The Brink’s Company

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The Brink’s Company

1801 Bayberry Court
Richmond, Virginia 23226
U.S.A.
Telephone: (804) 289-9600
Fax: (804) 289-5760
Web site: http://www.brinkscompany.com

Public Company
Incorporated: 1930
Employees: 50,000
Sales: $3.77 billion (2002)
Stock Exchanges: New York
Ticker Symbol: BCO
NAIC: 561613 Armored Car Services; 561621 Security Systems Services; 481112 Scheduled Freight Air Transportation

The Brink’s Company—formerly known as The Pittston Company—is a transportation and security services firm. Its three main operating units include Brink’s Inc., a leading provider of secure transportation and armored car services; BAX Global, an international freight transportation firm; and Brink’s Home Security, one of the largest residential alarm services companies in the United States. The company restructured itself in the early years of the new millennium by selling off its coal business, which had served as a foundation for much of its history. Pittston changed its name to Brink’s in 2003, signaling its focus on business and security services.

The Early Years

The seeds of the Pittston Company were planted in the 19th century, when the U.S. coal-mining and railroad industries developed alongside each other. In 1838 the Pennsylvania Coal Company was organized in Pittston, Pennsylvania, to mine coal for Eastern markets. This company produced anthracite, or hard, coal and built a 46-mile railroad to transport it from Scranton, Pennsylvania, to the Hudson River. The Erie Railroad bought the Pennsylvania Coal Company in 1901, making it a subsidiary of its own mining and railroad operations. Fifteen years later an even larger company, the Alleghany Corporation, acquired the Erie Railroad. The Alleghany Corporation served as a holding company for a variety of businesses owned by the Van Sweringen brothers of Cleveland, Ohio, and their associates. It continued to operate the Erie Railroad and Pennsylvania Coal Company as parts of its railroad empire.

The Alleghany Corporation created the Pittston Company in January 1930. Competition in the hard-coal industry had intensified in the late 1920s, and antitrust laws prevented the Erie Railroad from entering new markets. To solve this problem, Alleghany organized Pittston and offered its stock at $20 per share to Erie Railroad stockholders. Alleghany retained a controlling interest in Pittston, and the Van Sweringens continued to run Pittston. Pittston then leased mines from the Erie Railroad and sold its coal through its own wholesale and retail subsidiaries. At the time of its founding, Pittston also acquired United States Distributing Corporation. United States Distributing was a holding company that owned United States Trucking Corporation; Independent Warehouses, Inc.; Pattison & Bowns, Inc., a wholesale coal distributor; and a Wyoming mining company.

Although it began as part of a large railroad empire, Pittston experienced hard times in its early years. The Great Depression slowed the nation’s coal consumption, and Pittston had to borrow between $1 million and $2 million annually from its sister companies just to stay afloat. In 1935 J.P. Morgan & Co. stopped backing the Van Sweringens, and the Alleghany empire crumbled. Two years later investors Robert R. Young and Allan P. Kirby took over the remaining pieces of the Alleghany Corporation, including Pittston.

Pittston’s fortunes began to turn around when Young and Kirby convinced J.P. Routh to become the Pittston Company’s president. When Routh took over in 1939, Pittston’s stock was down to 12.5 cents per share, and the company owed the Erie Railroad $10 million. Routh, who had owned his own wholesale coal business, established a plan for servicing Pittston’s debt and began looking for ways to expand its business. He turned his attention to the growing bituminous, or soft, coal market. In 1944 he brought Pittston its first bituminous reserves with the purchase of 60 percent of Clinchfield Coal Corporation. Clinchfield Coal had been formed in 1906 when Ledyard Blair, Thomas Fortune Ryan, and George L. Carter merged together several smaller coal companies. Clinchfield Coal owned 300,000 acres of coal reserves in southwestern Virginia, and this acquisition permanently shifted Pittston’s coal operations from Pennsylvania to Appalachia. Over the next four years Pittston invested heavily in Clinchfield Coal. In 1945 Pittston and Clinchfield Coal jointly acquired 67 percent of the Davis Coal & Coke Company. Seven years later Davis Coal & Coke was merged into Clinchfield Coal. In 1947 Pittston acquired Lillybrook Coal Company to increase its coal reserves. It also extensively drilled the Clinchfield properties for natural gas. In 1956 Pittston purchased the remaining 40 percent of Clinchfield Coal, making this highly profitable company a wholly owned subsidiary.

