Brinks Co (BCO) 2002 Q2 法說會逐字稿

Good day, everyone and welcome to the Pittston company second quarter 2002 earnings conference call. Today's call is being recorded. At this time I would like to turn the conference over to the Director of Investor Relations, Burt Tropp. Mister Tropp, please go ahead.

Thank you, Duane. Good morning, everyone. Welcome this the Second Quarter 2002 Conference Call. With us today are Michael Dan, Chief Executive Officer, Bob Ritter, Chief Financial Officer and my associate, John Leon.

Before turning to our senior executives, a couple of housekeeping items. First a quick reminder that today's press release is available on the company's web site and that address is Pittston.com. The press release is also available via fax by calling 877-275-7488.

Secondly, a replay of today's call, which is planned for about 45 minutes, will be available this afternoon through next Thursday, August 1. The replay telephone number will be 888-203-1112 or outside the U.S., 719-457-0820. The identification number for the replay will be 455186. A replay of this call will also be available on the Pittston company web site for two weeks through Friday, August 9.

And now our safe harbor statement. This call including the question and answer session, may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from projected results. Additional information regarding factors that could cause actuality results to differ materially from the projected results is readily available in today's press release and in our filings with the Securities and Exchange Commission. Including our most recent FCC forms 10-K and 10-Q. The information discussed in this call is representative as of today only and the Pittston Company assumes no obligation to update any forward-looking statements made. This call is a copyrighted work of the Pittston Company and may not be rebroadcast, sold or otherwise distributed without the express written permission of the Pittston Company.

Turning now to today's agenda.

Michael Dan will begin with a general overview and summary operational comments for each of the major businesses and strategic goals. Following Michael's remarks, Chief Financial Officer Bob Ritter will address financial topics related to the latest quarter and full year 2002. After these prepared remarks, Michael will chair the Q&A session.

Now let's get started with comments by CEO Michael Dan.

Thanks, Burt. Let me also extend my welcome to those of you that have joined us today.

We had a particularly good quarter, I believe, in light of the very challenging environment we all face today. We are seeing more signs that BAX Global's cost control efforts are beginning to pay off. We are seeing volumes improve ever so slightly from the trough in 2001 and hope that the second quarter will provide the good momentum for the rest of this year. The security units also showed improved performance but there is plenty of opportunity for improvement at Brink's, Inc.

Brink's results were not as satisfactory, especially when compared with a very weak performance in the second quarter of 2001. Our international results were mixed. There are different types of challenges around the world, particularly in Latin America. We will cover those in depth in a moment. North America there was sold profit growth and margin improvement. But our top line growth was limited and somewhat disappointing.

Brink's Home Security had a very solid quarter. Value and cash flow continue to grow through strong subscriber growth and revenue and profit growth and operating margins were all sold and in line. The disconnect rate was again good although somewhat higher than last quarter, which is typical of the second quarter.

BAX Global is the best story of the quarter. The management team continues to do a first rate job in a very difficult mark. Much needed improvement was driven by strength in the Asian Pacific region. BAX also had strong improvement in the domestic business. Volumes began to show a little life late in the quarter. However, we can't tell what that may mean going o forward in the third and fourth quarter.

Overall market conditions remain a challenge. The economy will continue to be a question mark.

Our continuing natural resource businesses kept plugging along with good cash flow and decent profitability.

A few comments on the Coal sell update.

By now you have reviewed our announcement yesterday. Which basically indicated a substantial exit of all our assets and operations in Kentucky and in West Virginia. We have completed the Kentucky transaction. And signed and expect to close though West Virginia transaction in approximately 60 days.

This represents a significant step towards achieving our strategic goals. Our timing and value goals remain firm and on track with yesterday's announcement. Everything is in line with our expectations. Multiple negotiations continue for the rest of the business.

I cannot expand further due to the ongoing negotiations. However, we remain encouraged by the progress and remain confident we will bring about a successful conclusion this year. Management of Coal has done a first class leadership job and our employees in Kentucky and West Virginia have performed at the highest levels during these past two years. I'm very gratified and wish them the very best.

