Notes to Consolidated Financial Statements

Note 1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
The Pittston Company, a Virginia corporation, has three 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 Pittston Company also has a discontinued segment, Pittston Coal Operations ("Coal Operations"). 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 Notes 3 and 20 for additional information concerning the Exchange.

Principles of Consolidation
The Consolidated Financial Statements reflect the accounts of the Company and its majority-owned subsidiaries. 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 $34.1 million at December 31, 2001. All material intercompany items and transactions have been eliminated in consolidation. Certain prior year amounts have been reclassified to conform to the current year's financial statement presentation.

Revenue Recognition
Brink's - 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. Revenue is recognized when services are performed.

BHS - Monitoring revenues are recognized monthly as services are provided pursuant to the terms of customer contracts. Amounts collected in advance 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. 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. 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.
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Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits and investments with original maturities of three months or less.

Property and Equipment
Property and equipment is accounted for at cost. Depreciation is calculated principally on the straight-line method.

Estimated Useful Lives
Years
Buildings 10 to 40
Home security systems 15
Vehicles 3 to 12
Other machinery and equipment
3 to 20
Expenditures for routine maintenance and repairs on property and equipment, including aircraft, are charged to expense, and the costs of renewals and betterments are capitalized. Major renewals, betterments and modifications on aircraft are capitalized and amortized over the lesser of the remaining life of the asset or lease term. Scheduled airframe and periodic engine overhaul costs are capitalized 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. Each period, the Company charges to depreciation expense the carrying value of security systems estimated to be permanently disconnected based on historical reconnection experience.

Goodwill
Goodwill has been amortized through 2001 on a straight-line basis over the estimated periods benefited up to a maximum of 40 years.

Impairment of Long-Lived Assets
Long-lived assets that are deemed impaired are recorded at the lower of the carrying amount or fair value in accordance with Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of." The Company reviews long-lived assets, including fixed assets and goodwill, for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. To determine if impairment exists, the Company compares estimates of the future undiscounted net cash flows of the asset to its carrying value. 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.

Stock-Based Compensation
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 at the average market price of the stock at date of grant, the Company has not recognized any compensation expense related to its stock option plans for the years ended December 31, 2001, 2000 and 1999. Pro forma disclosures of net earnings and earnings per share calculated as if the fair value method of accounting provided for in SFAS No. 123, "Accounting for Stock-Based Compensation," had been applied are presented in Note 14.

Postretirement Benefits Other Than Pensions
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 and during 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.
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Income Taxes
Income taxes are accounted for in accordance with SFAS No. 109, "Accounting for Income Taxes," which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, 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.

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 related revenues and expenses are translated at average rates of exchange in effect during the year. Resulting cumulative translation adjustments have been recorded as a separate component of shareholders' equity. Translation adjustments relating to subsidiaries in countries with highly inflationary economies are included in net income, along with all transaction gains and losses.

Derivative Instruments and Hedging Activities
Derivative instruments and hedging activities are accounted for in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. SFAS No. 133, which was adopted in 1998 by the Company, requires that all derivative instruments be 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 income until the hedged transaction is recognized in earnings.

Use of Estimates
In accordance with accounting principles generally accepted in the US, 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.

Accounting Change - 2000
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.

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). Of the $121.1 million of revenues deferred by the adoption of the new accounting principle at the beginning of 2000, $18.0 million was recognized as revenue in 2001 and $19.6 million was recognized as revenue in 2000.
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Recent Accounting Pronouncements
SFAS No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets," were issued in June 2001. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. SFAS No. 142 will be adopted in the first quarter of 2002 and, in accordance with the new standard, goodwill and intangible assets with indefinite useful lives will no longer be amortized, but will be tested for impairment at least annually. The Company's goodwill amortization in each of 2001 and 2000 was approximately $9.5 million ($0.12 per diluted share after-tax). During 2002, the Company will perform a transitional goodwill impairment test as of January 1, 2002 and will record any resulting impairment charges, if necessary, as the cumulative effect of an accounting change as of January 1, 2002. The impact of the implementation of this statement other than discontinuing goodwill amortization, if any, on the earnings and financial position of the Company will be evaluated during the first half of 2002.

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 2003. The Company is currently evaluating the effect that implementation of the new standard may have on its results of operations and financial position.

SFAS No. 144, "Accounting for the Impairment or Disposal of Long-lived Assets," was issued in August 2001. This statement supersedes SFAS No. 121 and will provide a single accounting model for long-lived assets held-for-sale. SFAS No. 144 will also supersede the provisions of APB No. 30, "Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," with regard to reporting the effects of a disposal of a segment of a business and will require expected future operating losses from discontinued operations to be reported in the periods in which the losses are incurred (rather than as of the measurement date as required by APB No. 30). In addition, SFAS No. 144 expands the definition of asset dispositions that may qualify for discontinued operations treatment in the future. SFAS No. 144 is effective for new transactions entered into after adoption of this statement.
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Note 2

SEGMENT INFORMATION

The Company conducts business in four different operating segments: Brink's, BHS, 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 US as well as 53 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. Internationally, BAX Global is engaged in time-definite air and sea delivery, freight forwarding, supply chain management services and international customs brokerage. Worldwide, BAX Global specializes in developing supply chain management programs for companies wanting to quickly enter new markets or consolidate regional activity.