Postwar Developments

Under Routh’s direction Pittston developed interests in oil marketing. In 1951 it acquired the Metropolitan Petroleum Corporation, a wholesale and retail oil distributor in New York City. Pittston expanded Metropolitan’s geographical range by purchasing terminal facilities in Philadelphia, Boston, and Chicago. Its share of the fuel-oils business in the northeast rose considerably, and by 1954 fuel oil accounted for 38 percent of Pittston’s net income. Metropolitan’s expansion continued during the 1960s with the acquisition in 1963 and 1964 of two Boston fuel operations—Burton-Furber Company and Crystal Oil Company. It also entered the petrochemicals market by forming Metropolitan Petroleum Chemicals Company in 1965.

Pittston diversified beyond energy markets by developing trucking and warehousing operations under its United States Distributing Corporation subsidiary. This holding company’s most important component was United States Trucking Corporation (USTC), which had been formed in 1919 by the merger of 26 trucking companies. USTC operated in five areas—armored-car services, truck rental, general rigging, baggage transfer, and general trucking. It handled newsprint deliveries for New York’s and New Jersey’s major newspapers, as well as the rigging work for Western Electric Company in New York City. Western Electric’s rigging work included using pulley systems to move unwieldy switchboard equipment into skyscrapers. In 1954 Pittston acquired USTC’s most prominent competitor, Motor Haulage Company, and merged its operations. In that same year, Pittston’s trucking and warehousing operations accounted for 43 percent of its net income, surpassing both its coal and oil divisions. When Alleghany, Pitts-ton’s parent company, purchased the New York Central Railroad in 1954, antitrust concerns were raised about this new acquisition and Pittston’s transportation operations in general.

Alleghany solved this problem by divesting itself of its remaining 50 percent interest in Pittston, leaving it a fully independent company.

Pittston’s most important diversification soon followed with the purchase of an interest in Brink’s, Inc., a Chicago-based security transportation company. Brink’s had been founded as a delivery company in 1859 and began making payroll deliveries in 1891. From there it had grown into the world’s largest armored-car company, providing services to private businesses, banks, the Federal Reserve, and U.S. government mints. Pitts-ton’s interest in Brink’s began in 1956, when it bought 22 percent of its stock. Pittston then applied to the Interstate Commerce Commission (ICC) for approval to purchase a majority share in Brink’s. In 1958 the ICC approved Pittston’s proposal, but the Justice Department objected on grounds that it could violate antitrust laws. A year later Pittston increased its interest in Brink’s to 90 percent, but it ran into antitrust difficulty again when it proposed merging the operations of Brink’s and United States Trucking. Pittston finally completed its purchase of Brink’s in 1962 and made it a wholly owned subsidiary distinct from United States Trucking. During the early 1960s, under Pittston’s direction, Brink’s expanded its business to include coast-to-coast air-courier service and established subsidiaries in France, Brazil, and Israel.

Pittston’s rapid diversification after World War II culminated in a corporate reorganization in 1960. Chairman and President Routh divided Pittston into three operating divisions—coal, oil, and transportation and warehousing—each of which contributed about one-third of Pittston’s profits. In 1960 coal accounted for 36 percent of net income, oil for 31 percent, and transportation and warehousing for 33 percent. Pittston had achieved financial stability through diversification.

Despite this diversification, Pittston did not neglect its coal division. In the early 1950s the conversion of the railroads to diesel fuel and the use in many homes and factories of oil energies lessened the demand for coal. In light of these trends Pittston decided to focus its production on specific coal markets. Its reserves in Appalachia were rich in metallurgical coal, necessary in the manufacturing of steel. Over the next 20 years Pittston became the largest U.S. exporter of this type of coal, feeding the booming steel industry in such recovering postwar economies as Japan’s. Pittston also turned its attention to the production of steam coal—coal best suited for producing steam—for electric utilities, such as the American Electric Power Company, which signed a long-term agreement with Clinchfield Coal in 1959. Adding substantially to Pittston’s reserves in the 1960s were several acquisitions, including the Kentland-Elkhorn Coal Corporation and the Jewell Ridge Coal Corporation in 1966, the Sewell Coal Company in 1967, and the Eastern Coal Corporation in 1969. Through these efforts the coal division experienced a resurgence, and by 1971 it was contributing more than 55 percent of the company’s net income.