Now turning to Brink's, Inc., second quarter. The results were a good improvement over a very soft second quarter of 2001. But I want better and firmly believe Brink's is capable of improving their margins. Insurance costs continue to be a factor.

North America had a solid 9% profit growth and was able to expand operating margins by 50 basis points over last year's second quarter to 7.7%. These results show that management, particularly in the U.S. is effectively responding to the past challenges. It was also good growth in U.S. global services and cash logistics. But the soft economy continues to negatively impact our coin wrapping business.

The U.S. had some attractive business wins during the quarter, which will begin coming on line over the next few months. This will help our top line concerns. In Canada the market environment remains very challenging but profitable.

On the international side the Euro provided limited boost to revenue. But [linedown] costs hampered profitability in some key countries. Labor costs are extremely difficult to quickly remove in some countries. However, management is focused on completing this task during the third quarter. Regardless we need to more effectively handle this transition as we go forward.

Latin America remains a very difficult environment with no signs of improvement. Management throughout that region continues to work smart, safe and securely and are properly addressing the very difficult conditions, particularly in Venezuela, Brazil, in Argentina. It's important to remember that Latin America is still profitable, just very down significantly from its past norms. Unfortunately, there's no way to tell at this point when things may improve in that part of the world.

Asia Pacific again showed marked improvement over the prior year. That improvement was largely driven by Hong Kong and Australia, where pricing has improved to reasonable levels and the business is growing. Other parts of the region are experiencing attractive growth rates also.

As far as the outlook for Brink's goes, all things considered the second quarter was mixed but a fairly good first half of the year. There's still plenty of work that remains to be done. The third quarter comparison will be quite a bit tougher than the second quarter.

North American operations needs to grow the top line across all geographical areas and product lines. There's also room for further margin improvement. Good news is the pricing environment is firm.

Profitable growth of any kind will be difficult in Latin America until the social and economic landscape improves in Argentina, Venezuela and to some extent Brazil. It is reasonable to expect further decline in profitability in that region.

Our European managers should begin to set themselves out from underneath the Euro work during the third quarter.

Asia Pacific, though comparably small should have a respectable second half.

Overall, the third quarter profits should be solid, but not likely to see the substantial growth that is typical of Brink's mainly due to Latin America. Also cash flow is expected to improve throughout the year and Brink's will continue to generate positive economic value added.

Moving to Brink's Home Security. It was another very strong quarter. We accomplished the goal of expanding economic value and cash flow of the business. New installation volume was up 15%. Revenue growth was 9% for the quarter, matching the growth rate in quarter one. Operating profit grew better than 7% and margin was again solid, above 22%.

As we have always said, the key to this business is service levels, which continue to be very strong. The disconnect rate is 7.5%, where we thought it would be and is a good rate for the second quarter.

We continue to effectively manage investment costs per installation. The latest quarter flat with the prior year. There are now over 738,000 subscribers that generate over $20 million of monthly recurring revenue. Lastly the newer distribution channels continue to grow, representing about 30% of our second quarter installations.

As far as the outlook for Brink's Home Security, this was a sold quarter and first half of the year. The push for value created installations continues. As a result, recurring cash flow will continue to grow. Through this value creation and cash flow growth doesn't translate well to a P&L statement due to our conservative accounting. We will keep growing the business with positive economic value added. Through the latter several months in the third quarter, disconnects may tick up but should remain within a manageable level.

We will continue to manage installation investment as we have done successfully in recent quarters. Expected acceleration of installation volume and seasonable buys and disconnects it's not unreasonable to expect margins to recede a little bit in the second half of the year as typically occurs. Of course home security continues to have very strong cash flow and added value for our shareholders.

Now moving to BAX Global. Some of you may be surprised at BAX profitability this quarter, but it should serve as a clear barometer of the operating leverage in this business. Worldwide revenue was up slightly at 1.4%. The first year-over-year rise since the second quarter of 2000. In spite of Euro being down. Asia Pacific had a big revenue growth driver during the quarter. Revenue to the Americas, while still off, was down less than 4%, which was a marked improvement.

