The Pittston Company 2000 Annual Report

BAX Global's worldwide operating revenues increased 17% to $2.1 billion in 1999 as compared to $1.8 billion in 1998, with increases in both the Americas and International regions. In 1999, BAX Global reported an operating profit of $61.5 million, as compared to an operating loss in 1998 of $0.6 million. In 1998, BAX Global's operating results were adversely affected by additional expenses of approximately $36 million (see further discussion below). Operating profit in 1999 included the benefit of $1.6 million related to 1998 incentive accruals reversed as a result of a management decision made in the first quarter of 1999. The majority of that benefit impacted BAX Global's International region.

Revenues and operating profit in the Americas increased $62.7 million (5%) and $4.0 million (6%), respectively, in 1999 as compared to 1998. The increase in revenue was primarily due to the inclusion of a full year's performance for ATI, which was acquired in April 1998, and growth in US domestic, Canada and Mexico expedited freight revenue. The increase in US domestic expedited revenue was mainly due to the continued expansion of higher yielding time definite and guaranteed delivery products, partially offset by a slight decrease in domestic expedited volume. The increase in operating profit in the Americas region was largely the result of margin improvements on US domestic freight services which reflected higher time definite and guaranteed delivery product volumes as well as lower US domestic transportation costs.

Lower US domestic transportation costs were favorably impacted by operating efficiencies which primarily resulted from BAX Global's mode-neutral transportation capabilities as well as lower fuel expense due to lower usage and hedging activities, partially offset by higher maintenance costs. The benefits from US domestic margin improvements were partially offset by higher administrative and station expenses, as well as higher operating costs at ATI (included for a full year in 1999, eight months in 1998). In addition, US transportation costs in the first half of 1998 were negatively impacted by service disruptions due to weather delays and equipment problems.

In 1999, International revenues and operating profit increased $252.3 million (39%) and $12.7 million (69%), respectively, compared to 1998. The growth in revenue and operating profit reflected increased expedited freight services revenue (resulting from higher volumes) as well as increased supply chain management services revenue due to new business, primarily in Asia, from several high technology industry customers obtained in late 1998 and early 1999. The growth in expedited revenue also reflected the acquisition of the remaining 67% interest in a freight agent in Taiwan in the first quarter of 1999. In addition, operating profit in 1999 reflected the benefit of the aforementioned reversal of incentive accrual in the amount of $1.3 million, while operating profit in 1998 reflected higher information technology costs in Europe as well as increased provisions for bad debt expense in India.

The increase in eliminations/other revenue was consistent with increased revenues on shipments across national borders. Other operating loss decreased $45.4 million for 1999 as compared to 1998 due in part to the additional expenses of approximately $36 million in 1998. In addition, 1999 reflects higher global administrative expenses primarily due to increases in global head count partially offset by lower global information technology costs.

During 1998, BAX Global incurred additional expenses of approximately $36 million, nearly all of which was recorded in selling, general and administrative expenses. These expenses were comprised of several items. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 121 úAccounting for Long-Lived Assets and Long-Lived Assets to be Disposed Ofî, BAX Global recorded write-offs for software costs of approximately $16 million. These write-offs consisted of the costs associated with certain in-process software development projects that were canceled and unamortized costs of existing software applications that were determined by management to have no future service potential or value. Provisions aggregating approximately $13 million were recorded on existing receivables during 1998, primarily to reflect the impact of more difficult operating conditions in Asia and Latin America. Approximately $7 million was accrued for severance and other expenses primarily stemming from a realignment of BAX Global's organizational structure. During 1999, BAX Global reversed approximately $0.1 million of the accrued severance representing the unused portion of the initial accrual established at September 30, 1998.

Other Operations
The following is a table of selected financial data for Other Operations on a comparative basis:

Certain prior year amounts have been reclassified to conform to the current year presentation.

(a) Consists of timber and natural gas operations.