Company Perspectives

The name, Brink’s, is synonymous throughout the world with integrity, trust, security, efficiency and world-class service. All of The Brink’s Company’s core businesses are focused on protecting people and property—at home, at work, or en route—virtually anywhere in the world.

Challenges During the 1970s–80s

The energy crisis of the 1970s dramatically increased the world’s demand for coal, and Pittston shifted its resources to take advantage of this change. Under the leadership of its chairman, Nicholas T. Camicia, elected in 1969, Pittston spent heavily in its coal division, opening new mines and modernizing its production. The company adapted to changes in environmental laws by increasing its output of low-sulfur coal, which burned much more cleanly than other types. Pittston supplied compliance coal—so called because it helped utilities comply with environmental laws—to such utility companies as the Tennessee Valley Authority, which agreed to a ten-year contract with Pittston in 1978. The energy crisis and the OPEC oil embargo squeezed Pittston’s other divisions, but by 1976 the company’s coal operations had expanded enough to bring in 91 percent of the company’s profits. This boom period, however, was not without its difficulties.

In February 1972 disaster struck the Buffalo Mining Company, a Pittston subsidiary in Logan County, West Virginia. A coal-waste refuse pile that the company had been using to dam a stream near its plant collapsed, flooding 16 communities and killing more than 125 people. Chairman Camicia appeared before a Senate hearing investigating the disaster in May 1972, and survivors filed a $65 million lawsuit against Pittston for psychological damages. In a landmark settlement Pittston agreed to pay $13.5 million to about 625 residents suffering from “survivor’s syndrome” in the Buffalo Creek Valley. Pitts-ton faced further legal action brought by the state of West Virginia, with whom it settled in 1977 for $4 million. Labor disputes and a slumping world steel industry in the late 1970s subsequently hit Pittston hard. A United Mine Workers Union (UMW) strike from December 1977 to March 1978, the longest in UMW history up to that time, severely curtailed production. This decline was worsened by a railway-workers strike from July to October 1978 that disrupted Pittston’s deliveries to its buyers. Pittston’s profits fell from a high of $200 million in 1975 to $25.2 million in 1978.

Pittston’s other divisions fared as poorly as its coal sector in the late 1970s. The oil crisis left Metropolitan Petroleum dependent on its suppliers and facing much higher costs. It tried to develop its own oil-refining capacity, but a proposed refinery in Eastport, Maine, was unable to overcome opposition from environmental groups and was never built. In 1980, still without refining capacity, Metropolitan changed its name to Pittston Petroleum in an effort to improve name recognition and sales. Brink’s faced difficulty in the 1970s as well because of rising costs and increasing competition. In 1976 a federal grand jury began investigating possible antitrust violations in the armored-car business. A year later Brink’s paid $5.9 million to settle some of the resulting antitrust charges. Brink’s settled the last of the antitrust indictments handed down by the 1976 grand jury in 1980, when it paid $2.7 million to 12 Federal Reserve banks. Also in 1980 Pittston decided to merge its trucking and warehousing operations under one structure. All its United States Distributing group companies thus became subsidiaries of Brink’s.

Pittston’s performance continued to decline in the 1980s, resulting in four annual net losses between 1982 and 1987. A continued decline in foreign demand for metallurgical coal produced a $17.3 million loss in Pittston’s coal operations in 1982. By 1987 Pittston was closing and writing off many of the mines it had opened during the expansive years of the early 1970s. In an attempt to recover these losses, Pittston devoted more resources to developing its low-sulfur coal sales, establishing the Pyxis Resources Company to market this product in 1986. The world oil glut of the early 1980s decreased Pittston Petroleum’s profits by 48 percent in 1981. Two years later Pittston decided to get out of the oil business and sold Pittston Petroleum to Ultramar American Limited for $100 million.