It is apparent our cost control efforts are still successful as evidenced by a $9 million improvement in year-over-year operating results of the Americas regions. In spite of revenue falling $9 million. Domestic violence began to show some life in the back half of the quarter, but there is no doubt markets remain quite soft and pricing tough and some of our competitors seem to be struggling.

BAX continues to be well positioned as a lot of freight has been shifted to ground transportation. Other BAX Saver products growth continues as rapidly as before. Also in the U.S., BAX shipped more overnight product in the second quarter than the first quarter. This is the first sequential increase in demand in overnight service since the third quarter of 2000.

European markets remained weak and may in fact be continuing to soften. Asia Pacific had a very strong quarter in revenue and profitability perspective. Our Asian markets appear to be improving ahead of other part of us the world. We were pleased to see that.

Our service levels remain strong and should help continue to drive BAX volumes as conditions improve. ATI again was solid in servicing BAX and their other customers during the quarter and a very good reliability rates.

As far as the outlook for BAX Global, I am pleased with the progress to date, but obviously we still want to see more volume, particularly in the domestic system. Cost control will continue to be the number one focus. But we will not lower our service levels for our customers. BAX management will continue to aggressively pursue new profitable business and not wait to rise with the tide. Any demand visibility remains difficult, particularly in the U.S. market.

I do remain concerned about the European economies in the second half of the year. I am hopeful that most markets are improving, but more importantly improvement will be sustainable. If that is in fact the case, BAX results should continue to improve throughout the second half of the year.

To wrap up, obviously our primary focus remains on exiting the coal business. This week's announcement was a major step towards that goal. Still a few transactions to come. I'm taking a cautious view on the economy, but I believe BAX will continue to benefit from any improvement.

Brink's Home Security continues to do everything we ask of them, and although margins may pull back as often happens in the second half, we expect strong economic returns and cash flow.

Brink's had a reasonable first half, but there's plenty of opportunity for improvement. Also remember they have to face the unrealistic Euro driven comparison in the fourth quarter. Again, I would like to remind you Latin America will likely reduce improvements in other parts of the world for the rest of the year.

Overall it was a satisfying quarter. And I am very pleased with the improvement at BAX Global and consistently solid performance of Brink's Home Security. The balance sheet and cash flow remain solid. I expect both to improvement in the second half of the year. In summary, I am pleased with the financial strength of Pittston.

Now for additional information on our financial condition, here's Bob Ritter.

Thanks, Michael. Welcome to those of you who are listening in either today or to a replay of this call.

As usual, I will begin any comments by covering some accounting and operational information which I hope will be of value to you in evaluating the quarter just ended and developing expectations for the balance of the year. Then I'll wrap up my remarks with the usual balance sheet and cash flow information we provide every quarter.

I will start with a few comments about the impact on Pittston of the required changes in accounting for good will. The first section of the text with today's earnings release provided the pro forma impact on net income and EPS; $1.6 million and 3 cents respectively, this statement of financial accounting standards 142 were in effect for the second quarter last year.

Now I will go into a little detail on the related effects on operating profit. For the full year 2001, $7.4 million was amortized against BAX Global's results and $2.1 million against Brink's. Beginning in 2002, GAAP now eliminates regular amortizations. To help you in keeping track of the quarterly effect of good will amortization on last year's operating performance, we once again specifically broke out the amounts amortized in last year's first quarter and first half in the depreciation and amortization tables in today's earnings release. I would like to remind you these amounts were pretty steady every quarter last year.

As we mentioned during the last conference call in late April we have now completed a thorough view of the carrying value of the company's good will, which is reported on the balance sheet at a value of roughly $226 million at quarter's end. Based on the review, we have concluded that our good will is appropriately valued and no write-down is necessary.

By the way, the change in the value of good will from the $221 million reported last quarter was only a result of fluctuations in exchange rates since much of our good will relates to international acquisitions.

