BCO

Business Context and Reporting Period

This Form 10-Q covers The Pittston Company for the quarterly period ended September 30, 1999. The Company operates through three distinct groups with separate common stock classes: the Pittston Brink's Group (security and armored car services), the Pittston BAX Group (global logistics and freight), and the Pittston Minerals Group (coal and gold mining). The filing includes consolidated financial statements as well as separate statements for each group.

Key Financial Metrics (Nine Months Ended Sept 30, 1999)

Note: Debt figures are derived from the Consolidated Balance Sheet. Group-specific debt is allocated based on the separate balance sheets provided.

Material Changes vs. Prior Period

• Consolidated Performance: Net income increased significantly to $52.6 million from $33.8 million in the prior year period. Operating profit rose to $98.3 million from $78.1 million.
• BAX Group Turnaround: The BAX Group reported a net income of $12.1 million, a stark contrast to a net loss of $23.8 million in the same period of 1998. The 1998 loss was heavily impacted by approximately $36 million in one-time expenses (software write-offs, bad debt provisions, and severance).
• Minerals Group Decline: The Minerals Group reported a net loss of $18.0 million compared to a near break-even result in 1998. This was driven by a 26% drop in net sales due to reduced coal volumes and lower metallurgical coal realizations.
• Brink's Group Stability: The Brink's Group maintained steady performance with net income of $58.4 million, slightly up from $57.6 million in 1998, despite increased IT expenditures.

Guidance, Outlook, and Risks

Management Commentary and Outlook

• Capital Expenditures: Full-year 1999 cash capital expenditures are projected between $230 million and $250 million company-wide.
• Coal Operations: Metallurgical sales are expected to remain lower than 1998 levels due to weak export markets and a strong US dollar. Future steam coal margins face risks from potential mining permit delays in West Virginia.
• Year 2000 Readiness: The Company anticipates total Year 2000 remediation and acceleration costs of approximately $59.7 million. As of September 30, 1999, $54.3 million had been incurred. Management believes systems will be ready, though risks remain regarding third-party suppliers and government agencies.

Risks and Contingencies

• Regulatory/Legal: A federal court order in October 1999 enjoined regulatory agencies from approving surface mining permits involving fills in streams, affecting Vandalia Resources (a Pittston Coal subsidiary). While enforcement was stayed pending appeal, failure to issue permits by January 2000 could result in production losses.
• Market Risks: The Company is exposed to foreign currency fluctuations and commodity price volatility (coal, gold, jet fuel). Hedging strategies are in place for fuel and gold.
• Dividend Policy: The Board has declined to declare a quarterly dividend on Minerals Stock since the first quarter of 1999 due to the group's financial performance and the "Available Minerals Dividend Amount" limitations.

Investor Verification Checklist

• Minerals Group Permitting: Verify the status of the West Virginia mining permits for Vandalia Resources and the potential impact of the court stay on 2000 production schedules.
• Coal Market Dynamics: Monitor metallurgical coal export volumes and pricing trends, as well as the strength of the US dollar relative to other exporting nations.
• Year 2000 Costs: Confirm that the remaining $5.4 million in Year 2000 costs are sufficient to complete remediation without impacting liquidity.
• Intercompany Transactions: Review the tax sharing arrangements and intercompany borrowings between the Brink's, BAX, and Minerals groups, as losses in one group can affect dividend capabilities in others.
• Coal Resource Study: Track the completion of the external consultant's study on coal resources, which may lead to adjustments in asset carrying values or operational plans.