Of Pittston’s three divisions, only Brink’s managed to sustain expansion in the 1980s. After several years of declining profitability, Brink’s sold off its warehousing interests in 1984 and diversified into home-security services. Pittston established a Brink’s Home Security subsidiary and began test marketing home-alarm and medical-monitoring systems. Through gradual expansion into new regional markets, Brink’s Home Security became a successful venture and a national leader in this industry.

Key Dates

1930:: The Alleghany Corporation creates The Pittston Company to oversee some mining operations.
1935:: The Alleghany empire crumbles, and Pittston is sold to private investors.
1944:: Returning to financial health, Pittston makes significant investments in bituminous coal mining operations.
1951:: Pittston acquires Metropolitan Petroleum Corporation.
1954:: Bolstering its transportation division, Pittston acquires Motor Haulage Company and merges it into United States Trucking Corporation.
1962:: Pittston completes its purchase of Brink’s Inc.
1978:: Labor disputes and energy crises adversely affect Pittston’s profits.
1980:: Metropolitan Petroleum changes its name to Pitts-ton Petroleum; the firm’s trucking and warehouse operations are merged under one structure.
1983:: Pittston sells its oil business.
1984:: Pittston divests its warehousing interests and diversifies into home security services.
1999:: The company announces plans to exit the coal business and change its trading stock structure to a single corporate issue.
2003:: Pittston changes its name to The Brink’s Company.

In 1982 Pittston undertook its first major diversification in 25 years with the acquisition of Burlington Northern Air Freight for $177 million. Pittston entered the air-freight business during a highly competitive period, hoping to carve out a place for itself in the overnight-express market. It invested heavily in building a hub for Burlington in Fort Wayne, Indiana, and then renamed the company Burlington Air Express to emphasize its overnight services. Despite these efforts Burlington’s initial performance was disappointing, posting a $19 million loss in 1987. Nevertheless, Pittston, led by chairman, president, and chief executive officer Paul W. Douglas beginning in 1984, remained committed to developing its air-freight business. In 1987 it bought WTC Airlines, Inc., a group of companies specializing in air freight for the fashion industry, to expand Burlington’s capacity and business. Soon thereafter Burlington began to turn around, experiencing net gains in 1988 and 1989 and accounting for 51 percent of Pittston’s total revenues.

By the end of 1988 Pittston appeared to be on the road to recovery. It posted a $48.6 million gain, as compared to a $133 million net loss a year earlier. A prolonged labor dispute with the UMW, however, brought more hard times. In 1988 the Bituminous Coal Operators’ Association (BCOA), an industry trade group, had negotiated a new contract with the UMW in which the UMW promised to continue production in the coal industry without a strike. But Douglas, Pittston’s chairman, decided to drop out of the BCOA and refused to offer the BCOA contract to Pittston employees. (Pittston dropped out of the BCOA because the BCOA represented domestic steam coal producers, and Pittston was primarily in the export metallurgical coal market. Owing to low-cost competition from South Africa, South America, and Australia, Pittston’s exports were facing severe pricing and volume pressures, while domestic steam markets were stable.) Instead, Pittston sought reductions in its miners’ health benefits and tighter control over their work schedules in exchange for job security. Angry miners walked out on April 5, 1989, and sympathy strikes by other UMW members quickly followed. By July 1989 30,000 miners were participating in wildcat strikes across the nation in support of 1,800 Pittston workers. The strike, marked by hostility on both sides, continued through the end of 1989 and cost Pittston’s coal division $27 million that year. Pittston and the UMW finally reached a settlement on January 1, 1990, with both sides making concessions. Workers won back their health benefits, while the company got its desired changes in work rules. Pittston miners ratified the contract the next month, ending one of the most costly and violent strikes in UMW history.

Despite the losses incurred during the strike, Pittston emerged in a stable position. Its Brink’s subsidiary, buoyed by the strong performance of its home-security operations, had been operating with consistent profitability. While Burlington Air Express’s profits had yet to match expectations in 1990, its air-freight business continued to climb as an important part of Pittston’s overall revenues. The company’s coal division remained a question. Its performance depended on its ability to reduce the ill will in its labor relations and on the world’s volatile energy markets.