Now for a few comments on discontinued operations. As Michael said earlier, we are working diligently to conclude the disposal of the coal business and expect to wrap it up this year. As we do every quarter, we have revisited the assumptions underlying the company's plan to exit coal based on our current view of the coal market and short-term operating performance of the coal units.

Based on performance for the quarter just ended, expected performance through the anticipated conclusion of the plan, as well as expected proceeds and assets and liabilities to be both disposed of and retained we have concluded our previously recorded reserves do not require adjustment at the current time. We will continue to perform this review every quarter until we have completed the disposal process and will assess the impact of completed and prospective sales transactions, shutdown costs, if any and changes in coal market conditions.

Now for some business specific information. It's probably worthwhile to start with the impact of foreign exchange on Brink's.

The Euro has strengthened against the dollar but much of that move took place late in the second quarter and during July. On average during the second quarter, the Euro was a little over 5% stronger this year than last. Should the Euro dollar relationship hold at about parity or pant where it was for much of July and where it is today, we would expect to see European revenues for the third quarter increase by roughly 12%, solely due to foreign exchange.

However, as we know in today's earnings release the positive impact of the strengthening Euro was offset by the weakening of certain Latin American currencies, most notably in Argentina and Brazil. Latin America has been, and as Michael noted, continues to be an area of short-term concern. Our people are watching events and helping steer our way through these challenging times.

During the quarter, Brink'sHome Security continued its efforts to build value by adding high quality customers with solid recurring future cash flow. The rate of new installations was 15% higher this quarter than in last year's second quarter. On the disconnect side, second quarter results typically show an increase over the first quarter as the moving season in the U.S. gets under way.

However we are pleased the disconnect rate during the quarter was once again lower than for the same quarter last year. For the half, the analyzed disconnect rate was 7.1% this year versus 7.4% last year. I will note that the third quarter is still part of the moving season, so disconnects will be somewhat higher than the full year average. To sum it up, Brink's Home Security had another successful quarter of both generating cash flow and an increase in long-term value of its subscriber base.

As for BAX Global I would like to join Michael in complimenting our people there. Once again they have managed down costs but for the first time in two years their efforts were also rewarded with an increase in revenue. Although the strength or weakness of the economy will be a significant factor in BAX Global's performance in the third quarter, the revenue comparison will be to a quarter in 2001 which sagged during the quarter's always critical final month due to the events of September 11.

Revenue in last year's third quarter was down almost 2% on a sequential basis from the second. This year we'll have to see what's in store for us from the economy, particularly in September which is typically one of the strongest if not the strongest month of the year.

In concluding my comments on past performance and near term issues to be considered, I want to mention an unusual item in the third quarter which will reduce diluted earnings earnings per share by about a penny. We recently announced the redemption of a small amount of convertible preferred stock which remains outstanding. By eliminating the dividend associated with this issue we will save money an on annual basis. Furthermore we will make our shareholders' equity interest even simpler.

Now for the accounting. Of the $11 million to be paid out to cover the redemption, roughly $600,000 will be a contractual redemption premium. This amount will be lumped together with the dividend payable through the date of redemption and will be reported as usual as a reduction from net income in arriving at net income attributed to common shares. This extra one time, and I might last time, adjustment will reduce fully diluted EPS by the penny I mentioned earlier.

Now I would like to comment on some important financial measures for the company. We ended the quarter with outstanding debt of approximately $340 million. $70 million lower than a year ago. Combining this with roughly $95 million in cash, The company's net debt was down to approximately $245 million. Receivables sold in the asset securitization facility were $61 million. Also down from the 67 million for June last year.

In summary, financings, net of cash, were down to roughly $305 million, about $80 million below last year's level. Depreciation and amortization on our continuing operations for the second quarter amounted to approximately $45 million. We currently expect this year's depreciation and amortization for the full year to be in the range of 185 to $195 million. Divided among Brink's Home Security at 80 million or so, Brink's at 60 to $65 million, BAX Global in the 40 to $45 million range, and other operations at about 5 million.

