. In France, billing system upgrades have caused temporary delays in revenue recognition and higher receivables.
  • Liquidity: The Company entered a new $350 million credit facility in September 2002. It remains in compliance with all financial covenants.

Investor Verification Checklist

• Coal Disposal Timeline: Verify the completion of the coal asset sales (West Virginia, Virginia, Kentucky) before year-end 2002 and the finalization of the restructured West Virginia transaction.
• Legacy Liability Estimates: Monitor the annual actuarial valuations for retained coal liabilities (black lung, retiree medical, reclamation) which could materially impact future earnings.
• Pension Plan Performance: Track the performance of the U.S. pension trust assets in Q4 2002 to assess the likelihood of additional funding requirements and 2003 expense increases.
• French Subsidiary Receivables: Confirm the collection of the $31.0 million increase in receivables at Brink's French subsidiaries resulting from billing system delays.
• BAX Global Margins: Assess the impact of the West Coast port dispute on BAX Global's ability to pass through increased third-party aircraft costs to customers.