Growth During the 1990s

In 1993 Pittston began using a separate class of common stock known as tracking stock (or targeted or letter stock), which “tracked” the performance of the company’s individual businesses. Pittston common stock was split into two parts: Pittston Services Group Common Stock and Pittston Minerals Group Common Stock. At the same time, for each share of Pittston stock, shareholders also received a tax-free distribution of one-fifth of a Pittston Minerals Group. By the end of 1993, as a result of the conversion to Tracking stock, the market value of the Pittston Company’s common stocks had more than doubled.

The company further divided its services stock (which held Brink’s, Brink’s Home Security, and Burlington Air Express) in 1995 by separating the Services Group into two new common stocks—the Pittston Brink’s Group and the Pittston Burlington Group. In the transition Pittston Services Group shares became Pittston Brink’s Group Common Stock, and one-half share of Pittston Burlington Group Common Stock was distributed tax-free for every share owned of Pittston Services stock. Many investors were attracted to tracking stocks because they were able to invest in one type of stock, such as Pittston Burlington Group, without worrying about a downturn in another portion of the Pittston business, such as the Pittston Minerals Group.

Profits for Burlington Air Express—the company changed its name to BAX Global in 1997—improved during the years 1993–1997 thanks to an overall upturn in the economy, to rapid growth in the worldwide air-freight markets, and to traditional domestic commercial airlines shrinking their heavy freight capacity. The importance of international freight was emphasized in 1997, when two-thirds of Burlington’s revenue came from shipments either traveling to or arriving from other countries.

The 1990s were also good years for Brink’s. When it increased its profits in 1996, it marked its 13th consecutive year of increasing profitability. Brink’s also continued its worldwide expansion in the 1990s, and by 1996 it had operations in more than 50 countries. That year Brink’s Home Security had its ninth year in a row of record profits. With a customer base of 447,000, the home security segment generated operating profits in 1996 of $44.9 million, 14 percent higher than in 1995.

Profits for the Pittston Minerals Group, however, continued to be sluggish in the 1990s. In 1996 profits were down to $15 million compared with $16 million the year before. Though its gold operations in Australia set records with more than 90,000 ounces produced in 1996, and the Silver Swan nickel mines showed all the signs of being a promising venture for the company, the huge costs associated with idle mining properties, as well as low coal prices, hampered the Minerals Group bottom line.

Changes for the New Millennium

In late 1996 Pittston moved its headquarters from Stamford, Connecticut, to Richmond, Virginia. With this move the company hoped to be better able to lure top executives, an important factor in maintaining its growth into the 21st century.

In order to facilitate its move into the new millennium, Pittston launched a major restructuring effort in the late 1990s that would prove to dramatically change the shape of the company. In 1999, the firm announced that it planned to divest its coal holdings, which had lost $3.58 million in 1998. As part of the reorganization, Pittston also changed its tracking stock structure to a single corporate issue. According to a December 1999 United Press International article, Michael T. Dan—the company’s chairman, president, and CEO—claimed that Pitts-ton’s future was, “in global business and security services where Brink’s Inc., Brink’s Home Security, and BAX Global have superior products and services, strong market positions, and robust growth prospects.”

The company’s new stock structure took effect in January 2000 and the sale of its coal assets began in 2001. In December 2002, Pittston ended its 165-year history in the coal mining industry with the sale of its Virginia-based holdings to Alpha Natural Resources LLC. The final step in Pittston’s transformation came in May 5,2003, when the company officially changed its name to The Brink’s Company. In honor of its new moniker, Dan and other Brink’s executives rang the opening bell at the New York Stock Exchange.

Overall, management was confident that its shift from a diversified natural resources firm to a business and security services company would position it for future growth and success. Brinks Inc. stood strong with over 7,000 armored trucks serving over 50 countries. Brink’s Home Security was also a market leader with over 760,000 customers throughout North America. Securing revenues of $1.9 billion in 2002, BAX Global operated as the company’s largest unit. With plans to expand its global reach even further, the firm appeared to be on track for revenue gains in the years to come.