With that, EBITDA for the quarter for continuing operations, for simplicity defined at operating profit plus depreciation and amortization, was roughly $80 million. With the good start we've had on EBITDA from continuing operations for the first half of 2002 at roughly $160 million, we should be comfortably above the 305 million attained last year.

As for capital expenditures for the recent quarter, spending on continuing operations came in at about $45 million. Cap-X should be up slightly for the full 2002 over last year's 193 million as our current projections range from 190 to $210 million. Brink's and Brink's Home Security should have roughly 75 to 85 million each, BAX will be in the 30 to $40 million range, plus or minus, and other operations will run 5 to 10 million.

As I have mentioned in earlier calls the strong cash flow capability of our services business is an important strength as we look to accelerate growth in the future. Capital adjusted EBITDA on continuing operations, which we define as EBITDA less Cap-X, was around $35 million for the quarter and is over $70 million for the year to date.

That's all I have for now. And I'll now turn it over to Michael to chair the Q&A session. Duane, we are ready for questions.

Thank you. Today's question and answer session will be conducted electronically. If you'd like to ask a question at this time, you may do by pressing the star key, followed by the digit one on your touch tone telephone. That is star 1 for a question. We'll pause just a moment to assemble the question roster. And we'll take the first question from Jeff Kessler with Lehman Brothers.

Thank you and congratulation on the second good quarter in a row. Can you give -- Bob, can you give some idea of some free cash flow metrics. You have a dividend you've been paying out during the quarter. We have Cap-X and now obviously the EBITDA there. Some taxes to pay, cash taxes to pay. Could you kind of aggregate them all up, particularly since you won't be paying that dividend anymore.

The dividend we were paying out the preferred shares was running roughly $200,000 per quarter, that will end obviously with the redemption in the middle of August. From a cash tax standpoint, we will point out to you from a federal tax standpoint, we don't pay taxes because of our NOL position and the NOL's we will crystallize from the sale of the coal operations. We are paying out minimal amounts of state taxes and some foreign taxes. They typically in a normal year run somewhere between 20 and $25 million. And I gave you the earlier -- just to repeat it, I gave you an idea of what we thought we were going to spend this year on Cap-X. We are currently expecting it to be somewhere between 190 and $210 million. Is that helpful, Jeff?

Yeah, that's helpful. Also can you give some idea of when you start having to charge the P&L, cause I don't have this going until 2003. When you start charging the P&L for the discontinued operations liabilities payments coming back onto the P&L?

Yes. That will begin as soon as we have concluded the sale of our coal business. So with our confidence that we will conclude it this year, it would be a logical step to assume that will come in starting next year.

Okay. One final question. That is, on the growth of what I'll call BAX express being able to offload some of the shorter air routes onto trucks, can you just go into that detail a little bit more, particularly for the U.S., given that this -- given that -- I'm assuming this is part of where the margin improvement in BAX is coming from, not having to run less profitable short routes with heavy freight on them, offloading it onto some of the trucks for lift?

Jeff. It's Michael. I think you have to think about BAX Global in the United States as an expedited [forwarder]. And whether we put it on our fixed cost fleet network or put it on the truck all depends on what our customer needs and demands are. Our fleet size has been relatively stable for the last 18 months. The improvement you're seeing in fine tuning cost structures, making sure we have the right assets in the right place but more importantly starting to reverse the revenue decline we experienced due to the economy and some degree due to the shrinkage of our air fleet that we put in place 18 months ago. The key to BAX now is that we have the system in place, we need to run some volume through it. Volume is dependent on two things, service and the economy. Our service is strong somewhere, the economy has started to show a little improvement in the second quarter. That's why you see what you see.

Okay, great. And one final question. That is on Brink's Home Security, the growth in your non-core business, the distribution channels, surprised me a little bit that it's gotten to 30%. Can you go into that a little bit with regard to ultimately what type of margin is that going to produce for you relative to the core business. Is that mixed shift going to essentially help, hurt or be neutral to the operating margin you've been showing in that business Brink's Brink's Brink's Home Security.