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's long-term plan is to ultimately exit these activities to focus resources on its core Business and Security Services segments.

Financial information for these segments is contained in the tables that follow.

Years Ended December 31
(In millions)
2001
2000
1999
Revenues:
Business and Security Services:
Brink's
$
 1,536.3 1,462.9 1,372.5
BHS 257.6 238.1 228.7
BAX Global 1,790.1 2,097.6 2,083.4
Business and Security Services 3,584.0 3,798.6 3,684.6
Other Operations 40.2 35.5 25.1
Revenues $ 3,624.2 3,834.1 3,709.7
Years Ended December 31
(In millions)
2001
2000
1999
Operating profit (loss):
Business and Security Services:
Brink's(a) $ 92.0 108.5 103.5
BHS 54.9 54.3 54.2
BAX Global(b) (24.6) (99.6) 61.5
Business and Security Services 122.3 63.2 219.2
Other Operations(c) 7.6 5.7 0.3
Segment operating profit 129.9 68.9 219.5
General corporate expense (19.3) (21.2) (22.9)
Operating profit $ 110.6 47.7 196.6

(a) Includes equity interest in net income of unconsolidated equity affiliates of $5.5 million in 2001, $4.3 million in 2000 and $4.6 million in 1999.

(b) 2000 includes restructuring charges of $57.5 million (see Note 17).

(c) Includes equity interest in net income (loss) of unconsolidated equity affiliates of ($0.6) million in 2001, $0.4 million in 2000 and ($0.3) million in 1999.



Years Ended December 31
(In millions)
2001
2000
1999
Capital expenditures:
Business and Security Services:
Brink's $ 71.3 73.9 84.4
BHS 81.3 74.5 80.6
BAX Global 33.1 60.1 94.5
Business and Security Services 185.7 208.5 259.5
Other Operations 7.2 5.1 9.3
General corporate 0.2 0.8 0.1
Capital expenditures $ 193.1 214.4 268.9

Depreciation and amortization, excluding goodwill:
Business and Security Services:
Brink's $ 60.1 58.2 51.0
BHS(a) 70.6 62.1 49.9
BAX Global(b) 49.4 53.8 32.6
Business and Security Services 180.1 174.1 133.5
Other Operations 4.3 4.9 4.7
General corporate 0.5 0.4 0.9
184.9 179.4 139.1

Goodwill amortization:
Brink's 2.1 2.0 2.0
BAX Global 7.4 7.5 7.8
9.5 9.5 9.8
Depreciation and amortization $ 194.4 188.9 148.9

(a) Includes amortization of deferred subscriber acquisition costs of $10.4 million in 2001 and $8.5 million in 2000.

(b) Excludes amortization of aircraft heavy maintenance expenditures.
December 31
(In millions)
2001
2000
1999
Assets:
Business and Security Services:
Brink's(a)
$
 738.0 719.1 686.3
BHS 372.6 353.4 294.7
BAX Global 594.1 724.5 834.6
Business and Security Services 1,704.7 1,797.0 1,815.6
Other Operations(b) 41.9 39.4 42.8
Identifiable segment assets 1,746.6 1,836.4 1,858.4
General corporate(c) 534.8 515.3 386.1
Assets of continuing
operations 2,281.4 2,351.7 2,244.5
Discontinued operations 112.6 127.0 215.2
Total assets(d)
$
 2,394.0 2,478.7 2,459.7

(a) Includes investments in unconsolidated equity affiliates of $26.0 million, $22.1 million and $18.9 million in 2001, 2000 and 1999, respectively.

(b) Includes investments in unconsolidated equity affiliates of $3.4 million, $4.4 million and $7.1 million in 2001, 2000 and 1999, respectively.

(c) Primarily deferred tax assets, retained coal assets and cash and cash equivalents.

(d) Includes property and equipment, net located in the US of $548.7 million, $553.2 million and $553.9 million as of December 31, 2001, 2000 and 1999, respectively. Property and equipment, net located outside the US was $269.4 million, $278.3 million, $279.3 million as of December 31, 2001, 2000 and 1999, respectively.

All Company revenues are recorded in the country where the service is initiated/performed with the exception of BAX Global's expedited freight service where revenue is shared among the origin and destination countries. The Company's net assets in non-U.S. subsidiaries were $286.0 million and $248.4 million at December 31, 2001 and 2000, respectively.

Years Ended December 31
(In millions)
2001
2000
1999
Revenue by region:
United States
$
 1,810.0 1,961.3 1,912.7
International 1,877.1 1,929.1 1,849.9
Eliminations (62.9) (56.3) (52.9)
Revenues
$
 3,624.2 3,834.1 3,709.7
Operating profit (loss) by region:
United States(a)
$
 43.4 (26.5) 124.2
International(a) 86.5 95.4 95.3
General corporate expense (19.3) (21.2) (22.9)
Operating profit
$
 110.6 47.7 196.6

(a) 2000 includes restructuring charges of $54.6 million and $2.9 million in the US and International, respectively, (see Note 17).

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© 2001 The Pittston Company