Jeff, it's helping operating margin, as you know the operating margin has been deteriorating for quite a few years as our traditional business model economics continue to sour because of the zero down environment and rising installation costs. We were fortunately at the point we were concerned the [EVA] would become negative.

We decided to look for other businesses that would have a stronger return for us, which we call the other distribution channels, such as home technology, multi-family and inspection programs. They have a better [EVA] than our traditional business. We are pushing those very, very hard.

We have also raised our credit score standards to make sure that we weren't signing up customers whose tendencies were to disconnect earlier in the cycle and as you know through your conservative accounting is very expensive compared to our competitors. And so I would suspect that holding our margins at the 22% range, 20% range is due to the growth and expansion of those businesses. We will continue to put the pedal to the metal in those areas to ensure positive economic value added. So I think it's been a good buffer.

Now at the same time we are not giving up on our traditional business, but being more selective on the customers we accept to make sure they are adding value for our shareholders.

Okay, thank you very much. Keep up the good work.

Thank you, Jeff.

Our next question from David Campbell, Thompson Davidson.

Yes. Good morning, everybody. Domestic air freight volume for the industry began to increase in April, increased again in May and in June as well. Your business, in terms of pounds carried appears to be flat year to year although from judging from your comments, may have increased in -- towards the end of the quarter. Do you have any -- sequentially it looks like you did very well so I'm pleased with the results. I wondered if you had any thoughts about why your growth rate for the entire quarter trailed the industry.

I'm not so sure -- you're talking overnight air freight?

No. I'm talking overall air freight, whether it be on a truck or airplane?

We have been pretty selective. We have had some business losses at the same time we have had some business gains on pricing. I see a very competitive market out there. Some of the competitors that we deal head to head with have yet to break into profitability, are a little more aggressive on pricing and we have chosen to walk away from that. We are concentrating on keeping the highest service levels possible, making sure we are adequately compensated, David. So I think you see some of that noise going through the numbers, but at the end of the day it's about making money and the improvement quarter over quarter.

Good. And the strength at the end of the quarter in domestic business, was that across the board or was it because last year was weak? You seem to be a little uncertain that that strength will continue even though it seemed better at the end of the quarter. Do you have any thoughts on that?

David. Two reasons for that. One I wanted to stay cautious with the economy and the consumer confidence in our country and the world that drives volumes. So I'm a little concerned about that. As you know, July Fourth holiday fell on a little different day this, so July got off to a little slower start than normal, although we have seen that pick up a little bit here in the latter half of July, but as you know, we have to wait to see how things unfold with value in August and September. So we are going to do what we can do, which is keep our eye on the cost side, keep service up as high as possible and be as responsive to our customers and hopefully continue to make further gains as this year progresses.

Thanks. I've got other questions, but I'll let someone else --

Thank you, David.

Next question from Wayne Archambult with Black Rock.

Just on the coal assets, obviously looking back when we met with you folks probably three years ago, this is certainly taken much longer than anyone anticipated, what level of visibility or certainty can you assure us that these coal assets will be sold by the end of the year?

Wayne, you're right, it's been a very long time and a very difficult process we have gone through. There's a very complex set of assets and liabilities we are trying to maximize the values for our shareholders as we conclude the strategy of exiting the business. At the same time we don't want to do it in a panicked method.

No one would accuse you of that.

Thank you! As we explained in past conference calls and press releases, it's been a very difficult environment. Coal prices going from record lows to record highs back to very low prices during this period of time. That's the environment that we have had to steer through here.

What we have demonstrated in recent past here is that we have made a decision to sell the Coal Company in pieces becomes even more difficult and more time consuming, but we're approximately a little over halfway through on our reserves through this process we are in intense negotiations with other parties to conclude the deal. With we remain confident we'll be able to conclude those before the end of the year.

Just obviously it's never 100% certainty in any of these decisions, but you feel more confident in closing these transactions by the end of this year than if I had asked you this question 6 to nine months ago?

We are farther along in negotiations with different parties, which gives me greater confidence today than I had six months ago.

Okay, thank you.

Thanks, Wayne.

As a reminder, star one for a question. We'll next go to Rob Norfleet with Davenport and Company.

Hi. Great quarter.

Thank you, Rob.

First of all, Mike, you talked about operating margins in Brink's, a little lower than we had expected. Is there any way you can, I guess, go in a little detail or quantify the impact that Latin America is having on the Euro margins for Brink's as well as the wind-down of the Euro conversion?

Latin America typically is a very difficult environment to operate, it's always been a little more dangerous down there than most places in the world that Brink's operates. Difficult environments we are usually able to charge more money because people appreciate the danger and service we bring. Typically Latin American margins are higher than Europe or North America margins.

The economic and social issues down there, political issues down there, as you know are just horrific at the current time and causing a tremendous amount of stress. That has pulled down our margins. I would tell you that the North American margins, it's 7.7%, getting in the range they should be with the second quarter, with, with room for improvement in the rest of the year, Latin American margins are lower.

I think the international margins finished, Bob, was it 3 1/2%? For the quarter?

Have to have my cheat sheet here. About 2.9%. In last year was a very poor comparison because of tough Euro start-up expenses.

While that looks like a big improvement, it isn't. Most of the fall-off came in the Latin American region. I just don't see the region recovering from its current difficulties this year, and that's the single biggest risk to Brink's operating margins for the balance of the year.

Given obviously your assessment of operating margins in the Brink's division for the second half of 2002 being somewhat under pressure, would it be fair to say they would be below comparable margins last year, in the 6 1/2% range.

Once again, it depends on Latin America. A successful wind-down of those expenses in the Euro, what the volumes look like in the second half of this year, it would be my expectation that we had a very difficult fourth quarter in comparison in Europe as you recall with a lot of the European revenue coming through, although we had the expenses spread throughout the first three quarters in 2001. But the operating range you're talking about should be a realistic target if Latin America doesn't further deteriorate and if we're successful getting the European labor costs back in line.

Changing subject real quickly, I know you're not disclosing in terms of the announcement of some of the coal assets under contract, I know you're not giving the terms of that, but can you at least give us some feel relative to these deals I guess are being structured and partially for cash, royalties and the assumption of liabilities. Is it fair to say that obviously the terms of these deals, that we are getting some of the perspective buyers to assume very much the off- balance sheet liabilities?

Yes, that is true. As you know we started this process and set the expectations between liability transfers and proceeds received to be somewhere around $100 million. We are on target and on track to do that. We are where expected to be where we are in the process with the transactions that have occurred.

At what point will you discuss the monetary amounts of the sales?

When we conclude this process, we will lay out the -- where we end up, what the balance sheet looks like, what the liability obligations are that are left. That's the first time we will know for sure to our shareholders.

Last question. Although the stock's getting a nice bounce today on the news, at what point would you look to become more aggressive in buying back stock, especially given the recent slide in the share price?

Rob, one of the things you have probably seen as you looked at our company over the past couple of years, one of the driving issues we have had is, how do we make sure we properly insulate the valuable assets of this company from the liability situation we have. And we will obviously assess -- we are always thinking about whether or not repurchasing shares makes sense. One of the real balancing factors we have are we really want to fund this but want to start moving this company forward and getting the liability situation behind us. That obviously has an equal tug on us. In addition we want to make sure we have adequate capacity to start to grow the valuable parts of this company and move them ahead as well as we can.

Okay. I guess since you brought it up, what currently is in the [EVA] ?

Roughly $17 million. We have not done anything of significance to that since we first funded it, and basically in that we are trying to balance tax considerations and the ability to cost effectively use our cash there with our obviously and very pronounced need to make sure we move all this behind us. We will begin funding it as we go forward.

Okay. Great. Thanks a lot. Great quarter.

If there are no further questions at this time, I would like to turn the conference back to Burt Tropp.

Before we sign off, let me take this opportunity to again thank you for your interest in the Pittston Company and we look forward to communicating with you again. Everybody have a good day.